Introductory Info

Date introduced: 25 August 2021
House: House of Representatives
Portfolio: Finance
Commencement: Sections 1-3 on Royal Assent. Schedule 1 will commence either on a date to be fixed by Proclamation or six months after Royal Assent. Schedules 2-4 will commence on the day after Royal Assent.

Purpose and Structure of the Bill

The purpose of the Investment Funds Legislation Amendment Bill 2021 (the Bill) is to make amendments to several Acts governing Australian Government investment funds to streamline the operations of those funds.

The Bill has four Schedules:

• Schedule 1 amends the Future Fund Act 2006 (the Future Fund Act) to enact a new employment framework for staff of the Future Fund Management Agency (FFMA)
• Schedule 2 amends the Freedom of Information Act 1982 (the FOI Act) to provide a partial exemption for documents handled by the FFMA in respect of the Future Fund Board’s investment activities
• Schedule 3 amends the Medical Research Future Fund Act 2015 (MRFF Act) to streamline the administration of the Medical Research Future Fund (MRFF), including making state and territory governments eligible to receive funding directly from the MRFF Health Special Account
• Schedule 4 amends the Emergency Response Funds Act 2019 (ERFA Act) to transfer the administrative responsibility for expenditure from the Emergency Response Fund (ERF) from the Home Affairs Department to the National Recovery and Resilience Agency (NRRA).

As each of the Schedules to the Bill deal with separate policy proposals, the relevant background and analysis of provisions are set out separately for each Schedule.

Purpose of the Future Fund

The Future Fund was established 15 years ago by the Future Fund Act to cover the superannuation liabilities of the Commonwealth.[1] The Future Fund has an independent Board of Guardians, chaired by Mr Peter Costello. The Future Fund Board supported by the FFMA invests the assets of the Future Fund.[2]

The investment responsibilities of the FFMA and the Future Fund Board were extended by the DisabilityCare Australia Fund Act 2013 (DCAF Act), the MRFF Act, the Aboriginal and Torres Strait Islander Land and Sea Future Fund Act 2018 (ATSILSFF Act), the Future Drought Fund Act 2019 (FDF Act) and the ERFA Act.

Risk and return objectives for each of these funds are set by Investment Mandate Directions issued to the Board by the Treasurer and Minister for Finance. These objectives and performance against them are detailed in the FFMA’s Corporate Plan.[3]

The Future Fund has a target return of 6.1 per cent per annum but has out-performed that, averaging a ten‑year return of 10.1 per cent per annum.[4] In August 2021 it had $245.8 billion under management across all six funds.[5]

The Future Fund’s earnings grew by 22.2 per cent to $35.7 billion in 2020-21, with the Fund’s contributed capital of $60.5 billion more than trebling to $196.8 billion.[6] The Chief Executive Officer of the FFMA, Dr Raphael Arndt, noted that the 2020–21 returns produced by the Future Fund ‘are the highest in the history of the Fund’ but ‘over the medium-term returns are going to be harder to produce, particularly given the shifts in the investment environment created by the pandemic’.[7]

Committee consideration

Senate Finance and Public Administration Legislation Committee

The provisions of the Bill were referred by the Senate to the Senate Finance and Public Administration Legislation Committee (the Senate Finance and Public Administration Committee) for inquiry and report by 14 October 2021.[8] The Committee received thirteen submissions which are discussed further under the relevant Schedules.[9] The Committee also held a hearing examining the provisions of the Bill on 28 September 2021.[10]

Senate Standing Committee for the Scrutiny of Bills

The Senate Standing Committee on the Scrutiny of Bills (Scrutiny of Bills Committee) raised concerns about the level of parliamentary scrutiny for changes to:

• the Code of Conduct for FFMA and the FFMA Values and
• the granting of financial assistance to states and territories through the Medical Research Future Fund Special Account (MRFF Special Account).[11]

These concerns are discussed further in relation to Schedules 1 and 3 below.

Policy position of non-government parties/independents

The Australian Greens spokesperson on Treasury, Finance and Economic Justice, Nick McKim, is reported as describing the provisions in Schedule 2 of the Bill as a ‘calculated and cynical response to the fund being caught out investing in Adani’.[12] He further stated that the FFMA is ‘Australia’s sovereign wealth fund which invests public money on behalf of all Australians, and should be accountable for those investments’.[13]

Liberal Senator Gerard Rennick has stated he would not be voting in support of the Bill as he doesn’t support the amendments in Schedule 2 of the Bill.[14]

Financial implications

The Explanatory Memorandum notes that only the proposed amendments to the MRFF Act (Schedule 3) will have a direct impact on the Commonwealth’s fiscal position.[15]

Specifically, the changes to the disbursements framework for the MRFF would set a maximum payout from the fund each year of $650 million, from 2022–23.[16] In addition to the legislative amendments to the MRFF, the Government intends to issue a new investment mandate with a higher benchmark rate of return. The Government predicts that, while the higher rate of return will increase the risk of short-term losses, this will be offset by higher expected earnings over the medium to long term.[17]

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.[18]

The Government considers that the Bill is compatible with human rights because ‘it promotes the right of everyone to the enjoyment of the highest attainable standard of physical and mental health, enshrined in Article 12(2) of the International Covenant on Economic, Social and Cultural Rights.[19]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights had no comment on the Bill.[20]

Schedule 1 – Staff of the Future Fund Management Agency

Operation of the FFMA

The FFMA was established by section 74 of the Future Fund Act. The Chair of the Future Fund Board is the head of the FFMA. The FFMA provides executive support for the Future Fund Board and is responsible for the operational activities associated with the investment of the Future Fund.

The primary functions of the FFMA are to provide administrative and policy support to the Board and manage the relationships between the Board and investment managers such as funds managers, transition managers and custodians.[21]

FFMA supports the Future Fund Board, which has responsibility for investing the assets of special purpose public funds including:

• the Future Fund
• the MRFF
• the DisabilityCare Australia Fund (DCAF)
• the Aboriginal and Torres Strait Islander Land and Sea Future Fund (ATSILSFF)
• the Future Drought Fund (FDF) and
• the ERF.[22]

For the purposes of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), the FFMA is a listed entity and the Chair is the accountable authority;[23] however, the Future Fund Board itself is not an entity under the PGPA Act.[24] The costs of running the FFMA are met from the Future Fund, but the FFMA is subject to Parliamentary scrutiny through the budget and estimates process.[25]

Existing staffing arrangements under the Public Service Act

The FFMA’s headquarters is in Melbourne, where most of the staff are located. Staff of the FFMA are employed under the Public Service Act, consistent with the Australian Public Sector Workplace Relations Policy.[26] As at 30 June 2020, FFMA employed 188 people under the Public Service Act (three were employed at the Senior Executive Service (SES) level).[27]

All employees of the FFMA operate on individual employee contracts and, in addition to fixed pay, ongoing staff can earn a variable pay component, which is based on both personal performance (Individual Plan) and investment performance (Fund Plan).[28] The proposed new employment arrangements may provide the potential for more competitive remuneration and flexibility in employment contracts.

Planned increase in staffing

In May 2021 it was announced that the FFMA would receive an 80 per cent increase in staff to deal with what it warns is a fundamentally changed investment outlook.[29] The FFMA’s staffing cap, which was limited to an Average Staffing Level (ASL) of just under 200 people, was lifted by the Government, as announced in the 2021–22 Federal Budget.[30] Commencing in the 2021–22 financial year, the ASL cap has increased to 350. A spokesperson was quoted as saying:

… the investment environment is increasingly challenging and complex and these staff numbers will help us continue to prudently invest.

Earnings targets had been toughened and there was an extra fund to manage, he said. The fund … said costs were met from revenue they generated.[31]

The Chief Executive Officer, Dr Raphael Arndt, has spoken of the need to increase staffing resources and build capacity to respond flexibly to an evolving and challenging economic and investment environment:

… we’ll continue to implement the new three-year business strategy we launched at the start of this year, with a focus on refreshing our investment model, maturing the organisation, preserving our legacy and expanding our voice. With this, we will be looking to prudently build out our resources and enhance our capabilities to ensure we’re well-positioned to successfully deliver on our long-term mandate. We must ensure that the organisation remains a mature, resilient and successful investor for the decades ahead.[32]

In discussing an increase in staffing he spoke further about the environment:

… the investment environment is more challenging. We think to be able to meet our mandates in the period ahead, we need to ramp up our activity in a number of areas, particularly in what is called alpha-seeking strategies. They are strategies where we have to select investment managers that have skill based strategies, like private equity, hedge funds and managers like that. We need more staff to do that. That is not scalable. Thirdly, we feel like we need to get better at adjusting the portfolio because of these significant changes in markets and volatility we expect to occur going forward.

So the plan has about near a doubling of the investment team to respond to that environment.[33]

He said half of the extra 150 staff, which will take the fund’s overall staffing to 350 people, would be required in investment management. Between 30 and 40 staff would go into data collection with Dr Arndt saying the fund needed more timely and different data than was currently available.[34]

Under questioning, Dr Arndt explained the decision not to outsource work of the FFMA:

We prepared a forward-looking plan assuming that we would have to outsource some components of that plan. We started talking to the government about the desirability or otherwise of doing it. We built the budget assuming that some of those services were outsourced. With the ASL decision, we’re now able to insource those activities.[35]

Proposed employment framework

In his second reading speech Stuart Robert, the Minister for Employment, Workforce, Skills, Small and Family Business, stated the need to build expertise to operate in a commercial environment as a reason for the changing employment arrangements.[36] The proposed framework will provide more operational flexibility by bringing employment conditions under the Future Fund Act rather than the Public Service Act while staff continue as Commonwealth employees.

The Minister drew a comparison to similar arrangements operating in Commonwealth agencies including the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA). These agencies may employ staff under their enabling Acts rather than under the Public Service Act. For example, section 45 of the Australian Prudential Regulation Authority Act 1998 allows the Chair of APRA to appoint staff as he or she considers necessary for the performance of APRA’s function and determine terms and conditions of appointment.[37]

In a submission to the Senate Standing Committee on Finance and Public Administration the Community and Public Sector Union (CPSU) voiced its opposition to the removal of the FFMA staff from being covered by the Public Service Act. The CPSU argues that it is problems with the Government’s bargaining policy that result in agencies being unable to attract staff that work in the financial services industry and these problems will not be fixed by no longer applying the Public Service Act to FFMA employees.[38] This position is also supported by the Australian Council of Trade Unions.[39]

Staff to be employed under the Future Fund Act

The Explanatory Memorandum provides a good summary of the key changes set out in Schedule 1 of the Bill.

Section 77 of the Future Fund Act provides that the FFMA’s staff are Commonwealth public servants, engaged under the Public Service Act, and that the FFMA is a statutory agency for administrative purposes. Item 2 repeals and replaces section 77. Proposed section 77 provides for the Chair of the Future Fund to employ such employees as they think necessary.

Proposed terms and conditions of employment

Proposed subsection 77(3) provides that terms and conditions of employment are determined by the Future Fund Chair while ensuring that such a determination cannot act to reduce the benefit to an employee (proposed subsection 77(4)). The terms and conditions have to be consistent with the Fair Work Act 2009, including the National Employment Standards and any modern award applicable to FFMA employees.

Item 4 provides for mobility rights for FFMA employees to be seconded or move voluntarily to the Australian Public Service (APS). Section 26 of the Public Service Act provides for voluntary moves between Agencies[40] and will apply to Future Fund employees.

As public servants engaged under the Public Service Act, FFMA staff must currently adhere to the APS Code of Conduct (the Code) and the APS Values.[41] Proposed sections 79B and 79C provide that the Chair must determine the FFMA Code of Conduct and FFMA Values, which must, as far as practicable, be consistent with the APS Code of Conduct and APS Values. The FFMA Code of Conduct and the Values are required to be publicly available on the Agency’s website (proposed subsections 79B(4) and 79C(5)).

However, proposed subsections 79B(5) and 79C(6) state that those determinations are not legislative instruments. The Explanatory Memorandum notes the determinations have an administrative rather than legislative character.[42] The Scrutiny of Bills Committee has asked the Minister for advice on why the Values and Code of Conduct will not be made by legislative instrument and therefore not subject to parliamentary scrutiny.[43]

Proposed section 79D clarifies that the Chair is not subject to direction by the Future Fund Board in relation to his or her functions under the PGPA Act in relation to their responsibilities for the FFMA and therefore employment arrangements.

Proposed section 83C authorises the Future Fund Chair to delegate their powers relating to employment arrangements to a staff member of the FFMA who is at an equivalent level to an SES employee. However, the Chair would not be able to delegate the obligations to determine an FFMA Code of Conduct and Values. A delegate may further delegate powers to a subdelegate at SES-equivalent level. The subdelegate must comply with any directions given to the delegate by the Chair.[44]

Division 2—Consequential amendments

Items 8 to 13 make consequential amendments to a range of other Acts (the ATSILSFF Act, the DCAF Act, the ERF Act, the FDF Act and the MRFF Act) to reflect the changing employment arrangements of the FFMA.

When staff are not employed under the Public Service Act it is not possible to refer to an SES employee. A substitute reference to an employee at the equivalent level to an SES employee is necessary to allow the Finance Minister to continue to delegate relevant powers under the amended Acts.

Transitional provisions

Items 14 to 16 ensure FFMA staff will continue to be employed on the same terms and conditions as those that applied immediately before the commencement of the new employment provisions and will retain their existing entitlements. This includes the application of the Safety, Rehabilitation and Compensation Act 1988. The transitional provisions also allow for the continuation of delegations made to particular positions created under related Acts such as the ATSILSFF Act, the DCAF Act, the ERF Act, the FDF Act and the MRFF Act.

Schedule 2 – Freedom of Information

Operation of the FOI Act

The FOI Act requires an agency or Minister to give a person access to a document if the person’s request complies with the terms of the FOI Act.[45] Part IV of the FOI Act sets out various grounds on which a document may be prevented from being disclosed.[46] Section 7 of the FOI Act also allows for certain agencies or persons to be exempted from providing documents without needing to establish one of the exemptions in Part IV.

Schedule 2 of the FOI Act lists agencies that are exempt from the operation of the FOI Act entirely or exempt in respect of particular documents. The Future Fund Board and FFMA are not currently listed in Schedule 2 of the FOI Act. Some of their documents could, however, be exempt from disclosure on the basis that they contained commercially valuable information or material obtained in confidence.[47]

Partial exemption for the FFMA from operation of the FOI Act

Schedule 2 of the Bill will amend Part II of Schedule 2 of the FOI Act to exempt:

• the Future Fund Board, in relation to documents in respect of its investment activities and
• the FFMA, in relation to documents in respect of the investment activities of the Future Fund Board.

The Explanatory Memorandum states that the exemption is intended to cover:

… documents including (but not limited to) those in relation to the Future Fund Board’s or the Agency’s past, current or proposed investment strategies for the Australian Government’s investment funds, the evaluation of potential or current investments and investment managers, investing amounts, managing and realising investments and acquiring and managing derivatives.[48]

The proposed amendments will ensure that any document in respect of the Future Fund Board’s investment activities is exempted from the operation of the FOI Act, regardless of whether the document is commercially sensitive or would have an impact on the Future Fund Board or the FFMA’s activities.

Both the ACTU and Industry Super Australia have argued that the amendments are ‘inconsistent with the Government’s proposal to require superannuation funds to disclose every position and investment valuation, under the exposure draft of the Corporations Amendment (Portfolio Holdings Disclosure) Regulations 2021’.[49]

Industry Super Australia recommended that the Government ensure that regulatory measures with respect to superannuation funds and the FFMA be consistent:

The problem arises because it's inconsistent with other regulations which the government is making, or intending to make, on behalf of superannuation funds. But however it is achieved, whether it is through amendments to this particular bill in relation to the FOI exemption or the scope of that exemption, we would argue that the government should reflect on the regulations it has drafted, or is intending to make, which will apply to superannuation funds. Our submission is that there should be greater consistency between the two.[50]

The FFMA has argued that the proposed amendments are necessary as the current exemptions in the FOI Act ‘are too narrow or unclear to be relied on in some circumstances and, even if they are available, it is administratively burdensome for a relatively small agency to have to process requests which are ultimately refused’.[51] The FFMA advised the Senate Finance and Public Administration Committee that in the last four years it has received sixteen FOI requests relating to asset valuation matters, six FOI requests relating to investment activities and nine FOI requests relating to general activities undertaken by the FFMA.[52]

The FFMA also submitted to the Senate Finance and Public Administration Committee that being subject to the FOI Act has put the FFMA at a competitive disadvantage, with co-investors and investment managers expressing concern about the FFMA’s ability to maintain the confidentiality of commercially sensitive information.[53]

Schedule 3 – Medical Research Future Fund

The MRFF was established by the MRFF Act to provide an ongoing funding stream for medical research and medical innovation.[54] The capital of the MRFF is invested and preserved; the earnings are used to make grants of financial assistance for medical research and medical innovation over the long term.[55]

The Medical Research Future Fund consists of the Medical Research Future Fund Special Account and the investments of the Medical Research Future Fund. Initially, its investments are a portion of the investments of the Health and Hospitals Fund which was established under the repealed Nation‑building Funds Act 2008. Additional amounts may also be credited to the Medical Research Future Fund Special Account.

The Medical Research Future Fund Special Account can be debited for 3 main purposes:

(a) channelling grants to the COAG Reform Fund to make grants of financial assistance to States and Territories; and

(b) channelling grants to the MRFF Health Special Account to make grants of financial assistance to certain bodies; and

(c) making grants of financial assistance directly to corporate Commonwealth entities.

Debits are made from the Medical Research Future Fund Special Account by the Finance Minister after being required to do so by the Health Minister. The Health Minister takes the Australian Medical Research and Innovation Priorities (which are determined by the Australian Medical Research Advisory Board under Part 2A) into account in making decisions about the financial assistance that is provided from the Medical Research Future Fund Special Account.

The Medical Research Future Fund Special Account can also be debited in relation to costs and other obligations incurred by the Future Fund Board in managing the Fund.[56]

The Board of the Future Fund invests the MRFF in accordance with the published Medical Research Future Fund Investment Mandate Direction 2015 (MRFF Investment Mandate).[57]

The initial investment in the MRFF of $1.010 billion was transferred from the discontinued Health and Hospitals Fund.[58] The Government has since credited additional amounts to the Medical Research Future Fund Special Account and the fund reached its $20 billion target in 2020.[59] The Department of Health reports that, from its inception in 2015 to 30 June 2021, the MRFF has funded a total of 670 grants amounting to $1,779.8 billion with 80 per cent going to competitive grants.[60]

Setting maximum annual distribution from the fund

The maximum amount that can be debited from the Medical Research Future Fund Special Account (MRFF Special Account) is currently determined by the Future Fund Board for each financial year.[61] Part 3 of the MRFF Act sets out the principles and process for the Future Fund Board to determine the maximum annual distribution.

Item 33 of Schedule 3 will repeal all of Part 3 of the MRFF Act. Proposed section 15B of the MRFF Act sets the total annual amount that can be debited from the MRFF Special Account at $650 million in a financial year from the year beginning on 1 July 2022 unless the responsible Ministers set a different amount by disallowable legislative instrument.[62]

The Bill does not provide guidance for setting a different amount of total annual debits. It does not replace subsection 34(4) of the MRFF Act, which currently requires the Future Fund Board to take into account the principle that the capital level of the MRFF be preserved for the long term.

The Government argues there is no need for that requirement:

With the MRFF now fully capitalised, the Government intends to issue a new investment mandate for the MRFF with a higher benchmark rate of return. While this would increase the risk of losses in the short term, it would also increase expected earnings and support the perpetual funding objective over the long term.[63]

Proposed subsection 15B(5) requires the responsible Ministers to conduct a review at least once every five years into the operation of the provisions setting the total annual debits from the MRFF Special Account.

In conducting a review under this new subsection, it is envisaged that the responsible Ministers would consider whether the maximum debit amount (or amounts) should be changed, having regard to the object of the MRFF Act as well as the perpetual funding objective of the MRFF.[64]

Prior to the MRFF being established, it was the Government’s expectation that the interest earned on the fund would amount to an estimated $1 billion return per year once fully mature and would ‘support basic, applied and translational research in priority clinical areas that will benefit patients’.[65]

The Association of Australian Medical Research Institutes, the Australian Society for Medical Research and Research Australia noted that the proposed maximum annual distribution of $650 million is significantly less than the $1 billion disbursement originally envisaged by the Government.[66] Submitters raised concerns that this could result in a disbursement that is significantly less than $650 million and have recommended that the Government amend the Bill to provide for a minimum, not a maximum amount, subject to indexation.[67]

The Association of Australian Medical Research Institute explained why it considers the amendments necessary:

The Bill should also include a minimum amount of funding to be provided for medical research. There is currently no legal requirement for investment returns to be spent each year on medical research, and as the Act is being amended the opportunity should be taken to change this. Having a minimum amount available would provide greater certainty and confidence that the MRFF will be investing in medical research at a set level irrespective of the cyclical nature of the MRFF investment returns. This minimum amount should be set at least $650 million per annum to ensure existing commitments in the forward estimates are met.[68]

The George Institute argued that, without a minimum annual disbursement limit, ‘a situation could arise, similar to 2021–22, in which a low Reserve Bank of Australia (RBA) cash rate could negatively impact the MRFF if there is no supplement from the Federal Government’.[69]

While submitters generally supported the Government’s intent to seek greater returns from the MRFF, they argued that the current capital of the MRFF of $20 billion should be maintained and the Bill should be amended to reflect this.[70] The Department of Finance stated that removing the protection of the principal of the MRFF is required to allow the Government to instruct the Future Fund Board to pursue a higher benchmark rate for the MRFF:

Under the new disbursements framework, the requirement to consider the principle of preserving the nominal credits to the MRFF over the long term will no longer exist. This will allow the Government to issue a new investment mandate for the MRFF with a higher benchmark rate of return. This will increase expected earnings and support the perpetual funding objective.[71]

An alternative payment channel to state and territory governments and authorities

The MRFF Act currently allows grants to be made from the MRFF Special Account to states and territories through the COAG Reform Fund under section 20.[72] Note that the COAG Legislation Amendment Bill 2021, currently before Parliament, proposes to rename the COAG Reform Fund as the Federation Reform Fund (Part 1 of Schedule 1) and to make consequential amendments to the MRFF Act.

The purpose of the COAG Reform Fund is to make grants of financial assistance to the states and territories (not other bodies).[73] A direction to channel a grant from the MRFF Special Account through the COAG Reform Fund must be for the purpose of making a specified grant of financial assistance to a state or territory for the purposes of medical research and medical innovation.[74] Such a direction is not a legislative instrument.[75]

By contrast, section 24 of the MRFF Act permits grants directly to several types of bodies from the MRFF Health Special Account:

The purpose of the MRFF Health Special Account is to make grants, for the purposes of supporting medical research and medical innovation, to any one or more of the following bodies:

(a)  a medical research institute;

(b)  a university;

(c)  a corporate Commonwealth entity;

(d)  a corporation.

A direction from the Health Minister requiring the Finance Minister to credit funds to the MRFF Health Special Account does not require a specific purpose to be specified and is not a legislative instrument.[76]

Item 16 of Schedule 3 to the Bill amends section 24 of the MRFF Act by inserting two more bodies to which payments can be made from the MRFF Health Special Account for the purposes of supporting medical research and medical innovation:

(e)  a State or Territory;

(f) an authority of a State or Territory.

This mechanism is in addition to the existing mechanism for channelling money to the states and territories through the COAG Reform Fund.

Stakeholders have mixed views about the alternative payment channel. The George Institute supports the additional pathway, arguing it will ‘enable greater integration and cooperation of medical research within the overall Australian health system’.[77] The Australian Society for Medical Research expressed concern that competition from states and territories would diminish the amount of funds flowing to researchers and research institutes.[78] The Australian Academy of Health and Medical Sciences supports safeguards to ensure that funds flowing to the states and territories are spent only for research purposes.[79]

In its submission to the Finance and Public Administration Committee, the Department of Finance argues why this additional pathway is necessary:

While the MRFF Act provides a legal avenue for payments to states and territories through the COAG Reform Fund, this avenue has never been used because a payment to a state or territory as a result of an open, competitive grants process is classified as a Commonwealth Own-Purpose Expense (COPE). The current Intergovernmental Agreement on Federal Financial Relations, which governs payments through the COAG Reform Fund, does not provide for COPE payments to a state or territory.[80]

The Department of Finance stated that the change ‘promotes competition for MRFF grants, resulting in grants being awarded directly to the entity best placed to deliver the intended policy outcome.’[81]

Consultation with states and territories on management of MRFF financial assistance

A recent ANAO report – Department of Health’s Management of Financial Assistance Under the Medical Research Future Fund, states that despite states and territories being key stakeholders, consultations with them have been inadequate:

Stakeholder views have been considered in developing the MRFF Strategy, two-yearly MRFF Priorities and roadmaps for the research missions in the 10-year Plan. Health has not actively consulted with state and territory governments, which are key stakeholders in the delivery of MRFF and its outcomes.[82]

Section 32EA of the MRFF Act requires the Australian Medical Research Advisory Board to ‘provide a process for consulting’ with certain persons and organisations before determining an Australian Medical Research and Innovation Strategy, or Australian Medical Research and Innovation Priorities. States and territories are not specified in section 32EA and the Bill does not propose any amendments to this provision.

Scrutiny concerns

The Scrutiny of Bills Committee raised concerns about Schedule 3 of the Bill including that:

• neither the Bill nor the MRFF Act contains any guidance as to the terms and conditions on which financial assistance may be granted and
• neither the Bill nor the MRFF Act provide for parliamentary scrutiny of agreements made under section 27.[83]

The Committee requested the Minister’s advice on whether the Bill could be amended to:

• include at least high-level guidance as to the terms and conditions on which financial assistance may be granted; and
• include a requirement that written agreements with the states and territories about grants of financial assistance relating to medical research made under section 27 of the Act are:
  • tabled in the Parliament within 15 sitting days after being made; and
  • published on the internet within 30 days after being made. [84]

Schedule 4 – Emergency Response Fund

Establishment of the ERF

The ERF was established by section 9 of the Emergency Response Fund Act 2019 (ERF Act) to enhance the Commonwealth’s ability to:

• make arrangements with persons or bodies in relation to natural disasters and
• make grants to persons or bodies in relation to natural disasters.[85]

The ERF was initially funded by transferring $3.9 billion from the Education Investment Fund into the ERF Special Account.[86]

The ERF was only to be drawn upon when the Government determined ‘a need for additional support in parallel with existing national disaster response programs’.[87] Disbursements from the Fund from 2023-24 were to be restricted to the average values of the annual net realised earnings of the Fund over the previous five years.[88] The initial balance was expected to grow to $6.6 billion over the following decade and allow disaster-hit communities to ‘get back on their feet faster’.[89]

Creation of the National Resilience and Recovery Agency

The proposed changes to the ERF Act are part of the Government response to the recommendations of the Royal Commission held after the extreme bushfire season of 2019–20.[90] The National Natural Disaster Arrangements Report[91] acknowledged that, while states and territories have primary responsibility for disaster responses, and that they delegate some of this responsibility to local governments, the Australian Government ‘should complement, enhance and support the role of the states and territories’.[92]

The Report recommended implementing a ‘standing resilience and recovery body that can scale‑up to meet the needs of a future disaster’.[93] In response, the Australian Government established the National Recovery and Resilience Agency (NRRA) on 5 May 2021.[94] The NRRA is administered by the Department of the Prime Minister and Cabinet,[95] and the responsible minister is the Minister for Emergency Management and National Recovery and Resilience.[96]

Schedule 4 will give effect to the transfer of responsibility and administration for natural disaster recovery expenditure from Emergency Management Australia in the Home Affairs portfolio to the NRRA, in an effort to strengthen ‘transparency and assurance over Commonwealth funding towards natural disaster recovery and resilience’.[97]

Current administrative structure

The ERF consists of the Emergency Response Fund Special Account (ERF Special Account) and the investments of the ERF. The purposes of the ERF Special Account are:

• to transfer amounts to the Home Affairs Emergency Response Fund Special Account for the purposes of making payments and grants in relation to natural disasters
• to transfer amounts to the COAG Reform Fund for the purposes of making grants to the states and territories in relation to natural disasters.

The ERF Special Account can be debited for costs and other obligations incurred by the Future Fund Board in managing the ERF.[98]

Key administrative changes

Transfer of administrative responsibility for the ERF to the NRRA

Item 8 inserts a definition for the NRRA:

NRRA means the body known as the National Recovery and Resilience Agency that was established as an Executive Agency under section 65 of the Public Service Act 1999.

The NRRA is substituted for the Home Affairs Department throughout the ERF Act. This reflects the transfer of the administrative responsibility for expenditure from the ERF from the Home Affairs Department to the NRRA.

Purpose of the Home Affairs Emergency Response Fund Special Account

Section 27 of the ERF Act establishes the Home Affairs Emergency Response Fund Special Account (Home Affairs Special Account). The purposes of that Home Affairs Special Account are to pay amounts payable by the Commonwealth under an arrangement made under section 20; and to make grants under section 20.[99]

Subsection 20(1) provides the Emergency Management Minister may, on behalf of the Commonwealth make arrangements or grants for the carrying out of a project, the provision of a service or the adoption of technology that is directed towards:

• recovery from a natural disaster or
• post‑disaster resilience for an area that has been affected (whether directly or indirectly) by a natural disaster.

Subsection 20(1A) provides the Emergency Management Minister may, on behalf of the Commonwealth make arrangements or grants for the carrying out of a project, the provision of a service or the adoption of technology that is directed towards:

• resilience to a future natural disaster that could affect an area (whether directly or indirectly)
• preparedness for a future natural disaster that could affect an area (whether directly or indirectly)
• reduction of the risk of a future natural disaster that could affect an area (whether directly or indirectly) or
• the long‑term sustainability of a community or communities in an area that is at risk of being affected (whether directly or indirectly) by a future natural disaster.

When the Emergency Management Minister has made an arrangement under section 20, that Minister may ask the Finance Minister to transfer the amount to meet those commitments from the ERF Special Account to the Home Affairs Special Account. Then the Finance Minister may give a direction (which is not a legislative instrument) to transfer the funds.[100]

Change of name for the Home Affairs Special Account

The Bill does not make any changes to section 20 of the ERF Act, so the purposes to which funds can be applied by the Emergency Management Minister remain the same.

Item 16 of Schedule 4 of the Bill repeals and replaces section 27.

Proposed section 27(1) continues the Home Affairs Special Account under the new name of the Emergency Response Fund Payments Special Account (ERF Payments Special Account). The current name of the account is omitted, and the new name substituted throughout the Act: items 1-3, 9-13, 15, 17-19, 21-23 and 25-31 of Schedule 4 of the Bill.

Proposed subsection 27(2) provides that the ERF Payments Special Account is a special account for the purposes of the Public Governance, Performance and Accountability Act 2013. A note makes clear that the special account designation permits amounts to be directly debited from the Government Appropriation to the ERF Payments Special Account:

Note:  An Appropriation Act may contain a provision to the effect that, if any of the purposes of a special account is a purpose that is covered by an item in the Appropriation Act (whether or not the item expressly refers to the special account), then amounts may be debited against the appropriation for that item and credited to that special account.

The same arrangement was in place for the Home Affairs Special Account.

Payments to the COAG Reform Fund

The ERF Act currently allows money to be transferred from the ERF Special Account to the COAG Reform Fund for the purposes of making grants to the states and territories in relation to natural disasters. The process for channelling state and territory grants through the COAG reform fund is set out in sections 32 and 32A.

Item 33 of Schedule 4 of the Bill repeals and replaces subsection 32(1). Item 36 of Schedule 4 repeals and replaces subsection 32A(1). The provisions have similar effect. Currently the Emergency Management Minister is able to give a direction to the Department of Finance to debit an amount from the ERF Special Account and credit that amount to the COAG Reform Fund. As set out in the Explanatory Memorandum to the Bill:

The process of a Minister directing a department outside of that Minister’s portfolio is unusual, and is inconsistent with comparable provisions in the legislation governing of other Australian Government investment funds.[101]

The amendments in items 33 and 36 will instead allow the Emergency Management Minister to ask the Finance Minister to give a direction to transfer funds from the ERF Special Account to the COAG Reform Fund. If the Emergency Management Minister makes such a request, the Finance Minister is required make a direction to transfer the requested amount.

Note that the COAG Legislation Amendment Bill 2021, currently before Parliament, proposes to rename the COAG Reform Fund as the Federation Reform Fund (Part 1 of Schedule 1) and will make consequential amendments to the ERF Act.

Providing copies of finance directions to reduce administrative burden

Correspondence about directions to transfer funds usually occurs at a departmental level because the Minister’s powers are delegated. The ordinary operation of the PGPA Act ensures that Departments keep their Ministers appropriately informed, so certain requirements in the ERF Act that Ministers personally give or receive notice of particular directions are considered to be an unnecessary administrative burden: see for example, subsections 28(9), 28A(9), 31(4), 32(6) and 32A(6).

In order to reduce administrative burden, the Bill proposes to reduce the circumstances in which a Minister must personally give, or be given, notice of directions that are made under the ERF Act and instead allow copies of directions to be given at departmental level: see, for example, items 20, 24, 32, 35 and 38.