Chapter 2 - The Legislation
Introduction
2.1
During the inquiry the Committee heard evidence from
LiveCorp, peak bodies of the red meat industry (Meat and Livestock Australia
and the Cattle Council of Australia) and officers of the Department of
Agriculture, Fisheries and Forestry. Submissions were also received from RSPCA
Australia and Animals Australia.
2.2
The Committee was also provided with two drafts of the
proposed statutory funding agreement between the Commonwealth of Australia and
Australian Livestock Export Corporation Limited (LiveCorp). The first draft was
provided at the public hearing on 11 August and a revised draft was provided on
24 August 2004. The
statutory funding agreement forms the contractual basis for the transfer of
funds raised under the compulsory levy by the Commonwealth to the Livecorp. The
second draft provided to the Committee was substantially revised.
2.3
Three central issues of concern emerged during the
inquiry. These are discussed below.
Issues
The nature of the Compulsory Levy
2.4
Support for the central plank of the legislation - the
compulsory levy and the transfer of those funds to LiveCorp - was not
universal. Animals Australia,
while opposed to the export of live animals, supported the compulsory levy to
ensure that research and development takes place.
2.5
Representatives of the Cattle Council of Australia
(CCA) and Meat and Livestock Australia (MLA) also expressed support for the
introduction of compulsory levies on livestock exports. However, they expressed
concern at the implications of introducing the levy by new legislation rather
than by activating the relevant provisions of the Primary Industries Customs (Charges) Act 1999 and the Primary Industries (Excise) Levies Act 1999.
2.6
Compulsory charges applied under the Primary Industries Customs (Charges) Act
1999 and the Primary Industries
(Excise) Levies Act 1999 are set at zero for the live-stock export sector.
Although effectively exempt from the charges, the option remained open for the
Minister to activate them should other sources of revenue prove to be
insufficient for the industry's requirements.[14] Instead,
LiveCorp has relied on funding from a voluntary levy, rendering it a
voluntarily funded organisation dependent on the preparedness of its members to
contribute to its activities. Principally, these voluntary funds have allowed
LiveCorp to cover operational costs and marketing activities, and to provide
funds to MLA to administer agreed research and development projects, which are
in turn matched dollar for dollar by the Commonwealth.
2.7
In March 2004 LiveCorp requested the Commonwealth
government introduce the proposed compulsory levy on live-stock exports for the
purpose of funding industry support services.[15] In its
submission to this inquiry, LiveCorp indicated that under existing arrangements
the industry would struggle to maintain funding levels for existing programs as
a consequence of diminishing exporter commitment to voluntary funding.[16] This was
attributed to a more difficult trading environment, more stringent regulatory
requirements and the introduction of the levy to pay for costs arising out of
the Cormo Express incident:
We always had the expectation that it would be extremely
difficult for us to maintain a commitment to programs with voluntary funding,
given the size of the Cormo levy
being substantially larger than our voluntary funding.[17]
2.8
Supplementing the current legislative arrangement
enabling MLA to be declared as the red meat industry's research and marketing
body, this bill allows for the Minister to declare a separate live-stock export
marketing body and a live-stock research body.[18] Accordingly,
LiveCorp will be declared to be both of these bodies, changing it from a
voluntary funded organisation to a compulsory statutory levy funded body.
2.9
By providing for the prescription of a separate
marketing and research body for the live-stock sector alone, the bill reflects
a process separate from the existing available provision to activate charges to
the live-stock sector that are applied to other red meat industry sectors such
as the producers represented by CCA and the Sheepmeat Council.[19] It is this
approach that raises concern.
2.10
Under the Australian meat and livestock industry
Memorandum of Understanding (MOU)[20] all
compulsory levies collected under the Primary
Industries Customs (Charges) Act 1999 and the Primary Industries (Excise) Levies Act 1999 for the red meat
industry go direct to MLA. However, this bill provides that compulsory levies
on livestock exports would go direct to LiveCorp. LiveCorp would then determine
their use for operational, marketing or research and development purposes. The
industry is concerned that the status of the MOU is being eroded by this
apparent breach of its provisions:
Senator O’BRIEN-What
is the impact of these changes we are effectively considering today on the operation
of the MOU? Have you got any general comment to make about that?
Mr de Hayr-Our general concern is that we really do not
know where this now leaves the MOU that was signed back in 1997. It is a
significant departure and we have received no clarification as to what the
status of this document is in terms of its implications into the future,
specifically for other sectors.[21]
2.11
The Committee raised this point with representatives of
the Department of Agriculture, Fisheries and Forestry (DAFF) at the public
hearing. DAFF acknowledged that Annexure
D of the MOU with MLA outlines the process
to be followed for the introduction of statutory levies. However, DAFF argued
that the new levies proposed in this bill are different, and not subject to the
provisions of the MOU:
Mr Williamson-That
annexure [to the MOU] refers to the existing statutory levies that are meant to
flow to MLA in the event that this annexure is triggered. The statutory levy
that we are discussing in respect of this bill is a new statutory levy. It is
not this statutory levy. It is an entirely different statutory levy. As far as
we are aware this annexure does not apply to that levy ... There is a statutory
levy which is rated zero which is intended to flow to Meat and Livestock
Australia but the current levy that is being contemplated in this bill is a
different levy which requires an act of parliament and that levy will flow
directly to LiveCorp and not to MLA.[22]
2.12
DAFF continued:
... under that arrangement, which was set out when the MOU
was agreed upon, the logic was that if the voluntary levies were not sufficient
a compulsory levy would be triggered-indeed the minister could do that by
regulation, I understand, but the money would go directly to MLA. In this case,
it is the government’s intent, as I mentioned earlier, that the funding from
the levies go directly to LiveCorp which is a different approach and indeed
reflects recommendations of the Keniry report which were that industry should
have responsibility for the research and development matters and should be
accountable for them.[23]
2.13
The Committee notes that the proposal does not break
the terms of the MOU with MLA and that LiveCorp sought to have the compulsory
levy applied after experiencing the Cormo
Express incident and the subsequent report of the Keniry inquiry. However,
it has concerns that the approach to introduce a new legislative basis for the
levy has not only created confusion within the industry it has also given the
impression of attempting to circumvent the provisions of the MOU with MLA. The
Committee regards this as regrettable.
Use of levy funds
Industry concerns
2.14
Underlying the producers' concern over how the levy is
raised is the sustainability of funding for, and therefore the viability of,
long term research and development programs currently underway.Under
the proposed arrangements LiveCorp will be directly responsible (and
accountable) for its research and development activities, rather than being
required to provide funds to MLA to carry out this purpose.
2.15
Mr de Hayr of the CCA informed the Committee that
delays in new funding for LiveCorp, or a change in LiveCorp priorities,
could reduce LiveCorp's contribution towards ongoing joint research and
development projects, requiring additional funds to be committed by producer
organisations:
It would certainly have implications in that, if LiveCorp were
unable for various reasons to maintain their commitments to the joint program,
because of the importance of a number of the projects that are under way
specifically in the animal welfare area, I would expect that the cattle sector
would have to-and I would be very surprised if the sheepmeat sector would not
also-from a producer’s perspective, increase their funding into those programs.
I think those programs would be maintained, but we would have to carry an increased
level of funding.[24]
2.16
The Committee was told by DAFF that while
LiveCorp will have total discretion on how it invests in research and
development, there are strong incentives for it to continue to work through the
MLA:
Senator O’BRIEN-Is it possible for the LiveCorp board to
choose to initiate research on its own behalf, without matching funding from
the Commonwealth, or must it only undertake R&D through MLA?
Mr Williamson-It is possible for LiveCorp to initiate
R&D on its own behalf. It is not compelled to go through MLA; however,
there is a very strong incentive for LiveCorp to channel R&D funding
through MLA by virtue of the fact that only MLA receives the matching funds. It
is also worth pointing out that, in the current MOU, LiveCorp is not compelled
to pass on its voluntary contributions to MLA; it can seek outside research
providers if it wishes, so conceptually there is very little difference.[25]
2.17
The Committee notes that under the proposed amendments MLA
remains the only industry body eligible to receive dollar for dollar matched
Commonwealth funds for research. MLA supported these provisions, indicating
that:
We also note that the legislation very specifically and
carefully safeguards MLA’s position as the recipient of matching funds from the
government for R&D. That was a position that the whole of the industry recommended
to the government. The
live exporters, the Cattle Council and the Sheepmeat Council recommended it to
the government and it was taken on board. We were very pleased to see that
there, and we see that as an important element of the legislation.[26]
2.18
The government's explanatory memorandum states that it
is anticipated that no additional matching Commonwealth funding would be required
as a consequence of the proposed legislative change.[27] This
statement is dependent on the assumption that the level of funds currently
directed to MLA - from LiveCorp's voluntary contributions - for research and
development purposes will remain the same. On the basis that LiveCorp will
continue to honour agreed contributions to existing research and development
projects, and maintain that level for mutually beneficial projects in the
future, this is indeed a fair assumption. DAFF officers explained the imperatives
in the following terms:
The legislation declares that LiveCorp can receive funds
directly from a levy for the purpose of marketing and research and development.
But the structure of the arrangements are such that, because the money goes
directly to LiveCorp but the matching dollar does not go to their own
expenditure, there is a very strong incentive indeed to protect the current
cooperative arrangements between LiveCorp and MLA.[28]
2.19
However, the Committee notes that any decision on the
part of LiveCorp to increase contributions to MLA for agreed research and
development projects would attract additional matched Commonwealth funding, and
therefore increase Commonwealth expenditure. Conversely, the Committee also
notes that contributing additional funds to MLA under current (and remaining)
legislative arrangements, LiveCorp would dilute its capacity to direct its
research and development priorities. Should, in fact, LiveCorp choose to allow
its contributions to MLA to diminish as agreed programs reached their
completion, then the government's funding commitments would also decrease.
2.20
The Committee notes the views of DAFF officers that the
limitation of the Commonwealth's dollar for dollar matching funds to MLA
research and development will provide a sufficient incentive to Livecorp to
maintain their existing contributions to joint projects and encourage further
joint projects.
2.21
It also notes that LiveCorp will have sole responsibility
for prioritising its research and development spending, and that in anticipation
of its new responsibilities it has established a new board of directors
responsible for decisions regarding expenditure of the levy. This board will
include four of what are termed "Special Qualifications Directors"
and three "Exporter Directors". Of these three live-stock export
industry representatives, one is to be elected by ALEC
and another is to be elected by the members of LiveCorp. The other will be
elected by levy contributors on the basis of an entitlement to one vote per
$100 paid.[29]
While the Committee notes that the selection of an industry representative
weighted towards large exporters will reduce the input to the board from small
exporters, it urges the board to consider the industry as a whole when
considering funding for future research projects.
Animal Welfare concerns
2.22
The submissions from Animals Australia and RSPCA
Australia emphasised that community concerns focus primarily on animal welfare
issues, and suggested that research and development programs using public
monies (derived from matching government grants) should reflect those concerns.
2.23
Specifically, RSPCA Australia's submission made a
number of recommendations, including "that the reference to 'marketing' as
a financial beneficiary of the compulsory levy, be removed from the ... Bill
...".[30]
Alternatively, it proposed that the Bill be
amended to specify the amount of funding from the compulsory levy that can be
used for marketing, suggesting that 10 percent would be an appropriate amount.[31]
2.24
The levy rates proposed by LiveCorp are as follows:
-
Cattle $2.50 per head exported;
-
Sheep $0.30 per head exported; and
-
Goats $0.25 per head exported.[32]
2.25
Assuming these rates are applied, LiveCorp has
anticipated that it will collect $2,560,000 under the proposed levy in 2004/5.[33] In its
submission to this Committee, LiveCorp indicated that the levy would enable
continuing direct financing of:
-
research and development;
-
industry standards and quality assurance;
-
overseas technical and veterinary services in
support of animal welfare; and
-
industry communications and issues management.[34]
2.26
During the public hearing the Committee questioned DAFF
as to the means of ensuring that animal welfare issues are given due
consideration by LiveCorp:
Senator BARTLETT-Given that a primary concern that drove
the Keniry review and all of those things was the animal welfare problems with
the industry-all of us know that is something that has been an ongoing matter
for decades-how is the structure of determining the expenditure of money going
to ensure that animal welfare gets that priority and primary consideration?
Mr Mortimer-There
are two dimensions to that. One is that LiveCorp on behalf of live trade will
be better equipped and more capable to deal with the issues around live trade.
The response to the Keniry committee as a whole in terms of the different
pieces of legislation that have been touched on are all designed to come
together to get better outcomes for the live trade, including the welfare of
the animals. Secondly, in establishing both their research priorities and the
joint program I would expect that the board of LiveCorp will be consulting to
ensure that they meet these issues specifically. This government has given
clear signals to the industry that it wants the industry to perform better on
those matters.[35]
2.27
The Committee notes that the compulsory levy, if
applied at the rates proposed by LiveCorp, will raise a substantial amount of
revenue. Although it is proposed that it will be declared the live-stock export
marketing body the majority of the proposed expenditure outlined in its
submission will be in support of aspects of animal welfare outlined in the
Keniry Report's recommendation 2, rather than on marketing.
2.28
In its submission, RSPCA Australia reflected that on
the "spirit" of the Keniry report and recommendation 2, the industry
should be responsible for the research and development which should
"improve the 'welfare' of the animals involved.".[36] RSPCA
Australia further recommends that the "'improved animal welfare' be
specifically mentioned as the 'central goal of all the industry funded Research
and Development'."[37]
2.29
The Committee notes that the new Constitution of
Australian Livestock Export Corporation Limited provides in paragraph 2.1 (a)
(iv) that one of the objects of the Company is "to facilitate continuous improvement
in animal wellbeing having regard to the Code and otherwise to recognise and
promote compliance with the Code".[38]
Accountability
2.30
In their submissions, both RSPCA Australia and Animals
Australia indicated that there should be a high level of transparency and
accountability for the funds raised by the compulsory levy. Animals Australia
suggested that:
Annual reports of the R&D program and any completed papers
be published by the Government.[39]
2.31
RSPCA Australia proposed that "an independent,
accountable and transparent process be established to oversee the management of
the funds accrued by the compulsory levy".[40]
2.32
Another submittor, Ms
Ruchita Saklani,
put the view that:
Another serious issue is that LiveCorp has failed in the past is
in regards to accountability to both government bodies and the community.[41]
2.33
At the public hearing, DAFF officers suggested that
public scrutiny of live animal exports will ensure that animal welfare issues
are a research and development priority:
Mr Mortimer-I do not think it is something that can be
legislated. Essentially the answer is to have the most open and fulsome
reporting and for that to be scrutinised by that group of interests, that
broader set of stakeholders-if I can put it like that. I think LiveCorp will
know what the challenge is for them, and they will be under scrutiny at a
number of levels on whether they are achieving that, whether gains are being
made to animal welfare and whether the community at large is happy with them.[42]
2.34
There is clearly an expectation that LiveCorp will be
open to scrutiny and accountable for its activities, not just with its members
but also the community at large. An open and transparent approach by Livecorp
is one that is encouraged by the Committee, given the role of the Commonwealth
as levy collector. In its submission Livecorp outlined the proposal for the
compulsory levy:
The exporter would pay the levy, with the funds collected by the
Levies Revenue Service (LRS) of DAFF along the same lines applying for the existing
levy to fund the costs associated with the Cormo Express shipment. Funds from
this new levy would be paid direct to LiveCorp by LRS under a Statutory Funding
Agreement (SFA) between DAFF and Livecorp.[43]
2.35
In accepting that the Commonwealth is the 'collector
and distributor' of the compulsory levy LiveCorp is implicitly accepting that
the Commonwealth will have some responsibility to account for LiveCorp's expenditure
of the funds.
2.36
During its inquiry the Committee sought assurances from
LiveCorp that it not only understood that the Commonwealth, and in particular,
the parliament, would expect a high degree of accountability for its
expenditure of the funds, but that it would co-operate in providing the level
of transparency sought:
CHAIR-Do you have any comments to make, given that it is
a sort of public funded thing now by way of a levy to the Commonwealth and the
Commonwealth to you, on the amount of parliamentary scrutiny you think your
operation will come under?
Mr Shiell-I have a good feeling for that. I think it is
set out very clearly in the statutory funding agreement.[44]
2.37
However, when the terms of the draft statutory funding
agreement (DSFA) provided to the Committee are examined it becomes apparent to
the Committee that there are limitations placed on parliamentary scrutiny. Schedule
3 of the draft agreement provides that an annual report be provided to the
Minister and that the report is to include a comprehensive account of financial
commitments and under paragraph (b):
The extent to which Livecorp's R&D activities contributed to
the Commonwealth's board priorities for research and development expenditure
and the achievement of public benefit.[45]
2.38
However, the DSFA also includes the following
provision:
The Commonwealth shall not be in breach of clause 14.4 in
respect of Confidential Information given by Livecorp and held by the
Department where a request is made by Parliament (including a committee of
Parliament) for that information to be given to Parliament, provided that the
Department notifies Parliament of the confidential nature of the information
and requests Parliament hold and deal with that information on an in camera basis.[46]
2.39
The Committee notes that Livecorp had commenced work on
programs to address issues arising from the Keniry report prior to the
finalisation of the report.
... prior to the Cormo
Express matter and the Keniry review, the industry, the government and the
producer organisations that support our industry were working very
cooperatively on a variety of projects under the auspices of the Livestock Export
Industry Consultative Committee. As we know, Cormo came along and then Keniry came along. Interestingly to me,
projects that the Livestock Export Industry Consultative Committee were working
on were the subject of recommendations from Keniry.[47]
2.40
The DFSA provision relating to confidential information
seeks to place limitations on how Parliament can use the information that to
requires and is counter to a commitment to be open and accountable. The
Committee believes that if Livecorp develops an open and transparent approach
to its activities under the proposed arrangements it could avoid unnecessary
criticism. It therefore encourages the government and LiveCorp to review the
provisions of the DSFA dealing with the provision of information to Parliament.
2.41
The Committee's recent inquiry into corporate
governance issues within Australian Wool Innovation Limited[48] suggests that
bodies in receipt of Commonwealth raised industry levies, such as LiveCorp, also
need robust corporate governance to ensure they best serves their members' interests.
Further, the compulsory nature of the levy suggests that the industry
participants should have effective means to resolve disagreements about
spending priorities.
2.42
The Committee welcomes the constitution's provision
requiring four directors being present at board meetings, including at least
one of each of the two categories of directors. The Committee notes, however,
the absence of a written provision for written minutes at board meetings.
Committee Comment
2.43
The Committee has considered the provisions of the bill
and the associated draft statutory funding agreement.
2.44
It notes that the bill provides the legislative basis
for the implementation of the final part of the recommendations of the Keniry
Review agreed to by the government. That is, the part of recommendation 2 that
relates to industry responsibility for research and development, management of
quality assurance systems and support for members in best practice standards,
and that these activities be funded by compulsory levies.
2.45
The statutory funding agreement will provide the
contractual basis for Livecorp's activities funded by the compulsory levy.
2.46
The Committee notes that the proposal to collect the
levy under the AMLI Act rather than activate it under the existing provisions
of the Primary Industries Customs
(Charges) Act 1999 and the Primary
Industries (Excise) Levies Act 1999 created confusion in the wider
industry. While the Committee has assured itself that the terms of the MOU with
MLA were not broken it remains concerned about the confusion and urges the government
to make clear that its support for the MOU between itself and MLA remains.
2.47
The collection of the levy under the AMLI Act has also
been perceived as casting doubt the long term funding of existing programs administered
by MLA with contributions from LiveCorp. While the Committee notes that the
bill provides a guarantee that the Commonwealth will continue to match dollar
for dollar MLA's research and development funding, it is clear that LiveCorp
will be responsible and accountable for its funding priorities. The Committee
also notes the concerns expressed by RSPCA Australia and Animals Australia that
the welfare of animals be a primary goal of the research and development
programs. The Committee encourages LiveCorp to make its funding decisions in
the context of benefits for the wider industry as well as the government's
priorities for animal welfare.
2.48
Finally, the Committee notes the evidence recommending
that LiveCorp be open and accountable for their activities. The Committee
shares the view that the industry's transparency and accountability will be
critical to any future improvement of the industry's image in the wake of the Cormo Express incident and the Keniry
review. It acknowledges that section 57AA of the AMLI Act (see paragraph 1.11)
is an important reporting requirement but considers this requirement to be
limited.
2.49
While the Committee acknowledges that the terms of the
draft Statutory Funding Agreement make provision for the Minister to receive a
comprehensive annual report, there is no requirement for the Minister to table
the report in parliament. The Committee is of the view that for the industry to
be properly accountable to the parliament and the Australian people there
should not only be a requirement to table the annual report but also a
requirement for the Minister to provide a statement to the parliament outlining
LiveCorp's compliance with the provisions of the statutory funding agreement on
an annual basis.
Recommendation 1
2.50
The Committee therefore recommends that the bill be
amended to place a statutory requirement on the Minister to table in both
Houses of Parliament, within 14 days of the signing of the statutory funding
agreement, the funding agreement between the Commonwealth and Livecorp, any
subsequent variation to the agreement and an annual statement of Livecorp's
compliance with the provisions of the statutory funding agreement.
Recommendation 2
2.51
The Committee also recommends that the bill be amended to
place a statutory requirement on the Minister to table in both Houses of
Parliament the annual report provided by LiveCorp.
Senator the Hon Bill Heffernan
Chair