Introductory Info
Date introduced: 28 November 2018
House: House of Representatives
Portfolio: Finance
Commencement: Future Drought Fund Act 2018 on proclamation or six months after Royal Assent, whichever occurs first; Future Drought Fund (Consequential Amendments) Act 2018 on various dates as set out in the body of this Bills Digest.The Bills Digest at a glance
Purpose of the Future Drought Fund
Bill
The Future Drought Fund Bill 2018 (the Fund Bill)
establishes:
- the
Future Drought Fund
- the
Future Drought Fund Special Account and
- Agriculture
Future Drought Resilience Special Account.
Investing the Future Drought Fund
The Future Fund Board, which is established under the Future Fund Act
2006 is responsible for deciding
how to invest the Future Drought Fund. Investments of the Future Drought Fund
will be held in the name of the Future Fund Board.
In making investment decisions, the Future Fund Board is
bound by the Future Drought Fund Investment Mandate given to it by the
Treasurer and the Minister for Finance.
Payments into and out of the Future Drought Fund
Special Account
The Future Drought Fund Special Account (FDF Special
Account) is a special account established in accordance with section 80 of the Public Governance,
Performance and Accountability Act 2013 (PGPA
Act). The statute that establishes a special account must specify 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.
The initial credit to the FDF Special Account will
come from the transfer of the balance of the Building Australia Fund, which is
estimated to be $3.9 billion. The Future Drought Fund is expected to grow to $5
billion over time.
There are only three purposes for which an amount may be debited
from the FDF Special Account:
- transferring
amounts to the Agriculture Future Drought Resilience Special Account (AFDR
Special Account)
- paying
amounts which are exclusively related to the investments of the Future Drought
Fund—for example, paying the costs of, or incidental to the acquisition of
financial assets by the Future Fund Board and
- paying
amounts which are not exclusively related to the investments of the Future
Drought Fund—for example paying part of the remuneration and allowances of the
Future Fund Board members.
Payments into and out of the Agriculture Future Drought
Resilience Special Account
The Agriculture Future Drought Resilience Special Account
(AFDR Special Account) is also a special account established in accordance with
the PGPA Act. From 1 July 2020, $100 million annually will be debited
from the FDF Special Account and credited to the AFDR Special Account.
The Agriculture Minister, on behalf of the Commonwealth,
may pay amounts from the AFDR Special Account under an arrangement with a
person or body, or pay amounts by way of a grant to a person or body in
relation to drought resilience. Neither the arrangements nor the
grants may be loans. Arrangements or grants to a person or body must be
consistent with the Drought Resilience Funding Plan.
Before making such an arrangement, or grant, the
Agriculture Minister must request the advice of the Regional Investment
Corporation Board, which is established by the Regional Investment
Corporation Act 2018.
Purpose of the
Bills
The purpose of the Future Drought Fund Bill 2018 (the Fund Bill)
is to establish the Future Drought Fund which includes the Future Drought Fund Special
Account, and the Agriculture Future Drought Resilience Special Account to fund
initiatives that enhance future drought resilience, preparedness and response
across Australia.
The purpose of the Future Drought Fund (Consequential
Amendments) Bill 2018 (the Consequential Amendments Bill) is to make
consequential amendments to a number of existing statutes to:
- extend
the Future Fund Board’s duties to include managing the Future Drought Fund and
- allow
for amounts to be transferred between the Future Drought Fund and the Future
Fund.
Structure of
the Fund Bill
The Fund Bill comprises six Parts:
- Part
1 sets out preliminary matters including relevant definitions
- Part
2 establishes the Future Drought Fund. It also sets out matters relating to the
credit of amounts to the Future Drought Fund Special Account and those relating
to the debit of funds from the Future Drought Fund
- Part
3 concerns arrangements and grants relating to drought resilience
- Part
4 relates to the investment of the Future Drought Fund
- Part
5 contains relevant reporting obligations and
- Part
6 sets out miscellaneous matters including the delegation of powers of the
Treasurer, the Minister for Finance and the Agriculture Minister.
Commencement
The Fund Bill commences on the earlier of a single day to be
fixed by Proclamation or six months after Royal Assent.
Structure of
the Consequential Amendments Bill
The Consequential Amendments Bill comprises three Schedules.
Schedule 1 contains general amendments to the
following:
Schedule 2 amends the following statutes to bring about
the abolition of the Building Australia Fund
- the COAG Reform Fund
Act 2008
- the DisabilityCare Australia Fund Act
- the Future Fund Act
- the
Medical Research Future Fund Act and
- the Nation-building Funds Act.
Schedule 3 contains
amendments to the Aboriginal
and Torres Strait Islander Land and Sea Future Fund Act 2018 (ATSI
Land and Sea Future Fund Act) and the Future Drought Fund Act (when
enacted) which are contingent on the commencement of the ATSI Land and Sea
Future Fund Act on 1 February 2019.[1]
Commencement
Schedules 1 and 2 of the Consequential Amendments Bill
commence at the same time as the Future Drought Fund Act commences.
Schedule 3 of the Consequential Amendments Bill commences
on the later of:
- immediately
after the commencement of the Future Drought Fund Act and
- immediately
after the commencement of the ATSI Land and Sea Future Fund Act—that is,
1 February 2019.
However, the provisions do not commence at all unless both
of those statutes commence.
Background
The Bureau of Meteorology stated in December 2018:
The year to date has
been exceptionally dry for New South Wales, Victoria, eastern South Australia,
and the southern half of Queensland. Significant rainfall deficiencies continue
to affect large areas of eastern Australia at timescales out to around two
years' duration. This has been the seventh-lowest January to November rainfall
since 1900 for the Murray-Darling Basin, eighth-lowest for New South Wales, and
ninth-lowest for Victoria.[2]
The position in NSW in particular is particularly dire. In
August 2018, the Berejiklian Government declared all of NSW to be in drought.[3]
Australia’s evolving
drought policies
1980s
Up until the late-1980s, drought was thought to be a
climatic abnormality and, as such, was treated with disaster relief policies
and Exceptional Circumstances (EC) payments in a similar way to floods,
earthquakes and cyclones.[4]
However, during the late-1980s, the view of drought as a
one-off, unpredictable and unmanageable natural disaster began to be
questioned.[5]
Drought was subsequently removed from national disaster relief arrangements,[6]
and a task force was initiated to shape the most appropriate response to
drought.[7]
1990s—National
Drought Policy
The National Drought Policy (NDP) was established in 1992
through collaboration between state and Commonwealth governments.[8]
The NDP was based on principles of self-reliance, risk management and an
understanding that drought is an inherent feature of the Australian environment.[9]
The primary avenues for government assistance were:
- the
Rural Adjustment Scheme (RAS) which adopted structural adjustment initiatives
to improve farm productivity, profitability and sustainability[10]
and
- the
Farm Household Support Scheme (FHSS) which provided finance with no repayments
required until the family came off the scheme and with scope to repay over five
or ten years.[11]
In 1997, following the change of Federal government in the
previous year, the ‘RAS was scrapped but the exceptional circumstances concept
was retained’.[12]
Unfortunately, the Government was faced with a number of challenges including:
- prolonged,
expanding and worsening drought conditions across significant agricultural
producing regions—which became known as the ‘Millennium Drought’[13]
- increasing
focus on government intervention rather than self-management and sustainability
and
- the
situation where EC payments artificially kept unviable and/or poorly managed
farm businesses afloat.[14]
Productivity
Commission report
The 2008 review of government assistance for drought
events by the Productivity Commission opined:
There is a mismatch between the NDP’s policy objectives
and its programs. From its inception, policy has ostensibly centred on
helping farmers build their self-reliance to manage climate variability and
preparedness for droughts. Program expenditures, however, have not been directed
to this end but have mainly flowed as emergency payments to a minority of
farmers in hardship and to stressed farm businesses.[15]
[emphasis added]
The Productivity Commission argued for the termination of
the EC declaration process and the various programs that it triggered and
recommended a policy which would:
- assist
primary producers to adapt and adjust to the impacts of climate variability and
climate change
- encourage
primary producers to adopt self-reliant approaches to managing risks
- assist
primary producers to manage greenhouse gas emissions and other adverse impacts
on the environment and
- ensure
that farming families in hardship have temporary access to an income support
scheme that recognises the special circumstances of farmers.[16]
2016 election
commitment
Since that time, Australia’s drought policy has continued
to evolve. Governments have sought to:
... provide the tools to facilitate more effective risk
management by farmers and a long-term approach to drought that incorporates
provision of enhanced social and community support for farming families and
rural communities, and business initiatives for preparedness and in-drought
support.[17]
In accordance with its 2016 Election commitment, the
Government enacted the Regional Investment
Corporation Act 2018.[18]
Then Minister for Agriculture and Water Resources, Barnaby Joyce stated:
A re-elected Coalition Government will establish a Regional
Investment Corporation to fast-track the delivery of $4.5 billion in
Commonwealth drought and water infrastructure loans...
The Coalition is committed to streamlining Commonwealth
financing and concessional loan processing to enable new dams to be financed
quickly and ensure drought loans are speedily approved to help farmers
in need.
The Regional Investment Corporation will be established as
the single administrator for the $4.5 billion in Agriculture and Water
Resources portfolio financing and concessional loans initiatives.
No longer will the Commonwealth have to barter with state
governments to process drought and dairy concessional loans to help farmers. Under
a re-elected Coalition Government we will be able to deliver this support
direct to farmers in need.[19]
[emphasis added]
Background to
the Fund Bill
When Scott Morrison became Prime Minister on 24 August
2018, he made it clear that one of his first priorities was to deal with the
ongoing drought.[20]
At the Drought Summit held in Canberra on 26 October 2018, the Prime Minister
announced a package of new initiatives for drought relief, recovery and
resilience, including the Future Drought Fund.
A comprehensive drought response needs to meet not only the
immediate needs of those affected but to look to the future to ensure our
agriculture sector is prepared and resilient. So we can do this, our Government
is establishing a Future Drought Fund with an initial allocation of $3.9
billion in 2019. In time, this fund will grow to $5 billion. The Future Drought
Fund will provide a sustainable source of funding for drought resilience works,
preparedness and recovery. It's about helping farmers and their communities to
prepare and adapt to the impact of drought. Through the fund, the Government
will drawdown $100 million a year for projects, research and infrastructure to
support long-term sustainability.[21]
In a radio interview conducted on the same day Mr Morrison
confirmed that the initial allocation of $3.9 million into the Future Drought
Fund would arise from the transfer of that amount from the Building Australia
Fund, which had previously been nominated as a source of funding for the
National Disability Insurance Scheme (NDIS).[22]
The Fund Bill establishes the Future Drought Fund. It
represents the latest in a long line of efforts by governments of all political
persuasions to address the complex problems of ongoing drought and its social
and economic effects.
Committee
consideration
Finance and
Public Administration Committee
The Bills have been referred to the Finance and Public
Administration Committee (FPA Committee) for inquiry and report by 8 February
2019.[23]
The FPA Committee received six submissions from stakeholders.
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills has
commented on a number of aspects of the Fund Bill.[24]
These comments are canvassed under the discussion of the provisions of the Fund
Bill below.
Policy
position of non-government parties/independents
Australian
Greens
Australian Greens (the Greens) Senator Steele-John has
expressed concern that the Prime Minister ‘is considering taking funds from the
NDIS to provide relief to drought-stricken farmers’.[25]
And further:
This government needs to prove that the NDIS will be fully
funded before it considers repurposing any funds that might be made available
to disabled Australians. Taking money from one disadvantaged community to give
to another is just bad policy, and in a wealthy country like Australia
shouldn’t even be on the table ...[26]
Position of major
interest groups
Farmers
Speaking on the day after the drought summit, the National
Farmers Federation President Fiona Simson stated:
The Future Drought Fund and further new initiatives focus on
building the resilience of not only our farmers but also our regional
communities, which we know bear much of the social and economic hardship during
drought.
... the Government should be commended for the highly
significant and holistic measures extended to drought support today and in the
months previous.[27]
Disability
advocates
On the other hand, disability advocates are reported to
have ‘slammed’ the plan on the grounds that ‘the first $3.9 billion of the
scheme ... is to be paid for out of a pool of money originally intended for the
National Disability Insurance Scheme’.[28]
Physical Disability Council of NSW chief executive Serena
Ovens is reported as stating:
... the funds should instead be used to ensure the NDIS would
be sustainable in the long term and that Australians with disability were given
“what is required to have a normal, reasonable life” ... while helping farmers
was a worthy aim, it should not be done “at the cost of an equally important
scheme for some very vulnerable people”.[29]
Financial
implications
Fund Bill
According to the Explanatory Memorandum for the Fund Bill:
The initial credit of the balance of the funds from the
Building Australia Fund to the Future Drought Fund will not have a direct
impact on underlying cash and fiscal balances, as these represent the transfer
of financial assets between funds.
Positive interest earnings of the Future Drought Fund will
have a positive impact on the underlying cash and fiscal balances. Costs
incurred by the Future Fund Board have a negative impact on the underlying cash
and fiscal balances. Payments for initiatives to enhance future drought
resilience will have a negative impact on the underlying cash and fiscal
balance.[30]
Consequential
Amendments Bill
The Explanatory Memorandum for the Consequential
Amendments Bill states that the Bill ‘has no financial impact’.[31]
Special appropriations
Speaking about the Fund Bill, Minister for Finance and
Public Service Mathias Cormann, said:
... the [Future Drought] Fund would start with $3.9 billion, growing
to $5 billion over the next decade. From 1 July 2020, $100 million will be
directed annually to fund a wide range of drought resilience projects, while
the balance is reinvested the Fund.[32]
Key issue—effect
on NDIS funding
The 2017–18 Budget indicated the Government’s commitment
to Australians with permanent and significant
disability having access to vital care and support, with the Government fully
funding the National Disability Insurance Scheme. The graphic below
demonstrates the proposed sources of that funding at that time.[33]
Graphic 1:
funding the NDIS
Note:
The NDIS Savings Fund includes one-fifth of the Medicare levy from 1 July 2019,
underspends and realised saves redirected to the NDIS Savings Fund, and
uncommitted funds from the Building Australia Fund and Education Investment
Fund.
However, Finance Minister Mathias Cormann has since stated
that the NDIS ‘is now fully funded from consolidated revenue on the back of a
stronger economy and, because of our successful budget repair efforts, a
stronger and improving budget position’.[34]
He argues that ‘our sound economic and fiscal management
has enabled us to fully fund the NDIS from consolidated revenue without
increasing the Medicare Levy as originally proposed and without transferring
the Building Australia Funds into the NDIS Savings Special Account’.[35]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the 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 Bill is compatible.[36]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights considered
that the Bills did not raise human rights concerns—either because they do not
engage or promote human rights, and/or permissibly limit human rights.[37]
Future Drought
Fund
Establishing
the Fund
Clause 10 of the Fund Bill establishes the Future
Drought Fund. It consists of:
- the
Future Drought Fund Special Account and
- the
investments of the Future Drought Fund.
At the time of its establishment the balance of the Building
Australia Fund Special Account will be credited to the Future Drought Fund
Special Account.[38]
The financial assets of the Building
Australia Fund will become an investment of the Future Drought Fund.[40]
The Fund Bill incorporates the definition of the term financial asset
from the Future Fund Act.[41]
Credits to the
FDF Special Account
In addition to those amounts which will be credited to the
FDF Special Account on its establishment, clause 14 of the Fund Bill
provides that the responsible Ministers—being the Treasurer and
the Minister for Finance[42]—may
determine in writing that an amount is to be credited to the FDF Special
Account on a specified day or in specified instalments on specified days.[43]
Delegation of
power
However, under clause 61 of the Fund Bill, the
Finance Minister may delegate any or all of his, or her, powers under clause 14
to the Secretary of the Department of Finance or a Senior Executive Service
(SES) employee (or acting SES employee) of that Department. Similarly, under clause
62 of the Fund Bill, the Treasurer may delegate any or all of his, or her,
powers under clause 14 to the Secretary of the Treasury Department or an SES
employee (or acting SES employee) of that Department.
Investments of
the Fund
The Future Fund Board[44]
is responsible for deciding how to invest the Future Drought Fund.[45]
The Fund Bill empowers the Future Fund Board to invest amounts standing to the
credit of the FDF Special Account in any financial assets.[46]
Any income derived from an investment of the Future Drought Fund is to be
credited to the FDF Special Account.[47]
Future Drought
Fund Investment Mandate
Establishing
the Investment Mandate
Clause 41 of the Fund Bill empowers the responsible
Ministers to give the Future Fund Board written directions about the
performance of its Future Drought Fund investment functions, and provides that
they must give at least one such direction. These directions are known as the Future
Drought Fund Investment Mandate.[48]
In giving such a direction the responsible Ministers must
have regard to:
- the
need to maximise the return earned on the Future Drought Fund over the long
term
- the
need to enhance the Commonwealth’s ability to make payments under arrangements
and grants for drought resilience (see the discussion below under the heading ‘Debiting
the FDF Special Account’) and
- such
other matters as the responsible Ministers consider relevant.[49]
Key
issue—non-disallowable instrument
Although the Future Drought Fund Investment Mandate
is a legislative instrument, the notes to clause 41 specify that it is neither
disallowable nor subject to sunsetting in accordance with the Legislation Act
2003. This is because the directions will be covered by an exemption
under the Legislation
(Exemptions and Other Matters) Regulation 2015.
According to the Explanatory Memorandum to the Fund Bill:
The Government considers it is appropriate that a direction
under subclause 41(1) of the Bill is not subject to disallowance. The Bill
would provide adequate scrutiny of directions comprising the Future Drought
Fund Investment Mandate through mandated consultation with the Future Fund
Board (clause 44). Exemption from disallowance together with consultation would
give the Future Fund Board necessary certainty when investing through the
Future Drought Fund. While it would be possible to provide that a direction
under subclause 41(1) does not come into effect until disallowance periods have
expired, this approach would significantly impede the ability of Government to
make urgent changes to the Future Drought Fund Investment Mandate in the
national interest. [50]
The Scrutiny of Bills Committee acknowledged the
explanation but did not consider that it provided sufficient justification ‘for
leaving significant elements of the drought resilience funding scheme in the Bill
to non-disallowable instruments’.[51]
The Committee has asked the Minister for advice:
... as to the appropriateness of amending the Bill to provide
that the directions are subject to disallowance but only come into force once
the disallowance period has expired, unless the minister certifies that there
is an urgent need to make changes and it is in the national interest that a
specified direction not be subject to disallowance.[52]
Limitations on
the Investment Mandate
As noted by the Scrutiny of Bills Committee, the Bill
inserts a limitation on the powers of the responsible Ministers in making the Future
Drought Fund Investment Mandate (Investment Mandate). The responsible
Ministers must not give a direction under subclause 41(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 FDF Special Account in a particular
financial asset
- acquire
a particular derivative[53]
or
- allocate
financial assets to a particular business entity, a particular activity or a
particular business.[54]
Obligation to
comply with Investment Mandate
Clause 45 of the Fund 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, 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.[55]
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.[56]
Formulating
investment policies
Consistent with the requirement to comply with the Investment
Mandate, clause 48 of the Fund Bill requires the Future Fund Board to formulate
and periodically review written policies in relation to the Future Drought Fund
including the relevant investment strategy, benchmarks and standards for
assessing the performance and risk management for the Fund.
The Future Fund Board must publish those polices on the
internet.[57]
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.[58]
Establishing
the special accounts
A special account can be established either by the Finance
Minister making a determination under section 78 of the Public Governance,
Performance and Accountability Act 2013 (PGPA Act), or by
legislation as recognised under section 80 of the PGPA Act. 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.[59]
The Fund Bill establishes two special accounts in
accordance with section 80 of the PGPA Act:
- clause
13 of the Fund Bill establishes the Future Drought Fund Special Account
(FDF Special Account) and
- clause
33 of the Fund Bill establishes the Agriculture Future Drought Resilience
Special Account (AFDR Special Account).
Requirements
of a special account
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.[60]
Accordingly, the Fund Bill specifies the main purposes of each
of the special accounts. Amounts credited to a special account can only be
spent for the specified purposes.
Debiting the
FDF Special Account
Main purpose—FDF
Special Account
The main purpose of the FDF Special Account is to transfer
amounts to the AFDR Special Account so that the Agriculture Minister, on behalf
of the Commonwealth, may pay amounts under an arrangement with a
person or body, or pay amounts by way of a grant to a person or body in
relation to drought resilience.[61]
For the purposes of the Fund Bill an arrangement
includes a contract, agreement or deed—but does not include a ‘securities
lending arrangement’.[62]
The term drought resilience[63]
is defined as:
- resilience
to drought[64]
- preparedness
for drought
- responsiveness
to drought
- management
of exposure to drought
- adaptation
to the impact of drought
- recovery
from drought or
- long‑term
drought‑related sustainability of farms and communities that:
- have
been affected by drought
- are
being affected by drought or
- are at significant risk of being affected by drought.
According to the Explanatory Memorandum to the Fund Bill:
The words ‘at significant risk’ in the definition of drought
resilience would require a higher threshold test than a farm or community that
merely might be or could be affected by drought at some point in the future.
The risk of being affected by drought would need to be ‘significant’ to attract
this element of the definition of drought resilience.[65]
Other purposes—FDF
Special Account
Clause 16 sets out additional approved
purposes of the FDF Special Account, being:
- paying
the costs of, or incidental to, the acquisition of financial assets
- paying
expenses of an investment of the Future Drought Fund
- 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 Future
Drought Fund
- paying
a premium in respect of a contract of insurance entered into by the Future Fund
Board exclusively in connection with the Future Drought Fund
- paying
or discharging any other costs, expenses, obligations or liabilities incurred
by the Future Fund Board exclusively in connection with the Future Drought
Fund.
Clause 17 of the Bill lists other purposes
for which the funds in the FDF Special Account may be expended. These relate to
expenses incurred by the Future Fund Board in its management of the Future
Drought Fund.
The amounts specified under clauses 16 and 17 may be
transferred to the Future Fund Special Account in accordance with clause 19
of the Fund Bill. Importantly, subclause 61(2) of the Fund Bill allows
the Finance Minister to delegate any or all of his, or her, powers under clause
19 to the Secretary or an SES employee of the Department of Finance, to the
Chair of the Future Fund Board or to an SES employee of the Future Fund
Management Agency.[66]
AFDR Special
Account
Establishing
the special account
As stated above, clause 33 of the Fund Bill
establishes the AFDR Special Account under section 80 of the PGPA Act.
Credits to the
AFDR Special Account
Each financial year, commencing with the financial year
beginning on 1 July 2020, the Finance Minister must direct, in writing,
that $100 million is to be debited from the FDF Special Account and credited to
the AFDR Special Account. This may be by way of a lump sum on a specified day
or by instalments on specified days.[67]
In addition, certain amounts paid to the Commonwealth in
accordance with clause 21 (see discussion below) may be credited to the AFDR
Special Account.
Debiting the AFDR
Special Account
Amounts may only be debited from a special account to meet
the purposes of the account as stipulated in the establishing legislation. In
this case, the relevant purposes of the AFDR Special Account are set out in clause
36 of the Fund Bill—that is, to pay amounts under an arrangement or to make
grants. Both of these matters are explained in clause 21 of the Fund
Bill.
Arrangements
and grants
Under clause
21, the Agriculture Minister may, on behalf of the Commonwealth make
an arrangement with, or make a grant of financial assistance to, a person or
body for the following:
- the
carrying out of a project that is directed towards achieving drought resilience
- the
carrying out of research that is directed towards achieving drought resilience
- the
provision of advice that is directed towards achieving drought resilience
- the
provision of a service that is directed towards achieving drought resilience
- the
adoption of technology that is directed towards achieving drought resilience or
- a
matter that is incidental or ancillary to those matters.[68]
For the purposes of the Fund Bill, an arrangement or a
grant may be made by way of the reimbursement, or partial reimbursement, of
costs or expenses.[69]
Importantly, however, clause 21 does not does not authorise the acquisition of
shares in a company or the making of a loan.[70]
The Explanatory Memorandum to the Fund Bill provides
examples of activities that could be funded under this provision including:
-
the creation or development of
water infrastructure
- financial and business planning
for primary producers to improve ability to manage through lower income periods
caused by drought
- restoring native vegetation for
soil or water regeneration
- pest control
- fire mitigation
- training and information for
primary producers on sustainable stock management during drought
- training and information on local
climate variability and advice on climate risk applied to specific locations
- blue-sky research in drought
resilience or
- improving data on fodder and
impacts from drought, including market trends.[71]
Scrutiny of
Bills Committee comments
The Scrutiny of Bills Committee drew attention to the
absence of guidance in the Bill as to the terms and conditions that would
attach to the financial assistance granted in accordance with clause 21—beyond
requiring that any such terms and conditions are to be set out in a written
agreement between the Commonwealth and the relevant grant recipient.[72]
Of particular concern to the Committee was that the Explanatory Memorandum to
the Fund Bill:
... provides no explanation as to why it is considered
necessary and appropriate to confer on the Minister a broad power to provide
financial assistance with regard to drought resilience, without specifying any
terms and conditions to which the provision of assistance would be subject.[73]
About making
grants
Clause 22 of the Fund Bill is ancillary to clause
21. Where financial assistance has been provided by way of grant (rather than
under an arrangement), the terms and conditions of the grant must be contained in
a written agreement between the Commonwealth and the grant recipient. Section
105C of the PGPA Act empowers the Finance Minister, by written
instrument, to make provision about grants by the Commonwealth.
Accordingly, the Commonwealth
Grants Rules and Guidelines 2017 (CGRGs) establish the Commonwealth grants policy
framework. The CGRGs contain the key legislative and policy
requirements—including how they apply to Ministers.[74] According to the CGRGs:
Achieving value with relevant money should be a prime
consideration in all phases of grants administration. Grants administration
should provide value, as should the grantees in delivering grant activities.
This requires the careful comparison of the costs and benefits of feasible
options in all phases of grants administration, particularly when planning and
designing grant opportunities and when selecting grantees. It is also a means
by which officials can assure the entity’s accountable authority, Ministers and
the Parliament that resources are deployed in an efficient, effective,
economical and ethical manner, while not imposing overly burdensome
requirements on grantees.[75]
However, the Explanatory Memorandum does not make a
connection between the Fund Bill and the CGRGs. That being the case, it is
unclear whether there is an intention that the relevant grants will be
administered in accordance with CGRGs.
The Scrutiny of Bills Committee has requested advice from the
Minister about ‘the appropriateness of amending the bill to include (at least
high-level) guidance as to the terms and conditions on which financial
assistance may be granted’.[76]
Delegation of
power
Importantly, under clause 63 of the Fund Bill, the
Agriculture Minister may delegate any or all of his, or her, powers under
clauses 21 and 22 to the Secretary of the Agriculture Department, an SES
employee (or acting SES employee) of that Department or to a person who is an
official of a Commonwealth entity who is not employed by the Agriculture
Department.
According to the Explanatory Memorandum to the Fund Bill:
This broad delegation power is required to enable grants made
under clause 21 to be administered by Commonwealth officials employed in the
Australian Government Community Grants Hub, managed by the Commonwealth
Department of Social Services.[77]
Key issue—right
of review
Given the apparent opacity of the process for which the
Fund Bill provides only a skeletal outline, the question arises as to whether a
review process will be available to unsuccessful applicants.[78]
Currently the Fund Bill is silent on the access to such a process.
Noting the absence of relevant information, the Scrutiny
of Bills Committee has requested the Minister’s advice about:
- the processes by which grants
would be provided, and arrangements would be entered into, in accordance with
clause 21 of the Bill
- whether decisions in relation to
the provision of grants and entering into arrangements would be subject to
independent merits review and
- if not, the characteristics of
those decisions that would justify excluding merits review.[79]
Limits on the
exercise of power
Constitutional
limits
The Fund Bill empowers the Agriculture Minister, on behalf
of the Commonwealth, to make an arrangement with, or make a grant of financial
assistance to, a person or body in relation to drought resilience. In order to
be constitutionally valid, such an arrangement or grant must be consistent with
one or more of the powers which are set out in the Australian
Constitution. For that reason the Fund Bill lists each and every power
on which the Minister may rely when making an arrangement or grant.[80]
Essentially the powers that are relied on either
individually, or in combination, are:
- the
external affairs power under section 51(xxix) of the Constitution[81]
- the
grants power under section 96[82]
- the
corporations power which relates to foreign corporations, and trading and
financial corporations formed within the limits of the Commonwealth under
section 51(xx)[83]
- the
Territories power under section 122[84]
- the
power to make laws in respect of a Commonwealth Place in accordance with the Commonwealth Places
(Application of Laws) Act 1970[85]
- the
power to make laws with respect to trade and commerce with other countries, and
among the states under section 51(i) of the Constitution[86]
- the
postal, telegraphic, telephonic powers under section 51(v)[87]
- the
power relating to the development of patents of inventions under section 51(xviii)[88]
- the
statistics power under section 51(xi)[89]
- powers with
respect to meteorological observations under section 51(viii)[90]
- the
insurance power under section 51(xiv)[91]
- the
implied power of the Parliament to make laws with respect to nationhood[92]
and
- powers
in relation to incidental matters under section 51(xxxix).[93]
Compliance
with the Drought Resilience Funding Plan
The Fund Bill requires the Agriculture Minister to make a Drought
Resilience Funding Plan (the Funding Plan) and publish it
on the Department’s website.[94]
The purpose of the Funding Plan is to ensure that the Agriculture Minister has
a consistent and coherent approach to the making of arrangements and grants;
and to the setting of the terms and conditions of a grant which are detailed in
a formal agreement.
Clause 32 of the Fund Bill requires the Agriculture
Minister to publicly consult about the Funding Plan before it is finalised.
The Agriculture Minister must take all reasonable steps to
ensure that the first Funding Plan comes into force before 1 July 2020. It
will remain in force for four years from the date on which it is registered
under the Legislation Act[95]—unless
it is repealed and replaced on an earlier date.[96]
Although the Funding Plan is a legislative instrument, it is not subject to
disallowance by the Parliament.[97]
The Agriculture Minister must comply with a Funding Plan
that is in force when exercising a power under clauses 21 and 22.[98]
Requesting advice from the RIC Board
In
addition, the Agriculture Minister must request advice from the Regional
Investment Corporation Board (RIC Board) about whether he, or she, should
make an arrangement or grant, or enter an agreement, prior to exercising the
relevant power under clauses 21 and 22.[99]
In that case, the RIC Board must comply with the Minister’s request and, in
providing such advice,[100]
must comply with the Drought Resilience Funding Plan that is in force at that
time.[101]
The Agriculture Minister must, in exercising a power under
clauses 21 and 22, have regard to any advice that the RIC Board has provided.[102]
Comment
On its face, requiring the Minister to obtain the advice of
the RIC Board before exercising a power under clauses 21 and 22 will
operate to moderate the power of the Minister. However, it must be noted that
the RIC Board consists of the Chair; and at least two, and no more than four
persons.[103]
Each of those persons is appointed by the responsible Ministers.[104]
For the purposes of the Regional Investment Corporation Act, the responsible
Ministers are the Agriculture Minister and the Finance Minister.[105]
Essentially then, the power to determine who is to receive
farm business loans from the Regional Investment Corporation and who is to
receive monies under an arrangement or grant under the Fund Bill lies in the
hands of the Agriculture Minister and no more than five other persons who have
been appointed by the Agriculture Minister. Although the arrangements and
grants under the Fund Bill are to be made in accordance with the Drought
Resilience Funding Plan it is for the Agriculture Minister to make that
Plan.
It may, therefore, be prudent to consider further specific
checks and balances on the payments of arrangements and grants.
Statutory
review
Clause 65 of the Fund Bill requires the responsible
Ministers to conduct a review of the operation of the Act after ten years.
However, there is no requirement to table the outcome of the review in the
Parliament.
Concluding comments
The Australian Bureau of Agricultural and Resource
Economics and Sciences (ABARES) published an analysis of the 2018 drought in
which it opined:
While attention is focused on responding to the current
situation, it is important to understand the wider context—and tensions—around
drought policy and climate change. Most importantly, while supporting those in
need is appropriate, there is a risk that some interventions intended to assist
farmers during droughts can have negative consequences in the longer term ... Policies
that impede structural adjustment have the potential to weaken overall
productivity growth and hence competitiveness in international markets.[106]
[emphasis added]
The Prime Minister has stated that the Future Drought Fund
will provide a sustainable source of funding for drought resilience works,
preparedness and recovery. However, the breadth of the activities that could be
funded is such that care will need to be taken to ensure that structural
adjustment is not impeded.