Chapter 3
Land Fund Report 1997-98
Statutory Reporting Requirements
3.1 Statutory requirements in relation to the Land Fund's annual reports
are set out in s.193I of the ATSIC Act. They include the requirement for
the Minister to cause to be prepared as soon as practicable after the
end of 30 June each year a report about the administration and operation
of the Land Fund and its supporting legislation (s.193I(1)). These requirements
were set out in Chapter 3 of this Committee's Fifth Report.
3.2 The following specific matters are required by s.193I(2) of the ATSIC
Act to be included in each Land Fund report:
- a) particulars of amounts credited to the Land Fund during the financial
year;
- b) particulars of amounts paid out of the Land Fund during the financial
year;
- c) particulars of investments of the Land Fund;
- d) the realised real return on investments of the Land Fund in respect
of the financial year;
- e) such other information (if any) as is specified in the regulations.
3.3 Further, copies of annual reports are to be laid before each House
of Parliament within 15 sitting days after the completion of the
report (s.193I(3)).
Compliance
Tabling
3.4 The 1997-98 annual report of ATSIC, with the Land Fund report appended
(Appendix 11), was presented to the Minister on 28 October 1998 and was
tabled in the Senate on 10 November 1998 and the House of Representatives
on 11 November 1998. The Land Fund report satisfied the tabling requirements.
3.5 Importantly, part of the Land Fund report is reproduced as Appendix
1 to the ILC annual report for 1997-98.
Specific Matters
Amounts Credited to the Land Fund
3.6 The 1994-95 Budget committed $200 million to the Land Fund. And on
4 July 1995 $123,178,000 was appropriated to the Land Fund. This
amount represented the first of nine (indexed) annual allocations of $121
million from 1995-96 through to 2003-2004. Each year the amount is to
be indexed to maintain value in 1994-95 dollar terms. The third special
appropriation of $129,792,000 occurred on 2 July 1997 (ATSIC annual report
1997-98, p.209; ILC annual report 1997-98, p.98).
3.7 The value of the Land Fund on 1 July 1997 was $396,515,489. An amount
of $81,522,000 was appropriated to the Land Fund at the commencement of
the reporting period, taking the value of the base investment of the fund
to $478,037,489. The value of the fund at 30 June 1998 was $527,095,789.
This amounts to a realised real return on investments for 1997-98 of 7.05%
(ILC annual report 1997-98, p.99).
Investment Outcome
3.8 From 1 January 1998 the Aboriginal and Torres Strait Islander Land
Fund became a Reserved Fund within the Commonwealth Public Account and
is now called the Aboriginal and Torres Strait Islander Land Fund Reserve.
It is a requirement that, from 1 January 1998, monies in the Land Fund
be invested in accordance with s.39(8) of the Financial Management
and Accountability Act 1997 (the FMA Act). Previously, monies in the
Land Fund had to be invested to comply with the Audit Act 1901.
(ILC annual report 1997-98, pp.15,16,98)
3.9 At page 99 of the ILC report, the Land Fund report records that:
The reduction in interest rates has produced a strong short-term return
for that part of the portfolio invested in long-term securities. However
the earning power of those securities will be marginally diminished
in the future. As identified in the 1996-97 Annual Report, the earning
power of the remainder of the portfolio has been significantly diminished
by the fall in rates. Securities with a maturity horizon before June
2004 and future appropriations will need to be reinvested at least at
the prevailing rates.
At the end of June 1998 the market rate for investments out to June
2004 was approximately 3.50 percent per annum. As a result, not all
funds will be invested at the yield required to achieve the target balance
at June 2004; this situation will worsen if rates continue to fall,
however should rates rise the situation would improve.
3.10 The Land Fund report notes that a revised investment strategy was
instigated in February 1998; it aims to improve the Fund's investment
returns within the constraints of the FMA Act. The Land Fund Report states
(p.100 of the ILC annual report 1997-98) that:
This strategy will lock a significant percentage of current investments
into inflation linked securities with maturities past 2004 while the
yield on such securities exceeds or is near the required real return.
A further portion of the Land Fund will be invested in longer term fixed
rate nominal bonds and Floating Rate Notes, which offer liquidity should
rates begin to rise over the next several years. This will allow an
identified real yield to be achieved together with an ability to take
advantage of any favourable movements in the market.
3.11 The figure of $1106 million (indexed) for the 2004 Land Fund target
is specified at s.193AA(2) of the ATSIC Act. (The Land Fund report, reproduced
at p.99 of the ILC annual report, incorrectly refers to the indexed target
of $1106; it should read $1106 million.) The ILC annual report again includes
the table of notional allocations to and from the Land Fund (ILC annual
report, p.16). This shows a notional allocation after ten years of $1289
million, consistent with the figure reported in the 1996-97 annual report
(p.11).
3.12 The Committee's Thirteenth Report (p.15) notes that the ILC had
not explained, or attempted to reconcile the `notional' and `target' Land
Fund figures in its 1996-97 report. The 1997-98 ILC report corrects this
and explains the difference between the `notional' and `target' figures
at page 17.
3.13 In its Thirteenth Report, the Committee also comments that the ILC
report does not repeat the reference to a land fund target of $1.46 billion,
as contained in the 1995-96 report. The 1997-98 report refers to the figure
of approximately $1.4 billion, explaining that it is a notional figure
that is often stated as the likely value of the land fund when established
(p.17). The ILC also refutes the suggestion that the fund has already
reached this `projected 2004 target' (p.17).
3.14 The ILC annual report does not report fully on the possibility that
the Land Fund may not meet its target balance by June 2004 and does not
specifically refer to the recent investment experience of the Land Fund.
The only reference is at page 17 where the report states:
While the notional target figure will almost certainly approximate
the actual target required for the fund to be self-sustaining after
the cessation of government subventions to the fund, the actual target
figure will vary from time to time with fluctuations in the CPI and
the rate of investment returns to the fund.
3.15 The Committee is concerned that the Land Fund could be placed in
the situation of not meeting the target balance as the result of investment
experience. And, in this regard the ILC report should have noted that
s.193AA(1) of the ATSIC Act provides for a one-off payment to be credited
to the Land Fund if it fails to meet the target balance by June 2004.
That is, the target balance is assured by the Commonwealth.
Amounts Paid Out of the Land Fund
3.16 In the reporting period an amount of $48,270,000 was drawn down
to the ILC from the Land Fund.
3.17 This is the first year that no allocation was made to ATSIC for
its Land Acquisition and Maintenance Program (LAMP); the ILC assumed sole
program responsibility at the federal level for management of indigenous-held
land from 1 July 1997 (ILC annual report 1997-98, p.28). The assumption
of sole responsibility by the ILC for land management raises a question
concerning the arrangements for land management that were shared
by ATSIC and the ILC prior to 1 July 1997. That matter is taken up in
Chapter 4 of this report.
Investments and Realised Real Returns
3.18 The ILC report states (p.98) that:
An amount of $81,522,000 was invested in securities in accordance with
section 62B of the Audit Act 1901 (Audit Act).
And it is stated on page 99 that:
Investments during the year were made in securities prescribed by the
FMA Act. These included Commercial Bills, Floating Rate Notes, Capital
Indexed Bonds, Nominal Bonds and At Call Account.
3.19 The report (p.98) states, however, that the Land Fund became a Reserved
Fund within the Commonwealth Public Account from 1 January 1998 and, from
that date, any Land Fund monies had to be invested in accordance with
the FMA Act. The Committee was concerned that these statements could have
been confusing in their reference to the legislation under which Land
Fund monies were invested during the 1997-98 financial year.
3.20 The Committee wrote to ATSIC on 8 June 1999, seeking clarification
of this matter. A reply was received from ATSIC on 11 June 1999 which
stated:
I confirm your understanding that from 1 July 1997 to 31 December 1997
Land Fund monies were required to be invested in accordance with section
62B of the Audit Act 1901 and subsequently from 1 January 1998 to 30
June 1998 in accordance with section 39(8) of the FMA Act.
I further confirm that there have been no practical administrative
or investment implications arising from the legislative change that
took effect on 1 January 1998.
The Committee notes that this matter should have been clearly articulated
in the Land Fund annual report.
Summary
3.21 The financial statements of the Land Fund annual report for 1997-98
received an unqualified audit. Further, reporting about the Land Fund
for 1997-98 complies with the legislative requirements.
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