Chapter 1Introduction
Referral of the inquiry
1.1On 30 November 2022, the National Reconstruction Fund Corporation Bill 2022, (‘the bill’) was introduced into the House of Representatives by the Minister for Industry and Science, the Hon Ed Husic MP.
1.2On 1 December 2022, the Senate referred the provisions of the bill to the Economics Legislation Committee (‘the committee’) for inquiry and report by 28February 2023.
1.3On 22 December 2022, the committee tabled a progress report seeking an extension of the reporting date to 10 March 2023.
Purpose of the Bill
1.4The bill gives effect to the Government’s commitment to establish the National Reconstruction Fund Corporation (‘the Corporation’). The Government is providing the Corporation with $15 billion to enable it to invest in priority areas of the Australian economy.
1.5The bill:
establishes the Corporation as a new corporate Commonwealth entity;
describes the Corporation’s functions and powers, including its investment functions and powers and its powers in relation to engaging staff and consultants;
establishes the Corporation’s Board and its functions including membership, appointments, terms and conditions of appointment, and meetings and committees of the Board;
provides for the appointment of the Chief Executive Officer (CEO) and their functions and powers, remuneration, and other terms and conditions;
establishes the Corporation’s financial and funding arrangements, including the establishment of a special account, the process to request payment by the Commonwealth from the Special Account, and management of surplus funds and borrowing by the Corporation;
sets out the Corporation’s investment functions, which are:
to provide financial accommodation for purposes relating to any of the priority areas of the Australian economy; and
to acquire equity interests in entities that carry on activities in a priority area of the Australian economy.
establishes the power for Ministers to issue the Investment Mandate as a non-disallowable legislative instrument and declare the priority areas of the Australian economy in a disallowable legislative instrument;
sets out the Corporation’s reporting obligations, powers to disclose information and requirements for periodic reviews of the operation of the bill;
outlines other functions and powers of the Ministers, including who appoints the Corporation’s Board and who approves payments to the Corporation.
1.6In introducing the bill to the House of Representatives, the Minister for Industry and Science, the Hon Ed Husic MP, explained:
The National Reconstruction Fund Corporation will oversee one of the largest investments in our country's history, with $15 billion to invest in independently assessed projects that will support, diversify and transform Australia's industry and economy.
We can help build investor confidence and see the private sector—whether they be institutional investors, private equity or venture capitalists—work with us to turbocharge Australian industry, making sure Australia is a country that makes things now and into the future…
For too long we've seen good ideas leave our shores for lack of supportive capital. Our government wants this fund to help keep talent and businesses on our shores growing this nation.
Today we make clear our commitment to helping Australian industry rebuild, grow and evolve, to capture the strong opportunities for Australia to be a global leader in high-value manufacturing.
The pressure is on every nation to support sectors that are vital to their economy and sovereign capability.
The National Reconstruction Fund will do just that here in Australia.
Background
1.7Australian manufacturing has declined in the latter half of the Twentieth Century. The Australian Manufacturing Technology Institute Limited (AMTIL) noted:
By the 1970s, Australian manufacturing was in decline.Local manufacturers were unable to compete with imported goods.Imports were much cheaper than goods produced in Australia, which meant businesses and governments alike began to consistently off-shore contracts for products and projects.Manufacturing saw its share of total employment fall from 25 per cent in 1970 to 19 per cent by 1980.
Fast forward to today, and while manufacturing remains a vital part of the economy, it is responsible for just 5 per cent of GDP, and only 5.4 per cent of total employment.Arrium collapsed in 2016.Holden and Ford have closed their facilities.
1.8The bill, and the establishment of the Corporation, is part of the Government’s efforts to encourage sophisticated manufacturing and Research and Development (R&D) in Australia.
1.9The National Reconstruction Fund was a major election promise of the Labor Party going into the 2022 Federal Election:
The National Reconstruction Fund is the first step in Labor’s plan to rebuild Australia’s industrial base.
The National Reconstruction Fund provides a crucial financing vehicle to specifically drive investment in projects that will build prosperity across the country, broadening our industrial base and boosting regional economic development.
1.10The National Reconstruction Fund forms part of the government’s plans to increase Australia’s industrial base, by:
expanding Australia’s mining science technology and increasing the amount of minerals processed in Australia;
value adding to raw materials sectors like food processing, textiles, clothing and footwear manufacturing;
developing capabilities in transport manufacturing and supply chains;
increasing production of essential medical science supplies, such as medical devices, medicines, personal protective equipment, and vaccines;
pursuing commercial opportunities relating to renewables and low emission technologies, such as components for wind turbines, production of solar panels and low methane emission producing livestock feed;
increasing the amount of defence capability requirements being sourced from Australian suppliers; and
supporting enabling capabilities in software development, data science and engineering.
Provisions of the bill
1.1The bill contains seven parts:
Part 1—Preliminary;
Part 2—National Reconstruction Fund Corporation;
Part 3—Board of Corporation;
Part 4—Chief Executive Officer, staff and consultants and committees;
Part 5—Financial arrangements;
Part 6—Investment functions and powers; and
Part 7—Miscellaneous.
1.2There are 92 clauses to the bill. They are briefly summarised below in the context of the above listed parts.
Part 1 – Preliminary
1.3Part 1 of the bill is made up of nine clauses which can be summarised as follows:
Clause 1 provides the citation of the bill
Clause 2 provides the commencement of the bill
Clause 3 sets out the objects of bill
Clause 4 is a simplified outline of the bill
Clause 5 provides the key definitions used in the bill
Clause 6 sets out that the priority areas of the Australian economy will be declared by the Minister in a disallowable legislative instrument.
Clause 7 binds the Crown and provides exemptions for the Crown from prosecution and pecuniary penalty
Clause 8 extends the bill to all Australian external Territories
Clause 9 extends the bill to acts, omissions, matters and things outside Australia.
Part 2 – National Reconstruction Fund Corporation
1.4Part two of the bill would establish the Corporation and sets out its functions.
1.5The functions of the Corporation include its investment functions and its power to liaise with all relevant persons and bodies (including other Commonwealth entities and the States and Territories) for the purpose of facilitating its investment functions.
Part 3 – Board of Corporation
1.6This part of the bill would establish the Board of the Corporation. Board members, including the Chair, are to be appointed by the Ministers.
1.7The Board’s functions are to decide the policies and strategies of the Corporation and to ensure the proper, efficient and effective performance of its function. The Board is required to hold meetings as necessary to perform its functions.
Part 4 – Chief Executive Officer, staff and consultants and committees
1.8There is to be a CEO of the Corporation who is responsible for the day-to-day administration of the Corporation. The CEO is appointed by the Board in consultation with the Ministers and must not be a member of the Board.
1.9The Corporation may employ staff and engage consultants as necessary to perform its functions. The Board may also establish committees to assist or advise the Board or the Corporation’s functions.
Part 5 – Financial Arrangements
1.10This part would establish the National Reconstruction Fund Corporation Special Account and the amounts that are to be credited to this account. This account’s purpose is to make payments to the Corporation.
1.11In situations where the Corporation is holding surplus funds, the Ministers may direct the Corporation to pay the whole or part of that surplus.
1.12This Part would allow the Corporation to borrow money for limited purposes, such as to cover settlement of a transaction in connection with the Corporation’s functions.
Part 6 – Investment functions and powers
1.13This part sets out the Corporation’s investment functions which would be:
(a)To provide financial accommodation for purposes relating to any of the priority areas of the Australian economy; and
(b)To acquire equity interests in other entities that carry on activities in one of the priority areas of the Australian economy.
1.14These investment functions may be carried out by the Corporation itself or through subsidiaries.
1.15The Corporation’s investments are to be solely or mainly Australian-based. The Board would be required to make guidelines setting out how it will be satisfied that an investment is solely or mainly Australian-based.
1.16The Corporation would be bound by the Investment Mandate given to it by the Ministers. The Investment Mandate is to be made by legislative instrument and may include directions to the Board about the Corporation’s investment functions or the exercise of its investment powers (or both).
Part 7 – Miscellaneous
1.17Part 7 includes various matters, including the formation and responsibilities of subsidiaries, reporting requirements, disclosure obligations, the requirement for periodic reviews of the Act, and the power to make rules.
Consultation
1.18According to the Explanatory Memorandum (EM), the following Government stakeholders were consulted in relation to this bill:
Austrade;
Attorney-General’s Department;
Australian Government Solicitor;
Department of Agriculture, Fisheries and Forestry;
Department of Climate Change, Energy, the Environment and Water;
Department of Defence;
Department of Education;
Department of Employment and Workplace Relations;
Department of Finance;
Department of Foreign Affairs and Trade;
Department of Health and Aged Care;
Department of Infrastructure, Transport, Regional Development, Communications and the Arts;
Industry, Innovation and Science Australia;
National Intelligence Community;
Department of the Prime Minister and Cabinet; and the
Department of the Treasury.
1.19According to the EM, the following non-Government stakeholders were consulted in relation to the bill:
Australian Banking Association;
Australian Council of Superannuation Investors;
Australian Council of Trade Unions;
Australian Investment Council;
Industry Super Australia; and the
Law Council of Australia.
1.20The Department of Industry, Science and Resources (DISR) also sought consultation on the implementation of the National Reconstruction Fund, releasing a consultation paper and calling for responses to the paper. DISR published 161 submissions received in response to the consultation paper.
Commencement
1.21The bill would commence on a date fixed by a proclamation issued by the Governor-General, or six months and one day after Royal Assent if no proclamation is made.
1.22The commencement by proclamation would allow statutory appointments and administrative arrangements to be put in place in order to affect the operation of the legislative framework from commencement.
1.23No provisions of the bill would apply retrospectively.
Financial Impact
1.24According to the EM, a total of $15 billion will be made available for the purposes of the Corporation with $5 billion available from commencement.The remaining $10 billion will be made available by 2 July 2029 in instalments as determined by the Ministers.The Corporation is expected to generate revenue from its investments, which will be available for reinvestment.
Legislative Scrutiny
Senate Standing Committee for the Scrutiny of Bills
1.25In Scrutiny Digest 1 of 2023, the Senate Standing Committee on the Scrutiny of Bills (Scrutiny Committee) raised concerns with the bill relating to the matters listed below.
Section 96 Commonwealth grants to the States.
1.26Clauses 63 of the bill (Investment functions) sets out that the Corporation may provide financial accommodation to the States and Territories in situations where the financial accommodation relates to an economic priority area and is provided by way of a grant. Clause 66 of the bill requires that such financial accommodation is set out via written agreement.
1.27Section 96 of the Constitution grants the power of the Parliament to make grants to the States and the terms and conditions attached to such grants. The Scrutiny Committee was concerned that:
…the bill contains no guidance on its face as to how the broad power to make grants is to be exercised, not any information as to the terms and conditions of grants, other than that they must be set out in written agreement.
1.28The Scrutiny Committee was also concerned that there was no requirement to table the written agreement between the Commonwealth and the States and Territories.
1.29The Scrutiny Committee requested the Ministers’ advice as to:
Why it was considered appropriate to confer the broad power contained in clause 63 to make grants when there was limited guidance within the bill as to how that power was to be exercised.
Whether the bill could be amended to include guidance as to the terms on which financial assistance may be granted.
Whether the bill could be amended to require that written agreements for grants to the States and Territories be tabled in Parliament and published.
Exemption of disallowance – Broad discretionary power
1.30The Scrutiny Committee also raised concerned about clause 52 of the bill (Credits to the Account). Clause 52(2) allows Ministers to make a determination in writing to credit a specified amount to the National Reconstruction Fund’s Special Account on a specified day (or in instalments over specified days). Clause 52(5) provides that determinations of the credited amounts are to be legislated instruments which cannot be disallowed.
1.31The Scrutiny Committee noted that exempting an instrument from disallowance has significant implications for parliamentary scrutiny. The Senate has previously acknowledged that delegated legislation should be subject to disallowance unless there are exceptional circumstances which would justify the exemption.
1.32The EM to the bill provides the Government’s reasoning for exempting the instrument referenced in clause 52 from disallowance:
A determination made under subclause 52(4) [sic] will not be disallowable. Given that Parliamentary approval of this bill will constitute approval of the total $15 billion appropriation provided for by subclauses 52(1) and (2), it is not necessary to provide for further parliamentary scrutiny of the timing of the particular transfers to the Special Account.
1.33The Scrutiny Committee did not consider the above adequate justification, noting again the importance of the Parliament’s scrutiny functions.
1.34The Scrutiny Committee also noted that the Ministers’ discretionary power to credit amounts to the Special Account was overly broad and it generally expects that guidance in relation to the exercise of a discretionary power will be included within the primary legislation. The lack of a cap on the amount that could be credited to the Special Account was also a particular concern.
1.35The Scrutiny Committee requested detailed advice from the Ministers as to whether the bill could be amended to limit the Ministers’ broad power to credit amounts to the Special Account and that determinations made under subclause 52(2) be subject to disallowance.
Significant matters in delegated legislation – Exemption from disallowance
1.36Clause 71 of the bill allows the Ministers to give the Board directions about the performance of the Corporation’s investment functions or powers through legislative instrument by way of the Investment Mandate. This instrument is also exempt from disallowance.
1.37The Scrutiny Committee again raised concerns about exempting a legislative instrument from disallowance. It also voiced concerns about the placing of significant matters into delegated legislation, rather than in the primary legislation, without sound justification.
1.38In the EM, the Government stated that clause 71 ‘establishes a framework for the Government to give guidance to the Board while preserving the Board’s role in making investment decisions independently from Government.’
1.39The Government also justified its decision that the Investment Mandate be not subject to disallowance, stating that making the instrument disallowable would ‘introduce significant operational uncertainty for the Corporation and would be inconsistent with like instruments for other entities’.
1.40These justifications were not accepted by the Scrutiny Committee. In particular, it did not consider that consistency with existing legislation was significant justification to exempt an instrument from disallowance.
1.41The Scrutiny Committee requested that the Ministers provide detailed advice as to whether the bill could be amended so that the Investment Mandate be subject to disallowance.
Board delegation of administrative powers or functions
1.42Clause 90 of the bill allows the CEO of the Corporation to delegate their functions or powers under the bill to a member of staff. This clause also allows the CEO to subdelegate any functions or powers delegated to them by the Board to a member of staff.
1.43The Scrutiny Committee was concerned by the bill’s ability to delegate a broad range of administrative powers or functions to a relatively large class of persons. In the past, it has preferred that delegation powers be confined to nominated officers or members of the Senior Executive Service. In cases where a broad delegation power is contained within legislation, the Scrutiny Committee has considered that an explanation for the same should be included in the EM.
1.44The Government provided the following justification in the EM:
Allowing the CEO to delegate or subdelegate their powers or functions to staff, who would undertake the tasks concerned is a normal administrative arrangement. While some powers (for example, large spending decisions, recruitment decisions etc.) would be limited to executive level staff, it is important to make the power unfettered to ensure administrative efficiency so that, for example, executive staff are not required to authorise every grant of leave to staff members or the expenditure of small sums of money on routine tasks.
1.45The Scrutiny Committee stated it does not find a desire for administrative efficiency a significant justification for allowing a board delegation of these kinds of powers. It requested the Ministers’ advice as to why it was necessary for the CEO to be given the broad delegation powers contained in clause 90 and whether the bill could be amended to provide legislative guidance on the scope of delegable powers or to further limit the categories of people to whom powers could be delegated.
Parliamentary Joint Committee on Human Rights
1.46In Report 1 of 2023, the Parliamentary Joint Committee on Human Rights (the Human Rights Committee) raised concerns about the right to privacy in relation to subclauses 85(1) and 85(3).
1.47Subclause 85(1) allows for the disclosure of ‘official information’ to an agency, body or person (including a Government department employee or the government of a State or Territory) if the disclosure will facilitate the performance of the Corporation’s investment functions or will enable or assist the agency, body or person to perform or exercise any of the agency, body or person’s functions.
1.48Subclause 85(3) operates in a similar function to subclause (1) but allows for the disclosure of national security information and sensitive financial intelligence information. The disclose can be made in order to facilitate the Corporation’s investment functions, enable the agency body or person to perform their functions or powers or, if the disclosure is to a staff member of a national security agency, enables that agency to perform its functions. Subclause 85(4) limits the disclosures under subclause (3) to relevant Ministers, their staff and Secretaries of their Departments, and national security agencies.
1.49In its report, the Human Rights Committee noted that the EM’s Statement of Compatibility with Human Rights does not identify whether clause 85 engages the right to privacy, though it does list other clauses (including clause 85) that may restrict the right to freedom of expression. It also notes the bill is unclear on what kinds of information may be disclosed under clause 85 and whether it could include personal information.
1.50The Human Rights Committee sought further information from the Minister about:
What kind of information could be disclosed under clause 85 and whether this could include personal information?
If personal information could be disclosed:
- What is the objective of permitting this kind of a disclose to such a broad range of entities?
- How do subclauses 85(1) and (3) achieve this objective?
- Whether the disclosure power is adequately limited considering the breadth of entities which may be disclosed to?
- What safeguards would exist to protect any personal information disclosed under these subclauses?
- Whether any less restrictive alternatives could achieve the same objective (for example, by limiting the disclosure to specific entities in subclause 85(2) rather than to broad classes of entity)?
Human Rights Implications
1.51The EM argues that the bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
1.52The right to freedom of expression, as set out in Article 19 of the International Covenant on Civil and Political Rights (the ICCPR), includes the freedom to seek, receive and impart information and ideas of all kinds. The ICCPR recognises that the exercise of these rights may be subject to certain restrictions set out in Article 19(3).
1.53Clause 73 of the bill places restrictions on the publication of national security information or sensitive financial intelligence information which is necessary for the protection of national security and sensitive Australian Transaction Reports and Analysis Centre (AUSTRAC) information.
1.54The EM argues that this restriction is appropriately confined to information the publication of which is likely to prejudice national security, or information of AUSTRAC the disclosure of which is inherently prejudicial in character due to its sensitivity.
1.55The EM explains that this sort of information is typically subject to secrecy laws under other Commonwealth legislation primarily due to the negative impact disclosure would have on the ability of agencies with national security functions to perform those functions.
1.56Clause 83 of the bill places some restrictions on the disclosure of commercially sensitive information. These restrictions are necessary to protect the rights or reputations of persons with whom the Corporation deals, who may provide sensitive commercial information with the expectation that it will be held in confidence.
1.57Clause 83 also places restrictions on the disclosure of certain information for the protection of national security and sensitive AUSTRAC information. The restriction is confined to information which may prejudice national security, or information from AUSTRAC which is prejudicial in character.The EM explains that this sort of information is typically subject to secrecy laws under other Commonwealth legislation primarily due to the negative impact disclosure would have on the ability of agencies with national security functions to perform those functions.
1.58Clause 85 is also mentioned in the EM and is discussed above in relation to the Human Rights Committee’s scrutiny of the bill.
Regulation Impact Statement
1.59No Regulation Impact Statement (RIS) was provided as part of the documentation that supports this bill.
Conduct of the Inquiry
1.60The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting written submissions by 9 February 2023.
1.61The committee received 15 submissions as well as additional information and answers to questions on notice, which are listed at Appendix 1.
1.62The committee held one public hearing for the inquiry. The names of witnesses who appeared at the hearing can be found at Appendix 2.
Acknowledgments
1.63The committee thanks all individuals and organisations who assisted with the inquiry, especially those who made written submissions and participated in the public hearing.