Referral
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On 11 September 2019, the Emergency Response Fund Bill 2019 (the ERF bill) and the Emergency Response Fund (Consequential Amendments) Bill 2019 (the consequential amendments bill) were introduced into the House of Representatives by the Minister for Water Resources, Drought, Rural Finance, Natural Disaster and Emergency Management, the Hon. David Littleproud MP, and read for a second time.
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On 12 September 2019, pursuant to the recommendations of Report No. 5 of 2019 of the Senate Selection of Bills Committee, the Senate referred the provisions of the bills to the Finance and Public Administration Legislation Committee (the committee) for inquiry and report by 10 October 2019.
Purpose of the bills
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The ERF bill provides for the creation of an Emergency Response Fund (ERF) to support efforts in emergency response and recovery following severe natural disasters. The ERF will comprise the Emergency Response Fund Special Account (ERF Special Account) and the investments of the ERF.
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The consequential amendments bill proposes amendments to several pieces of legislation to support the establishment and operation of the ERF through:
extending the Future Fund Board's duties to manage the Emergency Response Fund; and
allowing for amounts to be transferred between the Emergency Response Fund and the Future Fund to allow for proper apportioning of common expenses incurred by the Future Fund Board in managing the Emergency Response Fund, the Future Fund, the [Future Drought Fund], the [Aboriginal and Torres Strait Islander Land and Sea Future Fund], the [Medical Research Future Fund] and the [DisabilityCare Australia Fund].
Conduct of the Inquiry
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Details of this inquiry, including links to the bills and associated documents were placed on the committee's website at: www.aph.gov.au/senate_fpa.
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The committee directly contacted a number of relevant organisations and individuals to notify them of the inquiry and invited submissions by 25 September 2019. Submissions received by the committee are listed at Appendix 1.
Overview of the bills
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The ERF is intended as 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.
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The ERF bill provides for an initial credit to the fund of $4 billion, to be financed by a transfer of the remaining balance and existing investments of the Education Investment Fund (EIF), which will be closed. Disbursements from the ERF will be available from the current financial year and will be limited to $150 million per annum.
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The ERF will be managed by the Future Fund Board of Guardians (Future Fund Board). The responsible ministers, the Treasurer and the Minister for Finance, are required to issue an investment mandate to the Future Fund Board to provide strategic guidance on the government's expectations for the investments of the fund.
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Advice on the form of disaster response and recovery programs will be provided to the Minister for Emergency Management by the Director-General of Emergency Management Australia.
Background to natural disaster funding arrangements
Productivity Commission's review of funding arrangements
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In April 2014, the Coalition Government—supported by all state and territory governments—tasked the Productivity Commission with inquiring 'into the efficacy of current natural disaster funding arrangements'. The Productivity Commission released its report into Natural Disaster Funding Arrangements in December 2014.
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In respect of transparency and accountability, the Productivity Commission found that:
The budget treatment of natural disaster costs as an unquantified contingent liability means that governments make decisions about natural disaster risk management without having full information about the potential consequences.
Where governments make no explicit budget provision for the costs of recovery from future natural disasters, there is a systematic bias in risk management against mitigation and insurance.
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Further, the Productivity Commission found that mitigation expenditure across all levels of government is likely to be below the optimal level, however the extent of underinvestment was unknown.
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The Productivity Commission made a number of recommendations, including with respect to funding arrangements for recovery and for mitigation, managing shared risks, and insurance. Those recommendations included that the government make:
…provision for a base level of natural disaster expenditure in the budget forward estimates, in recognition of the fact that there will be some level of Australian Government expenditure on natural disasters each year.
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The Productivity Commission also recommended that the government increase the amount of annual mitigation funding to state and territory governments.
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In its response to the report, the government acknowledged that state and territory governments are primarily responsible for '[d]isaster management, including risk management and planning, recovery and mitigation', but that the federal government 'is uniquely positioned to provide national leadership to strengthen community resilience and to ensure cooperation and collaboration on emergency management policies and practices'.
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The government also expressed its commitment 'to working closely with state, territory and local governments to develop a long-term approach to achieve the right balance between mitigation and recovery funding'.
Addressing disaster resilience
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Since the Productivity Commission report, the government has made a number of changes to promote natural disaster resilience. For example, in November 2016, the federal government, together with the Australasian Fire and Emergency Service Authorities Council (AFAC), established the Australian Institute for Disaster Resilience (AIDR), which 'develops, maintains and shares knowledge and learning to support a disaster resilient Australia'. The AIDR builds upon:
…extensive knowledge and experience in Australia and internationally, we work with government, communities, NGOs, not-for-profits, research organisations, education partners and the private sector to enhance disaster resilience through innovative thinking, professional development and knowledge sharing.
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More recently, in the 2017–18 financial year, the National Resilience Taskforce (the Taskforce) was established within the Department of Home Affairs (DHA) to:
…take a whole-of-Government approach to the way in which Australia prepares for intensifying natural hazards. The task force will work closely with States and Territories, industry and communities to improve the resilience of our critical infrastructure, economy, cities and regions.
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The Taskforce led the development of the National Disaster Risk Reduction Framework (the Framework), a multisector collaboration which was co designed with contribution from representatives across the government, business community sectors. The Framework 'outlines a national, comprehensive approach to proactively reducing disaster risk, now and into the future'.
Current funding arrangements
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At present, state and territory governments are provided with federal funding to assist with natural disaster relief and recovery costs. Federal funding for natural disasters is administered in accordance with the Disaster Recovery Funding Arrangements 2018 (DRFA), which applies to eligible natural disasters that occurred on or after 1 November 2018. The federal government established these disaster relief funding arrangements 'in recognition of the significant cost of natural disasters'.
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Under the DRFA, the government currently 'provides financial assistance directly to the states to assist them with costs associated with certain disaster relief and recovery assistance measures'.
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The federal government may also approve payments to individuals for major disasters pursuant to the Social Security Act 1991 through the Disaster Recovery Payment and the Disaster Recovery Allowance.
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The proposed ERF is an independent source of funding, separate but complementary to the DRFA. The ERF will enable the federal government to, in consultation with states and territories, directly provide assistance to Australian communities affected by a natural disaster that has a significant or catastrophic impact.
Key provisions of the bills
Emergency Response Fund Bill 2019
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The ERF bill is comprised of six parts. This section outlines in broad terms the provisions of the bill.
Part 1—Preliminary
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Part 1 of the bill deals with preliminary matters, including a simplified outline of the bill and definitions of key terms used.
Part 2—Emergency Response Fund
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Part 2 of the bill establishes the ERF, consisting of the ERF Special Account and the investments of the ERF. As part of the establishment, the bill provides for an initial credit to the ERF by transferring the balance and investments of the EIF, which will be closed in the consequential amendments bill.
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Division 3 of Part 2 provides for the responsible ministers to make a determination to credit an amount into the ERF Special Account, either in a one-off payment or in specified instalments. Such determinations can be made by specified delegates of the ministers, and are not subject to disallowance by the Parliament, consistent with provisions for other funds managed by the Future Fund Board.
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Clauses 14 to 16 of the bill set out the purposes of the ERF Special Account. The stated main purposes of the special account are to transfer amounts into the Home Affairs Emergency Response Fund Special Account (Home Affairs Account—also established in this bill) and the COAG Reform Fund for grants and arrangements.
Part 3—Arrangements and grants relating to natural disasters
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Part 3 of the bill sets out the conditions in which the Emergency Management Minister may make an arrangement or grant to contribute to disaster recovery and resilience-building following a natural disaster. The Emergency Management Minister may make an arrangement or grant for matters such as the carrying out of a project, the provision of a service or the adoption of technology related to recovery from a natural disaster, as well as building resilience in an area affected by a natural disaster.
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The Explanatory Memorandum sets out a list of examples of activities that could be funded by an arrangement or grant for disaster recovery and post-disaster resilience:
tailored financial assistance to help persons or bodies recover from, and build economic sustainability and resilience to withstand, the impacts from a catastrophic natural disaster;
additional recovery grants to help primary producers or small business owners re-establish their enterprises/businesses;
economic aid packages to help areas affected, either directly or indirectly, to recover and transition from a natural disaster;
training and information for individuals, primary producers, small businesses or non-government organisations on strategies to help with long-term recovery, including post-disaster mitigation;
tools to better understand local climate variability and advice on climate risk applied to specific locations for future land-use planning;
financial management advice for persons or bodies to improve their ability to manage through lower income periods caused by a natural disaster;
improving data on the effects and consequences of natural disasters;
supporting industry to recover and develop post-disaster future risk mitigation measures;
support and development of alternative solutions for supply chain operations; and
infrastructure built to withstand future natural disasters.
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The Emergency Management Minister may only make an arrangement or grant for post-disaster resilience if an arrangement or grant had been made for post-disaster recovery.
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Details of arrangements and grants made by the Emergency Management Minister must be published on the DHA website. This would allow the public to keep up-to-date on the payments made by the fund, the recipients of grants and beneficiaries of arrangements. Funding arrangements and grants from other emergency management relief programs, such as the Disaster Recovery Payment, are not required to publish details of payments made.
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Part 3 of the bill also establishes the Home Affairs Account. The purpose of the Home Affairs Account is to pay amounts payable by the Commonwealth under an arrangement or to make a grant, under clause 20 of the bill, following a natural disaster. The Emergency Management Minister is required to request the Finance Minister to transfer an amount, equal to the value of any arrangements or grants made, from the ERF Special Account to the Home Affairs Account.
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Any emergency management grants made by the Emergency Management Minister to the States or Territories will be directed through the COAG Reform Fund. The Treasurer must ensure that any amount credited to the COAG Reform Fund is debited for the purposes of the grant as soon as practical after the amount is received.
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Clause 34 of the bill sets an annual limit of $150 million for the total amount debited from the ERF Special Account for arrangements and grants made under clauses 28 and 32.
Part 4—Investment of the Emergency Response Fund
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Part 4 of the bill creates provisions for the investments that are to be made on behalf of the ERF by the Future Fund Board.
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Financial investments may be made in the name of the Future Fund Board and are to be considered investments of the ERF. The investment provisions of the ERF are consistent with other investment arrangements, such as those for the Future Fund and the Future Drought Fund.
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The responsible Ministers must give at least one direction to the Future Fund Board outlining the Government's expectations of the performance of the ERF's investments, which are to be informed by expert advice. These directions are to be collectively known as the Emergency Response Fund Investment Mandate (investment mandate). An investment mandate cannot, however, instruct the Future Fund Board to invest in particular assets or entities. An investment mandate is not subject to disallowance by the Parliament.
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Unless otherwise provided by a direction, clause 40 sets the obligation on the Future Fund Board to aim to maximise the return earned on the investments of the ERF.
Part 5—Reporting obligations etc.
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Part 5 of the bill outlines the ways in which the Future Fund Board shall keep the responsible Ministers informed of the performance and activities of the ERF.
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The Finance Minister may request that the Future Fund Board prepare a specific report or information. Notwithstanding this, the Future Fund Board shall have an obligation to keep the responsible Ministers informed of the Board's operations provided for under the bill.
Part 6—Miscellaneous
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Part 6 of the bill deals with miscellaneous matters relating to the ERF, including the delegation of the functions and powers of the Minister to a senior executive of the departments of Finance, Treasury or Home Affairs.
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The responsible Ministers must cause a review of the operation of the bill to be undertaken within 10 years of its commencement. This review will include the extent of financial assistance provided by the fund towards natural disasters, and whether the $150 million annual limit provided in clause 34 should be increased.
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Part 6 of the bill also provides for the Finance Minister to make rules by legislative instrument relating to provisions in the bill.
Emergency Response Fund (Consequential Amendments) Bill 2019
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The consequential amendments bill complements the ERF bill by making amendments that support the establishment of the ERF. These include amendments to extend the duties of the Future Fund Board to manage the ERF, as well as amendments to the legislation of the other sovereign wealth funds managed by the Future Fund Board to provide for transfers of amounts between the funds.
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Schedule 1 of the bill amends the following Acts to include references to the ERF:
Aboriginal and Torres Strait Islander Land and Sea Future Fund Act 2018;
COAG Reform Fund Act 2008;
DisabilityCare Australia Fund Act 2013;
Future Drought Fund Act 2013;
Future Fund Act 2006; and
Medical Research Future Fund Act 2015.
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Schedule 2 of the bill abolishes the EIF. This is achieved through the repeal of the Nation-building Funds Act 2008, as well as consequential amendments to the sovereign wealth fund legislation listed above.
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Part 3 of Schedule 2 provides for transitional arrangements relating to the repeal of the Nation-building Funds Act 2008, including continuing reporting obligations and the power of the Minister to make rules prescribing matters of a transitional nature.
Financial Implications
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The Explanatory Memorandum for the ERF bill reports that, as the balance of the EIF will be transferred to the ERF, there will be no impact on the underlying cash and fiscal balances of the Commonwealth. Earnings will be received from returns on the investment of the ERF, and costs will be incurred through payments relating to natural disasters and by the Future Fund Board in managing the ERF.
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The consequential amendments bill has no financial implications.
Human Rights
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The Statement of Compatibility with Human Rights identifies two human rights the ERF bill concerns:
Article 11(1) of the International Covenant on Economic Social and Cultural Rights (ICESCR)—right to an adequate standard of living, including food, water and housing; and
Article 12 of the ICESCR—right of everyone to the enjoyment of the highest attainable standard of physical and mental health.
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The Explanatory Memorandum for the consequential amendments bill states that no amendments made in the bill 'directly advance or limit a relevant human right or freedom'.
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The Parliamentary Joint Committee on Human Rights (human rights committee) did not comment on the human rights implications of the ERF bill, however did comment on the consequential amendments bill. The human rights committee sought the advice of the Minister for Finance on whether the right to education under Article 13 of the ICESCR is impacted by the repeal of the Nation-building Funds Act 2008, and therefore the abolition of the EIF.
Consideration by the Scrutiny of Bills Committee
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The ERF bill was reviewed by the Senate Standing Committee on the Scrutiny of Bills (Scrutiny of Bills Committee). The Scrutiny of Bills Committee made no comments on the consequential amendments bill.
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The Scrutiny of Bills Committee identified areas of concern with the ERF bill:
the broad discretionary powers of the Emergency Management Minister to make arrangements or grants for disaster relief and post-disaster resilience;
the lack of a mechanism for a merits review for decisions of the Emergency Management Minister to make arrangements or grants for disaster relief and post-disaster resilience;
the non-disallowable nature of the ERF investment mandate as a legislative instrument; and
the broad provisions for the delegation of administrative powers.