Dissenting report – Liberal Members of the committee
Introduction
The Australian Charities and Not-for-Profits Commission
Bill 2012 and the Australian Charities and Not-for-Profits Commission
(Consequential and Transitional) Bill 2012 would establish a new
independent statutory office, the Australian Charities and Not-for-profits
Commission (the “ACNC”) which will be the Commonwealth level regulator for the
not-for-profit (“NFP”) sector. The exposure draft also establishes a new regulatory
framework for the NFP sector.
The objects of the Bill are to maintain, protect and enhance
the public trust and confidence in the NFP sector and to support and sustain a
robust, vibrant, independent and innovative NFP sector[1]. Although the Government has
claimed the creation of the ACNC will reduce red tape and avoid duplication[2], Liberal members
of the Committee are concerned that the ACNC will instead add another layer of
regulation to the operation of most not-for-profit charities, many of whom are already
struggling with the regulations currently imposed by Commonwealth and State
agencies. These concerns have been born out in the evidence presented to the
Committee.
Moreover, the Liberal members of the Committee remain
concerned that the Government has failed to establish any mischief which would
necessitate the government to legislate to “protect and enhance the public
trust and confidence in the NFP sector”. Indeed, it is the view of the Liberal
members of the Committee that the penalties proposed in the draft Bills are
excessively onerous, short-sighted, and will serve to deter future involvement
in the voluntary sector.
As many elements crucial to practical the operation of this
legislation have been left to the Minister to determine by Regulation, the
Liberal members of the Committee share the sector’s concerns in relation to the
lack of certainty this provides for charities.
It is the view of the Liberal members of the Committee that
the Government has failed to establish how the ACNC will interact with other
State and Federal Government agencies to reduce the duplication of regulation
across the sector. The Government has failed to satisfy the Liberal members of
the Committee that any progress has been made with key agencies such as the
Department of Education, Employment and Workplace Relations in relation to this
process, or with the State governments through COAG. The Liberal members of the
Committee are convinced that if agreement in this space is not reached, these
Bills will result in an additional layer of bureaucracy and regulatory burden
for not-for-profit agencies already struggling to meet the current demands of
government.
The Liberal members of the Committee are concerned of the
real risk that these Bills may lead to erosion of the privacy of Private
Ancillary Funds, which will serve to discourage family investment in these
endeavours to the detriment of the general community.
Liberal members of the Committee are concerned that the
Government has failed to adequately respond to and address the matters raised
by sector agencies throughout the consultation process for these Bills.
Moreover, the Liberal members of the Committee believe the consultation process
has been rushed, with the sector being provided as little as nine working days in
some cases to make submissions throughout the drafting process.
The Liberal members of the committee have taken the
opportunity to highlight in this dissenting report a number of serious concerns
with the bills and, based on the reasons outlined, recommend they not be passed
in their current form.
Regulatory burden
The Liberal members of the Committee have formed the view
that these Bills will add a further burdensome layer of regulation to the
operation of not-for-profit agencies, many of whom are already struggling with
the current framework, described by Martin Jacobs, Principal Adviser in the
Philanthropy and Resource Tax Division of Treasury as imposing “a
considerable compliance burden on entities, which can unnecessarily hamper
their valuable work.[3]”
It was made clear during the course of the public hearings
that duplication and overlap between Commonwealth and State and Territory laws
governing the work of not-for-profit agencies was a key contributor to the
compliance burden currently borne by sector agencies. The Gillard government
argues that the ACNC will “reduce red tape through processes to avoid or
minimise duplication where possible[4].”
However, as Susan Pascoe, Head of the Australian Charities and Not-for-Profits
Commission Implementation Taskforce stated, full red-tape reduction could only
be achieved “with the involvement of the states and territories[5].”
These comments were further supported by the Chair of the Not- for-Profit
Sector Reform Council Linda Lavarch, who stated:
“Removing the current regulatory duplication and
providing a one-stop shop for not-for-profits can only be achieved through a
collaboration between the Commonwealth, state and territory governments.[6]”
Following the evidence presented to the Inquiry, the Liberal
members of the Committee believe that any significant reduction in red tape is
only going to be realised once there is an agreement in place between the
Commonwealth and the States and Territories to harmonise their laws in relation
to the not-for-profit sector. No such agreement is currently in place.
The Liberal members of the Committee are concerned that no
real progress is being made by the Government in its attempts to have the
states come on board. At present, it seems there is only a ‘belief’ by
Government that the states and territories will follow course and amend their
laws in line with these Bills[7]
with no real evidence to support this conclusion. However, as stated by Bill
Daniels, Executive Director of Independent Schools Council of Australia:
“There has been no discussion whatsoever with the states
or, indeed, with the Commonwealth department that I am aware of that has
involved the independent sector on any reduction in reporting requirements.[8]”
Moreover, the Liberal members of the Committee believe that
until such time as an agreement between the Commonwealth and the states is in
place, the ACNC will add an additional layer of regulation to the operation of
most not-for-profit charities. Indeed, Chris Leggett, Manager of the
Philanthropy and Exemptions Unit of Treasury, conceded that:
“There will be further time when there will be some
overlap (of regulation) with the states and territories[9]”
A number of not-for-profits also expressed concerns about
the additional red tape being imposed by these Bills in their submissions to
the Inquiry.
Catholic Health Australia submits that “the effect of the
Bills would be to add additional regulation to the operation of most
not-for-profit organisations.[10]”
The Uniting Church in Australia writes that:
“It is important to recognise that the introduction of
any new reporting obligation on congregations, no matter how minor, will be
another layer of legislative obligation and reporting for local members who are
generally neither skilled nor trained for this burden.[11]”
Dr Ted Flack states:
“For those registered as charities under State
fundraising legislation and those funded through State Government agreements3,
the establishment of the ACNC will substantially add to the compliance burden
of Australian charities and not reduce them.[12]”
The Housing Industry Association submits that “Some of
the proposed provisions will increase regulatory costs and compliance without
any public or private benefit.[13]”
They further state:
“HIA considers that it is conceptually difficult to reduce
red tape by adding red tape, which is what adding new Commonwealth regulation
on top of existing State regulation will do. Only if States vacate the field is
there any hope of reducing the administrative burden on Charities and NFPs.[14]”
The Conservation Council of South Australia writes “[Whilst
there is] a national “one-stop-shop” and a “report-once, use-often” process,
there remains a major problem in that at this stage state regulation will
continue to apply.[15]”
Surf Life Saving New South Wales makes the comment that:
“Reducing red-tape by reducing duplication of reporting
requirements and assisting the efficiencies of the sector...will not occur
without the involvement of the states and territories to align reporting
requirements with the ACNC reporting framework.[16]”
And the Chamber of Commerce and Industry of Western
Australia recommends:
“...That the Commonwealth address its own jurisdictional
red tape with a view of reduce the administrative burden on the sector. In
other words, the Bill needs to go further to support the Commonwealth’s own
reform again in respect of reducing red tape and unnecessary duplication.<>”
Sector agencies have also expressed concerns that the
objects clause in the Bill does not make any specific mention of reducing red
tape. As submitted by the Australian Council of Social Services:
“The Bill does not yet contain any provisions that make
it explicit that the reduction of unnecessary compliance and regulatory burdens
is a core object of the Bill, nor does it identify these kinds of reforms as
policy directions or drivers of the ACNC’s purpose or activities. There must be
a direct link between the reduction of red tape and the objectives and
functions of the ACNC.[18]”
These comments are echoed by Linda Lavarch in her evidence
to the Inquiry:
“We are concerned that the preamble and the objects do
not reflect one of the original intentions of the ACNC, which was to reduce red
tape for the not-for-profit sector. The focus of the current draft does not
provide any detail on how the reporting burden for registered organisations
would be reduced.[19]”
Following the evidence presented to the Inquiry, the Liberal
members of the Committee are not convinced that these Bills will contribute to
a significant reduction in red tape for the not-for-profit sector. Moreover, it
is our contention that these Bills will increase the regulatory burden being
placed on these agencies by adding an additional layer of compliance that the
sector will have to meet. The Liberal members of the Committee have formed the
view, consistent with the evidence presented to the Inquiry that the states and
territories must align their laws in relation to the not-for-profit sector with
the Commonwealth if the ACNC is to be successful in reducing the compliance
burden faced by sector agencies. The Liberal members of the Committee are not
satisfied with the progress that has been made by the Government in achieving
such harmonisation. It is our belief that any such agreement is a long way from
being reached, and that, to introduce these Bills in the absence of such an
agreement would be to the detriment of the sector as a whole, which will have
to endure months, possibly years of increased regulation with scant likelihood
of this ever being pared back.
Moreover, the Liberal members of the Committee are not
satisfied that these Bills go far enough in making direct provisions to reduce
red tape. We are particularly concerned that there is no direct link between
the reduction of red tape and the objectives and functions of the ACNC.
The Liberal members of the Committee believe the reduction
of red tape should be a priority issue where any reform of the not-for-profit
space is concerned, and it is our contention that these Bills will have a detrimental
impact on such an objective.
Harmonisation across government agencies
As previously noted, the Liberal members of the Committee
are concerned that these Bills will create an additional layer of red tape to
the operation of not-for-profit agencies. One of the key issues identified in
contributing to this is the overlap of state and territory requirements with
those of the ACNC; another key contributor as identified in the Inquiry is the
overlap of regulation across Commonwealth Departments. This is of particular
concern to independent schools, which will fall within the jurisdiction of the
ACNC.
Independent schools will be required to report much of the
information to the ACNC that they currently report to the Department of
Education and Workplace Relation (DEEWR), as well as to state education
authorities. Setting aside the issue of duplication with state authorities, if
an information-sharing agreement is not reached between the ACNC and DEEWR, the
ACNC will effectively serve as an additional layer of regulation and red tape
for independent schools many of whom are already, in the words of Dr Geoff
Newcombe, “drowning in compliance.[20]”
Powers and penalties
A number of sector agencies have expressed concerns that the
powers and penalties contained within these Bills are heavy handed and may
deter members of the public from taking up voluntary roles within sector
agencies. The Liberal members of the Committee share these concerns.
Dr Geoff Newcombe, Executive Director of the Association of
Independent Schools of New South Wales and Representative of the Independent
Schools Council of Australia raised the issue of independent schools being
captured by these Bills. Adding:
“The commentary—it is not advice—that we have received
from the AICD and our lawyers is that the proposed legislation is likely to
shift the obligations from the company to the directors or, if you like, it
will erode the concept of limited liability of directors.[21]
Dr Newcombe further stated that:
“If that is the case and the concept of limited liability
goes and liability is shifted from the company to the individual director,
knowing the pressure on school boards even at the moment I think you would find
many people—they are all volunteers—who would think twice about staying on
school boards. It is the school board that manages the school.[22]”
Dr Newcombe raised concerns that the proposed changes would “decimate
school boards.[23]”
David Gonski of the Australian Institute of Company
Directors expressed concerns that parts of the Bill “in fact will not
support nor sustain a robust, vibrant and independent sector,[24]” and
further stated that the changes would not “foster volunteerism in the
sector.[25]”
Mr Gonski expressed concerns that:
“Directors of these [tiny organisations] ... may not want
to branch out and make these not-for-profits do really well because they would
be scared that they may not be able to adhere to a black-letter law approach.[26]”
He further stated that, as a result of the proposed changes,
“we might be the first country in the world to make being on a not-for-profit
as a director more onerous than being on a for-profit.[27]”
Ewen Crouch, Chairman of Mission Australia raised the issue
of the scope and exercise of the ACNC’s powers, stating:
“I do believe that the information-gathering, monitoring
and sanctioning powers, including the ability to remove a director, are very
heavy-handed. I would think they would be quite problematic from a regulator's
perspective. It is not something that any other regulator in Australia has any
experience with and I do wonder why this regulator would want to have those
powers and whether they would know how to use them.[28]”
Eve Brown, Senior Policy Manager of Trustees at Financial
Services Australia raised the issue that:
“With regard to the reporting requirements, the
governance standards and the ACNC enforcement powers, we point out that these
provisions are inconsistent with or overlap the common law of trusts and state
and territory trustee legislation, inconsistent with or overlap the Corporations
Law and ASIC's regulatory role, inconsistent with or overlap the ATO's
guidelines on public and private ancillary funds, and are possibly inconsistent
with the Australian Constitution and inconsistent with the overarching purpose
of the ACNC draft legislation.[29]”
CEO & Managing Director of the Australian Institute of
Company Directors, John Colvin, questioned the need to “have a system in
Australia, which would make us a laughing-stock around the world, of having
liabilities for volunteers greater than those for for-profits.[30]”
Dr Matthew Turnour further expressed concerns that the
outcome of the Bills would be to discourage volunteerism in Australia, stating “every
time you introduce more regulation, you discourage more volunteers. It really
can be very hard to get people to volunteer when they know that there is
potentially personal liability attached.[31]”
Dr Tessa Boyd-Caine, Deputy Chief Executive Officer of the
Australian Council of Social Service flagged concerns regarding the enforcement
powers contained within the Bills, particularly with regard to revocation of
registration:
“Because there is no capacity to stay a decision in that
area, we see potential for organisations to be deregistered in advance of
capacity for appeals, in advance of administrative review of decision making
that might well overturn a decision. The consequences of that on a charity are
incredibly significant, not least including the withdrawal of charity
concessions, which in some cases will undermine a charity's capacity to
continue operating.[32]”
Dr Boyd-Caine also expressed concerns regarding the
proportionality and appropriateness of some of the sanctions included within
the Bill:
“What we fear at the moment is a skew in the bill
towards a series of administrative penalties that are more significant than
they ought to be in terms of maintaining proportionality with other regulatory
frameworks but also with the risks that this sector presents.[33]”
Liberal members of the Committee are of the view that the
Gillard Government has failed to establish the mischief which would necessitate
a new set of powers and penalties of the scope of which are provided for in
this Bill being introduced for the not-for-profit sector. As stated by Martin
Laverty, CEO of Catholic Health Australia:
“Our principal concern is that we have not yet seen what
problem actually exists that requires the establishment of a new body of law—a
new principle at law—to oversee public trust and confidence. It is our view
that the Corporations Act currently provides like capacity for government to
regulate those circumstances—few and far between as they are—that might give
rise to the potential for such a power to have been created.[34]” (p. 21)
The Liberal members of the Committee believe the powers and
penalties contained within these Bills are heavy handed, unnecessary and
excessive, and we are concerned that they will have a detrimental impact on
Australia’s culture of volunteering. The Liberal members of the Committee are
of the view that the Government has failed to satisfactorily make out the
mischief which would justify the adoption of such powers and penalties where
the consequences of adopting such provisions are potentially dire for the
ongoing strength and vibrancy of the not-for-profit sector.
Lack of certainty
A number of submissions to the Inquiry have raised the issue
that the Bill creates uncertainty with regard to what is required of sector
agencies and the directors of these agencies. Dr Mark Shying, Senior Policy
Adviser in the External Reporting division of Certified Practising Accountants
Australia outlined these concerns as follows:
“We believe that the legislation and the regulations must
provide certainty as to the obligations and responsibilities of both the entity
and those charged with governance of the entity, and at present we believe that
that certainty is not there. In particular, we are concerned about certainty
from the point of view of the financial reporting requirements—that is, the
requirements of the financial report are not presently specified and the
requirements of those charged with governance in respect of those financial
reports are not specified....We believe it is not appropriate to leave that
unknown whilst we have entities that need to consider what their
responsibilities are as they go forward and whether or not they need to make
small changes or significant changes to what they currently do.[35]”
Martin Laverty of Catholic Health Australia echoed these
comments, saying “we cannot look to the bill today and have any confidence
or indeed certainty as to how in the future those organisations currently
governed under the corporations law would be governed in the future.[36]”
Mr Laverty further stated:
“The principal problem with the bill is that right now I
cannot say to any of the chairs or the boards of directors of our organisations
that from the time of the enacting of this bill, and indeed in the years ahead
as more of the powers of commissions come to be, this is the framework from
within which you will govern your organisations.[37]”
It is clear from the Inquiry that the primary cause of
uncertainty in relation to the Bill relates to governance standards, which are
to be enacted at a future date as regulation. The Liberal members of the
Committee are concerned that this will lead to a situation where sector
agencies have limited input into decisions regarding how they are to be
governed. Moreover, it exposes the risk that these standards can be subject to
change frequently and at the whim of the Minister or the government of the day.
The Liberal members of the Committee believe not-for-profit
agencies deserve ongoing certainty as to how they are to be governed. It is our
contention that these Bills fail to achieve that objective and that this will
place further burden on sector agencies going forward.
Privacy
The Liberal members of the Committee are concerned that
these Bills will erode the privacy of Private Ancillary Funds (PAFs) and thus
discourage these philanthropic endeavours to the detriment of the community.
In their submission to the Inquiry, the Myer Family Company
raised objections to the treatment of PAFs by the ACNC:
“Clause 40-10 (2) of the legislation suggests the ACNC
Commissioner will have discretion to still publish information if he/she
considers it is in the public interest to do so…We strongly recommend that the
Regulations state that all information relating to PAFs be withheld from the
Register and that PAFs report to the ACNC in a similar fashion to their
existing reporting to the ATO, as stipulated in the PAF Guidelines. PAFs could
choose to be public.[38]”
The Myer Family Company further stated:
“A significant number of existing founders of PAFs that
we have spoken to are appalled at the breach of trust relating to the
possibility that family foundations that were established within rules stating
that they would be private, would now suddenly become public in nature. Many
would simply wind up.[39]”
Philanthropy Australia also identified the proposed
treatment of PAFs by the ACNC as a point of concern which may dissuade persons
from setting up PAFs:
“We cannot see any policy benefit in requiring public
disclosure of private information about private trusts, particularly given this
was explicitly rejected in 2009. There is a significant danger that such a
change, if implemented, would cut short the building momentum of community
engagement and philanthropy in Australia, because public disclosure is strongly
opposed by many who of those who already have PAFs and those who have the
interest and capacity to set one up.[40]”
The Liberal members of the Committee share the concerns as
outlined in these submissions, and believe the proposed changes to the
treatment of PAFs poses a significant threat to the ongoing culture of private
philanthropy in Australia.
Consultation process
The Liberal members of the Committee have serious concerns
about the time frame provided to the sector for feedback on these Bills.
In many instances, sector agencies were provided as little
as nine working days to make submissions on important aspects of the Exposure
Draft. The Liberal members of the Committee note that in December 2011,
charities wishing to make a submission were required to do so in a two-week
period over the Christmas break, requiring them to divert staff away from
front-line services in what is one of the busiest times of the year for service
delivery.
Deputy Executive Director of the Independent Schools Council
of Australia Barry Wallett made the point that his organisation had “always
been concerned about the time frame to rush this (the creation of the ACNC).
From our perspective we cannot see the need to rush it.[41]”
Mr Wallett further echoed the public and private concerns of
many stakeholders within the not-for-profit sector, stating:
“For us to respond in a very short time frame to
legislation that could have a major impact depending on some unknowns—we do not
have a definition of 'charity' yet and have not seen the regulations et
cetera—it puts a burden on the organisations to get adequate feedback in the
time it was done.[42]”
The Liberal members of the Committee are of the view that
the consultation process has been unnecessarily rushed, and that this has
placed a significant burden on sector agencies. As these Bills make fundamental
ongoing changes to the legal treatment of not-for-profit organisations, the
Liberal members of the Committee believes the consultation process should be
afforded greater time to ensure the issues as outlined above are addressed to
the satisfaction of the sector. At present, we are not satisfied that this has
been the case.
Conclusion
The Liberal members of the Committee believe the Inquiry has
raised a number of serious issues with these Bills which lead us to conclude
that these Bills in their current form will serve as a threat to the strength
and vibrancy of the not-for-profit sector going forward.
Liberal members of the Committee believe these Bills will
result in a duplication of regulation and red tape for not-for-profit agencies,
many of whom are already struggling to meet the overlapping requirements of
various Commonwealth and State agencies. The Inquiry has heard that a
harmonisation of laws between the Commonwealth and the States and Territories
is essential to ensuring a reduction of red tape for sector agencies, however,
the Liberal members of the Committee are not satisfied that the Government has
made any significant progress in achieving this. Furthermore, we are not
satisfied that the Government has made progress in establishing
information-sharing arrangements across Commonwealth Departments. Without these
agreements in place, the Liberal members of the Committee believe the ACNC will
create an additional layer of bureaucratic red tape and regulation for
not-for-profit agencies, particularly for independent schools. The Liberal
members of the Committee believe this additional layer of red tape will further
threaten the continued operation of many sector agencies that are being
increasingly forced to divert resources away from front line services and
towards complying with the demands of government.
The Inquiry has also heard concerns that the powers and
penalties contained within these Bills are heavy handed, and the Liberal
members of the Committee share these concerns, particularly with regard to
information-gathering, monitoring and sanctioning powers, and the ability of
the ACNC to remove a director. We have heard the sector express concerns that
these provisions will deter involvement in the sector going forward, and the
Liberal members of the Committee share this view. The Liberal members of the
Committee are not satisfied that the Government has made out any mischief
worthy of imposing a system of penalties which may see Australia as the first
country in the world to make being a not-for-profit director more onerous than
being a for-profit director.
We have heard a number of sector agencies express concerns
that these Bills create uncertainty with regard to what is required of sector
agencies and the directors of these agencies, particularly as a set of
governance standards are yet to be agreed to and will be determined by
legislative instrument. The Liberal members of the Committee believe this
exposes the risk of these standards being frequently subject to change at the
whim of the Minister and the government of the day. The Liberal members of the
Committee believe not-for-profit agencies deserve ongoing certainty as to how
they are to be governed. It is our contention that these Bills fail to achieve
that objective and that this will place further burden on sector agencies going
forward.
The Liberal members of the Committee believe the proposed
changes to the treatment of Private Ancillary Funds will discourage these
philanthropic endeavours to the detriment of the community and believe this is
an unintended consequence which has been overlooked by the Government in the
drafting of this legislation.
Liberal Members of the Committee believe the Government has
rushed the consultation process with the sector, and that this has placed a
significant burden on these agencies. The Liberal members of the Committee are
not satisfied that the consultation process has been sufficiently rigorous as
to address the concerns that many sector agencies have with these Bills.
For the reasons outlined above, the Liberal members of the
Committee do not support the passage of these Bills.
Recommendation: that these Bills not be supported.
Steven Ciobo MP
Deputy Chair
Kelly O’Dwyer MP
Scott
Buchholz MP