Bills Digest No. 21 1999-2000
Authorised Non-operating Holding Companies Supervisory Levy Determination
Validation Bill 1999
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Authorised Non-operating Holding Companies Supervisory
Levy Determination Validation Bill 1999
Date Introduced: 30 June 1999
House: House of Representatives
Portfolio: Treasury
Commencement: Clause
2 provides that the Bill commences on the commencement of Part 1 of
Schedule 12 to the Financial Sector Reform (Amendments and Transitional
Provisions) Act (No. 2) 1999. That Act provides for commencement after
all of the 'Validation Acts'(1) have received the Royal Assent, and on
the day that is the last day on which any of those acts received the Royal
Assent. Reference is invited to Bills Digest No. 7 1999-2000 for explanations
relating to the commencement of the Financial Sector Reform (Amendments
and Transitional Provisions) Act (No. 2) 1999.
To validate the Determination made by the Treasurer on
11 August 1998 under the Authorised Non-operating Holding Companies
Supervisory Levy Imposition Act 1998 in relation to the amount of
levy payable by authorised non-operating holding companies (NOHCs).
Recommendations of the
Financial Systems Inquiry on the collection of supervisory levies
The Financial System Inquiry Final Report (FSI Report
- sometimes referred to as the 'Wallis Inquiry report') recommended that
a single Commonwealth prudential regulator should be established for the
deposit taking institutions (including banks, building societies and credit
unions), insurance (general and life) and superannuation industries (including
retirement savings accounts).(2) The Government implemented that recommendation
by the creation of the Australian Prudential Regulation Authority (APRA)
under the Australian Prudential Regulation Authority Act 1998 (APRA
Act). The creation of APRA resulted in the abolition of the Insurance
and Superannuation Commission and the state-based structure for regulation
of building societies and credit unions.
Prior to APRA being established, different authorities
regulated various industries, which had separate funding mechanisms. This
created significant disparities between the nature and level of funding
of each regulator.
The FSI Report (Recommendation 104: Regulatory agencies'
charges should reflect their costs) recommended that regulatory authorities
should collect amounts from financial entities they regulate no more than
required to cover the cost of regulating them. Recommendation 104 states:
The regulatory agencies should collect from the financial
entities which they regulate enough revenue to fund themselves, but
not more. As far as practicable, the regulatory agencies should charge
each financial entity for direct services provided, and levy sectors
of industry to meet the general costs of their regulation. (3)
The government stated its aim to be:
To establish an administratively simple and uniform
scheme based on the principle of full cost recovery from the institutional
categories that are regulated. (4)
The total levy receivable for the financial year 1998-99
was estimated at $40 million, and is estimated to be $70 million in 1999-2000.(5)
In the Determination titled Australian Prudential Regulation Authority
(Commonwealth Costs) Determination 1998, the Treasurer determined
that of the total amount of levy collectible for the 1998-99 financial
year required to cover the costs to the Commonwealth of providing market
integrity and consumer protection functions for prudentially regulated
institutions would be $8,950,000. The Australian Securities and Investments
Commission was to receive $6,600,000 and the Australian Taxation Office
was to receive $2,350,000 of this sum. This means that APRA's share of
levy money for supervising the prudentially regulated institutions is
$31,050,000.
The Treasurer also has the power under section 7 of the
Authorised Deposit-taking Institutions Supervisory Levy Imposition
Bill 1998 to make a determination on the supervisory levy to apply
to 'authorised deposit taking institutions'. As mentioned earlier 'authorised
deposit taking institutions' include banks, building societies and credit
unions.
An Authorised Deposit-taking Institutions Supervisory
Levy was not imposed in 1998-99. Even though banks became regulated
by APRA from 1 July 1998, the cost of their prudential regulation
was funded by the interest forgone on non-callable deposits held by the
Reserve Bank. This form of funding was abolished by the Financial Sector
Reform (Amendments and Transitional Provisions) Act 1998 from 1 July
1999, which coincided with credit unions building societies and friendly
societies coming under the prudential control of APRA. All 'authorised
deposit taking institutions' are subject to the Authorised Deposit-taking
Institutions Supervisory Levy for the 1999-2000 financial year.
In broad terms, all industries regulated by APRA are
levied on a similar basis. The method used is similar to the pre-APRA
method used to levy building societies, credit unions and insurance and
superannuation entities. The regulatory functions of the Reserve Bank,
which were funded by the interest forgone on non-callable deposits held
by the Reserve Bank, were abolished by the Financial Sector Reform
(Amendments and Transitional Provisions) Act 1998.
Further information about the Financial Sector Inquiry
Final Report can be obtained from Parliamentary Library Research Paper
No. 16 of 1996-97, entitled The Wallis Report on the Australian Financial
System: Summary and Critique, by Phil Hanratty.
Separate supervisory
levy Acts to comply with section 55 of the Constitution
Since the imposition of levies may amount to the imposition
of taxes, the imposition of the levy for different types of regulated
entities requires separate legislation to comply with the requirements
of section 55 of the Constitution, which states:
Laws imposing taxation shall deal only with the imposition
of taxation, and any provision therein dealing with any other matter
shall be of no effect.
Laws imposing taxation, except laws imposing duties
of customs or of excise, shall deal with one subject of taxation only;
but laws imposing duties of customs shall deal with duties of customs
only, and laws imposing duties of excise shall deal with duties of excise
only.
Supervisory levies are therefore imposed by the following
levy imposition Acts:
- Authorised Deposit-taking Institutions Supervisory Levy Imposition
Act 1998;
- Authorised Non-operating Holding Companies Supervisory Levy Imposition
Act 1998;
- General Insurance Supervisory Levy Imposition Act 1998;
- Life Insurance Supervisory Levy Imposition Act 1998;
- Retirement Savings Account Providers Supervisory Levy Imposition
Act 1998; and the
- Superannuation Supervisory Levy Imposition Act 1998.
The measures for the collection of supervisory levies
imposed by the above Acts are contained in the Financial Institutions
Supervisory Levies Collection Act 1998.
Allocation of supervisory
levies
The revenue collected as supervisory levies during a
financial year are applied in two ways under the provisions of the APRA
Act as follows.
- The Treasurer must determine under subsection 50(2) of the APRA Act
for each financial year, the amount of levy money received during the
financial year that is to be available to cover the costs to the Commonwealth
of providing market integrity and consumer protection functions for
prudentially regulated institutions. That amount is retained in the
Consolidated Revenue Fund until allocated to the Australian Securities
and Investments Commission and the Australian Taxation Office, which
perform those functions.
- The balance of the levy money (after 'taking out' the amount for consumer
protection functions for prudentially regulated institutions) is to
be paid to APRA under subsection 50(1) of the APRA Act.
How is the supervisory
levy determined for an authorised NOHC?
An authorised NOHC, as defined in section 11AA of the
Banking Act 1959, is a financial entity designed to allow the formation
of financial conglomerates to hold more than one deposit-taking licence.
An 'authorised deposit taking institution' (ADI) is a body corporate which
is authorised to carry on banking business in Australia under the Banking
Act 1959. It cover banks, building societies and credit unions.
The amount of the levy is determined under section 7
of the Authorised Non-operating Holding Companies Supervisory Levy
Imposition Act 1998 (ANOHCSLI Act). The amount levied is a flat amount
because the entities are not expected to hold significant assets, but
may require intensive supervision. The levy payable is determined in writing
for each financial year by the Treasurer under subsection 7(1) of the
ANOHCSLI Act. There is no requirement that the levy bear any relationship
to the entity's asset value. However, the levy cannot exceed $500,000
for the year 1998-99, or an amount indexed in accordance with the consumer
price index for subsequent years. Subsection 7(3) provides that a determination
made under subsection 7(1) is a disallowable instrument under section
46A of the Acts Interpretation Act 1901 to which the provisions
of section 48 apply. This means that the determination must be notified
in the Gazette and shall be laid before each House of the Parliament within
15 sitting days of that House after making the determination.
Determination of levy
for the 1998-99 financial year
The levy for the 1998-99 financial was set in the Authorised
Non-operating Holding Companies Supervisory Levy Determination 1998.
This Determination was signed by the Treasurer on 11 August 1998
and appeared in the Commonwealth Gazette of 13 August 1998 (S402)
(and is included as an Attachment to this Digest). The Determination was
tabled in both Houses of Parliament on 10 November 1998. Clause 4 of the
Determination provides that the amount of levy payable by an authorised
NOHC for the financial year is $10,000.
Clause 2 of the Determination stated that it commences
on the date of commencement of the APRA Act which commenced on 1 July
1998.
Subsection 48(2) of the Acts Interpretation Act 1901
provides that determinations have no effect if they take effect before
the date of the notification. It states:
(2) A regulation, or a provision of regulations, has no effect
if, apart from this subsection, it would take effect before the date
of notification and as a result:
(a) The rights of a person (other than the Commonwealth
or an authority of the Commonwealth) as at the date of notification
would be affected so as to disadvantage that person; or
(b) Liabilities would be imposed on a person
(other than the Commonwealth or an authority of the Commonwealth)
in respect of anything done or omitted to be done before the date
of notification.
In this case, the Authorised Non-operating Holding
Companies Supervisory Levy Imposition Determination 1998 was to take
effect from 1 July 1998, but did not appear in the Gazette until 13 August
1998. Hence the Determination would be of no effect.
The government has stated that:
There is some ambiguity as to whether these determinations
do impose a retrospective requirement as levy payments were in practice
not payable until at least 1 October 1998. However, on balance, there
is sufficient uncertainty to warrant legislation to ensure that these
determinations are valid.(6)
Section 9 of the Financial Institutions Supervisory
Levies Collection Act 1998 provides when the levy is due for payment.
Under subsection 9(1) if the levy imposition day is 1 July 1998,
as the Determination proposes, the levy is due and payable on 1 July 1998.
The Second Reading Speech states that in practice the levy was not payable
until at least 1 October 1998. When questioned about the 1 October 1998
payment date, the Department of the Treasury advised that the APRA exercised
its power under section 12 of the Financial Institutions Supervisory
Levies Collection Act 1998 to waive the late payment penalty if NOHCs
paid their respective levy by 1 October 1998. (7)
Subclauses 4(1) and (2) have the effect of overriding
the provisions of section 48(2) of the Acts Interpretation Act 1901
and validating the invalid Determination made on 11 August 1998
and notified in the Gazette on 13 August 1998.
Paragraph 4(2)(b) provides that the Determination
'to have been effective on and at all times after 1 July 1998'.
This enables the levy determination to apply from 1 July 1998.
However, paragraph 4(2)(b) may also be construed as applying the
Determination made on 11 August 1998 for all subsequent years as well.
To enable the levy to be varied for subsequent years, subclause 4(3)
provides that notwithstanding paragraph 4(2)(b) the Determination
may be repealed, rescinded, revoked amended or varied in accordance with
subsection 33(3) of the Acts Interpretation Act 1901.
Subsection 33(3) of the Acts Interpretation Act 1901
states:
Where an Act confers a power to make, grant or issue
any instrument (including rules, regulations or by-laws) the power shall,
unless the contrary intention appears, be construed as including a power
exercisable in the like manner and subject to the like conditions (if
any) to repeal, rescind, revoke, amend, or vary any such instrument.
Thus the Treasurer may vary the levy for future years
notwithstanding the provisions of paragraph 4(2)(b).
The need for this Bill would not have arisen if the Determination
had been made on or before 1 July 1998, as explained in the background
to this Digest. The total amount of levy due from authorised NOHCs for
the financial year 1998-99 would not be collectible if this Bill is not
enacted.
A similar delay in making Determinations has put at risk
the levy collectible for the financial year 1998-99 under the following
Acts.
- General Insurance Supervisory Levy Imposition Act 1998;
- Life Insurance Supervisory Levy Imposition Act 1998;
- Retirement Savings Account Providers Supervisory Levy Imposition
Act 1998; and
- Superannuation Supervisory Levy Imposition Act 1998.
Bills to validate the Determinations which are of no
effect made under the above Acts were introduced into the House of Representatives
on 30 June 1999.(8)
The Bills to validate the invalid determinations will
protect the levies totalling $40 million to be distributed to the three
agencies as indicated above.
- Section 1 of schedule 12 of the Financial Sector Reform (Amendments
and Transitional Provisions) Act (No. 2) 1999 defines
'Validation Act' as any of the following Acts:
- Financial System Inquiry, Financial System Inquiry Final Report,
(Mr Stan Wallis, Inquiry Chairman), Canberra, March 1997.
- ibid., p. 532.
- Treasurer, Second Reading Speech of the Treasurer on the Company Law
Review Bill 1997, Parliamentary Debates, 26 March 1998, p. 1160.
- Estimates provided to the authors by the Department of the Treasury.
- Second Reading Speech on the Authorised Non-Operating Holding Companies
Supervisory Levy Determination Validation Bill 1999, Parliamentary
Debates, 30 June 1999, p. 6174.
- Verbal advice provided to the authors on 30 July 1999.
- Reference is invited to the Bills Digests on the following Bills.
- Life Insurance Supervisory Levy Determination Validation Bill 1999
(No. 28, 1999-2000);
- General Insurance Supervisory Levy Determination Validation Bill
1999
(No. 29, 1999-2000);
- Superannuation Supervisory Levy Determination Validation Bill 1999,
(No. 30, 1999-2000);
- Retirement Savings Account Providers Supervisory Levy Determination
Validation Bill 1999 (No. 31, 1999-2000)
ATTACHMENT 1
David Kehl and Bernard Pulle
9 August 1999
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
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