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Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018 [and] Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill 2018



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ISSN 1328-8091

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BILLS DIGEST NO. 38, 2018-19 25 OCTOBER 2018

Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018 [and] Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill 2018 James Haughton Social Policy Section

Contents

The Bills Digest at a glance .............................................. 3

Purpose of the Bills ......................................................... 4

Structure of the Bills........................................................ 4

Background ..................................................................... 5

Origin of the Aboriginal and Torres Strait Islander Land Account ............................................................... 5

Need for a Land Fund ................................................ 5

Land Fund in the form of a trust ............................... 6

Previous performance of the Land Account ............... 6 Reforming the Land Account ...................................... 7

ILC consultation with stakeholders ........................... 8

Committee consideration ................................................ 9

Senate Finance and Public Administration Legislation Committee ................................................ 9

Senate Standing Committee for the Scrutiny of Bills ............................................................................ 10

Minister’s response ................................................. 10

Policy position of non-government parties/independents.................................................... 11

Position of major interest groups................................... 11

Financial implications .................................................... 12

Statement of Compatibility with Human Rights.............. 13

Date introduced: 28 March 2018

House: House of Representatives

Portfolio: Indigenous Affairs

Commencement: The main Bill commences on the earlier of the day the Act is proclaimed, or six months after the Act receives Royal Assent. Most of the Consequential Amendments Bill commences when the main Bill commences. See page 5 of this digest for details. Links: The links to the Bills, their Explanatory Memoranda and second reading speeches can be found on the Bills’ home pages for the Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018 and the Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill 2018, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at October 2018.

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Parliamentary Joint Committee on Human Rights ... 13 Key issues and provisions .............................................. 13

Reporting requirements ............................................ 13

Discretionary Payments ............................................ 14

Removal of Indigenous governance .......................... 15

Preambles, perpetual funds, and binding the future ......................................................................... 17

Consequences of not passing the legislation ............ 18 Other Provisions ........................................................... 19

Establishing the Fund ................................................ 19

Comment ................................................................. 21

Can a Special Account run out of money? ................ 23

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The Bills Digest at a glance The Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018 (the Bill) will replace the existing Aboriginal and Torres Strait Islander Land Account, established under the Aboriginal and Torres Strait Islander Act 2005, by creating a new investment fund, the Aboriginal and Torres Strait Islander Land and Sea Future Fund (ATSILSFF), for the purpose of funding the activities of the Indigenous Land Corporation (ILC). The ATSILSFF will be managed by the Future Fund Board of Guardians through the Future Fund Management Agency (FFMA). The current Aboriginal and Torres Strait Islander Land Account has suffered from poor financial returns due to its restricted investment mandate, potentially leading to erosion of its capital which was intended to be perpetual in nature.

The general policy to reform the Land Account’s investment strategy has been called for by the ILC and its stakeholders for some years.

Key Issues

The Bill has been broadly welcomed by the ILC and Indigenous stakeholders who have, however, raised concerns that the Bill:

• makes no allowance for existing Indigenous governance mechanisms to be continued or new ones to be established

• has no preamble commemorating the compensatory and perpetual nature of the fund and

• has provisions that may allow relevant ministers (the Finance Minister and Treasurer) to deplete the capital of the fund by making transfers to the ILC against the advice of the Future Fund Board of Guardians.

These concerns were echoed by Labor and Greens members of the Senate Finance and Public Administration Legislation Committee. The Senate Standing Committee for the Scrutiny of Bills suggested that a ten-year review provided for by the Bill be made public, and the ATSILSFF’s Investment Mandate, under the Bill a non-disallowable, non-sunsetting legislative instrument, be made disallowable and/or subject to sunsetting.

Context of the Bill

The Bill is part of a package of three Bills concerning the ILC which are currently before the House of Representatives. The other two Bills are:

• the Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018, which extends the remit of the ILC to enable it to acquire, manage and divest water and water-related rights for Aboriginal and Torres Strait Islander people. Consistent with these broader functions, the ILC is renamed as the Indigenous Land and Sea Corporation (ILSC) and

• the Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill 2018 (the Consequential Amendments Bill) which makes largely consequential, technical and transitional changes to other legislation.

This Bills Digest also covers parts of the Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill 2018. The Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018 is discussed in a separate Bills Digest.

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Purpose of the Bills The purpose of the Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018 (the Bill) is to establish a dedicated financial asset fund in a Special Account, the Aboriginal and Torres Strait Islander Land and Sea Future Fund (ATSILSFF or ‘the fund’), to support making annual and discretionary payments to the Indigenous Land Corporation (ILC).1 The ATSILSFF replaces the current Aboriginal and Torres Strait Islander Land Account (the Land Account), which has suffered from declining returns and consequently an eroding capital base. The ATSILSFF will be managed by the Future Fund Board of Guardians through the Future Fund Management Agency (FFMA) with a view to maximising its returns over the long term, subject to international best practice and an Investment Mandate to be set by the Treasurer and the Finance Minister, with input from the Indigenous Affairs Minister.2

The purpose of the Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill 2018 (the Consequential Amendments Bill) is to make consequential amendments to other Acts which are affected by the creation of the ATSILSFF, including repealing the sections of the Aboriginal and Torres Strait Islander Act 2005 which create the Aboriginal and Torres Strait Islander Land Account (the Land Account), amending the legislation governing the Future Fund and other funds managed by the FFMA, and changing references to the Indigenous Land Corporation to refer to the Indigenous Land and Sea Corporation, contingent on passage of the Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018.3 According to the Consequential Amendments Bill’s Explanatory Memorandum, having a separate Bill for these consequential amendments ‘conforms to the Commonwealth practice to reduce the complexity of principal Acts’.4

Structure of the Bills This Bill is presented in six parts:

• Part 1, clauses 1-7, deals with preliminary matters such as definitions and commencement dates

• Part 2, clauses 8-18, establishes the ATSILSFF and an associated Special Account

• Part 3, clauses 19-27, establishes an Indigenous Land Corporation Funding Special Account, into which are paid annual and discretionary payments from the ATSILSFF and out of which are drawn the ILC’s annual and discretionary payments

• Part 4, clauses 28-46, lays out how the funds in the ATSILSFF will be invested and managed by the Future Fund Board, according to an Investment Mandate determined by the Treasurer and Finance Minister, with input from the Indigenous Affairs Minister

• Part 5, clauses 47-50, lays out the Future Fund Board’s obligations to report to the Finance Minister and

• Part 6, clauses 51-56, enables delegations by the relevant ministers, and provides for a review of the Act within ten years of its commencement.

The Consequential Amendments Bill contains five Schedules:

1. The Indigenous Land Corporation (ILC) is to be renamed the Indigenous Land and Sea Corporation (ILSC) by a separate Bill, the Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018, also currently before Parliament. All references to the ILC in this Digest should be understood to also apply to the future ILSC unless otherwise stated.

2. Explanatory Memorandum, Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018, pp. 4-5. 3. Parliament of Australia, ‘Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018 homepage’, Australian Parliament website. 4. Explanatory Memorandum, Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill

2018, p. 5.

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• Schedule 1 abolishes the Land Account and makes a number of amendments incorporating references to the ATSILSFF into other Acts which concern the operation of the Future Fund Board. Schedule 1 commences at the same time as the main Bill

• Schedule 2 amends the Nation-building Funds Act 2008 to ensure that the Building Australia Fund Special Account and the Education Investment Fund Special Account are not used to pay expenses incurred in the management of the ATSILSFF. Schedule 2 commences at the same time as the main Bill, but will not commence at all if Part 1 of Schedule 1 to the Nation-building Funds Repeal (National Disability Insurance Scheme Funding) Bill 2017 commences before the main Bill

• conversely, Schedule 3 removes references to these funds in the Bill in the event that the Nation-building Funds Act 2008 is repealed, as is the Government’s intent. Schedule 3 will commence at the later of the commencement of the main Bill or the commencement of Part 1 of Schedule 1 to the Nation-building Funds Repeal (National Disability Insurance Scheme Funding) Bill 2017. However, it will not commence at all unless both these Bills commence

• Schedule 4 changes references to the Indigenous Land Corporation to refer to the Indigenous Land and Sea Corporation in the event that the Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018 is passed and

• Schedule 5 corrects errors in the Medical Research Future Fund Act 2015. Schedule 5 commences the day after Royal Assent.

Background

Origin of the Aboriginal and Torres Strait Islander Land Account

Need for a Land Fund The Aboriginal and Torres Strait Islander Land Account (originally called the Aboriginal and Torres Strait Islander Land Fund) was created by the Keating Government in November 1993. This was the second component of an intended three-pronged response to the High Court's decision in Mabo v Queensland [No. 2] (Mabo).5 The other components were the Native Title Act 1993 and a social justice package, which was not fully implemented before the Keating Government lost office.6

This was not the first Aboriginal Land Fund; a previous fund was established by the Whitlam Government in May 1975 in response to the 1974 recommendation by Justice Woodward that the Commonwealth establish a fund to buy land for Aboriginal groups in all parts of Australia.7 This fund was abolished in 1980, and its functions of providing land, housing and business assistance to Aboriginal and Torres Strait Islander people were taken over by the Aboriginal Development Corporation and then by the Aboriginal and Torres Strait Islander Commission (ATSIC).8

The Keating Government believed a land fund was necessary because, whilst the Mabo case recognised the existence of native title, the Court said native title only survived if the traditional owners had maintained their connection with the land, and if no inconsistent title had been

5. Mabo v Queensland [No. 2] (1992) 175 CLR 1, [1992] HCA 23. 6. This section is chiefly taken from B Young, Aboriginal and Torres Strait Islander Commission Amendment Bill (No. 2) 1996, Bills digest, 112, 1995-96, Department of the Parliamentary Library, Canberra, 27 June 1996. All references are to that paper unless otherwise stated.

7. Ibid.; AE Woodward, Aboriginal Land Rights Commission: second report, Australia, Parliament, Parl. Paper 69, Canberra, 1974, pp. 42-49; Aboriginal Land Fund Act 1974. 8. Young, Aboriginal and Torres Strait Islander Commission Amendment Bill (No. 2) 1996, op. cit.; Aboriginal Development Commission Act 1980; Aboriginal and Torres Strait Islander Commission Act 1989 as made.

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granted. This meant that most Aboriginal people outside remote areas of Australia would not benefit from the Mabo decision because they had been previously dispossessed.9

The Government established the National Aboriginal and Torres Strait Islander Land Fund under section 201 of the Native Title Act.10 The detail of the fund's operations was to be left to Regulation.

In his second reading speech to the Native Title Act, Prime Minister Keating said:

While these communities remain dispossessed of land their economic marginalisation and their sense of injury continues. As a first step, we are establishing a land fund. It will enable Indigenous people to acquire land and to manage and maintain it in a sustainable way in order to provide economic, social and cultural benefits for future generations.

11

Land Fund in the form of a trust The 1994 budget allocated $200 million to the fund for the 1994-95 financial year.12 Subsequently the Government wanted to refine the fund's operation and, on 30 June 1994, introduced the ATSIC Amendment (Indigenous Land Corporation and Land Fund) Bill 1994 into the House of Representatives.13 That Bill met resistance in the Senate, and was eventually replaced by the Land Fund and Indigenous Land Corporation (ATSIC Amendment) Bill 1994, which passed in 1995.

The Land Fund and Indigenous Land Corporation (ATSIC Amendment) Act 1995 (1995 Amendment Act) established the Aboriginal and Torres Strait Islander Land Fund, which took over the money allocated to the land fund established by the Native Title Act. The 1995 Amendment Act established the Land Fund as a government trust account, with the ILC as trustee for the account.

An indexed amount of $121 million was allocated annually from Consolidated Revenue from the 1995-96 financial year to the 2003-04 financial year.14 The return on land fund investment entered Consolidated Revenue, but was returned to the fund by way of a standing appropriation. By 2004, the fund would have sufficient capital to make payments to the ILC from the interest generated by its investments.15 The land fund itself was to remain the property of the Commonwealth.16

Previous performance of the Land Account Under the Public Governance, Performance and Accountability Act 2013 (the PGPA Act) and predecessor legislation, investment by the Land Fund (which was converted to the Land Account, a special account, by the Financial Management Legislation Amendment Act 1999) was, and is, restricted to cash accounts and investment-grade (usually Government) bonds and securities.17 Investments are made by the Department of the Prime Minister and Cabinet, advised by a Consultative Forum including at least two directors of the ILC.18

9. Explanatory Memorandum, Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018, p. 3. 10. Section 201 of the Native Title Act 1993 as made. 11. P Keating, ‘Second reading speech: Native Title Bill 1993’, House of Representatives, Debates, 16 November 1993, p. 2877. 12. P Keating and B Howe, Social justice statement 1994-95: budget related paper no. 1, 1994, pp. 13-15. 13. ATSIC Amendment (Indigenous Land Corporation and Land Fund) Bill 1994. 14. Land Fund and Indigenous Land Corporation (ATSIC Amendment) Act 1995, sections 192Z-193AA. 15. Ibid., sections 193A-193E. 16. Young, Aboriginal and Torres Strait Islander Commission Amendment Bill (No. 2) 1996, op. cit., p. 3. 17. Section 58 of the Public Governance, Performance and Accountability Act 2013 and section 22 of the Public Governance,

Performance and Accountability Rule 2014. 18. Aboriginal and Torres Strait Islander Act 2005, section 193G.

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Meanwhile, regular annual payments from the Land Account to the ILC increase annually in line with an index calculated from the Consumer Price Index (CPI).19 Additional payments are made to the ILC whenever the returns on the Land Account exceed the CPI-linked index.20 The rationale for these additional payments is that disbursements enabling transfers of land to Aboriginal and Torres Strait Islander groups (who could then use these for their own economic purposes) should take precedence over accumulating financial assets in the Land Account.21

Changes to the economic and investment environment between 1995 and now provide the context to the proposed changes to this investment framework. At the time the Land Fund was created in 1995, the return on long-term (ten-year) Australian Government bonds had rarely been below ten per cent since 1975, and had been several points above the CPI since 1980. Between the beginning of 1995 and the end of 1998, the return on Australian Government bonds declined from ten per cent to approximately five per cent, and then remained in the five to six per cent range until the onset of the global financial crisis (GFC), after which it again declined and has not been above three per cent since 2014. Bank interest rates on deposits have similarly declined over this period. While inflation has also declined over this period, the decrease in the CPI has not been of the same magnitude as the decline in return on cash and investment-grade bonds since the GFC.22 Meanwhile the automatic payments whenever the returns on the Land Account exceeded the CPI-linked index have meant that the capital in the Land Account has not increased during previous years of higher returns, which would have provided a cushion against the current low-return investment environment. Consequently, in the last four financial years the Land Account has not met its target rate of return, leading to erosion of the capital through mandated payments to the ILC, and the potential for the Land Account balance to be exhausted if current low returns continue.23

Reforming the Land Account Given these economic circumstances the ILC Board has, for some years, lobbied the Government for the investment policy to be changed. In 2016 the ILC engaged a ‘Land Account Expert Advisory Panel’ headed by Mr David Murray AO (the former and inaugural Chair of the Future Fund Management Agency (FFMA)) to provide advice to the ILC on options for change to ensure the sustainability of the Land Account.24 The Expert Advisory Panel’s recommendations can be summarised as:

• a new investment mandate for the Land Account which, while managing risk, targets a rate of return of 3.1% over CPI (a return of 2.5% over CPI is the minimum necessary to sustain perpetual annual payments of $45 million (2010 dollars) to the ILC, assuming no further appropriations to the Special Account)

19. Aboriginal and Torres Strait Islander Act 2005, section 192Y. 20. Aboriginal and Torres Strait Islander Act 2005, subsections 193(3)-(5). Additional payments were made in 2011-12, 2012-13 and 2013-14: Department of the Prime Minister and Cabinet (PM&C), Submission to Senate Finance and Public Administration Legislation Committee, Inquiry into the Aboriginal and Torres Strait Islander Amendment (Indigenous Land

Corporation) Bill 2018, Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018 and the Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill 2018, [Submission no. 3], April 2018, p. 3. 21. Ibid., p. 3. 22. Organization for Economic Co-operation and Development (OECD), Long-term government bond yields: 10-year: main (including benchmark) for Australia, Federal Reserve Bank of St Louis website; International Monetary Fund (IMF), Interest rates, discount rate for Australia, Federal Reserve Bank of St Louis website; World Bank, Inflation, consumer prices for Australia, Federal Reserve Bank of St. Louis website. 23. Department of the Prime Minister and Cabinet (PM&C), Submission to Senate Finance and Public Administration Committee, op. cit., p. 3. 24. Indigenous Land Corporation (ILC), The Aboriginal and Torres Strait Islander Act 2005: consultation discussion paper, ILC, June 2017, p. 5.

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• additional payments from the Land Account should be suspended

• the investment mandate should be drawn up by the Finance Minister in consultation with a Land Account Investment Committee (a reconstituted Consultative Forum) consisting of two directors of the ILC, a representative of the Finance Minister, and two independent investment experts, one of whom will chair the Committee

• the Land Account’s investment should be managed by the FFMA, with a monitoring and compliance role for the Land Account Investment Committee; or by another tendered-for investment agency selected according to Indigenous Investment Principles, in the event that the FFMA is unable or unwilling to manage the Land Account and25

• legislative changes to enable the above, including an external review every five years.26

ILC consultation with stakeholders In response to these recommendations, the ILC consulted with Aboriginal groups and communities between July and September 2017 on the recommendations of the Advisory Panel. Over 85 per cent of face-to-face consultations and all written submissions that mentioned the issue were in favour of reforming the Land Account to improve its sustainability, including suspending additional payments.27

Participants were ‘conditionally’ in favour of the FFMA managing the Land Account, given the absence of alternatives. There was consistent concern that the Land Account should have Indigenous control and oversight of the investment framework, and that the Land Account should be invested in ways that would benefit and not negatively affect Indigenous communities. Some consultations raised concerns about ethical investment more generally and potential impacts of investment on indigenous communities overseas.28 For simplicity, these concerns about Indigenous control, oversight, and Indigenous-sensitive investment are referred to as ‘Indigenous governance’ issues in this Bills Digest.

The ILC’s preferred model involved a Land Account Investment Committee with a role in setting the Investment Mandate, monitoring, and oversight. However, advice provided to it by the Department of Finance and the Treasury was that such a model was not compatible with the FFMA’s structure and operations. In consequence the ILC revised its position to supporting a Land Account Consultative Forum as a more passive observer, receiving quarterly reports on the ATSILFF’s performance in a ‘watching brief’ role.29

The Government has been closely involved in these consultations and introduced the package of Bills on 28 March 2018 as a response to the consultation and recommendations.30 However, the Bill does not incorporate any of the Indigenous governance recommendations put forward by the ILC or Aboriginal and Torres Strait Islander stakeholders. This is discussed in more detail below.

25. The Indigenous Investment Principles (IIP) were developed by an IIP Working Group in collaboration with Indigenous Business Australia (IBA) and Indigenous stakeholder groups, and with the assistance of David Murray (among others) between 2013 and 2015, and launched by Prime Minister Turnbull in December 2015. IBA, Indigenous Investment Principles launched to enable intergenerational wealth, media release, 8 December 2015.

26. ILC, The Aboriginal and Torres Strait Islander Act 2005: consultation discussion paper, op. cit., pp. 5, 9-10. 27. ILC, Summary report on stakeholder consultation regarding proposed reform to the Aboriginal and Torres Strait Islander Act (2005), 2017, pp. 3-4. 28. Ibid., pp. 3-4. 29. Ibid., p. 7. 30. K Wyatt, ‘Second reading speech: Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018’, House of

Representatives, Debates, 28 March 2018, p. 3050.

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Committee consideration

Senate Finance and Public Administration Legislation Committee The Bill was referred to the Senate Finance and Public Administration Legislation Committee for inquiry and report by 8 May 2018. The inquiry also covered the Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018 and the Consequential Amendments Bill.31

The majority report of the Committee recommended that the Bills be passed.32 It noted concerns by the ILC and other stakeholders (expressed in submissions to the Committee) that reporting and accountability to Aboriginal and Torres Strait Islander peoples (such as the Consultative Forum mechanism) should be maintained, that the Treasurer and Finance Minister could order an additional payment from the ATSILSFF to the ILC even if the FFMA advised against such an action (clauses 25-27), and that the Bill did not include a preamble setting out the purpose of the ATSILSFF.33 The majority expressed confidence that the FFMA’s reporting requirements to the Finance Minister (Part 5, clauses 47-50) adequately covered governance issues, and that ‘future additional payments would only occur in circumstances where the sustainability of the Fund is not compromised’.34 The majority also considered a preamble was not required, as a preamble establishing the purpose of the ILC and the Land Account already existed in the Aboriginal and Torres Strait Islander Act 2005 (the ATSI Act) and the Bill’s changes were administrative in nature.

Australian Labor Party (Labor) and Australian Greens (Greens) members of the Committee made additional, partially dissenting comments which generally supported the requests of the ILC in its submission to the Committee. Labor members called for a statement of the ATSILSFF’s purpose and the Government’s fiduciary obligation to maintain the fund in perpetuity to be incorporated into the legislation, and for an Indigenous oversight body to be established to monitor the operation of the fund, but did not dissent from the overall recommendation that the Bills be passed.35

Australian Greens Committee member Senator Siewert called for additional regular public reporting requirements on the performance of the ATSILSFF, a preamble, and limits on additional payments being made from the ATSILSFF so as to provide for community consultation, preserve the capital base of the ATSILSFF and prevent payments being made against the advice of the FFMA.36 The Greens recommended that the Bill be passed if the concerns they had raised were addressed by amendments.

The Committee made no separate comments on the Consequential Amendments Bill, other than recommending it be passed.

31. Submissions to the Committee and the final report are available on the inquiry homepage. 32. All references in this section are to Senate Finance and Public Administration Legislation Committee, Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018 [Provisions] and related Bills, The Senate, 8 May 2018.

33. Ibid., p. 12. 34. Ibid., p. 13. 35. Australian Labor Party, Additional comments, Senate Finance and Public Administration Legislation Committee, Inquiry into the provisions of the Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018 and related

Bills, The Senate, Canberra, May 2018, p. 15. 36. Australian Greens, Additional comments, Senate Finance and Public Administration Legislation Committee, Inquiry into the provisions of the Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018 and related Bills,

The Senate, Canberra, May 2018, p. 20.

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Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee for the Scrutiny of Bills considered the Bill and the Consequential Amendments Bill in Scrutiny Digest 5 of 2018.37

The Committee requested the Minister’s advice on why the ATSILSFF’s Investment Mandate (established by clause 32 and its subclauses), though a legislative instrument, was not subject to disallowance or sunsetting. The Committee noted that, while this is also the case for Investment Mandates for other funds managed by the FFMA, there is no underlying explanation given for why Investment Mandates, as ‘significant concepts relating to a legislative scheme’, should not be subject to parliamentary disallowance or sunsetting.38

The Committee also noted that, while clause 55 of the Bill mandates a ten-year review of the legislation in order to consider whether the legislation is providing expected outcomes, there is no requirement that the review be tabled or made public, and considered that it may be appropriate to add requirements to table and publish the review to the legislation.39

The Committee considered the Consequential Amendments Bill and made no comment.

Minister’s response The Minister for Indigenous Affairs responded to the Committee on 14 June 2018.40

The Minister stated that the Investment Mandate, as a direction from Ministers to a body, was exempt from disallowance and sunsetting under subsection 11(3) of the Legislation (Exemptions and other Matters) Regulation 2015. The Government considers this exemption is appropriate as it is consistent with other Investment Mandates to the FFMA and provides certainty to the Future Fund Board of Guardians in pursuing their investments. The Minister also noted that the Bill requires that before issuing the Investment Mandate, the relevant minister must consult both the Minister for Indigenous Affairs and the Board, and if the Board makes any submission regarding the draft Investment Mandate, this submission must be tabled in Parliament. Exemption from sunsetting is also considered appropriate by the Government as the Investment Mandate is intended to remain relevant over the long term.

On tabling the ten-year review, the Minister stated that the requirement for a review is consistent with other funds managed by the FFMA including the DisabilityCare Australia Fund Act 2013 and the Medical Research Future Fund Act 2015, neither of which require their review be tabled or made public, and that there is nothing preventing the responsible Ministers tabling the report of the review in Parliament.

The Committee asked for the information provided by the Minister to be included in the Explanatory Memorandum to the Bill.41 In relation to the Investment Mandate, the Committee drew its concerns to the attention of the Senate as a whole.42 In relation to the tabling of the review, the Committee considered that it would be appropriate to amend clause 55 of the Bill to

37. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 5, 9 May 2018, pp. 2-4. 38. Ibid., p. 3. 39. Ibid. 40. N Scullion (Minister for Indigenous Affairs), Ministerial Responses, Senate Standing Committee for the Scrutiny of Bills,

20 June 2018, pp. 3-4. 41. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 6, 2018, The Senate, 20 June 2018, pp. 62 and 64. 42. Ibid., p. 62.

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include a legislative requirement for the review report to be tabled in Parliament within 15 sitting days, and published on the internet within 30 days, of receipt by the responsible Ministers.43

Policy position of non-government parties/independents Labor and Australian Greens Senators made comments on the Bill in their additional comments in the Senate Finance and Public Administration Legislation Committee’s report on the Bill. These are covered above.44

No other parties or independents have yet expressed positions on the Bill which, at the time of writing this Bills Digest, had not been debated in the House or Senate.

Position of major interest groups The ILC, as principal stakeholder, made a submission to the Senate Finance and Public Administration Legislation Committee inquiry which ‘supports the general intent’ of the Bill which, with the other related Bills, ‘broadly meets the policy objectives of the ILC’.45 The ILC suggested some specific changes, including:

• limiting the ability of the relevant Ministers to make additional discretionary payments from the ATSILSFF that would erode its capital or were against the advice of the FFMA, either by forbidding any such payments or obliging the relevant Ministers to document their rationale for the decision

• publicly available quarterly reports on the ATSILSFF’s performance (as is the case for the Disability Care Australia Fund, also managed by the FFMA, under section 44 of the DisabilityCare Australia Fund Act 2013) in recognition of stakeholder support for the fund to report and be accountable to Aboriginal and Torres Strait Islander people due to its compensatory and perpetual nature and

• incorporating a preamble similar to that of the Aboriginal and Torres Strait Islander Act 2005 which gives the history and purpose of the fund (and the previous Land Fund, Land Account) and gives a context for its effect and interpretation. The ILC provided a draft text of a suggested preamble:

This preamble sets out considerations taken into account by the Parliament of Australia in enacting the law that follows.

The people whose descendants are now known as Aboriginal peoples and Torres Strait Islanders were the inhabitants of Australia before European settlement.

In 1993 the Australian Parliament originally established an Aboriginal and Torres Strait Islander Land Fund as a component of the Native Title Act 1993. The Land Fund was given a separate legislative basis in the Land Fund and Indigenous Land Corporation (ATSIC Amendment) Act 1995, which also established the ILC. The Fund became the Aboriginal and Torres Strait Islander Land Account in consequence of 1999 amendments to the Financial Management and Accountability Act 1997, and was re-established through legislation of the Aboriginal and Torres Strait Islander Act 2005 at the abolition of ATSIC.

As with its predecessors, the Aboriginal and Torres Strait Islander Land and Sea Future Fund established in this Act:

43. Ibid., p. 64. 44. Australian Labor Party, Additional comments, op. cit.; Australian Greens, Additional comments, op. cit. 45. Indigenous Land Corporation (ILC), Submission to Senate Finance and Public Administration Legislation Committee, Inquiry into the Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018, Aboriginal and Torres Strait

Islander Land and Sea Future Fund Bill 2018 and the Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill 2018 [Provisions], [Submission no. 6], 19 April 2018.

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(a) acknowledges the special relationship that Aboriginal persons and Torres Strait Islanders have with their lands and waters (both inland and offshore);

(b) acknowledges that land and waters have economic, cultural, social and environmental value for Aboriginal persons and Torres Strait Islanders;

(c) acknowledges the past injustices suffered by Aboriginal persons and Torres Strait Islanders, arising from the dispossession of their land and waters;

(d) ensures that Aboriginal persons and Torres Strait Islanders receive the recognition within the Australian nation to which their prior rights and interests in their traditional lands and waters and their rich and diverse culture entitle them to aspire;

(e) provides a compensatory mechanism for Aboriginal persons and Torres Strait Islanders that addresses their ongoing land and water needs. 46

The ILC’s CEO has also stated in Senate Estimates hearings that the ILC Board and management believe the upside of this legislation being passed outweighs any downsides of these concerns not being specifically addressed.47

Other Indigenous stakeholders made submissions to the inquiry. Of these, the Torres Strait Regional Authority and Indigenous Business Australia expressed support for the Bill.48 The New South Wales Aboriginal Land Council expressed support but wanted mechanisms established that provided Aboriginal and Torres Strait Islander people with information on and input into investment and distribution by the ATSILSFF.49 The Goldfields Land and Sea Council (GLSC) expressed support but wished to see any additional payments from the ATSILSFF dispensed with ‘other than on periodic review at times of real growth in the [Land Fund] balance’, suggesting that if the ILC faced unusual demand for funds in any period it could request an additional appropriation from the Government instead.50 The GLSC expressed concern that discretionary additional payments could undermine the intended perpetual nature of the fund, and ‘good intentions are not enough’ to guard against this possibility.

Financial implications The initial balance of the ATSILSFF is established by crediting it with funds equal to those in the Land Account (clauses 10-11 of the Bill and Schedule 1, items 1-3 of the Consequential Amendments Bill, which closes the Land Account), which has no impact on the Government’s

46. Ibid. 47. J Maher (CEO, ILC), Senate Finance and Public Administration Legislation Committee, Official committee Hansard, 25 May 2018, p. 15. 48. Torres Strait Regional Authority (TSRA), Submission to Senate Finance and Public Administration Legislation Committee,

Inquiry into the Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018, Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018 and the Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill 2018 [Provisions], [Submission no. 7], 10 April 2018; Indigenous Business Australia (IBA), Submission to Senate Finance and Public Administration Legislation Committee, Inquiry into the Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018, Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018 and the Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill 2018 [Provisions], [Submission no. 5], 17 April 2018. 49. New South Wales Aboriginal Land Council, Submission and Attachment to Senate Finance and Public Administration

Legislation Committee, Inquiry into the Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018, Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018 and the Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill 2018 [Provisions], [Submission no. 1], 13 April 2018. 50. Goldfields Land and Sea Council, Submission to Senate Finance and Public Administration Legislation Committee, Inquiry into the Aboriginal and Torres Strait Islander Amendment (Indigenous Land Corporation) Bill 2018, Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018 and the Aboriginal and Torres Strait Islander Land and Sea Future Fund (Consequential Amendments) Bill 2018 [Provisions], [Submission no. 2], 13 April 2018.

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financial position as all Special Account funds remain government funds. Earnings of the ATSILSFF and expenses occurred by the FFMA in managing the ATSILSFF impact the underlying cash and fiscal balances in as much as the ATSILSFF, while a special account is still part of the Consolidated Revenue Fund.51 Annual payments to the ILC are expenses to the Government; other than the changes to additional payments, which become discretionary instead of automatic, these payments are not changed from previous arrangements and so are already accounted for in government budgeting and forward estimates.

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011, the Government has assessed the Bill’s, and the Consequential Amendments Bill’s, compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bills are compatible.52

Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights examined the Bills in its Report 4 of 2018 and considered that they did not raise human rights concerns.53

Key issues and provisions

Reporting requirements The Bill provides for the Finance Minister to require reports from the Future Fund Board (clauses 47-50). There is no obligation to table or publish the reports.

These reports are separate from, and additional to, the annual reporting requirements imposed by the Future Fund Act on the Future Fund Board. Item 18 of Schedule 1 to the Consequential Amendments Bill inserts proposed subsection 81(1F) into the Future Fund Act so that the annual report of the ATSILSFF must specify:

• the performance of the investments of the ATSILSFF

• the total amount debited from the ATSILSFF Special Account for paying or discharging the costs, expenses and other obligations incurred by the Future Fund Board under a contract between the Board and an investment manager (paragraph 15(d) of the ATSILSFF Act)

• the total amount debited from the ATSILSFF Special Account for paying remuneration and allowances of Future Fund Board members (paragraph 16(d) of the ATSILSFF Act)

• the total amount debited from the ATSILSFF Special Account for paying remunerations, and other employment-related costs and expenses, in respect of members of the staff of the Future Fund Management Agency (paragraph 16(e) of the ATSILSFF Act)

• the total amount debited from the ATSILSFF Special Account for paying or discharging the costs, expenses and other obligations incurred by the Commonwealth or the Future Fund Board in specified circumstances (paragraph 16(f) of the ATSILSFF Act).

51. Financial Impact Statement, Explanatory Memorandum, Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018, p. 6. 52. The Statements of Compatibility with Human Rights can be found at page 29 of the Explanatory Memorandum to the Bill and at page 16 of the Explanatory Memorandum to the Consequential Amendments Bill. 53. Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 4, 8 May 2018, p. 96

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The annual report is required to be tabled in the Parliament.54

The Land Account Expert Advisory Panel (EAP), the Senate Standing Committee for the Scrutiny of Bills and the ILC sought additional or more regular reporting. The EAP recommended regular reporting to an independent Land Account Investment Committee with Indigenous representation and an external review by the Finance Minister and Investment Committee every five years.55 The ILC subsequently scaled back this request to requesting public reporting on the ATSILSFF’s performance every quarter.56

Statutory review

Clause 55 of the Bill requires the responsible Ministers to conduct a review of the operation of the Act after ten years. However, as with the reports to the Ministers from the Future Fund Board, there is no requirement to table the outcome of the review in the Parliament. The Senate Standing Committee for the Scrutiny of Bills recommended that clause 55 be amended to include a legislative requirement for the review report to be tabled in Parliament within 15 sitting days, and published on the internet within 30 days, of receipt by the responsible Ministers.57 This issue and the Minister’s response to the Committee’s concerns are discussed in more detail above.

Discretionary Payments Stakeholders including the ILC and the Goldfields Land and Sea Council raised concerns with the Senate Finance and Public Administration Legislation Committee that the Bill enables the Finance Minister and Indigenous Affairs Minister to make discretionary payments of any amount to the ILC, potentially depleting or exhausting the ATSILSFF in contravention of its policy purpose as a perpetual compensatory fund.58 Currently, (mandatory) additional payments can only be made in years where the Land Account’s return on investment exceeds the mandatory annual payment, and can only be made up to the level of the additional return on investment, so the real value of the capital is not depleted.59

The Bill places a limit on the number, but not the amount, of additional debits from the Special Account. Only one additional payment/debit per financial year may be made to the ILC (clause 25) by means of a ministerial determination.60 The determination is a notifiable instrument, which must be made by both the Finance Minister and the Indigenous Affairs Minister. A copy of the determination must be given to the Future Fund Board (the Board) at least 30 days before it is due to take effect. Before making any determination, the Ministers must give notice to the Board, including a draft of the determination, and must require the Board to provide advice to the Ministers on the impact of the determination on the sustainability of regular payments to the ILC (and on other matters the Minister might request advice on).The Board must be given at least 90

54. Section 80 of the Future Fund Act deems the Future Fund Board and Future Fund Management Agency to be a single Commonwealth entity under the PGPA Act for the purpose of providing an annual report. (The Board itself is not a Commonwealth entity - see subsection 10(2) of the PGPA Act.) Section 46 of the PGPA Act requires annual reports to be tabled.

55. ILC, The Aboriginal and Torres Strait Islander Act 2005: consultation discussion paper, op. cit., p. 10. 56. ILC, Summary report on stakeholder consultation regarding proposed reform to the Aboriginal And Torres Strait Islander Act (2005), op. cit., p. 7; Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 5, op. cit., p. 3. 57. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 5, op. cit., p. 3. 58. ILC, Submission to Senate Finance and Public Administration Legislation Committee, op. cit., p. 2; Goldfields Land and Sea

Council, Submission to Senate Finance and Public Administration Legislation Committee, op. cit. 59. Subsection 193(3) of the Aboriginal and Torres Strait Islander Act 2005. 60. Currently, if the Land Account earns above the CPI-indexed rate of return each year, an additional debit must be made to the

ILC of any amount earned above that necessary to maintain the real value of the capital. This is seen as one of the reasons that the capital of the Land Account risks being eroded by current arrangements.

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days to provide the advice, and the Ministers must ‘have regard to’ advice given by the Future Fund Board, and to any other matters they consider relevant.61

This is not a particularly constraining structure, as it is up to the Ministers to decide what ‘other matters’ they consider relevant to the decision (proposed paragraph 25(2)(b)). In any case, while they must ‘have regard to’ the advice from the Board and to ‘other matters’ as they see fit, the Ministers are not bound by that advice and are not answerable to Parliament (except that they must notify Parliament of the determination) if they choose to overrule the Board’s advice, which is not necessarily made public.62 Thus there is no legislative prohibition on Ministers making debits from the ATSILSFF Special Account to the ILC Special Account in amounts that would threaten the sustainability of the Special Account, or cause it to be closed entirely, even if the Board and/or the ILC advised against such a course of action. Such a course of action may, however, be open to challenge on administrative law grounds.

Removal of Indigenous governance The existing Land Account has a consultative committee with Indigenous representation from the ILC to manage its investments.63 During the ILC’s consultation process, the ILC, the Expert Advisory Panel headed by David Murray, and the broader Indigenous stakeholder community all expressed the view that Indigenous oversight of the ATSILSFF’s investments should be maintained or strengthened.64

However, the Bill has no provisions for Indigenous governance, for example for Indigenous consultation, representation or oversight, or for ensuring that investments by the FFMA are made in the best interests of Indigenous people or conform to the Indigenous Investment Principles. As the Investment Mandate of the ATSILSFF has not yet been set, it is possible that Indigenous governance considerations could be incorporated in the Investment Mandate, but there is no Indigenous input, other than the involvement of the Indigenous Affairs Minister by proposed subsection 32(7), into setting the Investment Mandate, nor does Parliament have any significant oversight over it due to its non-disallowable, non-sunsetting nature.65 The Government has not flagged that any Indigenous governance considerations would be included, beyond the requirement that the Mandate be ‘consistent with international best practice for institutional investment’ (proposed paragraph 32(2)(a)).66

In addition, the Indigenous governance mechanism (the Consultative Forum) which is currently in place is removed without replacement by Schedule 1, item 3 of the Consequential Amendments Bill. This could be considered a limitation of the right to self-determination, although it was not noted as such by the Parliamentary Joint Committee on Human Rights. A commentary article by Michael Dillon, a former CEO of the ILC who assisted in drafting the original Land Fund legislation,

61. Proposed clauses 25-27 of the Bill. 62. The determination which makes the additional transfer is a notifiable instrument and must be registered on the Federal Register of Legislation—see subsection 15G(2) of the Legislation Act 2003. 63. Aboriginal and Torres Strait Islander Act 2005, section 193G. 64. ILC, Summary report on stakeholder consultation regarding proposed reform to the Aboriginal And Torres Strait Islander Act

(2005), op. cit., p. 4; ILC, The Aboriginal and Torres Strait Islander Act 2005: consultation discussion paper, op. cit. 65. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 5, op. cit., p. 3. 66. What constitutes ‘international best practice for institutional investment’ is not defined by the Bill and seems to be an

evolving field of corporate governance. One reference point might be the ‘Santiago Principles’ of ‘Generally Accepted Principles and Practices for Sovereign Wealth Funds’, drawn up and agreed to by the International Working Group of Sovereign Wealth Funds (including Australia’s Future Fund) in 2008. David Murray was the chair of the International Working Group at the time, and the Indigenous Investment Principles, which he also contributed to, are closely modelled on the Santiago Principles. B Ferguson, ‘Connecting Indigenous nations and financial markets’, Social Ventures Australia Quarterly, 28 July 2016.

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argued that this removal of an Indigenous governance mechanism ‘reinforces the original physical dispossession with institutional dispossession’.67

While the Treasury and Ministry of Finance have been reported as saying that Indigenous governance mechanisms would be incompatible with the FFMA’s structure and operations, no detail has been given on the nature of this incompatibility, or why the FFMA’s structure and operations cannot be changed to accommodate additional oversight.68 It seems implausible that David Murray, an experienced former chair of the Future Fund, would put forward governance recommendations that the FFMA is not capable of following.69 Nor has the Government accepted the ILC’s revised position of a passive oversight role enabled by more frequent (quarterly) public reporting of the ATSILSFF’s performance.70

The Government’s position is consistent with previous rejections of attempts to impose non-financial investment standards on the Future Fund beyond certain minimum levels.71 However, rejection of Indigenous governance may be viewed as sitting poorly with the Government’s stated commitments to greater Indigenous economic independence through Indigenous-oriented government investment (in particular the Indigenous Procurement Policy), and with former Prime Minister Turnbull’s, and some government departments’, endorsement of the Indigenous Investment Principles.72

Not incorporating Indigenous governance mechanisms creates a risk of conflict between the FFMA, the ILC, and the broader Aboriginal and Torres Strait Islander community, if the ATSILSFF were found to have been invested in some entity (for example, a mining, forestry or other resource extraction company) which was in conflict with or not acting in the interests of Indigenous peoples, either in Australia or overseas.73

67. M Dillon, ‘The new Land and Sea Future Fund is merely another financial account within Government’, National Indigenous Television (NITV), SBS, 4 April 2018. 68. ILC, Summary report on stakeholder consultation regarding proposed reform to the Aboriginal And Torres Strait Islander Act (2005), op. cit., p. 7. 69. See ILC, The Aboriginal and Torres Strait Islander Act 2005: consultation discussion paper, op. cit., p. 10 for the

recommendations of the review panel chaired by David Murray. 70. In Senate Estimates hearings before the Finance and Public Administration Legislation Committee, Senator Scullion (Indigenous Affairs Minister) argued that the Future Fund Board makes performance information available regularly and on

request as a matter of practice, and therefore legislative requirements for further performance reporting were unnecessary. Senate Finance and Public Administration Legislation Committee, Official committee Hansard, 25 May 2018, p. 8. 71. The Future Fund Board’s approach to ‘responsible’ investment standards has evolved over time. The Future Fund Board divested from companies manufacturing cluster munitions and land mines when Australia signed international conventions

against these weapons. It and the Gillard Government opposed attempts by the Greens and an NGO campaign to mandate that the FFMA divest from tobacco and nuclear weapons manufacturers through the Private Member’s Government Investment Funds Amendment (Ethical Investments) Bill 2011. However the Fund subsequently divested from tobacco companies on the grounds that there was no ‘minimum safe use’ of tobacco (a standard which could arguably apply to nuclear weapons as well). The FFMA currently addresses ‘environmental, social and governance (ESG) issues’ through an ESG policy which takes an instrumental, risk-management approach; that is, potential investments with environmental, social or governance issues are treated cautiously not because of intrinsic objections to the investee’s activities but because such activities raise the risk and hence lower the expected return of the investment. R Arndt (Chief Investment Officer, FFMA), Investing responsibly - the Future Fund's integrated approach, speech to the Financial Services Council Leaders Summit, Sydney, 26 July 2017; B Richardson and A Lee, ‘Social investing without legal imprimatur: the latent possibilities for SWFs’, pp. 389-414 in F Bassan (ed), Research Handbook on Sovereign Wealth Funds and International Investment Law, Edward Elgar, 2015. 72. IBA, Indigenous Investment Principles launched to enable intergenerational wealth, op. cit.; Department of Foreign Affairs and

Trade (DFAT), Promoting the economic interests of Indigenous Australian businesses overseas: a charter, DFAT, May 2017, p. 5. 73. One analysis of the Future Fund’s investments mentions that the FFMA has previously had ‘discussions with executives from a global mining company about how they manage human rights risks related to projects in Africa and South-East Asia’.

B Richardson and A Lee, ‘Social investing without legal imprimatur: the latent possibilities for SWFs’, op. cit., p. 411. A comparable recent example of conflict between fund managers and beneficiaries might be the recent conflict between UN staff members and their $US 64 billion pension fund, which was found to be investing in companies which contravened the

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It should also be remembered that for much of the last century, funds allegedly held in trust for Aboriginal and Torres Strait Islander people by Australian state and territory governments and other agencies (such as missions) were systematically defrauded and mismanaged, leading to ongoing claims for compensation for ‘stolen wages’ and other lost monies in many jurisdictions.74 Thus Indigenous communities may have particular sensitivities to money being managed on their behalf by government without Indigenous governance mechanisms in place, even though the risk of fraud and mismanagement comparable to the ‘stolen wages’ era occurring in future is very low.

Preambles, perpetual funds, and binding the future Many submissions and comments on the Bill (discussed above) reflect concern that a future government might not recognise or respect the intended compensatory and perpetual nature of the ATSILSFF and might therefore deplete or redeploy the capital, for example by ordering discretionary payments to the ILC in excess of what is sustainable.75 Michael Dillon has argued that the Bill transforms the Land Account into ‘merely another financial account within government’ which would lack the clear context and moral intent of the original Land Account.76 This concern has led to calls for a preamble to the Bill that would specifically enshrine the ATSILSFF’s history and purpose in addressing dispossession, which could conceivably be taken into account by the courts if there were any future legal challenge to a Minister’s actions in managing the fund.77 This concern also underlies the proposals by various stakeholders to limit the relevant Ministers’ ability to make discretionary payments, and to provide for Indigenous governance or more frequent reports on the ATSILSFF’s performance and governance.

While no suggestions have been made that the current government or opposition has any such intent, there are previous examples of governments eroding and diverting funds from intended and legislated-for perpetual endowments. One, which is incidentally referred to in Schedule 3 of the Consequential Amendments Bill, is the Education Investment Fund (EIF), formerly the Higher Education Endowment Fund (HEEF), which the current Government is attempting to close by repealing the Nation-building Funds Act 2008 and transferring the funds in the EIF (currently around $3.5 billion) to the NDIS Savings Fund Special Account.78

The HEEF was announced by the Howard Government in the 2007-08 Budget as a $5 billion perpetual fund ‘that will provide an additional guaranteed source of funding for Australia's universities forever’ and was also intended to attract philanthropic donations and endowments for grants to universities.79 The HEEF’s purposes, management by the Future Fund Board, and perpetual nature, in that the capital of the fund could not be depleted by grants, were enshrined in legislation in the Higher Education Endowment Fund Act 2007. Then-Prime Minister Howard wrote of the HEEF that ‘The Fund cannot be spent on anything other than its purpose - lasting assets like better libraries and first class research institutes equipped with world leading

UN’s Principles for Responsible Investment; J Davies, ‘UN staff pension fund mired in “dirty profits” from firms guilty of rights abuses’, The Guardian, 25 April 2018. 74. Senate Standing Committees on Legal and Constitutional Affairs, Unfinished business: Indigenous stolen wages, report of the inquiry into Stolen Wages, The Senate, Canberra, 7 December 2006. 75. Indigenous Land Corporation (ILC), Submission to Senate Finance and Public Administration Legislation Committee, op. cit.,

p. 2; Goldfields Land and Sea Council, Submission to Senate Finance and Public Administration Legislation Committee, op. cit. 76. Dillon, ‘The new Land and Sea Future Fund is merely another financial account within Government’, op. cit. 77. Ibid. 78. Parliament of Australia, ‘Nation-building Funds Repeal (National Disability Insurance Scheme Funding) Bill 2017 homepage’,

Australian Parliament website; Senate Economics Legislation Committee, Medicare Levy Amendment (National Disability Insurance Scheme Funding) Bill 2017 and 10 related bills, The Senate, Canberra, 16 October 2017, pp. 16-26. 79. P Costello (Treasurer), 2007-08 Budget overview: realising our potential - the HEEF, Canberra, 8 May 2007, p. 10.

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technology. The Australian public, let alone the Australian Government, will not tolerate any attempt to raid this Fund for political purposes’.80

Subsequently, seeking to stimulate the economy through capital and infrastructure spending, the Rudd Government closed the HEEF and transferred its balance to the Education Investment Fund (EIF) in the Nation-building Funds Act 2008.81 The principal difference was that while the EIF was still intended to promote higher education spending, the capital as well as the dividends of the EIF could now be distributed in grants. Subsequent grants to universities and other education institutions saw the EIF’s capital balance diminish to $3.5 billion.82

In 2013 the incoming Abbott Government froze all further grants from the fund and then sought to close the EIF and transfer its capital to an Asset Recycling Fund (ARF), intended to promote investment in infrastructure, with the Asset Recycling Fund Bill 2014. This Bill lapsed with the prorogation of Parliament in 2016, and the Turnbull Government announced that the ARF would not proceed.83 Instead, the EIF’s funds would now be transferred to the ‘National Disability Insurance Scheme Special Account and used to reduce the Commonwealth's debt and future borrowing requirements’.84 This is to be effected by the repeal of the Nation-building Funds Act 2008, which is to be accomplished by the Nation-building Funds Repeal (National Disability Insurance Scheme Funding) Bill 2017, currently before the Parliament.85 Despite vigorous objections from the higher education sector, Government Senators have argued that as universities have many other sources of government and non-government support, an additional, guaranteed, perpetual source of funding is no longer required.86

The HEEF/EIF case illustrates both the rationale and the weakness of proposals for a preamble, Indigenous governance, restrictions on withdrawals, and so on as protections for the perpetual nature of the fund. While tighter restrictions on discretionary withdrawals from the fund, or the presence in the governance structure of Indigenous stakeholders, or a preamble (if it were held to be justiciable) might limit the actions of a future Minister, who is bound by legislation, they cannot limit the power of a future Parliament to pass, change or repeal legislation as it sees fit, potentially including closing the ATSILSFF and redirecting its funds to other purposes. At most they can raise the ‘symbolic’ stakes of such a change by drawing the attention of a future Parliament to the meaning and purpose of current legislation. The only way any such fund could be protected from any potential action (short of expropriation) by a future Parliament would be if the funds hypothecated to the Special Account were transferred out of government funds entirely, for example as a block grant to the ILC or some trustee body investing on its behalf.

Consequences of not passing the legislation While failure to pass the legislation would not have any immediate effects, if this or similar legislation were not passed in future it seems likely that the capital of the Land Account would be eroded over time. Without further appropriations, this could lead to the ILC being unable to fulfil its mandate of obtaining land (and water) resources for dispossessed Aboriginal and Torres Strait Islander people, owing to lack of funds.

80. J Howard (Prime Minister), ‘Howard’s speech on Schools’, The Australian, 14 May 2007. 81. Senate Economics Legislation Committee, Medicare Levy Amendment (National Disability Insurance Scheme Funding) Bill 2017 and 10 related bills, op. cit., pp. 16-26. 82. Ibid. 83. Ibid, p. 17. 84. Australian Government, Mid-Year Economic and Fiscal Outlook 2016-17, p. 157. 85. Ibid. 86. Ibid., p. 26.

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Other Provisions

Establishing the Fund Clause 9 of the Bill establishes the Aboriginal and Torres Strait Islander Land and Sea Future Fund (ATSILSFF). It consists of:

• the Aboriginal and Torres Strait Islander Land and Sea Future Fund Special Account and

• the investments of the Aboriginal and Torres Strait Islander Land and Sea Future Fund.

At the time of its establishment the balance of the Land Account will be credited to the ATSILSFF.87 In addition, any financial asset of the Land Account is deemed to be a financial asset of the ATSILSFF.88 The Treasurer or the Finance Minister must transfer such assets to the Future Fund Board.89

About special accounts

A special account is a limited special appropriation that notionally sets aside an amount that can only be expended for listed purposes. The amount of appropriation that may be drawn from the Consolidated Revenue Fund (CRF) by means of a special account is limited to the balance of each special account at any given time. Special accounts are not bank accounts. Amounts forming part of the balance of a special account may be held in various ways, such as in the Official Public Account, an entity's official bank account, or partly in both.90

Establishing the special accounts

A special account can be established either by the Finance Minister making a determination under section 78 of the PGPA Act, or by legislation as recognised under section 80 of the PGPA Act.91 Both a determination (for a section 78 special account) and legislation (for a section 80 special account) are considered by Parliament before becoming law. The appropriation authority to draw money from the CRF is section 78 or 80 of the PGPA Act, as relevant—rather than the determination or the legislation.92

This Bill establishes two special accounts in accordance with section 80 of the PGPA Act.

Clause 12 of the Bill establishes the Aboriginal and Torres Strait Islander Land and Sea Future Fund Special Account (ATSILSFF Special Account) as a special account for the purposes of the PGPA Act.

Clause 20 of the Bill establishes the Indigenous Land Corporation Funding Special Account (ILC Funding Special Account) as a special account for the purposes of the PGPA Act.

Special accounts may be established when it is clear that other types of appropriations are not suitable. For example, there may be a need for specific transparency. The Act that establishes a special account specifies both the purposes for which the special account may be debited and the types of receipts that may be credited to increase the balance of the special account.93 Depending on its purpose, a special account may be credited with amounts from annual appropriations,

87. Clause 10 of the Bill. 88. Clause 11 of the Bill. 89. Subclause 11(3) of the Bill. 90. Department of Finance (DoF), Guide to appropriations, DoF website. 91. Public Governance, Performance and Accountability Act 2013. 92. DoF, Guide to appropriations, op. cit. 93. Ibid.

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special appropriations, from third parties, by direct legislative provision, or in limited circumstances with investment income.94

Accordingly, the Bill sets out the main purposes of the two special accounts. Amounts credited to a special account can only be spent for the specified purposes.

Main purposes— ATSILSFF Special Account

The main purposes of the ATSILSFF Special Account are:

• to transfer amounts to the ILC Funding Special Account so that annual payments can be made to the ILC and

• to transfer amounts to the ILC Funding Special Account so that additional payments can be made to the ILC.95

Clause 15 sets out the approved purposes of the ATSILSFF Special Account, being:

• paying the costs of, or incidental to, the acquisition of financial assets

• paying expenses of an investment of the ATSILSFF

• paying the costs of, or incidental to, the acquisition of derivatives

• paying or discharging the costs, expenses and other obligations incurred by the Future Fund Board under a contract between the Board and an investment manager

• paying or discharging the costs, expenses and other obligations incurred in connection with the establishment, maintenance or operation of a bank account of the Future Fund Board, if the bank account relates exclusively to the ATSILSFF

• paying a premium in respect of a contract of insurance entered into by the Future Fund Board exclusively in connection with the ATSILSFF

• paying or discharging any other costs, expenses, obligations or liabilities incurred by the Future Fund Board exclusively in connection with the ATSILSFF

• paying expenses of an investment of an amount standing to the credit of the Aboriginal and Torres Strait Islander Land Account, where the expenses were incurred before the commencement of this section.

Clause 16 of the Bill also sets out other purposes for which the funds in the ATSILSFF Special Account may be used.

Main purposes— ILC Funding Special Account

The ILC Funding Special Account has two main purposes:

• to make annual payments to the ILC and

• to make additional payments to the ILC.96

Clause 22 of the Bill sets out the rules for making annual payments to the ILC. The first payment is to be made on the first business day in October 2018.97 The amount to be paid by the Indigenous

94. DoF, Guide to appropriations, op. cit. 95. Clause 14 of the Bill. 96. Clause 21 of the Bill.

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Affairs Minister is an amount equal to the amount that would have been paid under subsection 193(2) of the Aboriginal and Torres Strait Islander Act if that section had not been repealed.98 Subsequent payments are to be made on the first business day in October 2019 or on that date in a later financial year. The amount of the subsequent payment is subject to a formula which includes an indexation factor based on, amongst other things, the All Groups Consumer Price Index.99

Clause 25 of the Bill sets out the rules for making additional payments to the ILC. The Finance Minister and the Indigenous Affairs Minister may determine that, on a specified day, the Indigenous Affairs Minister is to pay a specified amount to the ILC.100 Only one such determination may be made in each financial year.101

In making such a determination the Finance Minister and the Indigenous Affairs Minister must have regard to advice given by the Future Fund Board and any other relevant matters.102

Clause 27 of the Bill requires that the Finance Minister and the Indigenous Affairs Minister must give the Future Fund Board:

• a draft of the determination

• a formal request that the Future Fund Board provide advice about the impact of the making of the determination on the sustainability of annual payments to the ILC within the period specified, being not less than 90 days and

• require the Future Fund Board, in giving that advice, to have regard to the Aboriginal and Torres Strait Islander Land and Sea Future Fund Investment Mandate and any other specified matters.

Comment The Bill sets up a transparent mechanism for monies to be debited from the ATSILSFF Special Account. These funds will primarily be directed into the ILC Funding Special Account and thence to the ILC annually. In addition the funds from the ATSILSFF Special Account can be used to pay specified costs of the Future Fund Board, incurred in connection with the ATSILSFF Special Account. By establishing this system of two special accounts, the Bill ensures that the ATSILSFF is spent only for the requisite purposes.

In addition, the Bill provides a mechanism for other amounts to be credited to the ATSILSFF Special Account.103

Investments of the Fund

The Future Fund Board104 is responsible for deciding how to invest the ATSILSFF.105 The Bill empowers the Future Fund Board to invest amounts standing to the credit of the ATSILSFF in any

97. This date has now passed; however, as subsection 193(2) of the ATSI Act has not yet been repealed by the Consequential Amendments Bill, an equal amount would have been paid to the ILC under that Act. 98. Item 3 of Schedule 1 to the Consequential Amendments Bill repeals section 193 of the ATSI Act. 99. Clause 24 of the Bill. 100. The determination is by way of notifiable instrument. Notifiable instruments are not disallowable in accordance with the

Legislation Act 2003. 101. Subclause 25(3) of the Bill. 102. Subclause 25(2) of the Bill. 103. Clause 13 of the Bill.

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financial assets. 106 (Some restrictions are placed on the use of derivatives, which must not be acquired for speculative or leverage purposes).107 Any income derived from an investment of the ATSILSFF is to be credited to the ATSILSFF Special Account.108

ATSILSFF Investment Mandate

Establishing the Investment Mandate

Clause 32 of the Bill empowers the Treasurer and the Finance Minister (referred to as ‘the responsible Ministers’109 to give the Future Fund Board written directions about the performance of its ATSILSFF investment functions, and must give at least one such direction. These directions are to be known as the Aboriginal and Torres Strait Islander Land and Sea Future Fund Investment Mandate.110 Each fund that the Future Fund Board manages has an individual investment mandate.111

In giving such a direction the responsible Ministers must have regard to:

• the need to maximise the return earned on the ATSILSFF over the long term, consistent with international best practice for institutional investment

• the annual payments required to be made to the ILC and

• such other matters as the responsible Ministers consider relevant.112

Limitations on the Investment Mandate

However, the Bill inserts a limitation on the powers of the responsible Ministers in making the Investment Mandate. The responsible Ministers must not give a direction under subsection 32(1) that has the purpose, or has or is likely to have the effect, of directly or indirectly requiring the Future Fund Board to:

• invest an amount standing to the credit of the ATSILSFF Special Account in a particular financial asset

• acquire a particular derivative113 or

• allocate financial assets to a particular business entity, a particular activity or a particular business.114

Obligation to comply with Investment Mandate

Clause 36 of the Bill requires the Future Fund Board to take all reasonable steps to comply with the Investment Mandate. If the Future Fund Board becomes aware that it has not done so it must,

104. The Future Fund Board of Guardians is established by Part 4 of the Future Fund Act 2006. For more information on the Future Fund see: Future Fund, ‘About us’, Future Fund website. 105. Clause 28 of the Bill. 106. Clause 30 of the Bill. 107. Clause 40 of the Bill. 108. Clause 31 of the Bill. 109. As defined in clause 4 of the Bill. 110. Subclause 32(3) of the Bill. 111. Future Fund, Investment mandates, Future Fund website. 112. Subclause 32(2) of the Bill. 113. See also, clause 40 of the Bill which limits the acquisition of a derivative for the purpose of speculation or leverage. 114. Clause 34 of the Bill.

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as soon as practicable after becoming so aware, give the responsible Ministers a written statement:

• advising of the failure to comply with the Investment Mandate and

• setting out the action that it proposes to take in order to comply with the Investment Mandate.

Alternatively, if the responsible Ministers are satisfied that the Future Fund Board has failed to comply with the Investment Mandate, they may direct the Board, in writing:

• to give the responsible Ministers, within a specified period, a written explanation for the failure to comply with the Investment Mandate and

• to take action in the time specified in the notice, in order to comply with the Investment Mandate.115

Formulating investment policies

Clause 39 of the Bill requires the Future Fund Board to formulate (and periodically review) written policies in relation to the ATSILSFF including the relevant investment strategy, benchmarks and standards for assessing the performance and risk management for the Fund. These policies must be consistent with the Investment Mandate and be published on the internet.116

Can a Special Account run out of money? The justification given for the legislation is that the capital of the Land Account, a Special Account under section 80 of the PGPA Act, is in danger of being eroded and potentially exhausted at some point in the future due to its low rate of return, rendering it unable to make payments to the ILC.

A Special Account is a nominal hypothecation allowing for appropriation from the Consolidated Revenue Fund (CRF) for a specific purpose without annual budgetary renewal by parliament, not a separate fund or ‘bank account’.117 Despite its separate accounting identity, it remains part of the CRF under section 81 of the Constitution. While the ATSILSFF has a different mandate from the existing Land Account, which is expected to generate higher returns on investment, the monies in both the existing Land Account and the proposed ATSILSFF remain part of government consolidated revenue and are not the property of the ILC. Whenever a payment is made to the ILC, from either the current or the proposed special accounts, consolidated revenue is appropriated to do so.118

The amount of expenditure from a Special Account is limited by the legal requirements of section 80 of the PGPA Act, which states ‘the CRF is appropriated for expenditure for those [special account] purposes, up to the balance for the time being of the special account’ (emphasis added). If a Special Account had a nominal balance of zero, the Government would always have the option of legislating a new appropriation of the CRF to meet any payment requirements, so the limits on its expenditure are not financial in the same sense that would apply to an account with a private bank. In the case of the current Bill, clause 13 allows responsible Ministers to credit

115. Subclause 36(3) of the Bill. 116. Subclauses 39(2) and (3) of the Bill 117. DoF, ‘Guide to appropriations-RMG 100’, DoF website. 118. The Financial Impact Statement on p. 6 of the Explanatory Memorandum notes that the ATSILSFF (and the to-be-abolished

Land Account) remains part of CRF and its return on investments and costs go into, and are drawn from, the CRF.

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additional amounts to the ATSILSFF via a non-disallowable legislative instrument, so any future shortfall could be met through this mechanism.

Thus, if the current Land Account Special Account had a nominal balance of zero at some point in the future, section 80 would forbid the CRF being appropriated to pay the ILC. In this circumstance, the Government would have no money legally appropriated to pay to the ILC, but could always seek a new Budget appropriation in order to meet the payment obligations of section 193 of the ATSI Act. The limitation of the Special Account’s balance is really a self-imposed limit by government on how much they are willing to appropriate for the Special Account’s stated purposes. As such, the ILC’s funding from special accounts, whether the Land Account or the ATSILSFF, ultimately depends upon appropriations rather than account balances, and so is ultimately a political rather than a financial decision.

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