Michaelia Cash (WA, Liberal Party, Deputy Leader of the Government in the Senate) Share this | Hansard source

I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

Today, I introduce the Investment Funds Legislation Amendment Bill 2021. The Bill improves the operation of Australian Government investment funds and enhances the ability of the Future Fund Board of Guardians and the Future Fund Management Agency to continue investing for the benefit of future generations of Australians.

The Future Fund was established by the Liberal-National Government in 2006. Since then, the Future Fund Board of Guardians, with the support of the Future Fund Management Agency, has grown the Future Fund by over $136 billion. The Board has also become responsible for managing five other Australian Government investment funds since 2006, with total funds under management of more than $245 billion as of 30 June 2021.

The Future Fund Board of Guardians has a proven track record of managing investment portfolios on behalf of the Government and maximising returns over the long term, as at 30 June 2021 delivering for the Future Fund a return since inception of 8.4 per cent per annum versus a target of 6.6 per cent. As the size of the Australian Government investment funds portfolio continues to grow, and the investment environment becomes increasingly challenging, this Bill makes important changes to support the continued growth and responsible management of the Government's investment funds into the future.

Schedule 1 - Employment arrangements

Schedule 1 to this Bill amends the Future Fund Act 2006 to establish a new employment framework for the Future Fund Management Agency. The Agency is unique compared to other Commonwealth entities in the scale of funds under management, and that it operates within financial markets in a substantially commercial environment. It is appropriate that the Agency has a management and investment team of the highest skill and expertise. Key investment management staff are therefore recruited from around the globe, and staff structures and remuneration arrangements differ to the Australian Public Service norms. The new framework will provide more operational flexibility by being outside of the Public Service Act 1999, similar to other specialised Commonwealth agencies including ASIC, APRA and the RBA.

Under the new framework, Agency staff will be employed under the Future Fund Act 2006 by the Chair of the Future Fund Board of Guardians, as the Head of the Agency. Staff of the Agency will continue to be Commonwealth employees.

To ensure the Future Fund Management Agency continues to meet the expectations of the Australian public, the Chair will be required to determine a Code of Conduct and Values that are consistent with the Australian Public Service Code of Conduct and Values. The Agency will remain subject to the Government's policy on the Average Staffing Level cap.

To ensure a smooth transition, Agency staff will continue to be employed on the same terms and conditions as those that applied immediately before the transition, and will retain all of their existing leave entitlements. After commencement, the Chair will be able to determine new terms and conditions of employment as long as entitlements to staff of the Agency are no less favourable.

The new employment framework will enhance the Future Fund's independence from government, improve its recruitment and retention of specialised staff and allow it to continue maximising investment outcomes on behalf of the Government.

Schedule 2 - Freedom of Information

Schedule 2 to this Bill will provide a partial exemption under the Freedom of Information Act 1982 for the Future Fund Board of Guardians and the Future Fund Management Agency, in relation to investment documents. These entities regularly produce, negotiate and receive documents from third party fund managers that include confidential, competitive and commercially sensitive information. The risk of disclosing highly sensitive commercial and proprietary material has led to investment managers withholding information or reducing their engagement with the Board and the Agency. This presents an investment and governance risk. In particular, it can result in reduced access to investment opportunities and negatively affect investment outcomes.

This exemption is consistent with the treatment of other Commonwealth entities that deal regularly with commercial information, including NBN Co, Australia Post and Export Finance Australia. It will provide certainty to the Board and the Agency, and their investment partners, that sensitive investment information is automatically excluded from release under FOI laws.

The Freedom of Information Act 1982 will continue to apply to documents concerning the Future Fund Board and the Agency's non-investment activities.

Schedule 3 - Medical Research Future Fund

Schedule 3 to this Bill amends the Medical Research Future Fund Act 2015 to provide a new disbursements framework and to streamline the administration of Medical Research Future Fund grants programs.

Under the current framework, disbursements from the Medical Research Future Fund are determined annually by the Future Fund Board. The Board's calculation is largely based on the benchmark rate of return for the fund, which is linked to the RBA cash rate. This framework creates uncertain and volatile disbursements, which affects the orderly planning of grants programs from the fund. Further, the historically low RBA cash rate and requirement to preserve the fund corpus have put downward pressure on disbursements.

With the fund now exceeding its mature balance of $20 billion by over $2 billion, the Government is implementing a new disbursements framework that will provide a fixed maximum annual disbursement of $650 million from 2022-23. This will allow investment returns above this level to accrue to the fund corpus, which can be accessed in later years when investment markets are more challenging. This reduction in distribution volatility will provide greater certainty of funding for the health and medical research sector, and allow the important commitments under the Medical Research Future Fund 10-year investment plan to be met. The responsible Ministers will be required to review the maximum disbursement amount at least every five years and will be able to amend that amount via disallowable legislative instrument. This will provide flexibility into the future and could allow for higher disbursements in the future, if the fund is able to sustainably support them over the long term.

The amendments will also allow the Government to issue a new investment mandate for the Medical Research Future Fund with a higher and more suitable benchmark rate of return aligned to other risk-seeking funds managed by the Future Fund Board. This will increase expected earnings over the medium-term and protect the level of disbursements over the long-term, helping to fund vital medical research and medical innovation projects. It will also simplify and streamline the Medical Research Future Fund's operations.

The Bill will also make a number of improvements to the administration of grants programs. These amendments will expand the avenues available to provide funding to the states and territories, reduce the consultation burden on the health and medical sector and allow administrative functions to be carried out by departmental officials while ensuring Ministers remain appropriately informed.

Schedule 4 - Emergency Response Fund

Finally, schedule 4 to this Bill amends the Emergency Response Fund Act 2019 to transfer responsibility for expenditure from the Emergency Response Fund to the newly established National Recovery and Resilience Agency and to streamline administrative arrangements for transfers from the Emergency Response Fund Special Account.

The Government remains committed to providing support for local communities in responding to large-scale natural disasters and undertake new initiatives to manage the impact of future events and the changing climate. The establishment of the NRRA implements recommendation 3.5 of the Royal Commission into National Natural Disaster Arrangements by creating a standing entity with a clear mandate to enhance national preparedness for, and response to, natural disasters. To that end, policy responsibility and administration for expenditure from the Emergency Response Fund has been transferred from Emergency Management Australia in the Home Affairs portfolio to the NRRA, strengthening transparency and assurance over Commonwealth funding towards natural disaster recovery and resilience. The Bill also makes administrative improvements to the operation of the Emergency Response Fund for consistency with other investment funds.

Conclusion

In summary, this Bill makes important amendments to the employment framework for the Future Fund Management Agency, to reflect its unique operating environment within financial markets while still ensuring the Agency remains subject to appropriate controls in line with community expectations. The exemption under FOI laws will increase confidence in the operation of the law and allow important engagement with investment managers to successfully invest over $245 billion on behalf of the Government where returns benefit all Australians.

The new disbursements framework for the Medical Research Future Fund will provide certainty of funding to meet the Government's 10-year investment plan and support significant disbursements over the long term to fund vital medical research and medical innovation projects.

Finally, the administrative improvements to the Medical Research Future Fund and the Emergency Response Fund will streamline the operation of the funds to support the valuable funding streams they provide into the future.

I seek leave to continue my remarks later.

Leave granted; debate adjourned.