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2010-2011-2012
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
FINANCIAL FRAMEWORK
LEGISLATION AMENDMENT BILL (NO. 3) 2012
EXPLANATORY MEMORANDUM
(Circulated with the authority of the
Minister for Finance and Deregulation,
Senator the Hon Penny Wong)
TABLE OF CONTENTS
Table of abbreviations and common terms .............................................................ii
I. GENERAL OUTLINE ............................................................................................ 1
Main features of the FFLA Bill (No. 3) 2012 ......................................................... 1
Financial Impact Statement..................................................................................... 3
Statement of Compatibility with Human Rights ..................................................... 3
II. NOTES ON CLAUSES AND SCHEDULES ....................................................... 4
Clause 1: Short title................................................................................................. 4
Clause 2: Commencement ...................................................................................... 4
Clause 3: Schedules ................................................................................................ 4
Schedule 1 ............................................................................................................... 5
Schedule 2 ............................................................................................................... 9
Explanatory Memorandum to the Financial Framework Legislation Amendment Bill (No. 3) 2012 i
Table of abbreviations and common terms
Abbreviation or Full term or description
common term
ADJR Act Administrative Decisions (Judicial Review) Act 1977
FFLA Bill Financial Framework Legislation Amendment Bill (No.3)
2012
Finance Minister The Minister who administers the Financial Management and
Accountability Act 1997
FMA Act Financial Management and Accountability Act 1997
FMA Regulations Financial Management and Accountability Regulations 1997
Item An item of a Schedule to the FFLA Bill
Williams Williams v Commonwealth [2012] HCA 23
Explanatory Memorandum to the Financial Framework Legislation Amendment Bill (No. 3) 2012 ii
Financial Framework Legislation
Amendment Bill (No. 3) 2012
I. GENERAL OUTLINE
Main features of the FFLA Bill (No. 3) 2012
1. The Financial Framework Legislation Amendment Bill (No. 3) 2012 (FFLA Bill
2012) responds to the decision of the High Court on 20 June 2012 in Williams v
Commonwealth [2012] HCA 23.
2. That decision overturned the understanding on which the Commonwealth had
acted since Federation, that the Commonwealth could develop and administer
spending programs without the need for legislative authority for those programs.
In Williams a majority of the High Court held that legislative authority is
necessary for certain spending.
3. Williams involved a challenge to the constitutional basis for the Commonwealth's
activities and expenditure in relation to the National School Chaplaincy Program.
This was an administrative program for the funding of chaplaincy services in
schools, administered most recently by the Department of Education, Employment
and Workplace Relations pursuant to administrative guidelines. In 2012 the
Program was expanded and renamed the National School Chaplaincy and Student
Welfare Program.
4. In Williams the High Court invalidated an agreement made by the Commonwealth
under the National School Chaplaincy Program by a 6:1 majority. The majority
also invalidated the making of payments by the Commonwealth under that
agreement, on the ground that they were not supported by the executive power of
the Commonwealth. In particular, four of the justices did so on the basis that the
Commonwealth executive government could not enter into agreements and make
payments under the Program without legislative authority. Appropriation
legislation was not sufficient; nor was subsection 44(1) of the Financial
Management and Accountability Act 1997 (FMA Act).
5. The Bill would, if enacted, provide a mechanism to enable the requisite
parliamentary authority for the National School Chaplaincy and Student Welfare
Program to be given.
6. Williams also has significant implications for the validity of Commonwealth
spending programs that are not supported by legislation other than an
appropriation Act, where there may be a constitutional need for legislative support
to be provided.
7. Many Commonwealth spending programs and agreements are already authorised
by legislation. The Williams decision has no implications for such programs and
agreements.
Explanatory Memorandum to the Financial Framework Legislation Amendment Bill (No. 3) 2012 1
8. The decision also has no implications for Commonwealth agreements with and
grants to the States (including grants in relation to health, education, transport,
roads and the environment).
9. Nor does the decision have any implications for agreements and payments for the
ordinary services of the government.
10. There remain a significant number of other spending programs and arrangements
that are not supported by legislation other than an appropriation Act. Legislation
to provide parliamentary authority for such programs and arrangements will avoid
any risk that such a program or arrangement may be found to be invalid due to the
absence of such authority. This involves a prudent approach in light of the new
requirement identified by the High Court, to ensure administrative certainty. It is
particularly important that recipients of Commonwealth grants and other payments
who act in good faith consistently with the agreements under which those grants
and payments are made should not be left in any doubt about their validity.
Therefore the FFLA Bill, if enacted, would amend the FMA Act to ensure that the
requisite legislative authority could be provided in appropriate cases.
11. Specifically, the FFLA Bill 2012 would:
· amend the FMA Act to empower the Commonwealth, where authority does not
otherwise exist, to make, vary or administer arrangements under which public
money is or may become payable, or to make grants of financial assistance,
including payments or grants for the purposes of particular programs, where
those arrangements or grants, or a class including those arrangements or grants,
or relevant programs, are specified in regulations. The proposed amendments
would also apply in relation to arrangements etc that are in force immediately
before those amendments come into operation;
· clarify that decisions under the proposed amendments are not decisions to
which the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act)
applies; and
· amend the Financial Management and Accountability Regulations 1997 to
specify arrangements or grants, or classes of arrangements or grants, or
programs, in accordance with the proposed amendments to the FMA Act.
12. The FFLA Bill 2012 is the eleventh Financial Framework Legislation
Amendment Bill (FFLA Bill) since 2004, and forms part of the Government's
ongoing program to address financial framework issues as they arise, and assist in
ensuring that specific provisions in existing legislation remain clear and
up-to-date.
13. A total of 7 out of 11 FFLA Bills have become law, with the first and the sixth
FFLA Bills lapsing upon the prorogation of the Australian Parliament for the 2004
and 2010 federal elections. The tenth FFLA Bill, the Financial Framework
Legislation Amendment Bill (No. 2) 2012, was passed by the Parliament on
22 June 2012 and is awaiting Royal Assent. The first FFLA Bill focussed
primarily on amending legislation to reflect the creation of Special Accounts in
Explanatory Memorandum to the Financial Framework Legislation Amendment Bill (No. 3) 2012 2
the Financial Management Legislation Amendment Act 1999. Later FFLA Bills
have covered a range of matters including financial management provisions,
governance structures and legislative anomalies.
Financial Impact Statement
14. The proposed amendments have no financial impact. The amendments are aimed
at clarifying the legislative authority to spend under certain Government programs
and arrangements.
Statement of Compatibility with Human Rights
15. The proposed amendments do not engage any of the applicable rights or freedoms
outlined in the Human Rights (Parliamentary Scrutiny) Act 2011, such as
encompassed in the International Covenant on Civil and Political Rights.
16. The proposed amendments do not limit any human rights, nor propose any
offences or penalties.
17. This Bill is therefore compatible with the human rights and freedoms recognised
or declared in the international instruments listed in subsection 3(1) of the Human
Rights (Parliamentary Scrutiny) Act 2011.
Explanatory Memorandum to the Financial Framework Legislation Amendment Bill (No. 3) 2012 3
II. NOTES ON CLAUSES AND SCHEDULES
1. The Financial Framework Legislation Amendment Bill (No. 3) 2012 (FFLA Bill
2012) comprises three clauses dealing respectively with the short title and
commencement of the Bill and providing for amendments as set out in
Schedules 1 and 2.
2. Schedule 1 sets out amendments to the Administrative Decisions (Judicial Review)
Act 1977 (ADJR Act) and the Financial Management and Accountability Act 1997
(FMA Act).
3. Schedule 2 sets out amendments to the Financial Management and Accountability
Regulations 1997 (FMA Regulations).
4. These notes describe the three clauses, the schedules and their effects.
Clause 1: Short title
5. This clause provides that, if enacted, the FFLA Bill 2012 may be cited as the
Financial Framework Legislation Amendment Act (No. 3) 2012.
Clause 2: Commencement
6. This clause provides that the Bill will commence on the day that it receives the
Royal Assent.
7. The commencement of Schedule 1 on the day that the FFLA Bill 2012 receives
the Royal Assent will mean that there is a short period between the start of the day
and the time at which Royal Assent is given. Importantly however, during this
period, no personal rights or liberties will be unduly trespassed.
8. Clause 2 includes a provision that Schedule 2 will commence immediately after
the commencement of Schedule 1.
Clause 3: Schedules
9. Subclause 3(1) provides that each Act, and each set of regulations, that is specified
in Schedule 1 or 2 is amended or repealed as set out in the applicable item in the
Schedule. It also provides that any other item in a Schedule has effect according
to its terms, which relates to provisions such as application provisions.
10. Subclause 3(2) provides that the amendment of any regulation does not prevent
the amendment regulation from being further amended or repealed by the
Governor-General in Council.
Explanatory Memorandum to the Financial Framework Legislation Amendment Bill (No. 3) 2012 4
Schedule 1
Amendments to the ADJR Act
11. Item 1 amends Schedule 1 of the ADJR Act to ensure that decisions made under
proposed new Division 3B of Part 4 of the FMA Act (to be added by item 2) and
decisions under section 44 of the FMA Act are not subject to judicial review.
Exempting decisions made under these provisions would ensure that the status quo
is maintained. Importantly however, the guaranteed right of review under
section 75 of the Australian Constitution, and review under section 39B of the
Judiciary Act 1903, would still be available.
Amendments to the FMA Act
Supplementary powers to make commitments to spend public money
12. Item 2 inserts a new Division 3B into Part 4 of the FMA Act to establish a
supplementary power for the Commonwealth to make commitments to spend
public money where there is not currently legislative authority. This new division
will address potential issues about the validity of some Government payments
following the High Court of Australia's decision in Williams v Commonwealth
[2012] HCA 23. 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.1 The majority also
held that appropriation legislation was not sufficient, nor did subsection 44(1) of
the FMA Act confer a power to spend.
13. Many Commonwealth payments are authorised to be made through specific
legislation. For example, around 75% of Commonwealth expenditure every
financial year is authorised by standing appropriations in legislation other than
annual appropriation legislation (e.g. benefits and entitlements paid under the
Social Security Act 1991, Veterans' Entitlements Act 1986 and A New Tax System
(Family Assistance) (Administration) Act 1999). However, a significant amount
of Commonwealth spending that is appropriated every year by annual
appropriation legislation is not currently authorised by other legislation. In order
to put beyond doubt that public money may continue to be spent where legislative
authority (other than an appropriation Act) does not exist, new subsection 32B(1)
will provide authority to make, vary or administer arrangements or grants of
financial assistance that are prescribed in the regulations, or are made, varied or
administered for the purpose of a program specified in the regulations, or that are
included are in a class of arrangements or grants that is specified in the
regulations. An arrangement is defined to include a contract, agreement or deed.
1
Williams v Commonwealth [2012] HCA 23 see at [67] French CJ; [157] Gummow and Bell JJ; and [534] Crennan J.
Explanatory Memorandum to the Financial Framework Legislation Amendment Bill (No. 3) 2012 5
14. The power to administer an arrangement includes `giving effect to' the
arrangement. And `giving effect' to a funding agreement, of course, includes
making a payment in accordance with that arrangement. The power to administer
a grant includes making, varying or administering an arrangement that relates to
the grant.
15. The power to vary an arrangement or grant of financial assistance would be to
vary the terms and conditions of the arrangement or grant in accordance with the
terms or conditions of the arrangement or grant or with the consent of all
non-Commonwealth parties to the arrangement or grant. The intention of new
section 32B is not to provide the Commonwealth with a new power to unilaterally
vary an arrangement or grant.
16. The power under new section 32B could only be used if the relevant arrangement
or grant of financial assistance is specified in the regulations, or is within a class
specified in the regulations, or is for the purposes of a program specified in the
regulations. However, as indicated below, section 32B does not, by implication,
limit what the executive could do in the absence of legislative authority. Indeed,
many of the programs prescribed in the schedule have been included out of an
abundance of caution.
17. The inclusion of provisions enabling relevant arrangements and grants, classes of
arrangements and grants, and programs, to be specified in regulations is necessary
so that the Government can continue these activities in the national interest. It
would also restore, in relation to relevant arrangements, grants and programs, the
position as it was understood to be before the decision in Williams.
18. New subsection 32B(2) makes it clear that a power conferred on the
Commonwealth to make, vary or administer an arrangement or grant of financial
assistance may be exercised on the Commonwealth's behalf by a Minister or a
Chief Executive. This is in accordance with normal arrangements. In accordance
with subsection 53(1) of the FMA Act, the Chief Executive function may be
delegated to other Agency officials.
19. It is intended that proposed new section 32B be read subject to section 15A of the
Acts Interpretation Act 1901.
20. New section 32C would require the terms and conditions of grants of financial
assistance to a State or Territory made under subparagraph 32B(1)(a)(ii) to be set
out in a written agreement. Such an agreement can be made by a Minister or
Chief Executive. This new section is consistent with provisions in relation to
grants to the States under section 96 of the Constitution in other contexts such as
annual appropriation Acts; for instance section 22 of Appropriation Act (No.2)
2011-2012. Financial assistance provided to the Territories, although not made
under section 96 of the Constitution, is generally administered in the same way.
21. To avoid any doubt, new subsection 32C(4) clarifies that nothing in this section
prevents a grant of financial assistance to a person other than a State or Territory
from also being made subject to terms and conditions.
Explanatory Memorandum to the Financial Framework Legislation Amendment Bill (No. 3) 2012 6
22. New section 32D would allow a Minister to delegate his or her powers under
Division 3B of Part 4 to an official in any Agency. The official would need to
comply with any directions of the Minister.
23. New section 32E would ensure that Division 3B of Part 4 of the FMA Act does
not, by implication, unintentionally limit the executive power of the
Commonwealth.
Power to enter contracts under section 44 of the FMA Act
24. Items 3 to 8 amend section 44 of the FMA Act to clarify the significance of
subsection 44(1) in relation to one of its most common and practical uses -
entering into contracts on behalf of the Commonwealth. Subsection 44(1)
provides:
`A Chief Executive must manage the affairs of the Agency in a way that
promotes proper use of the Commonwealth resources for which the Chief
Executive is responsible'.
25. The executive power of the Commonwealth is used frequently in relation to
entering into arrangements, contracts, agreements and deeds (including leases and
licences). In Williams, the High Court held that subsection 44(1) does not provide
Agency Chief Executives with the power to spend, rather that subsection 44(1) is
directed to the prudent conduct of financial administration.2
26. Item 3 repeals the note to subsection 44(1) of the FMA Act. This note indicated
that the Chief Executive may enter contracts, on behalf of the Commonwealth, in
relation to managing the affairs of the Agency. However, in Williams, the Court
held that subsection 44(1) did not by itself confer on a Chief Executive a general
authority to contract in relation to the affairs of the Chief Executive's agency.
27. Item 4 inserts new subsections 44(1A) and (1B) to clarify that the power of Chief
Executives in subsection 44(1) to manage the affairs of the Agency, does include
the power to make, vary and administer arrangements on behalf of the
Commonwealth.
28. A Chief Executive being able to enter arrangements `in relation to the affairs of
the Agency' is to be read in broad terms. In particular, the Government expects
Agencies to work cooperatively in a range of areas, including the implementation
of whole-of-Government policies. This might include, therefore, one Agency
entering into an arrangement on behalf of the Commonwealth, where the services
can be accessed by other Agencies or governmental bodies (such as occurs
currently, for example by the Department of Finance and Deregulation in relation
to the leasing of vehicles for Commonwealth agencies). Decisions on whole-of-
Government procurement will typically be made at a Ministerial level. There are
2
Williams v Commonwealth [2012] HCA 23 at [71]-[72] French CJ; [102]-[103] Gummow and Bell JJ; [260] Hayne J;
[547] Crennan J; and [596] Kiefel J.
Explanatory Memorandum to the Financial Framework Legislation Amendment Bill (No. 3) 2012 7
also occasions when Agencies decide cooperatively to share arrangements, such as
through a request for tender that allows the inclusion of other Agencies.
29. Similarly, a Department of State may need to work closely with another Agency
in the same portfolio. This is particularly the case in relation to formation,
dissolution or change processes for portfolio Agencies or bodies generally, where
Departments may legitimately obtain goods or services on behalf, or in
anticipation, of the requirements of a portfolio body.
30. Moreover, some FMA Act Agencies will be required, by their nature, to deal with
contracts and payments on behalf of other Agencies. In these cases, arrangements
might also be established to reimburse the Department or agency bearing the
initial costs of such contracts.
31. The note to proposed new subsection 44(1A) recognises that Chief Executives
may delegate the ability to enter contracts on behalf of the Commonwealth to
other officials in accordance with section 53 of the FMA Act. Delegations, along
with authorisations under the general law, allow the Chief Executive to regulate
the capacity of officials within an agency to enter into arrangements and to impose
such controls as may lawfully be imposed in relation to such activity including
where relevant under section 53. The capacity to delegate powers and functions
under section 53 includes the capacity of the Chief Executive to give mandatory
directions. Similarly, a Chief Executive may provide instructions to officials in
their agency, including delegates, under section 52 of the FMA Act.
32. New subsection 44(1B) further clarifies that new subsection 44(1A) does not
authorise Chief Executives to exercise, on behalf of the Commonwealth, a power
conferred on the Commonwealth by new section 32B (to be added by item 2).
33. Item 5 makes a minor technical amendment to subsection 44(2) to clarify that the
powers of Chief Executives are now set out in subsections 44(1) and (1A).
34. Items 6 to 8 add three new terms to subsection 44(3): `administer', `arrangement'
and `make'. These terms reflect the terminology that will also be used in the
supplementary power to make commitments to spend public money etc in new
section 32B (to be added by item 2). An arrangement includes a contract,
agreement or deed. Significantly the power to administer an arrangement includes
the ability to make payments under that arrangement.
Transitional provision - grants, contracts and similar arrangements
made before the commencement of section 32B
35. Item 9 is a transitional provision that provides for arrangements that were in
force, or purportedly in force, immediately before the commencement of new
section 32B (and associated regulations) to have been made with the authority
granted under section 32B.
Explanatory Memorandum to the Financial Framework Legislation Amendment Bill (No. 3) 2012 8
36. This provision ensures that the validity of an existing arrangement that is in force,
or purportedly in force, immediately before the Bill commences is not in question
by virtue of the fact that the Commonwealth lacked, or may have lacked, the
legislative authority to make the grant, contract or similar arrangement at the
relevant time.
Schedule 2
37. Schedule 2 to the Bill would amend the Financial Management and
Accountability Regulations 1997 to insert after Part 5 a new Part 5AA. The new
Part 5AA would make provision for Schedule 1AA to specify, for the purposes of
proposed new paragraph 32B(1)(b) of the FMA Act, arrangements, classes of
arrangements, grants and classes of grants, and programs.
38. Schedule 2 would also insert after Schedule 1 to the Regulations a new
Schedule 1AA which specifies, for the purposes of proposed new
paragraph 32B(1)(b) of the FMA Act, arrangements, classes of arrangements,
grants and classes of grants, and programs.
Explanatory Memorandum to the Financial Framework Legislation Amendment Bill (No. 3) 2012 9