Don Farrell (SA, Australian Labor Party, Parliamentary Secretary for Sustainability and Urban Water) Share this | Link to this | Hansard source

South Australia I table revised explanatory memoranda relating to the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011 and the Social Security Legislation Amendment (Job Seeker Compliance) Bill 2011 and move:

That the bills be now read a second time.

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

Leave granted.

The speeches read as follows—

ACTS INTERPRETATION AMENDMENT BILL 2011

This Bill amends the Acts Interpretation Act 1901 to improve its structure, language and application to modern technology.

The Acts Interpretation Act is the statute most commonly referred to in the Commonwealth statute book. It is a vital resource for judges, lawyers and parliamentarians to interpret Com­mon­wealth legislation. This is the first time it has been comprehensively amended since its enactment in 1901.

Former High Court Chief Justice Gleeson aptly summarised the main purposes of this Act, as well as Interpretation Acts in general when he said:

For drafting convenience, they set out certain ground rules....[which] save unnecessary repetition and explanation.... Parliament enacts legislation upon an assumption that the meaning of what it says will be understood in accordance with those general rules. Interpretation Acts [also] set out the working assumptions according to which legislation is framed by Parliament, and applied by the courts.1

What the Bill does

The main purpose of this Bill is to re-structure the Acts Interpretation Act to make the important rules and definitions contained within it much easier to find. For example, the Part 2 proposed in this Bill brings together the majority of definitions that are currently scattered throughout the Act. Terms such as ‘document’, ‘Government printer’ and ‘Proclamation’ will now be collocated and listed in alphabetical order.

The Bill also updates the Act to bring it into the 21st century. For example, it amends the provisions about meetings so that participants can be in different locations and can dial in using technology such as Skype and video-conferenc­ing. This reflects the exponential advances in technology that have been achieved over the past 110 years.

Drafting practices have also evolved. The Bill reflects this by clarifying that all material in an Act, from the first section to the last Schedule, is part of an Act. This takes account of current practice of the Office of Parliamentary Counsel to include section headings and explanatory notes as part of Bills introduced into Parliament. Form­erly, these were added later by the Government Printer.

Including rules and definitions in the Acts Interpretation Act means they do not need to be repeated in other Commonwealth Acts. This reduces the size of the Commonwealth statute book. Most Commonwealth Acts contain ref­eren­ces to the Acts Interpretation Act so that readers are aware of and can easily find the definitions and rules that apply to the relevant provisions of legislation.

Conclusion

This is consistent with the Government’s commitment to improving the accessibility of the civil justice system. Modernisation of one of the first Commonwealth Acts will help to reduce the complexity of legislation that has developed since federation.

I would like to thank the Office of Parliamentary Counsel for the significant time and effort that went into preparing this Bill. In addition to the substantial amount of drafting undertaken, a number of drafters were also involved in testing the workability of new definitions and rules to make sure they would operate as intended, by testing their application to Bills they had recently drafted.

I would also like to thank the individuals and organisations who made comments on the Bill when it was released as an exposure draft earlier this year.

Finally, I would like to mention the 1993 report of the House Standing Committee on Legal and Constitutional Affairs – Clearer Common­wealth Law – which recommended that a public review of the Acts Interpretation Act be undertaken and led to the amendments that are included in this Bill.

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1 Chief Justice Gleeson ‘The Meaning of Legislation: Context and Purpose and Respect for Fundamental Rights’, Victoria Law Foundation Oration given on 31 July 2008; Published in (2009) 20 Public Law Review 26, p28.

AGED CARE AMENDMENT BILL 2011

The Australian Government has a strong commitment to caring for our older Australians. In line with this commitment, the Gillard Government will spend around $10.9 billion on aged care in the 2010-11 financial year. More­over, the Government is delivering on a range of significant aged care reforms to enhance the delivery of recipient-centred aged care services.

In tandem with these reforms, ensuring that appropriate safeguards are in place to adequately protect older Australians living in residential aged care, is of paramount importance to this Govern­ment.

The Government takes this responsibility seriously and is committed to working with aged care residents, and industry to identify areas where improvements can be made.

In the 2010-11 Federal Budget, the Government announced it would increase protection for accommodation bonds and strengthen complaints management in aged care as part of its commitment to providing better health and better care for older Australians through the national health reform agenda. I am pleased to be delivering on these promises today by introducing the Aged Care Amendment Bill 2011.

Essentially, the amendments contained in the Bill increase protection for residents’ in two ways: First, it strengthens protections for accommodation bonds held by providers of residential and flexible aged care services and, second, it improves complaint management in aged care.

In addition, the Bill makes other minor amendments to remove redundant provisions relating to aged care which are no longer operational and can be misleading to aged care stakeholders.

Protecting aged care residents’ savings

Accommodation bonds were established to give approved providers a source of capital fund­ing for investment in residential aged care infrastructure.

Accommodation bonds are essentially an interest free loan from the aged care resident to an approved provider. The provider has the responsibility to repay the bond when the resident leaves the aged care service. In the event that an approved provider goes into liquidation owing bond refunds, the Australian Government makes refunds through the Accommodation Bond Guarantee Scheme.

Since the introduction of the Aged Care Act in 1997, there has been strong growth in the value of accommodation bonds held by the aged care sector. As at 30 June 2010:

The total value of accommodation bonds held by approved providers has more than doubled since 2004-05 – equating to an average increase of 20% per annum.

This is a significant amount of funds held by aged care providers on behalf of their residents. And, as the Australian population continues to age and the demand for aged care increases, the funds loaned to approved providers through accommodation bonds will continue to grow.

Given the significant funds loaned by residents to their approved providers, it is important that this money is directed to residential and flexible aged care infrastructure and there are robust accountability mechanisms in place to underpin confidence in the safety of residents’ funds.

To date, the majority of approved providers have effectively met their obligation to refund bonds to their residents. However, since the introduction of the Accommodation Bond Guar­antee Scheme in May 2006, it has been activated on five occasions with around 150 accom­modation bonds refunded at a cost of approximately $24.5 million.

This experience, together with that of the Department of Health and Ageing in undertaking prudential monitoring and compliance activity, has demonstrated that regulation of accom­modations bonds could be further enhanced. In particular, there is a need to reinforce the role of bonds in financing capital investment in aged care.

This Bill provides greater clarity about the uses of accommodation bonds and strengthens the link to aged care. Specifically, the Bill reinforces that bonds taken after 1 October 2011 should be used for capital expenditure at aged care services, repaying debt associated with capital works and refunding existing bonds. The Bill also makes it clear that accommodation bonds can be used for financial investment. For example, a number of approved providers invest bonds in term deposits prior to building a new facility.

Importantly, the reforms are structured to ensure that crucial investment in aged care infrastructure is maintained. A broad approach is taken to capital expenditure and includes costs for activities directly associated with capital expenditure. The design of the reforms also ensures that regulation does not unduly impact on effective corporate structuring and business arrangements.

For many approved providers, the reforms are not expected to have a significant impact as they will already be using bonds for the permitted purposes. However, a two-year transition period will be implemented to ensure that those approved providers that need to make changes have sufficient time to act to meet the new requirements.

Unfortunately, the risk that some entities may not act appropriately in dealing with accom­modation bonds cannot be completely removed by regulation. Therefore, it is important to have strong incentives in place to discourage this type of behaviour. Under the new arrange­ments, offences will apply when misuse has been identi­fied. New criminal offences will apply where an approved provider has used bonds for a non-permitted purpose, is insolvent and unable to repay accommodation bonds when they fall due.

In the very worst of cases, criminal offences will also apply to individuals within the organisa­tion. Individual offences will only apply in circumstances where (a) the approved provider has used bonds for a non-permitted purpose, is insolvent and unable to repay accommodation bonds and (b) where an individual was complicit in this. For example, where the individual was a key personnel of the approved provider (that is, in a senior position), knew the bonds were being used for a non-permitted use and were in a position to, but had not, taken reasonable steps to prevent the misuse.

The introduction of offence provisions for the misuse of bonds demonstrates the Government’s commitment to addressing the serious moral culpability of those who choose to misuse bonds which are essentially loans to approved providers by people in vulnerable positions. Aged care residents need to be confident that their funds are being used for the intended purposes, that there is transparency about that use, and that there is sound regulation in place to monitor and protect their savings.

As I have mentioned, the focus of the enhanced protection for accommodation bonds is to reduce the risk that approved providers are unable to make refunds to residents. Given this emphasis, the Bill removes the current restrictions on the use of the income derived from bonds and accommodation charges. Currently, these restric­tions are more significant than those related to the actual bond itself, but by removing the restrictions this will free up these funds for use by approved providers, reduce regulatory burden and ensure that regulation better targets the area of greater risk.

To support all of the new arrangements, the Bill will also introduce information gathering powers in circumstances where, for example, concerns exist regarding the capacity of an approved provider to repay accommodation bonds. This will improve the capacity of the Department of Health and Ageing to actively manage or monitor risks as they emerge.

Improving the Handling of Aged Care Complaints

The second key element of the Bill relates to the management and resolution of complaints about aged care services.

The Aged Care Complaints Investigation Scheme (the Scheme) provides a means through which concerns relating to the delivery of residential, community and flexible aged care services subsidised by the Government can be investigated.

In July 2009, in response to industry and community concerns about the Scheme’s operation, an independent review to identify areas of improvement was completed. A key outcome of that review was the recommendation to in­crease the consumer focus of the Scheme and strengthen the focus on resolution of complaints rather than investigation of complaints.

While many of the review’s recommendations have already been implemented administratively, amendments proposed through this Bill will enable the implementation of the reforms to continue.

To this end, the Bill proposes to enable the “Investigation Principles” to be replaced with new “Complaints Principles.”

The proposed new Complaints Principles will describe the improved complaints scheme and will have a stronger focus on resolution of complaints. This will provide consumers with a more flexible scheme where a range of options are available for assisting to resolve a complaint, including: early resolution, conciliation and mediation.

Other Amendments

Other amendments contained in the Bill will make some minor, operational changes to remove redundant provisions relating to aged care, which have the potential to confuse the public.

Timing

Subject to the passage of the Bill through Parliament, it is proposed the reforms relating to bonds take effect from 1 October 2011. A two year transition period will be in place until the end of October 2013 to allow the sector time to become familiar with the new requirements relating to the permitted uses for bonds. This will assist to ensure a smooth transition.

Changes relating to Complaints Principles take effect on 1 September 2011.

Minor amendments and removal of redundant provisions will take effect on Royal Assent.

These changes have been the subject of consultation with the aged care industry, banking and finance industry and consumer representative groups. Their views have been instrumental in shap­ing these reforms. To ensure smooth imple­mentation, the Government will continue to work collaboratively with key stakeholders, providers, care recipients and their families, and listen closely to their views.

Conclusion

I am very pleased to introduce this Bill. The amendments it contains ensure, as far as possible; that the financial interests of residents are protected, that effective regulatory safeguards are in place for accommodation bonds, and that a regulated source of capital funding is provided for investment in aged care infrastructure.

This Bill provides a regulatory framework that is commensurate to the risks associated with the strong growth of bond holdings in the aged care sector, which is currently over $10 billion. It also provides for a shift in the way aged care com­plaints are dealt with, from one of investigation to one of resolution, facilitating pragmatic, resident-centred outcomes for all concerned parties. By doing so, this Bill will help promote public confidence in the aged care system.

CHILD SUPPORT (REGISTRATION AND COLLECTION) AMENDMENT BILL 2011

I am pleased to introduce the Child Support (Registration and Collection) Amendment Bill 2011. The Bill has two objectives. Firstly, the Bill proposes to allow the Child Support Registrar to delegate certain powers and functions to individuals outside the Department of Human Services. Secondly, the Bill amends several criminal penalty provisions to ensure the offences in those provisions can be prosecuted success­fully.

The Government believes it is vital that the children of separated parents receive the emotional and financial support they need. While most parents do the right thing and pay their child support in full and on time, not all parents meet their child support obligations.

The Child Support Program has identified that having the ability to outsource debt collection activity to external service providers on occasions should increase the successful collection of outstanding child support liabilities.

The first amendment in the Bill will enable the Child Support Registrar to delegate certain powers and functions to external service pro­viders. This approach is currently utilised by Centrelink for collection of outstanding liabilities.

This approach aims to improve the collection of child support by using the expertise of skilled external providers for specific collection activities. The outsourcing of collection activities is expected to lead to an increase in the successful identification and collection of outstanding child support debt.

Additionally, the outsourcing of collection activities allows Child Support Program staff to concentrate on other compliance activities and better serve other Child Support Customers.

The amendments to the delegation provisions under the Child Support (Registration and Collection) Act 1988 are based on equivalent provisions under the Social Security (Administration) Act 1999 and the Paid Parental Leave Act 2010. As the Department of Human Services moves towards an integrated model between its various agencies, these amendments will enable the Child Support Program to ensure consistency of service delivery options across agencies.

The second group of amendments are to certain criminal provisions under the Child Support (Registration and Collection) Act 1988. These provisions relate to the obligations of an employer when they are required to withhold money from an employee.

Employer withholding is a process whereby an employer withholds amounts from a paying parent’s wages or salary, only as required by the Child Support Program, to be paid to CSA in satisfaction of a child support liability.

The current offences relating to employer withholdings in the Child Support (Registration and Collection) Act 1988 are somewhat ambiguous. The offence provisions create an obligation and provide a penalty, but do not specify whether the offence is created by an act or omission.

A literal reading of these provisions suggests that an employer could indeed be penalised for complying with the section. This makes it difficult for the Commonwealth Director of Public Prosecutions to prosecute an employer who is doing the wrong thing.

The proposed amendments will make it clear that an offence is committed when an employer fails to take a certain action.

The Commonwealth Director of Public Prosecutions has been consulted in the making of the proposed amendments.

These amendments will improve the prospect of successful prosecution under the Act. They make it clear that it is an offence when an employer fails to deduct or remit child support payments for the benefit of children. Improving the ability of the Child Support Program to successfully prosecute employers who fail to comply with requirements under the Child Support (Registration and Collection) Act 1988 will also help protect the integrity of the Child Support Program, and, at the end of the day, better support the children of separated parents.

CORPORATIONS AMENDMENT (IMPROVING ACCOUNTABILITY ON DIRECTOR AND EXECUTIVE REMUNERATION) BILL 2011

Today, I introduce a Bill to strengthen the accountability and transparency of Australia’s executive remuneration framework and give shareholders more power over the pay of company directors and executives.

The Bill implements the Gillard Government’s response to the recommendations made by the Productivity Commission in its recent inquiry into Australia’s remuneration framework.

It is important that we have a system of remuneration that is not only internationally competitive, but that also appropriately rewards executives for their work and for the value that they bring to a company.

At the same time, directors should be accountable to shareholders for the level and composition of executive remuneration.

Shareholders are the owners of a company. They take on the risk of investing their capital and they share in a company’s profits and losses.

Shareholders, therefore, deserve more say over how the pay of company executives is set.

The Government has sought to encourage shareholder engagement through the transparent disclosure of the details surrounding remunera­tion. This ensures that shareholders have the information they need to convey their views through the non-binding shareholder vote, and to hold directors accountable for their remuneration decisions.

While Australia’s remuneration framework is relatively strong, the global financial crisis highlighted a number of issues relating to remunera­tion structures.

In particular, it illustrated the dangers of remuneration structures that focus on short-term results, reward excessive risk-taking and promote corporate greed.

In March 2009, the Government responded to these concerns by announcing reforms to curb excessive termination benefits or ‘golden handshake’ payments given to departing directors and executives. At the same time, the Govern­ment also announced that it would ask the Productivity Commission to undertake a broader review of Australia’s remuneration framework.

The Productivity Commission undertook a thorough and comprehensive inquiry. Over the nine-month review process, the Productivity Commission received a total of 170 submissions and conducted a series of roundtables and public hearings.

Overall, the Productivity Commission found that Australia’s corporate governance and remuneration framework is highly ranked internationally.

However, it also recommended a range of reforms to further strengthen Australia’s remuneration framework.

The Government, in its response to the inquiry, supported and further strengthened the majority of the recommendations. This Bill implements many of these recommendations, and will put in place measures that will empower shareholders to influence the remuneration decisions of their company.

The ‘two-strikes’ test

A key measure in the Bill is the ‘two-strikes’ test. This measure will subject the board of a company to greater accountability through the re-election process if it has not adequately respon­ded to shareholder concerns on remuneration issues over two consecutive years.

The Corporations Act currently requires listed companies to put their remuneration report to a non binding shareholder vote at the annual general meeting. While the introduction of the non-binding vote has seen a change in the way companies approach the compilation of their remuneration reports, shareholders currently have little recourse if boards choose to ignore strong ‘no’ votes.

The ‘two-strikes’ test gives shareholders more power to have their say.

Under this measure, the first strike is triggered where a company’s remuneration report receives a ‘no’ vote of 25 per cent or more. If this occurs, the company is required to explain in its subsequent remuneration report the action it has taken to address shareholders’ concerns. Alternatively, if those concerns have not been addressed, the company must outline the reasons why.

Some boards have already put in place processes to provide explanations of the issues surrounding remuneration to their shareholders, but it is not mandatory for them to do so. Formalising this practice for all listed companies will promote improved communication and engagement with shareholders.

If shareholders are still dissatisfied and the company receives another ‘no’ vote of 25 per cent or more at the following year’s annual general meeting, the second strike is triggered.

Once the second strike is triggered, shareholders are then given the opportunity to vote on a resolution to spill the board and subject the directors to re-election. If this spill resolution is passed by more than 50 per cent of eligible votes cast, then a spill meeting is to be held within 90 days, at which shareholders will be given the opportunity to vote on the re-election of the directors, one by one.

The Productivity Commission consulted extensively on this measure, particularly on the threshold level of a 25 per cent ‘no’ vote. The Productivity Commission concluded that a threshold of 25 per cent for each of the strikes was appropriate and is in line with the 75 per cent majority required for the passage of special resolutions.

A threshold of 25 per cent would better align with levels commonly accepted as demonstrating serious shareholder concern about remuneration, particularly in light of current voting patterns.

Whilst the threshold for each of the strikes will be set at 25 per cent, it should be noted that the threshold for the spill resolution will be set at 50 per cent.

This proposal targets the small number of boards that have not adequately addressed shareholder concerns over two consecutive years. The Government believes that it is appropriate that these boards be subject to this additional scrutiny and accountability.

This measure sends a clear signal that unresponsive directors will be held accountable for their decisions on executive remuneration.

Remuneration consultants

The Bill also contains measures to facilitate the independence of remuneration consultants.

The Productivity Commission inquiry con­cluded that the potential for conflicts of interest can arise where remuneration consultants report directly to the company executives and where they provide other services to the same company. Improved disclosure will help shareholders assess the independence of the advice that remuneration consultants provide to boards and their remuneration committees.

While the advice of remuneration consultants may be influential in determining a company’s remuneration decisions, it is important to recognise that the primary responsibility for remuneration arrangements rests with company directors.

The Bill contains measures to require boards or remuneration committees to approve the engagement of a remuneration consultant. The remuneration consultant will be required to declare that their recommendations are free from undue influence and must provide their advice to non-executive directors or the remuneration committee, rather than directly to company executives.

In addition, boards will be required to provide an independence declaration, stating whether, in their view, the remuneration consultant’s recommendations are free from undue influence, and the board’s reasons for reaching this view.

The company will also need to disclose in its remuneration report key details regarding the consultant, such as the consultant used, the amount they were paid for providing remuner­ation recommendations as well as other services to the company.

These measures will deliver greater trans­parency for shareholders, as they will be in a better position to assess potential conflicts of interest associated with the use of remuneration consultants. By placing the onus on boards to demonstrate to shareholders the steps taken to ensure the independence of remuneration advice, the Government also hopes to bring about a cultural change towards greater accountability around the use of remuneration consultants.

Prohibiting KMP from voting in remuneration matters

The Bill also addresses conflicts of interest by prohibiting the company’s directors and key executives (or key management personnel) and their closely related parties from voting their shares in the non-binding vote on the remuneration report.

Currently, the Corporations Act does not prohibit key management personnel who hold shares in the company from participating in the non binding shareholder vote on remuneration.

There is a real, as well as perceived, conflict of interest when key management personnel vote on their own remuneration packages.

As these directors and executives have an interest in approving their own remuneration arrangements, allowing them to participate in the non binding vote may result in a higher approval rating on the remuneration report than might otherwise be achieved.

The Bill prohibits key management personnel and their closely related parties that hold shares from participating in the non-binding vote on their own remuneration arrangements, as well as the spill resolution.

Key management personnel and their closely related parties would also be prohibited from voting undirected proxies on the remuneration report and spill resolution, except when they are acting as the chair of the meeting and the shareholder has indicated their informed consent on their proxy voting form for the chair to exercise the proxy. This exception for the chair is intended to apply to the non-binding vote required under section 250R of the Corporations Act.

Key management personnel continue to be permitted to vote directed proxies on remuneration related resolutions.

Prohibiting hedging of incentive remuneration

The Bill also ensures that executive remuner­ation remains linked to performance by prohibiting key management personnel from hedging their incentive remuneration.

Incentive remuneration aligns the interests of management with the interests of shareholders. However, it is currently possible for directors and executives to hedge their exposure to incentive remuneration.

This is a practice that is inconsistent with a key principle underlying Australia’s remuneration framework that remuneration should be linked to performance.

Under the new law, key management personnel and their closely related parties will be prohibited from hedging the key management personnel’s incentive remuneration.

No