Financial Framework (Supplementary Powers) Amendment Bill 2024 - Commentary on Ministerial Responses [2024] AUSStaCSBSD 62 (20 March 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^[100]

2.29 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.

2.30 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.

2.31 The committee has long standing scrutiny concerns with section 32B of the Act, which are outlined more fully in Scrutiny Digest 3 of 2024.^[101] In light of the importance of ensuring adequate parliamentary scrutiny of and oversight over expenditure, in Scrutiny Digest 3 of 2024 the committee requested the minister’s detailed advice as to:

Minister for Finance’s response^[103]

2.32 The Minister for Finance (the minister) advised that the Financial Framework (Supplementary Powers) (FFSP) legislative framework was established in response to what is now known as the High Court decisions in Williams and is one of the mechanisms to provide legislative authority for Commonwealth expenditure. The minister advised that the framework is an important legislative mechanism that in certain circumstances can provide for more immediate spending authority than primary legislation and provided some examples of spending supported by the framework, including implementing measures in response to various Royal Commissions and in response to urgent situations like drought relief and emergency payments during the COVID-19 pandemic.

2.33 In relation to the consideration of any alternate approval or disallowance mechanisms for regulations made, the minister advised that the Government considers that the existing scrutiny mechanisms provide sufficient oversight for the regulations and reiterated its response to recommendation 14 of the Senate Standing Committee on Regulations and Ordinances’^[104] report, Parliamentary scrutiny of delegated legislation, that ‘affirmative resolution for regulations would significantly hinder the government’s ability to respond promptly to issues...and delays to implementing legislative authority specifying expenditure could risk the Government not meeting its own policy objectives’.

2.34 The minister further advised that the purpose of the instrument is to provide legislative authority for government spending which has already been agreed to by the Government and the legislative instrument is subject to scrutiny and disallowance by the Parliament. Other possible options would not provide the same balance of efficient delivery of funding in emergencies and parliamentary scrutiny provided by the tabling of legislative instruments under the Legislation Act 2003.

Committee comment

2.36 The committee considers that it is difficult to reconcile the decision of the High Court in the Williams cases^[105] with a legislative provision that seeks to empower the Executive, through the making of a legislative instrument, to expand its own powers to contract and spend. In making its decision in Williams (No 1), the High Court noted that the system of responsible and representative government established under the Constitution requires that the Parliament, as the directly elected representatives of the people, to have control over the expenditure of money by the Executive.^[106] The legal authority for spending must derive from statute or otherwise from non-statutory power found in the Constitution. In particular, the committee draws attention to the remarks of Hayne J 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’ (emphasis added).^[107]

2.37 In this light, the committee is not persuaded that the fact that government spending ‘has already been agreed to by the Government’ provides sufficient justification for the legislative provision. Similarly, the committee is of the view that although it may be the case that the time taken to provide legislative authorisation of expenditure may result in the ‘Government not meeting its own policy objectives’, it is still appropriately a matter for the Parliament to determine whether spending for a particular policy purpose should be so authorised. While section 56 of the Constitution vests the financial initiative in the Commonwealth Executive, financial control is vested to the Parliament.^[108] The committee considers that, from a scrutiny perspective, negative approval of an expansion of the Executive’s power to contract and spend through the absence of disallowance is not an optimal approach, and appears to provide insufficient weight to the inherent benefits of parliamentary debate, and the importance of the role that the Parliament should play in authorising and scrutinising expenditure.

2.38 The committee notes the explanation that instruments made pursuant to section 32B of the Act have enabled the Government to respond to urgent situations, such as emergency payments relating to natural disasters. However, if it is to be accepted that it is appropriate for the Parliament to delegate its power to authorise spending for such purposes, there is no requirement that the power under section 32B of the Act be exercised only in relation to these kinds of events.

2.39 In this light, the committee notes instruments made under section 32B of the Act have recently authorised spending for the following purposes:

2.40 While the committee does not comment on the policy merits of spending in relation to any of these measures, from a scrutiny perspective, it is unclear to the committee the extent to which such spending could be characterised as emergency spending to which there is an urgent need for authorisation by way of delegated rather than primary legislation.

2.41 The committee reiterates its view that 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. The authorisation of the expenditure of public money is a significant matter which should be included in primary legislation.

2.42 At a minimum, the committee considers that it would be an improvement to the existing mechanism provided in section 32B of the Act if it was amended to provide that instruments that authorise expenditure for the purposes of natural disaster payments or other like emergencies be subject to the ordinary disallowance process, while providing for an alternative positive approval process in relation to instruments authorising expenditure for other purposes.

2.43 The committee draws its scrutiny concerns in relation to section 32B of the Financial Framework (Supplementary Powers) Act 1997 to the attention of senators and leaves to the Senate as a whole the appropriateness of authorising, via regulation, the expenditure of public money.

Retrospective validation
Parliamentary scrutiny^[112]

2.44 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 validation of past action taken pursuant to section 32B to ensure that past spending which may have been authorised under the Financial Framework (Supplementary Powers) Regulations 1997 is legally valid.

2.45 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.

2.46 In Scrutiny Digest 3 of 2024, the committee requested the minister’s detailed advice as to:

Minister for Finance’s response^[114]

2.47 The minister advised that the purpose of the validation provisions is to regularise the status of spending in which the Commonwealth has previously engaged in reliance on sections 32B and 39B of the Act, in the event that the provisions may not have been available to support that spending by reason of the existence of an alternative source of power. It is to ensure there is no uncertainty in relation to the legal status of that past spending. The minister reiterated that any retrospective impact of the validation would be beneficial to recipients of spending programs by negating any risk of invalidity of payments and it would have no detrimental effect on individuals.

2.48 The minister advised that the necessity of the amendment was recently identified by the Department of Finance as part of ongoing and regular review of the operation of the Act, and the amendments are necessary as Commonwealth entities that had relied on these provisions for authority for Commonwealth spending are potentially affected in circumstances where another source of legislative authority for the spending may exist.

2.49 The minister further advised that it is appropriate to retrospectively authorise the legislation as the validation provisions would provide that, from the commencement of the bill, the Commonwealth is taken to have had the necessary power under section 32B at relevant times in the past, and the bill would make similar provision in respect of the legal status of any past activities that relied on section 39B. It will ensure that any past spending under the FFSP framework is not at risk for being purportedly authorised under the Act when another source of legislative authority may also have existed.

2.50 In relation to the number of instances in which the Commonwealth made, varied or administered an arrangement or grant under existing section 32B and where, but for the retrospective validation, the Commonwealth did not have the power to do so, the minister advised that they are not aware of any spending that is invalid as a result of the existence of an alternative source of legislative authority and there is no litigation on foot relating to this issue.

2.51 The minister did not provide any information as to how much money may have been spent pursuant to such exercises of power that are proposed to be retrospectively validated by the bill.

Committee comment

2.53 In relation to the retrospective validation of previous spending made following the exercise of the power under section 32B, the committee notes the advice that the Government does not consider that any individual would be detrimentally impacted. The committee also acknowledges the advice that no litigation is currently on foot in relation to the matter.

2.54 However, the committee remains of the view that when assessing the impact of retrospective validation of potentially invalid former actions by the Executive, the broadest possible view should be taken of the rights and interests that could be considered to be detrimentally impacted. In this instance, it would appear to the committee that retrospective validation could impact the rights of people with an interest in challenging the validity of spending for a particular purpose. The explanatory materials and response also provide no insight into whether the retrospective validation of past action taken under section 39B could impact people, for instance those that sought to challenge actions taken by companies potentially invalidly formed by the Executive.

2.55 The committee considers that it would be appropriate for the explanatory materials to weigh any detrimental affect the provision could have on the interests of people against the benefits of providing clarity and certainty. This would enable the Parliament to make a fully informed decision as to whether the retrospective validation proposed by the items unduly trespasses on personal rights and liberties.

2.56 The committee acknowledges the advice that the Government is unaware of any instances in which previous spending may have been invalid due to the existence of an alternative source of legislative authority for the spending. Noting that the exercise of the power under section 32B of the Act is an exercise of legislative power delegated by the Parliament, the committee is of the view that it would have been appropriate for a proactive examination of all past exercises of the power to have taken place in light of the potential issues identified in the Department’s ongoing review of the operation of the FFSP Act. This would have identified the extent of any potentially invalid previous exercises of the power, which would be a relevant factor for the Parliament to take into account in its consideration of legislation to validate past exercises of the power that it had delegated to the Executive.

2.57 Finally, while acknowledging the advice that the necessity of these amendments was identified by the Department as part of its ongoing review, the committee does not consider that this fully addresses the question of when and how the need for the amendments and the retrospective validation of past actions became apparent. Noting that this advice may be of assistance both in determining:

the committee would welcome any additional advice that could be provided in relation to the review.

2.58 In light of the above, the committee requests the minister’s further advice in relation to when and how the need for the amendments proposed by the bill and the retrospective validation of past uses of the power under section 32B became apparent during the Department’s review of the operation of the Financial Framework (Supplementary Powers) Act 1997, referred to in the minister’s correspondence.

2.59 Noting the possibility that the bill may pass the Parliament prior to the committee’s next meeting, the committee notes that such advice could also be provided to the Senate during its consideration of the bill, in order to inform the debate.

^[99] This entry can be cited as: Senate Standing Committee for the Scrutiny of Bills, Financial Framework (Supplementary Powers) Amendment Bill 2024, Scrutiny Digest 4 of 2024; [2024] AUSStaCSBSD 62.

^[100] 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).

^[103] The minister responded to the committee’s comments in a letter dated 6 March 2024. A copy of the letter is available on the committee’s webpage (see correspondence relating to Scrutiny Digest 4 of 2024).

^[104] Now, the Senate Standing Committee for the Scrutiny of Delegated Legislation.

^[105] Williams v Commonwealth (2012) 248 CLR 158 (‘Williams (No 1)’); and Williams v Commonwealth (No 2) [2014] HCA 23; (2014) 252 CLR 416 (‘Williams (No 2)’).

^[108] Anne Twomey, ‘Executive power following the Williams cases’ in John Griffiths and James Stelios (eds), Current issues in Australian Constitutional Law: Tributes to Professor Leslie Zines (The Federation Press, 2020) 33, 37; Australian Constitution, section 83.

^[109] Financial Framework (Supplementary Powers) Amendment (Defence Measures No. 3) Regulations 2023 [F2023L00801]; Explanatory statement, p. 4.

^[110] Financial Framework (Supplementary Powers) Amendment (Defence Measures No. 2) Regulations 2023 [F2023L00537]; Explanatory statement, p. 2.

^[111] Financial Framework (Supplementary Powers) Amendment (Education Measures No. 2) Regulations 2023 [F2023L00543]; Explanatory statement, p. 2.

^[112] 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).

^[114] The minister responded to the committee’s comments in a letter dated 6 March 2024. A copy of the letter is available on the committee’s webpage (see correspondence relating to Scrutiny Digest 4 of 2024).

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