This Bills Digest replaces the preliminary Bills Digest published on 27 February 2024.
Purpose of the Bill
The purpose of the Financial Framework (Supplementary Powers) Amendment Bill 2024 (the Bill) is to amend the Financial Framework (Supplementary Powers) Act 1997 (the FFSP Act) to clarify the operation of:
- section 32B which provides for the Commonwealth’s supplementary powers to make commitments to spend relevant money and other Consolidated Revenue Fund (CRF) money and
- section 39B which provides for the Commonwealth’s supplementary powers to be involved in companies.
A number of consequential amendments are made to other Commonwealth statutes as well as some contingent amendments.
In her second reading speech, Minister Katy Gallagher stated:
The amendments will put beyond doubt that the FFSP framework operates consistently with how it has been understood to operate, including in circumstances where another general spending power may be available. The amendments would clarify the operation of the FFSP framework and confirm the validity of government spending programs that rely on section 32B of the FFSP Act, as well as any government involvement in companies in reliance on section 39B of the FFSP Act, in circumstances where other general powers could also be relied on.
The Bill also includes validation and savings provisions to regularise past spending and government activities in reliance on sections 32B and 39B, in the event that any such past spending or activity may not have been valid because there was an alternative source of legislative authority.
Structure of the Bill
Schedule 1, Part 1 of the Bill includes the key amendments to sections 32B and 39B the FFSP Act.
Schedule 1, Part 2 makes consequential amendments to a number of pieces of affected of legislation.
Schedule 1, Part 3 contains contingent amendments to sections of the Administrative Review Tribunal Act 2024 (when enacted) and the Australian Research Council Act 2001.
Schedule 1, Part 4 contains validation and savings provisions which would retrospectively validate past Commonwealth spending and government activity which was reliant on sections 32B and 39B.
Background
There is a complicated legal and legislative history to the provisions to be amended by the Bill. The background information provided below is necessarily an incomplete summary of the constitutional and legislative issues.
When can the Commonwealth government spend public money?
In the Australian Constitution four sections are particularly relevant to the federal expenditure of public money:
- section 51 which lists the legislative powers of the Commonwealth concluding with section 51(xxxix) which covers ‘matters incidental to the execution of any power vested by this Constitution …’
- section 61 which provides that the executive power of the Commonwealth ‘… extends to the execution and maintenance of this Constitution, and of the laws of the Commonwealth’
- section 81 which provides that ‘all moneys raised and received’ shall form one Consolidated Revenue Fund (CRF) ‘to be appropriated for the purposes of the Commonwealth in the manner and subject to the charges and liabilities imposed by this Constitution’ and
- section 83 which provides that ‘[n]o money shall be drawn from the Treasury of the Commonwealth except under appropriation made by law’.
Prior to 2009, there was a view that the passage of appropriations legislation was sufficient authority for Commonwealth government expenditure of money.[1] However, the High Court of Australia’s decision in Pape v Commissioner of Taxation narrowed the scope of the spending powers of the Commonwealth government by concluding that sections 81 and 83 do not themselves authorise any expenditure.[2] French CJ stated:
By virtue of s 83 no money can be drawn from the [CRF] absent such an appropriation by law, that is to say by statute. Substantive power to spend the public moneys of the Commonwealth is not to be found in s 81 or s 83, but elsewhere in the Constitution or statutes made under it. That substantive power may be conferred by the exercise of the legislative powers of the Commonwealth. It may also be an element or incident of the executive power of the Commonwealth derived from s 61, subject to the appropriation requirement and supportable by legislation made under the incidental power in s 51(xxxix).[3]
The implications of this decision became clear in Williams v Commonwealth (No 1) in 2012.[4] In that case the High Court determined by majority that a funding agreement and payments for a school chaplaincy program were invalid because they were beyond the executive power of the Commonwealth. A central issue was whether the executive power of the Commonwealth under section 61 of the Constitution could provide valid authority for the Commonwealth to spend money, or whether legislation was necessary. The four judges in the majority held that in the absence of legislation authorising the Commonwealth to enter arrangements and make payments, the Commonwealth did not have the executive power to do so.[5] The decision had significant implications for the validity of Commonwealth spending programs which were not supported by legislation.
Following the Williams (No 1) decision, the Parliament passed the Financial Framework Legislation Amendment Act (No 3) 2012 which sought to retrospectively validate over 400 non-statutory programs and allowed additional programs to receive statutory approval through regulation. The key provision was section 32B. Paragraph 32B(1)(b), conferred power on the Commonwealth to make, vary or administer arrangements or grants which are specified in regulations, or which are included in a class of arrangements or grants specified in the regulations, or which are for the purposes of a program specified in the regulations. However, under paragraph 32B(1)(a), the power is conferred only in relation to those arrangements or grants in respect of which ‘the Commonwealth does not have power to make, vary or administer’ apart from under subsection 32B(1).
In Williams v Commonwealth (No 2) (2014) the High Court considered whether the Commonwealth could rely on the executive power of the Commonwealth in conjunction with section 51(xxxix) of the Constitution, where there was legislative authority for spending under section 32B. The Court left undecided the question of the validity of section 32B. Instead, the High Court read down section 32B:
… [section] 32B should be read as providing power to the Commonwealth to make, vary or administer arrangements or grants only where it is within the power of the Parliament to authorise the making, variation or administration of those arrangements or grants. To read the provision in that way is to read it within constitutional power. To read it as having a wider operation might take the provision beyond either constitutional power or the meaning and operation which its words can fairly bear, or beyond both constitutional power and the fair reading of its text.[6]
Following the second Williams decision, the Public Governance, Performance and Accountability (Consequential and Transitional Provisions) Act 2014 was enacted. It made a large number of amendments which allowed the Public Governance, Performance and Accountability Act 2013 to become the primary financial legislation of the Commonwealth. This included renaming the Financial Management and Accountability Act 1997 to the FFSP Act. Section 32B received minor changes but largely remained unamended.[7] A new section 41 was inserted which provided that the Part of the FFSP Act which deals with supplementary powers ‘does not, by implication, limit the executive power of the Commonwealth’.
Forming corporations
Section 51(xx) of the Constitution confers legislative power on the Commonwealth in relation to ‘financial corporations, and trading or financial corporations formed within the limits of the Commonwealth’. In NSW v Commonwealth the High Court determined that the reference to the word ‘formed’ in section 51(xx) limited this legislative power to existing corporations and did not confer a Commonwealth legislative power to create new corporations.[8] However, the Commonwealth could still create corporations to give effect to another purpose in relation to which it did have legislative power.[9]
Prior to the decision in Williams (No 1), the Commonwealth relied upon its executive power to participate in corporations for various purposes. Following this case, the Parliament passed the Financial Framework Legislation Amendment Act (No. 2) 2013 which inserted section 39B into the legislation which would become the FFSP Act. Subsection 39B(1) provided a supplementary power to the Commonwealth to form companies and participate in the formation of companies. Subsection 39B(2) provided a supplementary power to the Commonwealth to acquire shares or become a member of a company in circumstances which would result in the company becoming a Commonwealth company.
The wording of the new section reflected section 32B including the initial limiting words ‘[i]f … apart from this subsection, the Commonwealth does not have the power …’. The Explanatory Memorandum to the amending legislation claimed that the new section was ‘not enacted in response to a clear or established constitutional imperative’. Instead, section 39B was ‘designed to put beyond any argument the capacity of the Executive Government to form or participate in the formation of companies’.[10]
Balancing parliamentary approval with government flexibility
The FFSP framework has had implications for Parliamentary oversight of federal expenditure by permitting the Executive to add new areas of government spending through regulation without the level of Parliamentary scrutiny usually applied to legislation.
Following the introduction of section 32B in 2012, the Senate Scrutiny of Bills Committee sought more detail on ‘the question of whether it is appropriate to delegate to the Executive (through the use of regulations) how its powers to contract and to spend are to be expanded’.[11] The then Minister responded:
Every year the Australian Government spends over $300 billion. Over 75 per cent of this spending is made using special appropriations, that is spending authorised by legislation other than the annual appropriation Acts. However, given the range, frequency and, at times, urgency of Government spending, delegated legislation was favoured over primary legislation, providing a more practical method for authorising spending, while ensuring that the regulations that authorise spending activities are tabled in Parliament and are subject to scrutiny and disallowance by the Parliament on a case by case basis.[12]
When, in 2014, the minor amendments were made to section 32B, the Senate Scrutiny of Bills Committee again sought the then Minister’s advice ‘as to whether any consideration has been given to amending this provision with a view to ensuring that important matters are included in primary legislation and to ensuring the opportunity for sufficient Parliamentary oversight of these types of arrangements and grants’.[13]
However, the then Minister considered it would ‘not be appropriate to impose an inflexible mechanism to delay the date of effect for Regulations, pending closure of a period for moving disallowance, or for positive approval in each House of Parliament’. In the view of the Minister:
[The] Section 32B mechanism now contained in the FF(SP) Act provides an open and practical mechanism for authorising Government spending. Regulations are registered and then tabled separately in each House of Parliament, which allows both the House of Representatives and the Senate, sometimes concurrently but often in tandem, the opportunity to examine and disallow spending activities on an item by item basis.[14]
Regulations made under section 32B are legislative instruments which are subject to the standard disallowance processes in the Legislation Act 2003.[15] This provides some opportunity for Parliamentary scrutiny. Following the Williams [No 2] decision, the Senate Regulations and Ordinances Committee began to routinely seek Ministerial advice in relation to instruments that specify policies and programs on which expenditure was authorised.[16]
However, a lack of sufficient detail about individual programs, grants and arrangements included in the regulations made under section 32B has also been highlighted. For example, in 2013, the then Senate Regulation and Ordinances Committee noted there was ‘insufficient information’ regarding a new government program added to the regulations:
The new program has the objective of providing financial assistance to persons acquiring Commonwealth real property. However, no further information is supplied about the nature of the program, such as how decisions are to be made about the provision of financial assistance, the criteria for decisions regarding the provision of assistance and whether independent review is available in respect of those decisions.[17]
In 2019, the then Senate Committee on Regulations and Ordinances conducted an inquiry into parliamentary scrutiny of delegated legislation. The inquiry’s recommendations led the Senate to rename the committee to the Senate Standing Committee for the Scrutiny of Delegated Legislation and replace the standing orders which outline the principles by which the committee scrutinises delegated legislation.[18] These principles now include that the committee should scrutinise each instrument as to whether ‘it appears to be supported by a constitutional head of legislative power and is otherwise constitutionally valid’.[19]
The report also recommended that the FFSP Act (and the Industry Research and Development Act 1986) be amended to provide for an affirmative resolution procedure for legislative instruments which specify expenditure.[20] This recommendation was not supported in the government response to the committee’s report:
Affirmative resolution would significantly hinder the government's ability to respond promptly to issues, and have sufficient time to develop robust policy and deliver initiatives. Long lead times before the commencement of legislative instruments would condense the development and settling of policy into more compressed timeframes. This poses a risk to the development of effective and evidence based policy. Delays to implementing legislative authority specifying expenditure, through either instrument, could risk the Government not meeting its own policy objectives.[21]
Committee consideration
Senate Committee for the Selection of Bills
On 29 February 2024, Senate Selection of Bills Committee reported to the Senate that it had considered the Bill but was unable to reach agreement concerning its referral.[22] Senator Nick McKim moved an amendment which included referring the Bill ‘to the Finance and Public Administration Legislation Committee for inquiry and report by 14 March 2024’. This amendment was negatived. The Assistant Minister for Education Senator Anthony Chisholm then successfully moved an amendment that ‘the Financial Framework (Supplementary Powers) Amendment Bill 2024 not be referred to a committee’.[23]
Senate Standing Committee for the Scrutiny of Bills
In its consideration of the Bill the Senate Standing Committee for the Scrutiny of Bills noted ‘its long standing scrutiny concerns with section 32B of the Act’. The committee sought the Minister’s detailed advice as to:
- why it is considered necessary and appropriate to delegate to the Executive the power to authorise the expenditure of public money rather than for such matters to be proposed to the Parliament for consideration and approval (subject to any agreed amendments) in primary legislation;
- if the minister considers that there is sufficient justification for such delegation, whether consideration can be given to:
- alternative approval or disallowance mechanisms for regulations made under section 32B of the Financial Framework (Supplementary Powers) Act 1997 as suggested previously by the committee and the Standing Committee for the Scrutiny of Delegated Legislation; or
- any other possible options to provide for additional parliamentary scrutiny of such matters;
and, in each case, if not, why not.[24]
The committee also drew to the attention of senators its scrutiny concerns in relation to section 39B ‘and leaves to the Senate as a whole the appropriateness of specifying, via regulation, the companies through which the Commonwealth may pursue its objectives’.[25]
The retrospective validation of previous Commonwealth spending and involvement with corporations also received attention from the committee which observed that ‘[r]etrospectivity challenges the basic rule of law principle that the law should be capable of being known in advance’. It requested the Minister’s detailed advice as to:
- whether any persons are likely to be detrimentally affected by the retrospective validation of the matters provided for in items 20, 22 and 23 of Schedule 1 to the bill, noting, for instance, that the validity of arrangements or grants entered into, varied or administered by the Commonwealth may impact individuals other than grant recipients;
- the necessity of the amendments and the circumstances by which it became apparent to the minister that the amendments, and the retrospective operation of the amendments, may be necessary;
- in any case, why it is appropriate to retrospectively apply the legislation;
- the number of instances in which the Commonwealth made, varied or administered an arrangement or grant under existing section 32B of the Act in instances where, but for the retrospective validation provided by item 20 of the bill, the Commonwealth did not have the power to do so; and
- the detail of how much money was spent pursuant to such exercises of power as are proposed to be retrospectively validated by the bill.[26]
Policy position of non-government parties/independents
At the time of writing, non-government parties/independents do not appear to have commented specifically on the Bill. However, as noted above, Australian Greens senators unsuccessfully moved an amendment to refer the Bill to a Senate committee for inquiry and report. This motion was supported by some independent and minor party senators (Senators Jacquie Lambie, Tammy Tyrrell, David Pocock and Lidia Thorpe).
Senator David Pocock has also been reported as intending to support the passage of the Accountability of Grants, Investment Mandates and Use of Public Resources Amendment (End Pork Barrelling) Bill 2024—a Private Member’s Bill introduced into the House of Representatives by Independent MP, Helen Haines—by adding it to the provisions of the Bill.[27]
Financial implications
According to the Explanatory Memorandum, the Bill has no financial impact.[28]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[29]
Parliamentary Joint Committee on Human Rights
At the time of writing, the Parliamentary Joint Committee on Human Rights had not considered the Bill.
Key issues and provisions
Sections 32B and 39B
The key provisions of the Bill are contained in Schedule 1, Part 1.
Item 3 of Part 1 repeals section 32B and substitutes proposed section 32B. The main change is made to subsection 32B(1) which currently provides:
(1) If:
(a) apart from this subsection, the Commonwealth does not have power to make, vary or administer:
(i) an arrangement under which relevant money or other CRF money is, or may become, payable by the Commonwealth; or
(ii) a grant of financial assistance to a State or Territory; or
(iii) a grant of financial assistance to a person other than a State or Territory; and
(b) the arrangement or grant, as the case may be:
(i) is specified in the regulations; or
(ii) is included in a class of arrangements or grants, as the case may be, specified in the regulations; or
(iii) is for the purposes of a program specified in the regulations;
the Commonwealth has power to make, vary or administer the arrangement or grant, as the case may be.
This will be replaced by proposed subsections 32B(1) and (2):
(1) The Commonwealth may make, vary or administer:
(a) an arrangement under which relevant money or other CRF money is, or may become, payable by the Commonwealth; or
(b) a grant of financial assistance to a State or Territory; or
(c) a grant of financial assistance to a person other than a State or Territory.
(2) However, the Commonwealth may only make, vary or administer an arrangement or grant under subsection (1) if the arrangement or grant, as the case may be:
(a) is specified in the regulations; or
(b) is included in a class of arrangements or grants, as the case may be, specified in the regulations; or
(c) is for the purposes of a program specified in the regulations.
Currently, the power to spend money under paragraph 32B(1)(b) only operates in circumstances where if ‘apart from this subsection, the Commonwealth does not have power’ (in subsection 32(1)(a)). The amendment would repeal this prerequisite by removing words which the Explanatory Memorandum describes as ‘may be construed as limiting the relevant power.’[30] The Explanatory Memorandum states:
These amendments to section 32B provide clarity as to the operation of the power conferred by that provision to engage in spending (via an arrangement or grant) in circumstances where other powers to engage in spending (including in other Acts) may also be available. The amendment makes clear that section 32B provides legislative authority for spending that falls within its terms, even if it is possible that the Commonwealth could engage in that spending under some other general spending power.[31]
Item 4 of Part 1 makes similar changes to subsections 39B(1) and (2). These subsections currently empower the Commonwealth, where apart from these subsections ‘the Commonwealth does not have the power’ to do things such as form companies and acquire shares in companies. Proposed subsections 39(1) and 39(2) would not include these limiting words.
Consequential amendments
Schedule 1, Part 2 contains consequential amendments which are characterised by the Explanatory Memorandum as ‘technical amendments’ which ‘do not otherwise affect the operation’ of the amended legislation.[32]
Consequential amendments are made in the following pieces of legislation:
These consequential amendments usually deal with clarifications concerning the effect of section 32B regarding provisions authorising spending by the Commonwealth. For example, the Water Act creates a Water for the Environment Special Account (WESA) and provides for the amounts to be paid into the WESA by the Commonwealth (section 86AC). The amendments of the Bill would repeal section 86ADA which provides:
To avoid doubt, the power of the Commonwealth to make, vary or administer a payment, arrangement or grant under this Part must be disregarded for the purpose of paragraph 32B(1)(a) of the Financial Framework (Supplementary Powers) Act 1997.
Note: The effect of this section is to make clear that this Part does not effectively limit the operation of section 32B of the Financial Framework (Supplementary Powers) Act 1997. The Commonwealth has the power to make, vary or administer an arrangement or grant under that section whether the Commonwealth also has the power to do so under this Part.
The exception is the amendment to the Disability Services and Inclusion Act 2023 (DSI Act). The DSI Act recently established a new legislative framework for the funding and regulation of programs intended for the benefit of people with disability, their families and carers.[33] The Bill’s Explanatory Memorandum states:
Even after section 32B is amended, to avoid doubt it will remain necessary to clarify the intended interaction between the spending powers in the DSI Act and spending powers in other Acts, including section 32B. That is because, unlike the other Acts that will be consequentially amended by this Bill, the DSI Act might be construed as an exhaustive code in respect of the spending that it authorises (in the absence of any clarification).[34]
In particular, item 8 repeals and replaces section 17 of the DSI Act which deals with relationship of ‘Part 2–Funding arrangements and grants’ with other laws. Proposed section 17 outlines this Part of the DSI Act does not ‘by implication, limit the Commonwealth’s power to make, vary or administer an arrangement or grant under another law of the Commonwealth’. This includes:
- subsection 32B(1) of the FFSP Act (as amended by the Bill) and
- Chapter 2D of the Social Security Act 1991 (about arrangements and grants relating to assisting persons to obtain and maintain paid work).
Contingent amendments
The contingent amendments reflect the changes made by the consequential amendments. The changes will be made to the Administrative Review Tribunal Bill 2023 if it is passed and the Australian Research Council Act 2001 if the Australian Research Council Amendment (Review Response) Bill 2023 is passed.
Validation and saving provisions
Schedule 1, Part 4 contains the Bill’s validation and saving provisions. They are intended to ‘regularise’ the status of past spending and government activity ‘in the event that any past spending or activity may not have been valid by reason of there having been an alternative source of power.’[35]
Commentary
The amendments of the Bill have been proposed in the context of continuing uncertainty over the scope of the Commonwealth’s spending powers. Associate Professor Yee-Fui Ng has noted that, following the Williams (No 2) decision by the High Court, legislative authorisation for a grant under the FFSP framework ‘is only valid where there is a Commonwealth head of legislative power’:
This means that Commonwealth funding to individuals or organisations in areas without obvious heads of legislative power may be susceptible to constitutional challenge, such as in the areas of education, the environment, sports or the arts, provided the High Court rules that the person who makes the challenge has sufficient standing to bring an action.[36]
Professor Anne Twomey has characterised the introduction of section 32B as part of an incautious approach by Australian governments to the ‘constitutional risk’ of spending on grants and programs outside of the Commonwealth’s legislative heads of power.[37] She observed:
Despite the … legal history which made it abundantly clear from 2014 onwards that the Commonwealth cannot spend money on subjects outside those distributed to it by the Constitution, and that section 32B does not provide legislative authorisation for any spending outside its powers, the Commonwealth has persisted in funding programs with little if any discernible relationship to a head of constitutional power. Again, it relies on advice concerning ‘constitutional risk’, which is largely predicated upon the unlikelihood of anyone with standing taking legal action in relation to such grants. The amounts of money involved are large and the scrutiny of them is limited.[38]
The amendments of the Bill may indicate that a more proactive approach is being adopted to addressing potential problems in relation to the FFSP Act. The Explanatory Memorandum’s outline of the Bill’s validation provisions alludes to the problem which is being addressed:
From the date of commencement, the validation provisions … validate past spending which may have been authorised under an item specified in the FFSP Regulations when it might also have been authorised under an alternative legislation. This confirms the existing and historical application of the FFSP framework that provides that more than one source of legislative authority may be valid at the same time. The changes are wholly beneficial in operation by negating any risk of invalidity of payments.[39]
The Bill’s amendments may operate to support increased discretion by the Commonwealth government over spending in some circumstances. Where legislation grants an agency a power over a particular matter there may be a lack of clarity concerning whether the relevant minister can also spend public money in relation to this matter under the FFSP Act. For example, in the Asbestos and Silica Safety and Eradication Agency Act 2013, the functions of the relevant agency are listed in subsection 8(1) including the ‘raising awareness of asbestos safety’ etc. Subsection 8(2) also provides the agency has ‘the power to do all things that are necessary or convenient’ in relation to the performance of its functions. Subsection 8(4) lists constitutional limits on the agency’s functions and subsection 8(5) clarifies that section 8 does not ‘limit the operation of section 32B’ of the FFSP Act.
In this situation the legislation grants the agency, not the Minister, specific functions including (as part or incidental to its functions) a spending power. The amendments of the Bill may clarify the power of a Minister to spend public money on this matter where an appropriate regulation is validly made under section 32B of the FFSP Act. This would make it clear that the spending was valid in circumstances where there is ‘more than one source of legislative authority’. Further, the scope of this spending under section 32B may be interpreted to be broader than the agency’s (which in this example has constitutional limits on its functions listed in the legislation).
The Minister stated the amendments of the Bill ‘simply clarify the position to what has always been the common understanding’ in relation to sections 32B and 39B of the FFSP Act. However, it is not clear from the Explanatory Memorandum or elsewhere that there is a ‘common understanding’ of the FFSP framework. If an adverse interpretation of sections 32B and 39B were adopted, it could have implications for the validity of certain Commonwealth government spending and other activities. The Explanatory Memorandum highlights that the framework of the FFSP Act and the regulations have ‘operated as a source of legislative authority for Commonwealth spending (via arrangements and grants), even in situations where the spending may have been supported by a general spending power in other legislation’. It notes that the ‘FFSP framework has been used to support a broad range of spending, including emergency payments during the COVID-19 pandemic, and the 2020 bushfires and floods’.[40]
While the amendments of the Bill may mitigate an adverse legislative interpretation of sections 32B and 39B, it is unlikely to resolve broader questions concerning the validity of the FFSP framework.