Key points

• The Bill proposes to amend the Emergency Response Fund Act 2019 to repurpose the existing Emergency Response Fund as a dedicated, ongoing source of funding for natural disaster mitigation and risk reduction, to be known as the Disaster Ready Fund.
• From 1 July 2023, the Fund’s remit would narrow to focus exclusively on building resilience and preparing for future natural disasters (to an annual cap of $200 million), replacing the current focus on post-disaster recovery and resilience ($150 million cap) and smaller allowance for more forward-looking resilience and risk reduction projects ($50 million cap).
• The Bill would preserve the status quo for the current financial year to allow payment of funds committed to two projects by the previous Coalition Government, as set out in its May 2022 Budget ($150 million for recovery and resilience following the 2022 east coast floods; and $50 million for the Coastal and Estuarine Risk Mitigation Program).
• The core architecture and governance arrangements for the Fund and its two associated special accounts would remain unchanged, as would current arrangements governing the Fund’s investment mandate. Most amendments are simple changes to the names of the existing Act, Fund and special accounts (see the schematic on page 12), and to clarify the authority and responsibilities of the new National Emergency Management Agency (NEMA) with respect to the Fund.
• Concerns raised during consideration of the originating Bill for the Emergency Response Fund Act 2019 – notably, ministerial discretion to expend significant funds under limited legislative guidance and Parliamentary scrutiny – are not resolved by the current Bill.
• These governance concerns may become more acute under the proposed pivot from primarily reactive spending, following an objective disaster, to exclusively proactive spending to counter future risks.

Introductory Info

Date introduced: 7 September 2022
House: House of Representatives
Portfolio: Finance
Commencement: Sections 1–4 on Royal Assent; Schedule 1 on the earlier of a day fixed by Proclamation or six months after Royal Assent; Schedule 2 on 1 July 2023.

Purpose of the Bill

The purpose of the Emergency Response Fund Amendment (Disaster Ready Fund) Bill 2022 (the Bill) is to amend the Emergency Response Fund Act 2019 (the 2019 Act) to repurpose the existing Emergency Response Fund (ERF) as a dedicated, ongoing source of funding for natural disaster resilience and risk reduction, to be known as the Disaster Ready Fund (DRF).

Structure of the Bill

The Bill is divided into two Schedules:

• Schedule 1 contains the detail of the proposed amendments.
• Part 1 amends the 2019 Act. It would insert new text covering both the new, resilience‑focused purpose of the DRF from 1 July 2023, and the interim arrangements preserving the current funding rules for the 2022–23 financial year.
• Part 2 makes consequential amendments to other Acts.
• Part 3 contains transitional and application provisions to support smooth operation of the Fund as the different amendments come into force.
• Schedule 2 comprises additional amendments to take effect from the start of the 2023–24 financial year.
• Part 1 would delete from the 2019 Act any references to the previous post-disaster recovery functions of the DRF.
• Part 2 contains transitional provisions.

Background

The existing Emergency Response Fund

This Bill seeks to substantially change the policy intent and remit of the existing ERF.

The ERF was created in 2019 under the previous Coalition Government but with bipartisan support to provide ‘an additional funding source for future emergency response and natural disaster recovery… following natural disasters in Australia that have a significant or catastrophic impact.’[4] The 2019 Act established the ERF and its two associated special accounts (see pages 11–12 of this Bills Digest).

A secondary purpose for the ERF was added via amendments secured by the then Labor Opposition,[5] as summarised by Senator Murray Watt, then Shadow Minister for Natural Disaster and Emergency Management: ‘providing funding for what’s known as mitigation, or resilience, infrastructure and efforts — things that can be done to minimise the impact of disasters when they do hit.’[6] According to Senator Watt:

Under the commitments that we have extracted from the government, the government will increase the funding available under its proposed Emergency Response Fund from $150 million a year, which is what was in the original bill, to $200 million per year. As a result of that commitment, we have an increase of $50 million per annum to be spent by the government on disaster matters. More importantly, the government has agreed that that extra $50 million will be dedicated to improving disaster preparedness by funding a range of risk reduction works.[7]

This Bill repurposes the ERF exclusively for disaster mitigation and risk reduction. By doing so, the Bill responds to concerns raised by stakeholders upon the establishment of the ERF (and since) about the need for a greater focus on mitigation and resilience investment before disasters strike, in contrast to the prevailing pattern – criticised by the Productivity Commission[8] – of governments spending primarily on recovery and rebuilding after disasters.

The detailed background to the ERF’s creation is covered in the Parliamentary Library’s Bills Digest on the originating Bill for the 2019 Act[9] and in the report of the Senate Finance and Public Administration Legislation Committee’s inquiry into that Bill.[10]

Recent context

The Parliamentary Library’s 2022 Briefing Book article on ‘Natural disasters and climate risk’ recaps recent natural disasters and climate change projections for Australia, and outlines the national governance arrangements for disaster response and climate adaptation as they stood at the time of the 2022 federal election.[11]

The Briefing Book article also explores background issues relevant to Parliamentary consideration of the current Bill, including:

• the inadequacy of federal-state emergency management arrangements as they stood in May 2022, in light of the nation’s experience with natural disasters over the previous three years
• the debate regarding the right balance between investment in disaster prevention (for example, seeking to reduce global greenhouse gas emissions), mitigation (such as infrastructure hardening and land use reform)[12] and response and recovery (such as rescues and rebuilding)
• moral hazard – for example, whether the expectation of Australian Government financial assistance following a disaster could reduce incentives to protect oneself from known extreme weather risks[13]
• planning for the growing fiscal impact of natural disasters as climate change advances.[14]

How the current Bill responds to this context

Speaking in relation to the Bill, Home Affairs Minister Clare O’Neil[15] criticised the former Coalition Government’s low expenditure from the ERF, and reiterated the Productivity Commission’s longstanding recommendation to increase spending on disaster mitigation, not just disaster response.[16]

This Bill implement’s Labor’s pre-election commitment to invest ‘up to $200 million per year on disaster prevention and resilience’ (with the intention that this be matched by the states and territories),[17] by rededicating the ERF’s existing $150 million annual post-disaster recovery allowance to pre-disaster mitigation. Added to the ERF’s existing $50 million annual allowance for mitigation spending, this brings the total available for mitigation to a cap of $200 million annually.

The Bill does not increase the maximum total annual expenditure allowed from the DRF, though it creates a mechanism for doing so (see page 18).

Committee consideration

Senate Finance and Public Administration Legislation Committee

The Bill has been referred to the Senate Finance and Public Administration Legislation Committee for inquiry and report by 16 November 2022,[18] on the grounds that the Bill deals with a ‘Complicated issue with huge ramifications for disaster affected communities’.[19] Details of the inquiry are at the inquiry webpage.

Policy position of non-government parties/independents

At the time of writing, parliamentary and public debate or commentary on the Bill has been limited.

Coalition

Some inferences may be drawn from commentary and debate prior to the Bill’s introduction. For example, the Shadow Minister for Emergency Management, Senator Perin Davey, raised concerns about whether the Coalition’s 2022 ERF spending commitments (in particular the $150 million announced for post-flood recovery and resilience in NSW and Queensland) would be honoured in full by the incoming Labor Government.[20]

Responding to such concerns, the interim arrangements in the Bill for the 2022–23 financial year allow the Government to pay out previously committed funds. Home Affairs Minister Clare O’Neil has committed that the Government will do so[21] (see pages 15–17 of this Bills Digest). However, the geographical scope of previously committed flood recovery support still appears to be contested.[22]

Australian Greens

During parliamentary debate on the originating Bill for the 2019 Act, the Australian Greens (the Greens) raised concerns which are likely still current. Of relevance to this Bill, they called for:

• greater action on greenhouse gas emissions to address climate change, which is the root cause of Australia’s worsening natural disaster outlook
• a recalibration of spending on disaster response versus mitigation, although they noted Labor’s amendments[23] as ‘a step in the right direction’[24]
• higher taxes on fossil fuel companies to bear the cost of establishing the Fund.

At that time, the Greens also echoed governance concerns raised by the Scrutiny Committee in relation to the originating Bill to the 2019 Act.[25]

For example, Greens Senator Mehreen Faruqi stated:

… natural disasters and emergencies cause immense suffering, and responding to that suffering quickly and properly is absolutely vital. But instead of committing to resilience and well-managed disaster response, or actually acting on the root causes of why these disasters are occurring, the government has brought forward this bill, which fails on the resilience front, fails on the climate action front and lacks all of the appropriate transparency and safeguards in its spending on disaster response.[26]

Greens Senator Larissa Walker added:

We here at the Greens will always be strong supporters of not just mopping up after a disaster but actually investing in preventing them, investing in not only community resilience and preparedness but the mitigation of what’s causing these natural disasters. We are in a climate emergency.[27]

Position of major interest groups

Insurance industry

The Insurance Council of Australia (ICA) has welcomed the introduction of the Bill and called on the States and Territories to match the Australian Government’s funding commitment in their respective jurisdictions.[28] This position is consistent with its arguments in response to the originating Bill to the 2019 Act:

The Insurance Council supports the need for recovery funding to help communities to rebuild after a natural disaster. However, a much stronger focus, previously recommended by multiple government initiated inquiries, is required on spending for disaster mitigation. The primary role of governments in disaster management should be to reduce community impacts arising from extreme weather events, strong policies that seek to control risks through appropriate building codes, land use planning and investment in preventative mitigation infrastructure.[29]

In supporting this Bill, the ICA reiterated its previous policy recommendations that state-based duties, levies and taxes on insurance products be abolished, and for land use planning reform and strengthened building codes to further reduce the risk to properties of natural disasters.[30]

Queensland-based insurer RACQ has also welcomed the Bill and called on the states and territories to match funding[31] (see further ‘Queensland stakeholders’ below).

Some other insurers commented on the need for more emphasis on resilience and mitigation measures during the inquiry of the Senate Finance and Public Administration Committee into the originating Bill for the 2019 Act:

• Insurance Australia Group (IAG) submitted that ‘While IAG supports disaster recovery efforts … a more balanced approach to spending on disaster mitigation and resilience measures and recovery and reconstruction is required … IAG has continually expressed the view that prevention is better than cure.’[32]
• Suncorp Group Limited submitted that it ‘would like to see the Government address the chronic shortfall in disaster resilience funding[.] … By substantially increasing natural hazard resilience funding, post-disaster resources could be reduced. Australia is currently stuck in a vicious cycle of disaster, rebuild, repeat.’[33]

Queensland stakeholders

Foreshadowing the likelihood of future competition between States and Territories for the limited available funding, Queensland-based insurer RACQ has stated that ‘Queensland must get its fair share’ from the DRF. Its CEO, David Carter, elaborated:

As the east coast prepares for a third consecutive La Nina this summer, Queensland faces the brunt of increased climate impacts … It’s only sensible and fair that Queensland receives significant support from this Fund to better protect our communities against this threat.[34]

The Local Government Association of Queensland (LGAQ) has also welcomed the Bill, anticipating that many Queensland councils would receive funds for critical resilience and mitigation projects. LGAQ CEO Alison Smith has stated:

Many Queensland councils have millions of dollars worth of disaster resilience projects ready to proceed but are being hamstrung by lack of adequate funding available … Getting money flowing from the Federal Government’s Emergency Response Fund is a big step in the right direction for communities in Queensland, Australia’s most disaster-prone state … We are looking forward to seeing up to $200 million a year from the national fund go towards prevention measures such as flood levees, sea walls, cyclone shelters, evacuation centres, fire breaks and telecommunications improvements.[35]

Other stakeholders

Some other stakeholders’ positions might partially be anticipated based on their comments during the Senate inquiry into the originating Bill for the 2019 Act:

• The Australian Business Roundtable for Disaster Resilience and Safer Communities noted at that time: ‘our research shows the clear economic and social benefits of also funding disaster mitigation and resilience before a disaster strikes … A more balanced approach to spending makes economic sense.’[36]
• The Australian Local Government Association submitted that ‘ALGA has consistently advocated for the establishment of a targeted disaster mitigation program at a level of $200 million per annum for four years.’[37]
• Similarly, the Australian Red Cross advised ‘we strongly believe that funding from this program should be directed to disaster risk reduction.’[38]

Financial implications

As stated in the Explanatory Memorandum to the Bill, ‘The changes in the Bill will not have any financial impact.’[39] The existing financial architecture of the Fund and associated special accounts, and the total annual spending cap of $200 million, remain unchanged.[40]

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.[41]

Parliamentary Joint Committee on Human Rights

At the time of writing, the Parliamentary Joint Committee on Human Rights had not considered the Bill.

Key issues and provisions

Continuity of the Fund’s existing financial and governance architecture

The Bill preserves the substance of the existing financial architecture and governance arrangements developed for the ERF, mostly extending them to the renamed DRF without change.

Most provisions in the Bill simply give effect to the change in name from ‘Emergency Response Fund’ to ‘Disaster Ready Fund’ and similar name changes for associated special accounts, as illustrated in Figure 1 on the following page.

Minor changes to the governance model

The Bill also proposes the following relatively minor refinements to the previous model.

Schedule 1, Part 1, item 97 repeals subsection 32(1) and inserts proposed subsections 32(1A) and (1), to harmonise the procedure for debiting grant funding to state and territory governments with the current procedure for debits to support other beneficiaries; item 101 makes equivalent changes for subsection 32A(1) (see Figure 1).

Under these changes, the Emergency Management Minister would request the Finance Minister to give the relevant direction to debit funds, rather than the current procedure whereby the Emergency Management Minister gives this direction, despite the special account being administered by another department (the Department of Finance) – an arrangement described in the Explanatory Memorandum to the Bill as ‘unusual and inconsistent with comparable provisions in the legislation governing other Australian Government investment funds.’[42]

Figure 1:    Schematic of proposed changes to the Emergency Response Fund

Source: Parliamentary Library analysis.

The Bill also includes various provisions responding to the establishment of the National Emergency Management Agency (NEMA) by:

• reassigning to NEMA rights and responsibilities in the Fund’s governance arrangements which were formerly assigned to the Department of Home Affairs[43] (for example, establishing NEMA’s accountable authority and SES as valid delegates of the Emergency Management Minister)
• renaming the current ‘Home Affairs Emergency Response Fund Special Account’ as the ‘Disaster Ready Fund Payments Special Account’[44] (see Figure 1 on page 12)
• generally deleting or clarifying references to the Department of Home Affairs.[45]

Schedule 1, Part 1, item 105 repeals and replaces Division 5 of Part 3 of the 2019 Act. Within the proposed new ‘Division 5—Limitation on total annual debits from the DRF Special Account’ are proposed sections 34 and 34A. Proposed subsection 34(8) creates a requirement for the responsible Ministers (that is, the Treasurer and Finance Minister) to review the legislation at least once every five years.

Unresolved governance issues

As the ERF’s core financial and governance architecture is unchanged by the current Bill and will transfer to the DRF, concerns expressed by the Senate Standing Committee for the Scrutiny of Bills in relation to the originating Bill for the 2019 Act remain relevant.[46]

Notably, the Committee was concerned by the broad ministerial discretion to confer grants and other funding under the limited high-level guidance in the 2019 Act, and without significant Parliamentary scrutiny:

Broad discretionary powers… The committee’s view is that, where it is proposed to allow the expenditure of a potentially substantial amount of Commonwealth money, the expenditure should be subject to at least some level of parliamentary scrutiny. In this regard, the committee is concerned that the bill contains only very limited guidance on its face as to the terms and conditions that would attach to financial assistance granted in accordance with clause 20 …

The committee also notes that clause 24 (which seeks to set constitutional limits on the provision of financial assistance) provides that the minister may grant financial assistance to a state or territory … In this respect, the committee notes that section 96 of the Constitution confers on the Parliament the power to make grants to the states and to determine the terms and conditions attaching to them. Where the Parliament delegates this power, the committee considers it appropriate for the exercise of the power to be subject to at least some level of parliamentary scrutiny. However, as noted above, the bill appears to contain only limited guidance as to the terms and conditions on which financial assistance may be granted.[47] [original emphasis]

The Committee sought additional advice from the Minister in relation to that matter. Having received the Minister’s response, the Committee acknowledged:

… that funding provided in accordance with the bill would to [sic] be subject to a number of controls designed to prevent arbitrary decision-making and promote transparency. However, from a scrutiny perspective, the committee remains concerned that the bill would permit the expenditure of a substantial amount of Commonwealth money, with limited guidance on the face of the bill as to the terms and conditions on which funds may be granted.[48]

Another concern for the Scrutiny Committee is set out below:

Significant matters in non-disallowable legislative instruments… Clause 39 of the bill would permit the responsible ministers to give the Future Fund Board (FFB) written directions about the performance of its Emergency Response Fund investment functions. Directions given by the responsible ministers make up the Fund’s Emergency Response Fund Investment Mandate. Given that the directions making up the investment mandate are given by a minister to a Commonwealth entity, they will not be subject to disallowance or sunsetting. The committee’s consistent view is that significant matters relating to a legislative scheme (for example, the investment of Commonwealth funds) should be included in primary legislation, or at least in legislative instruments subject to disallowance and sunsetting.[49]

Again, the Committee sought additional advice from the Minister in relation to that matter. Having received the Minister’s response, the Committee acknowledged:

… the importance of ensuring certainty in long-term investment activities. However, as outlined in its initial comments, the committee does not generally consider operational certainty, or consistency with arrangements for other Commonwealth investment funds, as sufficient justification for leaving significant elements of schemes, such as the emergency response fund scheme, to non-disallowable legislative instruments. Indeed, the committee has stated on a number of occasions that such matters should be included in primary legislation, or at least in delegated legislation that is subject to disallowance. From a scrutiny perspective, the committee also considers that the proposed level of parliamentary oversight may not be sufficient. In this respect, the committee reiterates that disallowance and sunsetting are the primary means by which the Parliament exercises control over delegated legislation … Finally, it remains unclear to the committee how providing that the Investment Mandate would be subject to disallowance would undermine operational certainty.[50]

In that instance, the Scrutiny Committee requested relevant amendments to address these issues, and that additional information be included in the Explanatory Memorandum – such as the sources of advice the minister would consult before making grants, and the expectation that grant program guidelines be published. The Explanatory Memorandum was not revised (although program guidelines were developed and published); nor did the Senate pass amendments to tighten the spending criteria or allow additional Parliamentary scrutiny through the 2019 Act.

In contrast, the inquiry into the originating Bill for the 2019 Act by the Senate Finance and Public Administration Legislation Committee concluded that these governance arrangements were adequate,[51] citing extensively[52] from the joint submission by the Department of Finance and Emergency Management Australia.[53]

The ‘Additional Comments’ by Labor Senators to the Committee[54] did not mention the governance issues summarised above, although Greens Senators expressed some relevant concerns during parliamentary debate on the Bill.[55]

The current Bill does not substantively change the clauses of concern in the original (in sections 20, 24 and 39) with respect to these matters.[56]

‘Other provisions’ (below at page 22 of this Bills Digest) notes one other feature of concern to the Scrutiny Committee in 2019 that would be preserved by the current Bill.

Changes to Division 5 – limitations on total annual debits from the special account

The commencement of different provisions in the Bill has been timed to ensure the status quo continues for the current financial year with respect to funding categories and annual limits. Provisions in Schedule 1 will enable the previous Government’s commitments to be honoured out of the rebranded DRF within this financial year;[57] see ‘Amendments applicable to the 2022–23 financial year’ below and Figure 2 on the following page. Amendments in Schedule 2, to take effect from the start of the 2023–24 financial year, would then:

• remove the post-disaster recovery and resilience category of expenditure (the ERF’s current main spending category, with a $150 million cap)
• rededicate the associated annual funding allowance to mitigation and resilience (the ERF’s current minor spending category, with a $50 million cap)
• restrict ongoing Fund expenditure exclusively to mitigation and resilience going forward.

The effect of these changes in practice is summarised in Figure 3 and ‘Amendments that take effect from the 2023–24 financial year’ on the following page.

The Explanatory Memorandum to the Bill clarifies:

It is expected that Schedule 2, which would commence on 1 July 2023, would commence after Schedule 1, which would commence on a day to be fixed by Proclamation. This would ensure that the provisions operate as intended, and allow the Government to meet existing commitments in 2022-23 and dedicate the Disaster Ready Fund to natural disaster resilience and risk reduction initiatives thereafter.[58]

Amendments applicable to the 2022–23 financial year

Schedule 1, Part 1, item 105 of the Bill inserts proposed subsections 34(6) and 34(7) to retain the annual limits for expenditure for both spending categories in the existing subsections 20(1) and 20(1A) of the 2019 Act, namely:

• post-disaster recovery (to a cap of $150 million per year – see current subsection 34(1))
• future resilience (to a cap of $50 million per year– see current subsection 34(2)).[59]

Figure 2:    Timing of proposed amendments under the Bill

Source: Parliamentary Library analysis.

Figure 3:    Operation of the proposed amendments

Source: Parliamentary Library analysis.

This would allow the new Labor Government to honour the previous Coalition Government’s spending commitments from the Fund (see also page 8 of this Bills Digest) while still legislating its proposed long-term changes in full.[60]

Amendments that take effect from the 2023–24 financial year

The amendments in Schedule 2 repeal those sections enabling or referring to expenditure for post-disaster recovery.

Importantly, Schedule 2, Part 1, item 3 repeals the existing subsection 20(1) in ‘Division 2—Arrangements and grants’, as illustrated in Figure 3 on the previous page and Figure 4 below.

Effectively, this will complete the process of refocusing the DRF from the original primary function of the ERF, namely providing ‘an additional funding source for future emergency response and natural disaster recovery… following natural disasters in Australia that have a significant or catastrophic impact’[61] (that is, a reactive mechanism) to a focused Australian Government funding channel to support future disaster risk mitigation and resilience projects (a proactive mechanism).

As elaborated by the Government in its Explanatory Memorandum to the current Bill:

From 1 July 2023, the Act will no longer provide for grants or arrangements to be made for natural disaster recovery. The amendments in Part 1 of Schedule 2, which will take effect from 1 July 2023, would remove the provisions that are no longer necessary. This would reflect the Government’s decision to dedicate the Disaster Ready Fund to natural disaster resilience and risk reduction initiatives. …

The Government will retain existing funding sources for natural disaster recovery efforts, most notably under the Australian Government-State Disaster Recovery Funding Arrangements 2018 (DRFAs). The DRFAs provide for disaster recovery funding to be delivered through state and territory agencies to disaster-affected communities.

Dedicating the Disaster Ready Fund to natural disaster resilience and risk reduction will allow a clearer distinction between the different funding sources and enhance the focus on building resilience to and reducing the cost of future natural disasters. [62]

Figure 4:    Simplified outline of key amendments to Division 2

Source: Parliamentary Library analysis.

New governance around changing annual funding caps for one or more years

Amendments in Schedule 1, Part 1, item 105 set out a new procedure for the responsible Ministers (the Treasurer and Finance Minister) to revise the legislated annual expenditure cap(s) for one or more years. The 2019 Act has no equivalent mechanism.

Under the Bill, such changes would require mandatory consultation with the Future Fund Board and would be disallowable by Parliament:

• Under proposed subsections 34(2) and 34(3) and section 34A, the responsible Ministers would be able to change the annual $200 million expenditure cap after requiring the Future Fund Board to assess the ramifications of doing so and to provide written advice, with a minimum consultation period of 60 days.

• The Bill would not require the Future Fund Board’s advice to be made public.

• A ministerial determination to change the cap would be a legislative instrument, and the Explanatory Memorandum clarifies that it ‘would be subject to disallowance by the Parliament’[63] (emphasis added).

Policy implications of removing disaster recovery from the Fund’s remit

There may be debate as to whether the commitment in the Explanatory Memorandum to ‘retain existing funding sources for natural disaster recovery efforts’[64] (see page 17 of this Bills Digest) is fully consistent with the Bill’s removal of the existing ERF disaster recovery funding allowance, by rededicating it wholly to mitigation.

Critics may question why the new Labor Government did not pursue alternatives such as increasing the available mitigation funding allowance to $200 million while preserving the existing recovery funding allowance. Admittedly, recent turmoil on world markets has seen the Fund’s short-term investment performance deteriorate, with losses of 1.9 per cent for the quarter to 30 June 2022 (compared with an average return of 7.5 per cent per year since its inception);[65] this may have forestalled such a step. However, if such factors are under consideration, the new Government has not articulated this reasoning publicly in connection with this Bill.

Critics may also question whether the existing federal–state Disaster Recovery Funding Arrangements[66] – to which the new government has reiterated its commitment (see page 17 of this Bills Digest) – adequately provide for the catastrophic disasters that were the focus of the ERF. As articulated by former Coalition Minister for Water Resources, Drought, Rural Finance, Natural Disaster and Emergency Management, David Littleproud, at the introduction of the originating Bill for the 2019 Act:

The Emergency Response Fund is a long-term investment to provide an additional source of sustainable funding for emergency response and recovery following a natural disaster that has a significant or catastrophic impact on Australia. … The fund will only be accessed when the government determines existing recovery programs are insufficient to meet the scale of the response required.[67] [emphasis added]

However, the scale of Budget expenditure following recent disasters under the existing federal‑state arrangements has amounted to many billions of dollars, which dwarfs the allowed annual spending limits from the ERF/DRF.[68] This context may reduce the force of such concerns.

Fiscal implications of changing the remit

The changed spending remit may also entail a significant departure from the fiscal logic of the original ERF.

The ERF’s objective was to provide ‘a sustainable source of funding for natural disaster emergency response and recovery into perpetuity’.[69] That is, the policy intent behind the ERF was to grow the Fund as a source of emergency top-up funds for future catastrophes, as explained by former Coalition Government Minister for Emergency Management and National Recovery and Resilience Bridget McKenzie:

… the Emergency Response Fund is a [F]uture [F]und. It’s $4.8 billion at the moment. We’re wanting to grow that to $6.6 billion over the next eight years for future generations because we know natural disasters are going to be more intense and frequent going forward. The interest of that we’re able to spend every financial year.[70]

However, the former Coalition Government struggled to justify this approach of maximising Fund growth rather than spending investment income on recovery, when Australian communities experienced successive major natural disasters over 2019 to 2022.[71]

Noting Labor’s persistent criticism in Opposition of the Coalition’s ‘failure’ to spend money from the ERF,[72] it may be difficult for the new Albanese Government to pursue the same conservative spending strategy with respect to the rebranded Fund, even in a more challenging market and fiscal environment.

If the Fund’s growth cannot match the demand for financial support for mitigation and resilience projects – whether because of the scale or frequency of state and territory requests, Australian Government spending choices, poor market conditions or a combination of such factors – this could have implications for the Fund’s Investment Mandate, even though the current Bill does not directly change this mandate in any significant way.

It could also have implications for the Fund’s sustainability and suitability as a long-term funding mechanism for large-scale mitigation and resilience projects nationally. Such projects are likely to be both expensive and extensive, as climate change advances. For example, the NSW Government anticipates a cost of billions of dollars to implement its committed buy-back scheme for Lismore properties following the catastrophic 2022 east coast floods.[73] NSW also proposes to raise the height of Sydney’s Warragamba Dam, at an estimated cost of $1.4 billion (a federal contribution has been sought).[74]

Tellingly, during debate in NSW about the competing mitigation and resilience funding plans of the NSW Labor Opposition and incumbent NSW Coalition Government, Premier Dominic Perrottet argued ‘$200 million … wouldn’t even pay for the potholes from the last flood.’ Although the Premier was not referring to the $200 million annual cap of the federal Labor’s Government’s DRF, similar arguments could arise in this context.

As at 31 March 2022, the ERF had earned less than $1 billion in interest since its formation, and its total balance is under $5 billion.[75] Sceptics may question the viability of meeting the need for federal support for ambitious mitigation projects exclusively or primarily from the investment returns on the current Fund balance in the current market, notwithstanding that the $200 million annual sum (if fully spent, and if matched by the states and territories) would align with the recommendation from the Productivity Commission’s 2014 inquiry.[76]

Governance issues arising from the pivot from post-disaster to pre-disaster investment

Current arrangements

As discussed above,[77] the governance arrangements for ERF/DRF expenditure confer broad ministerial discretion to select funding recipients. This is preserved by the current Bill.

Further, the current program guidelines require only that the Emergency Management Minister consult the head of Emergency Management Australia (EMA, now merged into NEMA) when deciding grants. In turn, the head of EMA should consult with state and territory or local governments, affected communities and other experts as appropriate. These requirements are not in the 2019 Act, and this would not change.

Arguably, the ERF’s focus on post-disaster recovery has itself been the main assurance mechanism for merit-based, transparent funding decisions for most of the ERF’s annual spending allowance. Provided exceptional, large-scale catastrophes do not occur simultaneously and compete for the same funding pool, there is arguably less need for stringent criteria and decision-making frameworks to fairly prioritise potential recipients. For example, few would contest the merit of assigning recovery funds for the 2022 east coast floods or 2019–20 Black Summer bushfires; these were extraordinary events.

In contrast, assigning funding for projects to counter future possibilities is less clear cut, as expressed by the former Independent Senator Rex Patrick during debate on the originating Bill for the 2019 Act:

I understand that the $150 million will be spent in some sense as a result of a disaster. That is almost outside of the control of even Mr Dutton. I want to go back to the $50 million. Clearly that is pre-emptive… Will there be consultation? Will there be a call for submissions? Will there be experts involved in deciding how this $50 million will be spent each year? Is the government setting up a panel? How exactly does that money get allocated? … [O]ne might presume there might be huge demand for these funds.[78]

Need to prioritise mitigation projects

The new Labor Government has not yet established how it would enhance existing governance arrangements to support the fair prioritisation of projects to mitigate hypothetical future risks. This will be more challenging and subjective, and developing suitable guidance criteria may prove complex, controversial or both.

Firstly, the uncertainties and technical difficulties of forecasting the local impacts of extreme weather trends may frustrate attempts to rank proposals based on ‘outcomes’ and ‘value for money’.[79] Communities face qualitatively different disaster risks (bushfire, riverine flooding, flash flooding, storm surge, cyclone, et cetera). These risks are more or less urgent in the near term depending on location (eastern versus western parts of the country) in conjunction with medium‑term weather cycles (El Nino versus La Nina); they are more or less expensive to governments in terms of rebuild costs (repairs across a densely populated city versus repairs to a few farm homesteads and fences); and they are more or less complicated by moral hazard issues.[80]

These risks are also evolving rapidly in response to climate change, and existing risk models based on historical and/or high-level data are proving increasingly imperfect at the local level.[81] Without drawing on actuarial experts and extensive climate modelling, government decision-makers may be unable to reach defensible estimates of which projects are likely to deliver the greatest future value (in terms of avoided rebuilding costs, avoided deaths or other potential impact metrics). Is it fair to expect applicants to conduct or commission such actuarial assessments? Alternatively, would the public be comfortable basing funding decisions on the output of an Australian Government actuarial master formula? If not, by what yardsticks would competing proposals be assessed?

The current Bill is also silent on how recipients will be prioritised in the event of competition between States and Territories (or regions) for funding. Comments from stakeholders in Queensland immediately after the introduction of the Bill already foreshadow such competition (see page 10 of this Bills Digest).[82] Should some principal of funding equity among states and territories apply? If so, should its application take account of differences in the jurisdictions’ revenue-raising capacities and need profiles, as is done when distributing GST revenue?[83] What would be each jurisdiction’s ‘fair share’?[84] Alternatively, will states and territories essentially determine which projects get funded by exercising their willingness (or not) to match Australian Government investments from the Fund, making the Australian Government’s views on projects’ relative merit at least partially moot?

The choice of metrics for ‘value’ would also be fraught. The cost burden of disaster recovery is rising,[85] so there may be a fiscal case for prioritising projects that would save the greatest amount of money in future. However, this approach may increase inequality. The most expensive property damage and greatest rebuild costs will be seen in highly developed, built-up areas. All else being equal, should Fund expenditure therefore prioritise risk mitigation projects primarily benefiting urban-dwelling Australians in our most densely developed coastal cities, above projects benefitting rural and remote communities? Alternatively, should governments spend less to counter potential losses in the wealthiest postcodes, on the basis that residents would be better able to absorb shocks than would poorer Australians? Or would this unfairly punish people for their success or luck? Or should decision-makers instead weight proposals based solely on their potential human impact? If so, should they focus on the potential number of lives saved per dollar spent, or instead the potential number of homes and jobs saved, poverty avoided, price inflation avoided or other economic impacts? How will these be modelled?

Such tensions are common to spending decisions in many other policy areas, and reasonable compromises are possible. However, the current Bill and Explanatory Memorandum provide no indication of the new Labor Government’s thinking on these issues, which is likely to be of some interest to Parliament.

Minor drafting errors

The Bill appears to have minor drafting errors which will be able to be corrected during the debate on the Bill:

• Schedule 1, Part 3, item 209 refers to ‘amendments made by items 80F, 86, 95, 96B and 99’ whereas the Explanatory Memorandum refers to ‘amendments made by items 80, 87, 96, 100 and 104’.[86] There are no items 80F or 96B.
• Schedule 2, Part 1, items 8 and 10 incorrectly cross-reference text in paragraph 28A(7)(b) and subsection 32A(3).

Other provisions

The exercise of delegated powers by officials

Schedule 1, Part 1, items 80, 87, 100 and 104 make minor changes concerning the exercise of delegated powers by delegates of the Finance Minister (as allowed under section 59 of the 2019 Act), adding the requirement to copy in other relevant departments (but not their respective ministers) when exercising delegated powers. The Explanatory Memorandum clarifies that such delegations are limited to senior public servants, and that the purpose is to ‘to reduce administrative burden, given that correspondence usually occurs at a departmental level as a result of delegations. Departments would still be required to keep their Ministers appropriately informed under provisions in the PGPA Act’.[87] [emphasis added]

Schedule 1, Part 1, item 96 makes the equivalent adjustment with respect to delegates of the Emergency Management Minister (as allowed under section 61 of the 2019 Act), and the Explanatory Memorandum states that such delegations ‘would be limited to the accountable authority of the NEMA and SES employees, or acting SES employees, in the NEMA.’[88]

However, the 2019 Act permits delegation to a much broader category of people under paragraph 61(1)(c), which allows the Emergency Management Minister to delegate powers to any Commonwealth official who has the expertise appropriate to the power. Paragraph 61(1)(c) would be retained by this Bill. The Senate Standing Committee for the Scrutiny of Bills expressed concern with this feature in its 2019 reports on the originating Bill for the 2019 Act,[89] and its comments remain relevant:

…while the committee acknowledges that delegates, as ‘officials’ under the PGPA Act, would be subject to a number of relevant duties, it remains concerned that the bill does not appear to limit the delegation of the Emergency Management Minister’s powers to staff at a particular level, or require the minister to be satisfied that delegates possess expertise appropriate to the relevant delegation.[90]

Housekeeping provisions

The Bill also includes various ‘housekeeping’ provisions. For example, Schedule 1, Part 1, items 21, 22, 31 and 39 delete redundant references to the Education Investment Fund, whose balance was transferred into the ERF on its commencement in 2019,[91] and which no longer exists. Similarly, Schedule 1, Part 1, item 61 repeals a subparagraph referring to the former Nation-building Funds Act 2008, which is no longer in force.