Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

As a result of the Labor-Greens guillotine that is in place, we now have 15 minutes to talk about an important piece of legislation, the Financial Framework Legislation Amendment Bill (No. 1) 2012. This is really quite disgraceful because we in the coalition do have some concerns about this legislation. Indeed, we have circulated some amendments in relation to it. So, in order for me to be able to get straight to the actual amendments so that we can have a discussion in relation to them, I seek leave of the chamber to incorporate—on behalf of the coalition and as the shadow representing the coalition in this chamber—my speech in the second reading debate on this legislation.

Leave granted.

The speech read as follows—

I rise to speak today on the Financial Framework Legislation Amendment Bill (No.1) 2012.

This Bill seeks to amend four Acts and repeal two Acts across three portfolios.

It is part of an ongoing program of updating and enhancing the Commonwealth's financial framework.

This is the ninth Financial Framework Legislation Amendment Bill since 2004.

These Bills generally seek to correct misdescribed provisions, add clarity where required and enhance Acts to make them consistent with complementary legislation.

They also seek to repeal redundant components of the financial framework such as prior programs that have expired.

Financial Framework Amendment Bills are generally non-controversial in nature but occasionally a provision emerges that could either result in unintended consequences or afford additional power to government that could be misused.

While this Bill is largely of the 'housekeeping' variety, the Coalition has some serious concerns with the debt "set off' provisions which are detailed in Schedule 4.

I will address this in more detail later in my contribution.

Schedule One

Schedule One of the Bill seeks to amend the Auditor General Act 1997 to clarify that the Auditor General may accept an appointment under the Corporations Act 2001 as the auditor of any company that the Commonwealth controls.

This will align the Act with the definitions of Commonwealth control which were made in 2008 to the Commonwealth Authorities and Companies (CAC) Act 2007.

Schedule Two

Schedule Two would amend the CAC Act itself to ensure that directors of Commonwealth authorities and wholly-owned government companies and enterprises prepare budget estimates as directed by the Finance Minister rather than the responsible portfolio minister. This would make the Act consistent with long-standing actual practice.

The most significant component of Schedule Two is a new obligation on the directors of Commonwealth authorities and wholly-owned companies to notify their responsible minister of "actual decisions" about significant events immediately after a decision has been taken.

Significant events include: forming a company or participating in the formation of a company, acquiring or disposing of a significant shareholding in a company, acquiring or disposing of significant business, or commencing or ceasing a significant business activity.

You would hope this type of communication occurs as a matter of course however this would place a firm obligation for this to happen.

Schedule Three

Schedule Three of this Bill is devoted to correcting two misdescribed provisions in the Financial Framework Legislation Amendment Act 2010, which are contained in section 27 A of the Commonwealth Authorities and Companies Act ie replacing references to "at common law and in equity" and "at common law or in equity" with "under the general law".

Schedule Four

Schedule Four - relates in part to Special Account Appropriations under the Financial Management and Accountability Act 1997.

This provision applies to Special Account Appropriations which relate to either the COAG Reform Fund Act 2008 or a Special Account established under the Nation-building Funds Act.

Determinations for such appropriations are done by way of disallowable instrument.

As it stands such a Determination takes effect after the five sittings days pass for which the parliament can move to disallow.

Such appropriations may be used by new government agencies once they are established.

For the purpose of practicality this amendment allows the minister to prescribe a date in the instrument for which the appropriation takes effect.

This allows a future date to be set which corresponds with the establishment date of a new agency.

It has no material effect and serves to add clarity to the Act to confirm that such an instrument can come into effect at a nominated date beyond immediately after the expiry of the disallow able instrument.

Off-setting Debt

The most notable feature of Schedule 4 is the provision to give the Finance Minister the discretionary power to off-set debts owed to the Commonwealth by an individual or entity against payments owed to the same individual or entity.

This is defined in Item 10 and Item 13.

As it stands Commonwealth payments must be paid in full regardless of debts owing.

The government makes the point that this new section provides a mechanism for the Commonwealth to recover debts in a cost neutral way and more efficient manner than allowed under current provisions.

On the surface this does seems a sensible measure as observed by the Shadow Finance Minister however after closer examination and consultation the Coalition has some serious concerns about how this power could be applied.

In our view, the Bill as drafted lacks sufficient clarity and definition and is open to misuse.

While the Minister's office has endeavoured to provide some verbal reassurances as well as some departmental advice there is insufficient comfort in the amendments themselves for the Coalition to support this component of the Bill as it stands.

The Bill's digest released by the Parliamentary Library captures our discomfort.

And I quote: "There is concern that this gives the Commonwealth too much power in a relationship with a member of the public. It can assert that a debt is owing, and the person involved may not have the resources to challenge the Commonwealth and may thus lose and entitlement "

There is also insufficient clarity about what happens in the event of a dispute over a debt. For example, can the Minister ignore a dispute and recover a debt regardless; by off-setting it against another form of payment that might be owed by the Commonwealth.

The department provided the following written advice:

"The set-off provisions under proposed section 35 of the Financial Management and Accountability Act 1997 (FMA Act) could not be applied where the amount is not objectively ascertainable, there is a genuine dispute regarding the amount owing or the amount is not capable of being recovered."

Based on this the application of this authority could be very subjectively applied. For example who decides that a dispute is genuine and based on what?

Presumably, it is at the discretion of the minister.

The government says in the Bill's explanatory memorandum that "in the context of a current Budget deficit with a clear policy of returning to surplus, set-off may provide a more cost effective mechanism to preserve public finances."

This suggests the government will be actively looking for opportunities to utilise these discretionary powers. Our concern is it could come at the expense of natural justice and as mentioned earlier harm those who are not in a position to take on the Commonwealth.

Another concern is the prospect that this authority could be used as a means to override agreements or agreements that might be in prospect in relation to repayment arrangements for debts owed.

Tax liabilities come to mind.

The government, verbally, has also said that "it does not intend that this provision be used in relation to a tax liability that may be payable to the Australian Taxation Office."

But again and intention is one thing, what actually occurs is another.

While a subsection 35 (2) specifies that certain Commonwealth payments are exempt from being used for an off-set, on account of being "inalienable" or "absolutely inalienable", explanatory material advises that this only applies to "advance" social security payments or paid parental leave instalments.

There are a number of payments made by the Commonwealth that could be subject to the off-set provisions, whether they be grants, payments owed for services or goods provided, regular salaries or allowances, compensation, or tax rebates etc.

Again there is a lack of clarity and definition.

The Definition outlined also state that amounts owing to or by the Commonwealth include those amounts that are "owing but not yet due for payment".

This is a troubling definition as it means that debts, that while not even yet due, could be called in and settled against other amounts payable.

If applied this indicates how this authority could in practice create cash-flow, overdraft or other financial problems for an individual who is subject to the "set off' determination.

The last thing the Coalition wants to see is a power that was perhaps devised with the best intentions abused in a way that could put a taxpayer, a small business, or other entity at an unfair disadvantage against the Commonwealth.

The Coalition has come to the view that this provision is not essential to the functioning of the financial framework and should be omitted.

Schedule Five

This Bill also proposes to repeal two redundant special appropriations to "clean up the statute book".

These include the Appropriation (Development Bank) Act 1975 and the Car Dealership Financing Guarantee Appropriation Act 2009.

In conclusion

I flag that it is my intention to move amendments that have been circulated in my name with the aim of removing items 10 and 13 of Schedule 4 of this Bill, which relate to the proposed section 35.

It should be removed and if the government feels strongly about the importance of the provision it could withdraw it and re-present it in a future Financial Framework Amendment Bill.

With clear definition and with sufficient safeguards in place it is something we could be prepared to re-examine at a future date.

The Coalition will not ultimately support this Bill while this vague, but material provision remains within it.

10 After section 34

  Insert:

35 Set off

  (1) If:

     (a)   an amount (tire first amount) is owing to the Commonwealth by a person; and

     (b)   an amount (the second amount) is owing by the Commonwealth to the person; the Finance Minister may, on behalf of the Commonwealth, set off the whole or a part of the first amount against the whole or a part of the second amount.

     Exceptions

  (2) Paragraph (1)(b) does not apply in relation to a payment if:

     (a)   a law of the Commonwealth provides that the payment is absolutely inalienable; or

     (b)   a law of the Commonwealth provides that the payment is inalienable; or (e) a law of the Commonwealth provides that the right to the payment cannot be assigned; or

     (d) a law of the Commonwealth provides that the payment cannot be assigned.

     Definitions

  (3) In this section:

  amount owing by the Commonwealth includes an amount that is owing but not yet due for payment.

  amount owing to the Commonwealth includes an amount that is owing but not yet due for payment.

  Note: See also subparagraph 65(2)(a)(iaa) (which allows regulations to be made about the Finance Minister considering a report from specified persons before setting off under this section, in a case where the amount of the set-off is more than a specified amount).

13 After subparagraph 65(2)(ia)

  Insert:

     (iaa) the Finance Minister considering a report from specified persons before setting off under section 35, in a case where the amount of the set-off is more than a specified amount;

I thank the Senate. That means that I can go straight to the coalition amendments in relation to the financial Framework Legislation Amendment Bill (No. 1) 2012. The key purpose of the amendments which have been circulated in my name on behalf of the coalition is to remove the set of provisions in schedule 4 of the bill before the Senate. The government's bill would see a new section 35 inserted into the Financial Management and Accountability Act 1997. This is outlined in item 10, while item 13 is directly related—

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Senator Cormann, could I just interrupt for a moment just to get absolute clarity. We are still in the second reading stage of the bill. For the amendments to actually be moved in the committee stage we would need to put the second reading question. I understand that you are alluding to the amendments now in continuation of your speech in the second reading debate.

Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

To assist the chamber I have incorporated my speech in the second reading debate. So it might be better if we deal with the second reading part of the equation and then move into committee so that we can deal with the amendments.

Jacinta Collins (Victoria, Australian Labor Party, Parliamentary Secretary for School Education and Workplace Relations) Share this | Link to this | Hansard source

I thank the Senate and those who have contributed to the debate on the Financial Framework Legislation Amendment Bill (No. 1) 2012. The bill would if enacted amend four acts to strengthen and clarify aspects of the Commonwealth's financial framework and repeal two acts that include special appropriations, which are now redundant.

I wish to offer a point of clarification on the proposed provisions for set-out arrangements under item 10 of schedule 4 of the bill, which would introduce a new section 35 to the FMA framework. It is the intention of the government to institute a consultative process around the use of this provision. The minister will consult with members of the parliament on this process. For example, there is regulation-making power linked to the proposed section 35 included in the bill through the proposed amendment to section 65 of the FMA Act which is set out in item 13 of schedule 4 of the bill. Such regulations could potentially use an approach that already exists for an act of grace or debt waiver provisions, such as to specify that a decision maker must have available an advisory committee report where the amount involved exceeds a prescribed limit.

I would like to put on the record some further information in terms of the use of this provision for an amount that the Commonwealth merely asserts as a debt. If Senator Cormann is happy, I am happy to incorporate the rest of my speech.

Leave granted.

The speech read as follows—

The amount in question must be established as a debt owing before the proposed section 35 could be applied.

The set-off provision could not be applied where:

In general, this Bill will help with the preparation of the Budget, such as through the changes to the Commonwealth Authorities and Companies Act 1997, and make useful clarifications, such as the role of the Auditor-General in auditing companies controlled by the Commonwealth.

I commend the Bill.

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

The question is that the bill be read a second time.

Question agreed to.

Bill read a second time.