Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I table a replacement explanatory memorandum relating to the Financial Framework Legislation Amendment Bill (No. 1) 2007.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

I seek leave to have my speech in the second reading debate on the Financial Framework Legislation Amendment Bill (No. 1) 2007 incorporated in Hansard.

Leave granted.

The speech read as follows—

The Financial Framework Legislation Amendment Bill (No. 1) 2007 is the third in a series of Bills designed to simplify and re-structure the financial framework as set out in the Financial Management and Accountability Act 1997 (the “FMA Act”) and related Acts. It proposes amendments to the:

• Financial Management and Accountability Act 1997;
• Legislative Instruments Act 2003; and
• Auditor-General Act 1997

Set out in a single schedule, the primary amendments pertain to proposed changes to Division 3 of Part 4 of the FMA Act, which outlines the management of appropriations. Proposed amendments to the two other Acts are consequential in nature.

The Proposed legislative amendments contained in this Bill include amendments to section 32 of the FMA Act. This section governs so-called ‘machinery of government changes’, which is of particular importance when government functions are moved between agencies.

A new section, section 32A is proposed which clarifies the timing of adjustments to such appropriations.

Amendments to section 31 of the FMA Act propose changes to how the Finance Minister may establish agreements for the use of net appropriations. Current legislation requires the use of agreements whilst proposed changes will delegate this power to regulations.

In the Democrats view, this is a contentious amendment that is not consistent with recent Committee recommendations. As a consequence I shall be moving an amendment to this Bill to implement the unanimous Finance and Public Administration Committee recommendation regarding section 31 agreements.

Other proposals contained in this Bill include:

• Clarifications to section 28 and section 30 regarding repayments by or to the Commonwealth, including transactions between FMA Act agencies;
• Simplifying the applications of GST to Commonwealth transactions;
• Amendments to section 53 to clarify a Chief Executive’s power to issue directions to officials; and
• A number of amendments that are consequential to those highlighted above.

From the Democrat’s perspective, there are a number of crucial matters that require further attention in schedule one.

Firstly, I am concerned about changes to the application of so-called section 31 agreements. The legislative proposal by Government is to replace current section 31 agreements with a new governance mechanism, controlled through regulations. Whilst I acknowledge that such a measure improves parliamentary control to the extent that regulations are disallowable instruments, I am concerned that the new regulatory mechanism delegates authority away from the Minister of Finance ultimately to senior bureaucrats and that section 31 agreements will persist as an alternative funding channel for Government agencies other than annual appropriations.

Delegating authority away from the Minister to senior bureaucrats can be seen as reducing parliamentary control and oversight, but on the other hand it can also be seen as vesting responsibility where it should rest—with the CEO and CFO. The danger is that Ministers who delegate such power refuse to be held accountable for the decisions made under their delegated authority.

There is much uncertainty about the impact of changing the structure of section 31 from agreements between the Finance Minister and other agencies and delegating this power to regulations. Section 31 agreements have received attention in a recent F&PA Senate Committee Report, titled ‘Transparency and accountability of Commonwealth public funding and expenditure’.

This report highlighted serious concerns about the fiducial use of section 31 agreements as an alternative funding source for government agencies, to the extent that it recommended:

… that the central role in the management of net appropriations should be returned to the Appropriation Acts so as to ensure that these significant transfers of funds are fully transparent to the Parliament. In making this recommendation the Committee is aware that the management of net appropriations is complicated and that the Department of Finance and Administration is investigating other options. If a procedure other than returning the central role to the Appropriations Acts is proposed, the Committee would expect that the Parliament and its committees would be consulted. In particular, the Committee would expect Finance to report to it on any proposed alternative approach this calendar year.

Currently, net appropriations are managed principally by individual agreements made between the Finance minister and another responsible minister under Section 31 of the FMA Act. This Bill proposes to do away with these Section 31 agreements and to provide for the making of regulations for the same purpose.

The issues underlying the use of section 31 agreements and net appropriations include a significant lack of transparency in the accounting of the receipt of non-appropriated funds and the use of such funds. Indeed, the use of section 31 agreements can be seen as a method for extending a department or an agency’s budget beyond that agreed to through appropriations.

This has the effect of reducing Parliament’s purview and powers of review of the use of funds by government agencies since net appropriations, like special appropriations, are an alternative conduit that effectively bypasses the parliamentary approval process, or enables funds to be converted from one form of appropriation like non-appropriations or special appropriations, to another such as an annual appropriation.

At one level this may seem to be an acceptable mechanism that provides Government with the freedom to implement its mandate from the public. Yet, section 31 agreements are designed to enable Government Agencies, through net appropriations, to increase their annual budget, beyond a level already agreed to by Parliament.

So we have a situation whereby public money is appropriated with minimal parliamentary scrutiny. These funds, which are in surplus, are not returned and the reporting of the use of such funds subject to substandard reporting guidelines.

By converting section 31 agreements into regulations, the concern is that the underlying problems associated with net appropriations as highlighted in the Committee report will persist, despite the fact that it will be a disallowable instrument.

Converting section 31 agreements into regulations will not fix this problem, it will simply perpetuate it. Otherwise stated, this bill finalises the establishment of a government agency funding source that is perfectly designed to be rorted.

The committee also noted significant problems associated with retrospective application of section 31 agreements. It is uncertain whether this problem would be corrected by way of regulations.

The Democrats have a long standing commitment to opposing alternative methods of funding for Government agencies that fall outside of Annual Appropriations. To this end, I am proposing a number of amendments to this Bill that specifically addresses alternative funding mechanisms which reduce parliamentary scrutiny and approval.

The intention of my amendment is to remove altogether section 31 agreements from the FMA Act, in line with the Committee’s unanimous recommendation. In addition, I am also proposing two other amendments that pertain to the use of standing appropriations and Special Accounts.

Special or Standing Appropriations as governed by section 20 (4) of the Financial Management and Accountability Act 1997, states:

The CRF is hereby appropriated for expenditure for the purposes of a Special Account established under subsection (1), up to the balance for the time being of the Special Account.

The Finance Minister alone can establish a Special Account as well as the quantum of money to be appropriated. Since standing appropriations effectively circumvent a large degree of the scrutiny faced by other means of appropriating public funds, including budget estimates hearings with their corresponding parliamentary approval process, I have always sought to curtail their use and application.

I am proposing that a register of Special Accounts be tabled annually in Parliament, and that a time limit for the use of Standing Appropriations be established.

There is no merit in seeking to exempt the use of public funds from parliamentary scrutiny and approval. Yet sadly, standing appropriations continue to grow unchecked. The numbers of section 31 agreements, standing appropriations, Special Accounts and the amounts of expenditure involved have steadily grown over the life of the Commonwealth. They now amount to over 80% of all Commonwealth government expenditure.

Comparable jurisdictions have not allowed standing appropriations to expand to this degree. In the United Kingdom for example, they amount to about 25% of total government expenditure.

Section 31 agreements have received recent Australian Audit Office scrutiny. The following summarises the ANAO’s findings:

The objective of this performance audit was to assess agencies’ management of net appropriation agreements to increase available appropriations. Net appropriation arrangements are a feature of the Australian Government’s financial framework under Section 31 of the Financial Management and Accountability Act 1997 (FMA Act). They provide a means by which an agency’s appropriation item in the annual Appropriation Acts can be increased by amounts received from non-appropriation sources, thereby enabling the agency to retain and spend those amounts.

The ANAO conducted a detailed examination of six FMA Act agencies, including Finance. Finance was also included in the audit in its capacity as the central agency with broad responsibility for the management of the financial framework, and the co-signatory to all agreements. The ANAO also examined 231 agreements made in respect of FMA Act agencies between 1 January 1998 and 30 June 2005, and agencies’ financial reporting of the use of Section 31 of the FMA Act to increase their appropriations.

The audit concluded there were widespread shortcomings in the administration of net appropriation arrangements. The ANAO was of the view a number of agencies had failed in their responsibility to have in place demonstrably effective Section 31 arrangements that support additions made to annual appropriations and the subsequent expenditure of those amounts. The audit also concluded the current presentation of budget estimates does not assist in providing users of Portfolio Budget Statements with a clear understanding of the extent to which the relevant agency expects to increase its annual appropriation for amounts collected under the authority of Section 31 agreements. Further, the ANAO found that agency financial statements have not accurately reflected the use of Section 31 arrangements.

The ANAO’s findings are an excellent illustration of why funding mechanisms other than annual appropriations should be re-considered. They lack parliamentary control and a corresponding level of accountability that the public demands of Government in the use of public funds.

More concerning still, in yet another ANAO report on the financial management of special (standing) appropriations in November 2004, the Government’s auditors found widespread illegalities and lack of accountability and control in the management of these alternative appropriations.

More than half of standing appropriations were not properly reported by departments and agencies in their annual financial statements.

In addition to the application of section 31 agreements, the second key area of concern that I wish to raise about this Bill is the delegating of authority away from Ministers to senior Public Servants.

This is a worrying situation, particularly in light of the Government repeatedly avoiding Ministerial responsibility using the excuse of “I didn’t know”, or “it was the actions of a bureaucrat that caused the problem”.

You may be able to delegate authority, but the Government seems to think that authority and responsibility are interchangeable terms. They are not. As a Minister, you are responsible for your portfolio; you cannot delegate away your responsibility or your culpability for the authority that you delegate. If Ministers repeatedly avoid assuming responsibility, how can they rationally expect the support of the Senate to allow even more authority to be delegated?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

The Financial Framework Legislation Amendment Bill (No. 1) 2007

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Industry) Share this | Link to this | Hansard source

Why do you need to read this out?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Well, I am happy to incorporate it if you are happy to accept that.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Industry) Share this | Link to this | Hansard source

Yes, please.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Well, if you are happy to accept it then I will seek leave to incorporate.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Industry) Share this | Link to this | Hansard source

That is the normal practice for non-controversial legislation.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I seek leave to have my summing-up speech incorporated in Hansard.

Leave granted.

The speech read as follows—

This Financial Framework Legislation Amendment Bill (No. 1) 2007 primarily amends Division 3 of Part 4 of the Financial Management and Accountability Act 1997 (FMA Act). That Division consists of five sections, each relating to an appropriation authority. The Bill also contains a small number of consequential amendments to the Auditor-General Act 1997 and the Legislative Instruments Act 2003, and clarifies another matter in the FMA Act in relation to delegations.

Significantly, the amendments will considerably strengthen parliamentary oversight of the capacity for the FMA Act to increase agencies^’ appropriations. Current arrangements under section 31, for example, require reference to three separate sources of information in order to identify both the amount of an increase, as well as the original source of the appropriation authority: those three sources are the agency’s “section 31 agreement”, of which there are 80-plus, as well as the text of section 31 of the FMA Act and the annual Appropriation Act in question. In addition to also being exempt from parliamentary scrutiny, these arrangements can vary widely from agency to agency. The revised arrangements, in the form of a regulation which could, for example, ultimately apply uniformly to all agencies, with any change subject to parliamentary disallowance. The revised arrangements will also be restricted to departmental items.

In addition to this increased oversight by Parliament, officials themselves will have better clarity and control over the appropriations administered within their respective agencies. The new section 32A will eliminate the current scope for appropriations to be increased automatically by operation of law, without officials necessarily even being aware that the increase has occurred. The revised arrangements will ensure that no increase to an agency’s appropriation will take place until a record has been made in the agency^’s accounts and records. This considerably tightens agencies’ oversight of appropriations.

This is the third Financial Framework Legislation Amendment Bill, with two previous Financial Framework Legislation Amendment Acts having been passed in 2005 and 2006. Each has evidenced ongoing monitoring and review, showing that incremental improvements to the financial framework continue on an ongoing basis. While this area is relatively technical, it is an important part of financial management accountability that the Government takes seriously.

Finally, the Senate Standing Committee for the Scrutiny of Bills sought advice in regard to the amendments to section 32 of FMA Act, as detailed in the Scrutiny of Bills Alert Digest No. 6 of 2007. The Committee requested additional explanation about the proposed section 32 amendments. The Committee’s requests have been addressed in replacement explanatory memorandum accompanying this Bill.

I commend the Bill.

Question agreed to.

Bill read a second time.