2.1
This chapter provides detail on the key provisions of all four Schedules of the Investment Funds Legislation Amendment Bill 2021, all of which are aimed at streamlining the ‘operation of the Australian Government’s investment funds’.
Summary of schedules
2.2
Schedule 1 amends the Future Fund Act 2006 (Future Fund Act) to establish a new employment framework for the Future Fund Management Agency (Agency).
2.3
Schedule 2 will provide a partial exemption under the Freedom of Information Act 1982 (FOI Act) for the Future Fund Board of Guardians (Future Fund Board) and the Agency, in relation to investment documents.
2.4
Schedule 3 amends the Medical Research Future Fund Act 2015 (MRFF Act) to expand the avenues available to provide funding to the States and Territories, provide a new disbursements framework and streamline the administration of the Medical Research Future Fund (MRFF) grants program.
2.5
Schedule 4 to this bill amends the Emergency Response Fund Act 2019 to transfer responsibility for expenditure from the Emergency Response Fund (ERF) to the newly established National Recovery and Resilience Agency (NRRA), and to streamline administrative arrangements for transfers from the Emergency Response Fund Special Account.
Schedule 1—Staff of the Future Fund Management Agency
2.6
The Explanatory Memorandum (EM) explains that the bill enacts a new employment framework for the Agency, in order to reinforce ‘the independence of the Future Fund Board from the Australian Government’.
2.7
In transitioning to this framework, the EM makes clear that:
Under the new framework, the Future Fund Chair will, on behalf of the Commonwealth, engage staff and determine the terms and conditions of employment. Existing staff members will have their terms and conditions of employment and accrued entitlements preserved under the new framework and staff will still be classified as Commonwealth employees.
Part 1
2.8
Part 1 of Schedule 1 to the bill amends the Future Fund Act to establish a new employment framework for the Agency. Item 1 at Schedule 1 would insert additional definitions into section 5 of the Future Fund Act, to support the operation of the bill’s provisions in the Act.
2.9
Item 2 would repeal section 77 of the Future Fund Act, which currently provides for the engagement of staff of the Agency under the Public Service Act 1999 (Public Service Act) and replace it with a new section 77 which in effect removes staff from the APS framework. Proposed section 77 includes the following provisions:
New subsections 77(1) and 77(2) would provide all the necessary rights, duties and powers to the Future Fund Chair to employ and engage, on behalf of the Commonwealth, employees of the Agency, providing such employees are thought of by the Future Fund Chair as necessary in connection with the performance of any of the Agency’s functions.
Proposed subsections 77(3) and 77(5) would give power to the Future Fund Chair to determine in writing the terms and conditions of employment. Subsections 77(4) and 77A(1) protect the minimum terms and conditions of employment for Agency employees under Commonwealth law such as the Fair Work Act 2009 (Fair Work Act), including the National Employment Standards and any modern award applicable to Agency employees.
2.10
Item 4 would repeal section 79 of the Act, which specifies that the Future Fund Board may not direct the Future Fund Chair in relation to performance of the Future Fund Chair’s functions under the Public Governance, Performance and Accountability Act 2013 (PGPA Act) or the Public Service Act, and allow for the insertion of new sections, as follows:
New sections 79 and 79A would provide mobility opportunities in the APS for employees of the Agency, by allowing Agency staff to be seconded to the APS for a specified period.
New sections 79B and 79C would require the Future Fund Chair to determine a Code of Conduct and Values for the Agency, as employees would no longer be bound by the APS Code of Conduct or APS Values established by the Public Service Act.
New section 79D would provide that the Future Fund Chair is not subject to directions from the Future Fund Board on certain matters, including in relation to the Future Fund Chair’s functions under the PGPA Act in relation to the Agency.
Item 7 would insert new section 83C, which would allow the Future Fund Chair to delegate certain powers to an employee of the agency who is at a level equivalent to a SES employee.
2.11
Part 1, at items 8 to 13, makes consequential amendments to terminology in the following Commonwealth legislation:
Aboriginal and Torres Strait Islander Land and Sea Future Fund Act 2018
DisabilityCare Australia Fund Act 2013
Emergency Response Fund 2019
Medical Research Fund Act 2015
Part 2
2.12
Part 2 of Schedule 1 makes transitional provisions with regard to the terms, conditions and entitlements for staff of the Future Fund Management Agency as they transition from employment under the Public Service Act to the Future Fund Act. Similar transitional provisions ensure that the Safety, Rehabilitation and Compensation Act 1988 continues to apply to staff moving between the two employment frameworks.
2.13
Further transitional provisions are made to the following Acts to ensure delegations under each Act are continued following commencement of the bill:
Aboriginal and Torres Strait Islander Land and Sea Future Fund Act 2018
DisabilityCare Australia Fund Act 2013
Emergency Response Fund 2019
Medical Research Fund Act 2015
Schedule 2—Freedom of Information
2.14
Item 1 would provide a partial exemption from the operation of the FOI Act for the Future Fund Board and the Agency, in relation to documents in respect of the investment activities of the Future Fund Board.
2.15
The EM argues that the partial exemption from the operation of the FOI Act will reduce the risk of disclosing ‘highly sensitive commercial and proprietary material’, and that the exemption in this item would be consistent with the treatment of other entities that deal regularly with commercial information, such as NBN Co and Export Finance Australia. The EM goes on to observe that:
The Future Fund Board and the Agency regularly produce, negotiate and receive documents that include confidential, competitive and commercially sensitive information. The public release, and potential for public release, of such information could compromise the ability of the Future Fund Board and the Agency to implement investment strategies effectively on behalf of the Government.
…
Given the Future Fund Board’s important role in seeking to strengthen the Commonwealth’s balance sheet, the growing size and complexity of the funds managed by the Future Fund Board, and that competing institutional investors in global markets are generally not subject to these [FOI] requirements, there is significant value and public benefit in enabling the Future Fund Board and the Agency to compete on an even footing in global institutional investment markets.
2.16
In relation to the operation of the FOI exemption, the EM to the bill explains that:
The exemption is intended to cover documents including (but not limited to) those in relation to the Future Fund Board’s or the Agency’s past, current or proposed investment strategies for the Australian Government’s investment funds, the evaluation of potential or current investments and investments managers, investing amounts, managing and realising investments and acquiring and managing derivatives.
2.17
The FOI Act will continue to apply with respect to documents that do not relate to investment activities and other transparency and accountability mechanisms will continue to apply under the PGPA Act and the Future Fund Act.
Schedule 3—Medical Research Future Fund
2.18
The EM observes that the amendments made by the bill in relation to the MRFF are aimed at streamlining the Fund’s operations. In addition, the responsible Ministers will be required to review the legislated amount at least every five years, and will have the ability to update the amount of future years via a disallowable legislative instrument. The EM suggests that these amendments will ‘assist in the orderly planning and administration of medical research grants programs’.
2.19
The EM goes on to explain that amendments will also:
... isolate the determination of disbursements from financial market fluctuations, while supporting the perpetual funding objective of the MRFF and better aligning the benchmark rate of return for MRFF with the cost of health-related services.
2.20
Following commencement of the bill, the responsible Ministers intend to issue a new Investment Mandate to the Future Fund Board. According to the EM, the new Mandate will direct the Board to:
… pursue a higher average annual benchmark rate of return for the MRFF over the long term. This will align the MRFF’s investment mandate with other risk-seeking investment funds, creating operational efficiencies for the Future Fund Board, and be consistent with the objective of protecting the capital of the MRFF into the future.
2.21
The provisions enabling these amendments are detailed in the following section.
Part 1
Expanding the avenues available to provide funding to the States and Territories
2.22
Part 1 to Schedule 3 would add States and Territories and State and Territory authorities to the types of persons or bodies that can receive grants from the MRFF Health Special Account under section 24 of the MRFF Act (item 16).
2.23
Several items of Part 1 to this schedule make necessary amendments to terminology, consequential to the inclusion of States and Territories in section 24 (at item 16), which are classified as ‘persons’ under the Acts Interpretation Act 1901.
New disbursements framework
2.24
Item 6 would remove a reference to the current requirement in the MRFF Act for the Future Fund Board, in determining the maximum annual distribution for a financial year, to take into account the principle of preserving the nominal value of credits to the MRFF over the long term. The EM notes that:
This reference would become redundant as the Bill would remove the requirement for the Future Fund Board to determine the maximum annual distribution.
2.25
To reflect this approach, items 3, 4, 10 and 33 would repeal the definition of ‘maximum annual distribution’ in the MRFF Act and make updates to the MRFF Act simplified outline, to remove references to the maximum annual distribution and sections in the MRFF that currently set limits on annual debits from the MRFF Special Account.
2.26
The EM notes that the MRFF ‘has been credited with $20 billion to date and the Government does not have any further credits to the MRFF scheduled’. Further, following commencement of the bill, there would be:
… no requirement to preserve the nominal value of credits ($20 billion) to the MRFF. The MRFF has a value of $21.4 billion as of 31 March 2021, having exceeded its benchmark rate of return since inception. With the MRFF now fully capitalised, the Government intends to issue a new investment mandate for the MRFF with a higher benchmark rate of return. While this would increase the risk of losses in the short term, it would also increase expected earnings and support the perpetual funding objective over the long term.
2.27
Part 1 to Schedule 3 also amends the MRFF Act, to insert new sections 15B and 15B(1) at item 9, to establish a new methodology for the maximum amount that can be disbursed from the MRFF Special Account in each financial year from 2022-23 onwards, in light of the fact that the MRFF is now fully capitalised.
2.28
New subsection 15B(2), also at item 9 of the Schedule, would allow the responsible Ministers to determine, via disallowable legislative instrument, a maximum amount that can be debited from the MRFF Special Account in a specified financial year (from 2022-23 onwards).
2.29
The maximum amount for 2022-23 and later financial years would be $650 million, or if another amendment under subsection 15B(2) or 15B(3), that other amount. New subsection 15B(5) would require the responsible Ministers to conduct a review of the proposed limitation on total annual debits from the MRFF Special Account (new paragraphs 15B(1)(c) and (d)), at least once every five years.
2.30
In light of new proposed section 15B, item 10 of the Schedule repeals section 16 of the MRFF Act, which currently sets the limit on annual debits from the MRFF Special Account.
Streamlining the administration of the MRFF grants program
2.31
The EM outlines the further minor amendments to the MRFF Act proposed by the bill, which aim to streamline the administration of the MRFF. These changes would:
make state and territory governments (including state and territory government entities) eligible to receive funding directly from the MRFF Health Special Account, given their significant expertise in certain areas of health and medical research;
extend and align the timing of the Strategy and the Priorities, to reduce the ongoing consultation burden on the health and medical research sector and reflect the enduring, long-term approach to medical research and medical innovation;
clarify that grants can be paid in instalments (for example, to clarify that milestone payments can be paid to grant recipients);
clarify that the Health Minister can request debits from the MRFF Special Account without having to identify each individual grant to which a debit relates (grant outcomes would continue to be transparently reported on the Department of Health’s website); and
allow copies of administrative directions to debit the MRFF Special Account (for the purposes of paying grants) to be received by senior departmental officials instead of Ministers, in instances where the Finance Minister has delegated the power to make a transfer in accordance with the MRFF Act.
2.32
The following provisions in the bill would enact the above administrative amendments to the MRFF.
2.33
Item 7 of the bill would make amendments to paragraph 15A(2)(b) to provide that the Health Minister has the power to seek advice on the merits of making multiple grants, and to clarify that separate expert advice need not be sought on the merits of each individual grant. Item 8 provides that when the Finance Minister debits a specified amount from the MRFF Special Account for the purpose of paying grants, this may relate to one or more grants and need not specify the grant or grants to which it relates.
Copies of directions and delegations
2.34
The bill, at items 12, 19 and 25 of Schedule 3 provide for new arrangements with respect to the Finance Minister providing copies of directions made under subsection 20(1), 25(1) and 29(1) of the MRFF Act to the Health Minister and Treasurer, if the Finance Minister debits a specified amount from the MRFF Special Account and credits that amount to the COAG Reform Fund, the MRFF Health Special Account or a corporate Commonwealth entity.
2.35
These new arrangements would require the Finance Minister to give a copy of a direction under subsection 20(1), 25(1) or 29(1) to the Treasurer and the Health Minister in instances where the Finance Minister personally gives a direction under those subsections.
2.36
Proposed subsections 20 (5) and (6) at item 12, 25(5) and (6) at item 19 and 29(4) and (5) at item 25 provide that if a delegate of the Finance Minister gives a direction under subsection 20(1), 25(1) or 29(1) of the MRFF Act, the delegate must give a copy of the direction to the Treasurer, the Health Minister, the Treasury Department and the Health Department. The EM explains that this provision would allow:
… correspondence to occur between officials at a departmental level when the power to give a direction under subsection 20(1) [and 25(1) and 29(1)] has been delegated to an official in the Finance Department.
Delegations under subsection 20(1) [and 25(1) and 29(1)] are limited to the Secretary and SES employees, or acting SES employees, in the Finance Department. This ensures that any delegate has a suitable level of experience and skills to perform the delegated power.
The purpose of [these items] is 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.
2.37
New sections provided for at items 13, 24 and 26 stipulate that a grant referred to in subsections 20(2), 26(1) or 29(1), being a grant to a State or Territory via the COAG Reform Fund, the MRFF Health Special Account or to a corporate Commonwealth entity, may be made in instalments.
2.38
Item 16 of Schedule proposes to add States and Territories, and their authorities, to the types of persons or bodies that can receive grants from the MRFF Health Special Account, under section 24 of the MRFF Act. The purpose of this provision is explained by the EM:
This would allow the MRFF Health Special Account to be debited for the purposes of paying grants to any State or Territory, including any body that shares legal personality with a State or Territory. This would allow for grants to be paid to bodies established by States or Territories, including those established through State or Territory law.
2.39
Items 27, 29 and 30 make updates to the MRFF Act and its simplified outline, changing the duration of the Australian Medical Research and Innovation Strategy from five to six years.
2.40
Items 28, 31 and 32 make updates to the MRFF Act and its simplified outline, changing the duration of the Australian Medical Research and Innovation Priorities, from two to three years.
Part 2
2.41
Part 2 of Schedule 3 makes amendments to ensure the effective and efficient application and transition of the provisions of the bill. For example, item 35 makes clear that the amendments proposed by items 12, 19 and 25 of Schedule 3 would apply in relation to a direction given after the commencement of item 35.
2.42
Part 2 also provides that, in relation to the Strategy and the Priorities and the amendments to their timeframes as proposed by the bill:
The change of duration of the Australian Medical Research and Innovation Strategy from five to six years would not apply to the current Strategy that is in place (from 2016 to 2021)
The change of duration of the Australian Medical Research and Innovation Priorities from two to three years would not apply to the current Priorities that are in place (from 2020 to 2022).
2.43
However, the duration of both the Strategy and the Priorities depend on the date of commencement of the Schedule. Items 37 and 38 therefore provide transitional provisions for if Schedule 3 commences before the end of 8 November 2021 (item 37), or after the end of 8 November 2021.
2.44
In addition, item 39 of Schedule 3 clarifies that the MRFF Act would continue to apply in relation to debits in financial years up to and including 2021-22. The EM explains that:
This would ensure that the changes to debiting arrangements from 2022-23 onwards do not affect the debiting arrangement of the MRFF in earlier financial years.
Financial impact statement
2.45
The EM states that the changes to the disbursement framework for the MRFF will specify a fixed maximum annual disbursement of $650 million from 202223. This maintains the Government’s commitment to funding the commitments outlined in the MRFF 10-year investment plan and isolates the determination of disbursements from financial market fluctuations, while supporting the perpetual funding objective of the MRFF.
2.46
The EM also states that the legislative amendments to the MRFF will enable the Government to issue a new investment mandate with a higher benchmark rate of return that will increase expected earnings and better align the fund’s benchmark rate of return with the growth in health-related costs.
2.47
The EM notes that this will have a positive impact on the underlying cash and fiscal balances of the MRFF, reflecting higher projected investment earnings (net investment costs). A higher benchmark rate of return will increase the risk of short-term losses, but that will be offset by higher expected earnings over the medium to long term.
Schedule 4—Emergency Response Fund
2.48
Schedule 4 makes the necessary amendment to the ERF Act, in light of the Government’s decision to establish the NRRA in the Prime Minister and Cabinet portfolio. The administrative responsibility for expenditure was formerly the responsibility of Emergency Management Australia in the Department of Home Affairs, and transferred to the NRRA on 1 July 2021.
Part 1
Transferring responsibility for expenditure from the ERF to the NRRA
2.49
Item 1 renames the ‘Home Affairs Emergency Response Fund Special Account’ as the ‘Emergency Response Fund Payments Special Account’.
2.50
Several items of Part 1 to this Schedule then make consequential amendments to terminology in the ERF Act and the simplified outline of the Act, to reflect the transfer of administrative responsibility for expenditure from the Emergency Response Fund (ERF) from the Department of Home Affairs, to the newly established National Recover and Resilience Agency (NRRA) from 1 July 2021.
2.51
Item 16 would repeal section 27 of the ERF Act, which establishes the Home Affairs Emergency Response Special Account, and replace it with new section 27 for the renamed special account, the Emergency Response Fund Payments Special Account. New subsection 27(1) would effectively rename the existing special account and provide for the special account to continue operating with its new name, while proposed subsection 27(2) would clarify that the ERF Payments Special Account is a special account for the purposes of the PGPA Act.
Streamlining administrative arrangements for transfers from the Emergency Response Fund Special Account
2.52
Items 20, 24, 32 and 38 provide for new arrangements with respect to providing copies of directions under subsections 28(7), 28A(7), 31(2) and 32A(1) of the ERF Act to transfer an amount from the ERF Special Account to the Emergency Response Fund Payments Special Account. These new arrangements would require the Finance Minister to give a copy of a direction under subsection 28(7), 28A(7), 31(2) or 32A(1) to the Treasurer and the Emergency Management Minister in instances where the Finance Minister personally gives a direction under those subsections.
2.53
Item 33 would amend section 32 of the ERF Act to provide for the channelling of grants of financial assistance to a State or Territory, through the COAG Reform Fund, to fund emergency response and recovery following natural disasters in Australia that have a significant or catastrophic impact. The amendments in item 33 would align the process for channelling grants through the COAG Reform Fund with other comparable provisions.
2.54
Similar amendments are made at items 35 and 36, in order to facilitate the transfer of an amount to the COAG Reform Fund, as follows:
from the ERF Special Account for the purposes of paying grants to a State or Territory to fund emergency response and recovery following natural disasters in Australia which have a significant or catastrophic impact; or
to a State or Territory to build resilience to, prepare for or reduce the risk of future natural disasters.
2.55
Item 39 would update the Finance Minister’s delegation powers to reflect the Finance Minister’s updated roles in sections 32 and 32A, as amended by the bill. Under the amended sections, the Finance Minister would be required to transfer amounts from the ERF Special Account to the COAG Reform Fund for the purpose of paying grants to a State or Territory.
2.56
Items 40 to 43 make consequential updates to the delegation powers of the Emergency Management Minister, to allow delegation of powers to an SES employee (or acting SES employee) in the NRRA, instead of an SES employee (or acting SES employee) in the Home Affairs Department.
Part 2
2.57
Part 2 of Schedule 4, at item 44, makes application provisions to provide that the amendments at items 20, 24, 32, 35 and 38 of Schedule 4 would apply in relation to a direction given after commencement of item 44.