WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
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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:
-
- the Authorised Non-operating Holding Companies Supervisory
Levy Determination Validation Act 1999;
-
- the General Insurance Supervisory Levy Determination
Validation Act 1999;
-
- the Life Insurance Supervisory Levy Determination
Validation Act 1999;
-
- the Retirement Savings Account Providers Supervisory Levy
Determination Validation Act 1999; and
-
- the Superannuation Supervisory Levy Determination
Validation Act 1999.
- 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
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ISSN 1328-8091
© Commonwealth of Australia 1999
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