Financial Framework (Supplementary Powers) Amendment Bill 2024 - Initial Scrutiny [2024] AUSStaCSBSD 34 (28 February 2024)

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Purpose	The bill seeks to amend the Financial Framework (Supplementary Powers) Act 1997 to clarify that the Commonwealth may make, vary or administer arrangements or grants of financial assistance under the Act even where this power exists in other legislation and to make similar arrangements in respect of the power of the Commonwealth to form a company, participate in the formation of a company, acquire shares in a company, or become a member of a company.
Portfolio	Finance
Introduced	Senate on 7 February 2024
Bill status	Before the Senate

Insufficient parliamentary scrutiny
Inappropriate delegation of legislative powers^[68]

1.117 Item 3 of Schedule 1 to the bill seeks to substitute section 32B of the Financial Framework (Supplementary Powers) Act 1997 (the Act) to remove the words ‘[i]f...apart from this subsection, the Commonwealth does not have power to’. The effect of this is to clarify that the Commonwealth may make, vary or administer arrangements or grants of financial assistance under this Act even where this power exists in other legislation.

1.118 Item 4 of Schedule 1 to the bill similarly seeks to substitute section 39B of the Act to remove the same words, such that the Commonwealth can form, participate in the formation of, acquire shares in, or become a member of, a company, even where the power to do this exists in other legislation.

1.119 The explanatory memorandum explains that these amendments are intended to clarify the operation of the provisions:

The framework established by the Principal Act and the Financial Framework (Supplementary Powers) Regulations 1997 (FFSP Regulations) (the FFSP framework) has 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. 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.

The amendments will put beyond doubt that the FFSP framework operates consistently with how it has been understood to operate in circumstances where another general power may be available. The amendments would clarify the operation of the FFSP framework and put beyond doubt the validity of government spending programs that rely on section 32B of the Principal Act, as well as any government involvement in companies in reliance on section 39B of the Principal Act, in circumstances where other general powers could also be relied on.^[69]

1.120 The committee has long standing scrutiny concerns with section 32B of the Act. The committee commented on the provision when it was initially introduced in the Financial Framework Legislation Amendment Act (No. 3) 2012 (FFLA Act No. 3) in response to the High Court decision in Williams v Commonwealth^[70] (Williams), which held that the Executive requires statutory authority before it can enter into contracts with private parties and spend public money. The FFLA Act No. 3 amended the Financial Management and Accountability Act 1997 (now the Financial Framework (Supplementary Powers) Act 1997) to retrospectively validate spending for over 400 non-statutory funding schemes and provide, in paragraph 32B(1)(b), the power for additional arrangements or grants to be specified in regulations.

1.121 A legislative instrument made by the executive is not subject to the full range of parliamentary scrutiny inherent in bringing forward proposed legislation in the form of a bill. In this case, the regulations authorise the expenditure of public money. The committee expressed its view that such important matters be included in primary legislation and sought further justification as to ‘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’.^[71]

1.122 The committee reiterated its concerns about the inclusion of important matters in delegated legislation in the Public Governance, Performance and Accountability (Consequential and Transitional Provisions) Bill 2014, which made minor modifications to, but largely retained, section 32B. In doing so, the committee sought the minister’s advice as to whether consideration had been given to amending the bill to include important matters in primary legislation and ensure the opportunity for sufficient parliamentary oversight of these types of arrangements and grants, and went on to note that:

if new spending activities are not to be authorised by primary legislation it would be possible to provide for scrutiny in a number of ways, for example by:

and the committee also seeks the Minister’s advice about these, or other possible options.^[72]

1.123 The committee also notes that, in its inquiry into parliamentary scrutiny of delegated legislation, the Senate Standing Committee for the Scrutiny of Delegated Legislation similarly recommended that the Financial Framework (Supplementary Powers) Act 1997 be amended to provide for an affirmative resolution procedure for legislative instruments which specify expenditure.^[73] This would provide for positive authorisation by the Parliament of expenditure, rather than negative approval through the absence of disallowance.

1.124 In light of the above, the committee reiterates its concerns regarding the regulation making power to specify arrangements and grants authorising public expenditure in section 32B of the Act. The committee notes that the explanatory memorandum provides limited justification for leaving these matters to delegated rather than primary legislation. Although reference is made to the framework being used to support ‘emergency payments during the COVID-19 pandemic, and the 2020 bushfires and floods’,^[74] the use of the power is not restricted to authorising expenditure of public money for the purposes of emergencies.

1.125 In this regard, the committee notes that it has not generally considered that consistency with existing provisions in legislation is, of itself, sufficient justification for provisions that inappropriately delegate legislative powers or insufficiently subject the exercise of legislative power to parliamentary scrutiny. The committee considers the remaking of the power to specify arrangements and grants in delegated legislation provides a suitable opportunity for the Executive and the Parliament to reconsider the appropriateness of the power and whether its exercise should be subject to additional constraints or parliamentary scrutiny measures.

1.126 The committee remains of the view that, consistent with the views expressed by the High Court in Williams about the need for parliamentary scrutiny of expenditure^[75], authorisation of expenditure is more appropriately enacted in primary legislation rather than delegated to the Executive.

1.127 If this is not to be the case, the committee considers that, at a minimum and in line with its previous comments and the views of the Standing Committee for the Scrutiny of Delegated Legislation, uses of the power should be subject to approval or disallowance processes in order to enhance parliamentary oversight over the authorisation of public expenditure.

1.128 In relation to section 39B, the committee notes it has previously commented on this provision when it was introduced in the Financial Framework Legislation Amendment Act (No. 2) 2013. In Alert Digest 5 of 2013, the committee commented on the difficulty ‘for the Parliament to assess the appropriateness of pursuing Commonwealth purposes through the formation of, or participation in, a company (as opposed to using alternative institutional arrangements) unless the purposes to be pursued by the company are specified to an appropriate level of detail’.^[76] The committee further raised concern about the insufficient parliamentary scrutiny over the measure, particularly in relation to the appropriateness of specifying via regulation the companies through which the Commonwealth may pursue its objectives.^[77]

1.129 In light of the importance of ensuring adequate parliamentary scrutiny of and oversight over expenditure, the committee requests the minister’s detailed advice as to:

1.130 The committee draws its scrutiny concerns in relation to section 39B of the Financial Framework (Supplementary Powers) Act 1997 to the attention of senators and leaves to the Senate as a whole the appropriateness of specifying, via regulation, the companies through which the Commonwealth may pursue its objectives.

Retrospective validation
Parliamentary scrutiny^[78]

1.131 Item 20 of Schedule 1 to the bill seeks to provide that where, before the commencement of the item, the Commonwealth purported to make, vary or administer an arrangement or grant under section 32B and it also had the power to do so under other legislation, the Commonwealth is taken to have had, at the relevant time, the power to make, vary or administer that arrangement or grant. This provision provides for the retrospective operation of section 32B to ensure that past spending which may have been authorised under the Financial Framework (Supplementary Powers) Regulations 1997 is legally valid.

1.132 Items 22 and 23 seek to provide retrospective validation in a similar effect in respect of the formation of companies and acquisition of shares, with respect to the amendments proposed to section 39B of the Financial Framework (Supplementary Powers) Act 1997.

1.133 Retrospectivity challenges the basic rule of law principle that the law should be capable of being known in advance. Underlying this principle is the importance of enabling people to rely on the law at the time of a relevant action or decision and protecting those affected by government decisions from arbitrary decision-making. These concerns will be particularly heightened if the legislation will, or might, have a detrimental effect on individuals.

1.134 Generally, where proposed legislation will have a retrospective effect, the committee expects the explanatory materials to set out the reasons why retrospectivity is sought, whether any persons are likely to be adversely affected and, if so, the extent to which their interests are likely to be affected.

1.135 In this case, the explanatory memorandum explains, in relation to item 20, that:

This item regularises the position in respect of spending in which the Commonwealth has previously engaged in reliance on section 32B, in the event that section 32B may not have been available to support that spending merely because of the availability of another spending power. This ensures that there is no uncertainty in relation to the legal status of that past spending.

From the date of commencement, the validation provisions, including for items 22 and 23 below, 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.^[79]

1.136 It is unclear to the committee how retrospectively validating past arrangements and grants is wholly beneficial in operation. The committee raised this same concern in response to the FFLA Act No. 3 which sought to retrospectively validate spending activities.^[80] While retrospective operation may aid in providing certainty and be beneficial to recipients of grants, it may disadvantage others, and the explanatory memorandum has not explained this further and to what extent other interests may be affected.

1.137 In relation to the retrospective impact of items 22 and 23, the explanatory memorandum merely refers readers to the discussion of the retrospective impact of item 20, quoted above.^[81] It is unclear to the committee how that explanation is relevant to the retrospective impact of either item 22 or 23.

1.138 In this light it would assist the committee for a clear explanation to be provided of the detrimental impact that the retrospective validation of the particular matters provided for in items 20, 22 and 23 could have on any right or interest (in the broadest sense of the terms) held by any individual.

1.139 It is also unclear to the committee on a reading of the bill and the explanatory memorandum why it was considered that the proposed amendments are necessary. As the necessity of the amendments could shed light on the nature of any detriment that may be suffered by an individual, any detail that could be provided to the committee on how it was identified that the amendments may be required would be of assistance.

1.140 On a final note, the committee observes that the explanatory memorandum sheds no light on 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. The committee considers that as an exercise of the power under section 32B is an exercise of the legislative power of the Commonwealth it would be appropriate to provide such details to the Parliament. This should include the detail of how much money was spent pursuant to the exercises of power that are proposed to be retrospectively validated by the bill.

^[67] This entry can be cited as: Senate Standing Committee for the Scrutiny of Bills, Financial Framework (Supplementary Powers) Amendment Bill 2024, Scrutiny Digest 3 of 2024; [2024] AUSStaCSBSD 34.

^[68] Schedule 1, item 3, section 32B; and Schedule 1, item 4, subsections 39B(1) and (2). The committee draws senators’ attention to these provisions pursuant to Senate standing orders 24(1)(a)(iv) and (v).

^[71] Senate Standing Committee for the Scrutiny of Bills, Alert Digest 7 of 2012 (27 June 2012) p. 5.

^[72] Senate Standing Committee for the Scrutiny of Bills, Alert Digest 8 of 2014 (9 July 2014) pp. 31–33.

^[73] Senate Standing Committee on Regulations and Ordinances, Parliamentary scrutiny of delegated legislation (3 June 2019) p. 111.

^[75] See, for instance, the remarks of Hayne J in Williams v Commonwealth [2012] HCA 23; (2012) 248 CLR 156 [288] that ‘sound governmental and administrative practice may well point to the desirability of regulating programs of the kind in issue in this case by legislation’.

^[76] Senate Standing Committee for the Scrutiny of Bills, Alert Digest 5 of 2013 (15 May 2013) p. 53.

^[77] Senate Standing Committee for the Scrutiny of Bills, Alert Digest 5 of 2013 (15 May 2013) pp. 52–55.

^[78] Schedule 1, items 20, 22 and 23. The committee draws senators’ attention to these provisions pursuant to Senate standing orders 24(1)(a)(i) and (v).

^[80] Senate Standing Committee for the Scrutiny of Bills, Eleventh Report of 2012 (19 September 2012) pp. 378–380.

Australian Senate Standing Committee for the Scrutiny of Bills - Scrutiny Digests