David Feeney (Victoria, Australian Labor Party, Parliamentary Secretary for Defence) Share this | Link to this | Hansard source

On 6 June 2001, some five months before that year's election, the Howard government launched a Defence payment scheme that the then Minster Assisting the Minister for Defence, the Hon. Bruce Scott MP, said was a 'win-win situation and one that promises great dividends for the reserves, the Australian Defence Force and the Australian community'. History tells us that the Howard government then went on to win the 2001 election but, sadly, the scheme introduced by the Hon. Bruce Scott MP was certainly no winner for the Australian taxpayer.

The so-called 'win-win' scheme did not have a legislative basis when it was launched by Bruce Scott in June 2001. The coalition had not tabled or gazetted any legislation, instrument, regulation or determination for parliament or the Australian people to scrutinise. The coalition committed millions of taxpayer dollars to a thought bubble that had no legal basis, no proper qualifying or eligibility criteria, and no considered policy justification. Politics rather than policy produced a policy that was pregnant with risk and produced perverse outcomes.

The scheme announced by Bruce Scott is today known as the Employer Support Payment Scheme, the ESPS. It pays employers, and self-employed reservists who want to claim a payment under the scheme, a payment equivalent to the average weekly ordinary time earnings, now some $1,300 per week, for every five days a reservist is on Defence service. In addition, Defence—the Commonwealth—also pays the reserve member for their Defence service. This can be an expensive way to acquire capability. Under the coalition's scheme a blanket payment is made to all who claim, regardless of the role the reservist performs for Defence and regardless of the amount paid or earned by the reservist employee.

In September 2001, still without any legislative basis, Bruce Scott even held a payment ceremony at Parliament House to mark the first payment to an employer. In August 2002, some 14 months after the promise had been made of payments up to $63,000 to employers of ADF reservists, and to self-employed reservists, the coalition finally put in place retrospective legislation to legitimise what became the Employer Support Payment Scheme. The coalition put this legislation in place in August 2002, claiming that it had been drafted in 2001, despite the advice and recommendations found in a damning internal Defence audit report conducted in April and May of 2002. Clearly, the results of this audit were known before the scheme was legitimised or regularised by the Howard government, in August 2002.

The April 2002 internal Defence audit found that there were major policy deficiencies in the scheme, areas that required urgent clarification, and a failure to provide proper guidance and training to staff administering the scheme, all of which exposed Defence to an unacceptably high level of risk. Significantly, the audit questioned whether employers and self-employed reservists should be compensated only where a loss is incurred due to a reservist's absence on Defence service, rather than just a large, one-size-fits-all blanket payment. The audit was highly critical of the lack of evidence required by self-employed reservists to substantiate that they were actually self-employed and that their business generated their income. Sadly, this report, and its genuine concern for a proper policy rationale for the scheme, had no impact whatsoever on the Howard government. The Howard government did not care that no other advanced Western military nation with reserve forces had, or today has, a scheme that pays double for reserve service, no matter what task the reserve is performing for Defence—because that is, of course, what the scheme does.

So, the employer support payment scheme, or the ESPS, continued as the coalition wanted it to, paying out large sums of taxpayers' money without appropriate eligibility conditions and without a proper tested policy justification. The Department of Defence eventually put through some amendments to the scheme in 2003, in 2005 and again in 2007 in various attempts to fix these issues up. But in 2012, after over $180 million had been dispensed under the scheme, the Defence Audit Branch concluded that:

The ESPS is operating without the benefit of robust key performance indicators or performance information to demonstrate the extent to which it is meeting its intended aims.

There were also serious concerns held within the services about the efficiency, fairness, and practicality of the scheme and its exposure to the risk or rorting.

In 2009-10 the service of some 533 self-employed reservists cost $10.54 million. Other than 120 health professional claimants, there was no indication of what capability the remaining self-employed reservists performed at and whether it was a capability that Defence really needed and could not acquire in any other way. In consultation with the capability managers—that is, the service chiefs—I implemented major changes to the scheme in July 2012. We introduced criteria that ensure that the ESPS payments deliver capability to the Australian Defence Force and that the expenditure of public funds delivers value for money to the Australian people. For the first time, service chiefs or their delegates were made responsible for approving a claim made by a self-employed reservist. In doing so, a service chief or their delegate must be satisfied that the capability that is required and is to be performed by the reservist is a necessity and that the use of the self-employed reservist is the best value-for-money option to deliver the required capability. The service chief has a broad discretion and can consider a range of matters—including, of course, operational factors—in making his or her decision. These amendments were supported by all the service chiefs, with the Chief of Army, Lieutenant General David Morrison, commenting that:

I fully support any initiative which aims to improve management and governance in the ADF. The outcomes of this initiative give me greater flexibility in determining how I deliver Army capability and a better control over resources to ensure value for money.

We need to remember a number of very important points when it comes to Defence, Defence spending and the Defence budget. First of all, Defence, under the guidance of the capability managers—the service chiefs—must spend the money it is allocated under the budget to deliver the Defence capability that is needed to protect and secure Australia and its national interests. When the capability managers have no say or control when it comes to developing a policy that spends millions of taxpayers' dollars in service budgets, then waste and the risk of rorting may follow. Under the coalition, the service chiefs had no say in how this scheme worked, but they finally have one now.

Secondly, when public funds are expended there should always be a real and meaningful focus on delivering an outcome that is the best value for money for the Australian people. In this particular context we need to remember that all reservists are paid volunteers who must take into account all their personal circumstances before deciding to volunteer for Defence service. Self-employed reservists make decisions to run a business. It is perfectly understandable that, if faced with a choice of buying an item or hiring personnel at double or even triple the cost of an identical alternative, a self-employed person would choose the most cost-effective solution for their business. Australian taxpayers are no different and should not expect a different standard to apply to the expenditure of public funds. The Australian public rightly expects that the expenditure of public funds delivers a value-for-money capability that is required for the efficient and effective functioning of the Australian Defence Force.

Finally, we need to be careful that the development of policy and the expenditure of millions of dollars is not driven by people or by sections of the community with large amounts of resources, in positions of influence or with their own vested interests or agendas to push. Rather, policy must be equitable, robust and developed in the best interests of all the Australian people. These are Labor principles. Sadly, they are not coalition principles. In fact, the coalition have gone out of their way in recent times to protect the original scheme from reform and from scrutiny, and I offer some examples for this bold declaration. In the first instance, the honourable member for Berowra, Philip Ruddock MP, wrote to me after I made the amendments in July 2012. Mr Ruddock alleged that a serving Defence member—a certain colonel in the Army in receipt of ESPS payments—had contacted him because he was concerned about the current administration of the scheme. In investigating Mr Ruddock's complaints I learnt that the ADF member named by Mr Ruddock was not, in fact, in the Army; he was in another service. He was not in receipt of ESPS payments and was not concerned about the administration of the scheme. Why did Mr Ruddock want to stop amendments to the scheme acknowledged by Defence as representing a risk? Why did Mr Ruddock not give any weight to what each service chief or their deputy had said about the amendments in the service newspapers of August 2012? Whose interests was Mr Ruddock protecting?

But even Mr Ruddock's ill-conceived actions have now been eclipsed by another coalition member. The shadow minister for Defence, Senator David Johnston, has gone one step further. While serving as shadow minister for Defence Senator Johnston, in his capacity as a legal practitioner, has represented a self-employed reservist in an application against Defence before the Administrative Appeals Tribunal. Senator Johnston represented a claimant whose company had received some $260,000 in ESPS payments—and those are payments above and beyond salary—and was claiming more payments after recently transferring his share in the company to his wife. The applicant had made further claims as an employee of the firm rather than as a self-employed person.

The department had assessed that the applicant did indeed have an interest in the company, which made him a self-employed person, and that he had to demonstrate that he had actually been engaged in earning income within the business for a set period of time prior to making a further claim for ESPS payments. This meant, in effect, that the applicant would not be entitled to claim ESPS payments, as he had been serving almost continuously as a reservist.

The AAT found that Defence had made the correct decision, and that the applicant and his wife had:

… showed a clear interest in organising and managing their financial dealings and in maximising their income. This is not consistent with their claimed indifference to the potential loss of the significant ESP income stream, nor with their evidence that they did not even discuss the potential loss of ESP and that it was not a factor in their decision to transfer ownership of the company. The Tribunal finds that by far the most likely reason for the transfer of the ownership of the company in 2006 was the belief that the applicant company would continue to qualify for ESP if he was an employee rather than a self-employed member.

Apart from losing the case, the shadow minister for defence has shown his disregard for the decision-making abilities of Defence officials—both civilian and military—and demonstrated his support for unprincipled policy and reckless spending of taxpayers' funds.

Enough is enough. In December 2012, in consultation with the service chiefs, I made further refinements to the scheme. These amendments were made to ensure that the capability managers could manage the scheme and assess its effectiveness. This was done by ensuring that all claims and policy decisions on the scheme are made by the services. This will ensure that payments are aligned with capability and that the service chiefs can monitor and record exactly where reservists who are subject to the payments work, and how this contributes to Defence capability. The services will be able to review whether the scheme delivers a value-for-money, required and meaningful capability to the ADF. Of course, on many occasions it will, but we can now be satisfied that there will be a proper level of transparency and scrutiny to these decisions. Importantly, these amendments included a sunset clause to cease the scheme at the end of June 2014 should the services conclude that it no longer supports capability and represents value for money.

Let me be very clear that what I have described is not a budget cut. There has been no change to the moneys allocated to the ESPS. There is no intent from government to try to spend less on this important scheme. Rather, these are measures designed to support accountability and transparency, to ensure appropriate review and value for money for the Commonwealth and the Australian people, and to ensure that when our reservists are deployed on operations, as they often are—to their very great credit—they are doing so to the best service and value for their country.

Senate adjourned at 22:17