Bills Digest No. 114, 2012–13

15 May 2013

Financial Framework Legislation Amendment Bill (No. 2) 2013

Daniel Weight
Economics Section 

Date introduced: 13 March 2013

House: House of Representatives

Portfolio: Finance and Deregulation

Commencement: The amendments commence on the day after Royal Assent. Although Part 3 of Schedule 1 is listed as commencing on the later of the day after Royal Assent of this Bill, or the commencement of the Judges and Governors-General Legislation Amendment (Family Law) Act 2012, as that Act has commenced, Part 3 of Schedule 1 will commence on the day after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose of the Bill

The main purpose of the Financial Framework Legislation Amendment Bill (No. 2) 2013 (the Bill) is to seek to validate the Commonwealth’s participation in certain companies following the High Court’s decision in Williams v Commonwealth[1] also known as the ‘School Chaplains Case’.

The Bill will also make other changes of a technical nature to: firstly, avoid the risk of non-compliance with section 83 of the Constitution for certain expenditure; and secondly, to facilitate the merger of two Commonwealth superannuation schemes.

Background

Williams v Commonwealth (School Chaplains Case)

The main provisions of this Bill are a response to the High Court’s decision in Williams v Commonwealth.

The High Court’s 2012 decision in Williams considered the executive power of the Commonwealth. The High Court has previously held that the reference to the ‘executive power of the Commonwealth’ in section 61 of the Constitution confers upon the Commonwealth legislative power for things that are ‘peculiarly adapted to the government of the country and which cannot otherwise be carried on for its benefit’.[2] This is sometimes referred to as the ‘nationhood power.’

Things that have been considered to be within the scope of this power have included celebration of Australia’s Bicentenary[3], and an emergency fiscal response during a global economic crisis.[4] Where executive power exists, the Commonwealth is also given the power to legislate with respect to that power by subsection 51(xxxix) of the Constitution (the incidental power).

Prior to Williams, the prevailing view was that the executive power extended to anything that the Commonwealth could otherwise do through legislation. The High Court in Williams, however, held that executive power of the Commonwealth in relation to a particular subject matter does not exist merely because the Commonwealth could make a law about that same subject matter.

The Commonwealth’s substantive legislative response to that decision was the enactment of the Financial Framework Legislation Amendment Act (No. 3) 2012. Because the Commonwealth could no longer support the expenditure of moneys on the basis of the executive power, that Act purported to legislatively authorise Commonwealth expenditure in a range of areas. Professor Anne Twomey of the University of Sydney queried the validity of the mechanism used in the Financial Framework Legislation Amendment Act (No. 3) 2012. She asked:

Where is the head of legislative power to support this Bill? Many of the programs [that were purportedly authorised by that Bill] listed in the draft regulations will fall under a head of legislative power, and it is conceivable (although contestable) that this Bill, once enacted, is enough to support them. But others will not be supported by a head of power and will remain invalid regardless of such a law. Hence, this Bill merely provides a fig-leaf for the Commonwealth’s legislative incompetence. It still leaves open the question of whether the Commonwealth has the legislative power to support the chaplaincy program along with many others.[5]

Another potential implication of the Williams decision may be that the Commonwealth can no longer form or participate in corporations without explicit legislative authorisation. That concern provides the genesis of this Bill.

Corporations, and the ‘corporations power’

The Commonwealth’s power with respect to corporations is somewhat fragmented. Section 51(xx) of the Constitution confers legislative power on the Commonwealth in relation to:

financial corporations, and trading or financial corporations formed within the limits of the Commonwealth.

This is often known as the ‘corporations power’. However, in NSW v Commonwealth (Incorporation Case) the High Court held that the reference to formed in section 51(xx) limited the Commonwealth’s legislative power to existing corporations; it did not confer on the Commonwealth legislative power to create new corporations.[6] Therefore—without more—the Commonwealth cannot legislate generally for the formation of corporations.

The Commonwealth, may, however, create corporations to give effect to another purpose in relation to which it enjoys legislative power. In Australian National Airways Pty Ltd v Commonwealth (No 1) (Airlines Nationalisation Case) Latham CJ said:

It is true that the Commonwealth has no general power to create corporations, but when the Commonwealth Parliament exercises a legislative power it is for the Parliament, subject to any constitutional prohibition, to determine the means of securing an object which it is legitimate under the power for the Parliament to pursue. Thus the establishment of the Commonwealth Bank was a means of giving effect to an approved policy with respect to banking.[7]

It follows that—without anything more—if the Commonwealth wishes to establish a corporation it must enact legislation that is supported by a recognised legislative head of power within the Constitution.

Following the decision in the Incorporation Case, the states agreed to adopt the corporations law as it existed in the Australian Capital Territory as their own law, including those provisions that dealt with the formation of companies.[8] The states formally referred their powers with respect to the formation of corporations to the Commonwealth in 2001 for an initial period of five years.[9] That agreement was most recently extended in 2011, to operate until 2016.[10]

Discussion

Prior to the decision in Williams, the Commonwealth relied upon the executive power to participate in corporations for various purposes. However, given the narrow reading of the executive power by the High Court in Williams, this Bill proposes to formally authorise—in legislation—the Commonwealth’s current participation in 20 companies listed in Schedule 2 of the Bill.

As may be the case with the expenditure programs purportedly authorised by the Financial Framework Legislation Amendment Act (No. 3) 2012, some of the companies purportedly authorised by this Bill may not be able to be supported by the Commonwealth’s legislative powers. Whether or not the 2001 referral of powers by the states provides a plenary legislative power to the Commonwealth to form companies, even outside its areas of clear legislative competency, is not clear.

Selection of Bills Committee

The Selection of Bills Committee did not refer the Bill to a committee.[11]

Policy position of non-government parties/independents

The Coalition has described the amendments in the Bill as ‘non-controversial, necessary’ and indicated its support for the Bill.[12] The position of the Greens is not known.

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[13]

Parliamentary Joint Committee on Human Rights

Despite the Government’s assessment, the Parliamentary Joint Committee on Human Rights expressed concerns that the amendments relating to the Social Security Act 1991 may impact upon human rights recognised under the International Covenant on Economic, Social and Cultural Rights and the International Covenant on Civil and Political Rights. In particular, it noted that the provisions that require the repayment of payments made in contravention of the Social Security Act are not subjected to administrative review under Part 4 of the Social Security (Administration) Act 1999.[14] The Committee indicated that it would write to the Minister to seek clarification of this issue.[15]

The Social Security (Administration) Act already exempts some discretionary payments after a person’s death from some types of administrative review.[16] The Bill, however, proposes to exempt the repayment provisions in their entity from Part 4 of the Social Security (Administration) Act. The supporting material to the Bill does not provide a discussion as to why this is considered the most appropriate approach.

Key issues and provisions

Item 2 of Schedule 1 of the Bill proposes to amend the Financial Management and Accountability Act 1997 by inserting proposed section 39B.[17]

Proposed subsection 39B(1) seeks to confer power upon the Executive to form, or participate in the formation of, a company listed in the regulations. Proposed subsection 39B(2) seeks to confer power upon the Executive to acquire shares in, or become a member of, any company listed in the regulations.

The terminology used in both subsections 39B(1) and (2) may be problematic. The Bill adopts the same method of authoring activities by the Commonwealth as was adopted in the first response to Williams: the Financial Framework Legislation Amendment Act (No. 3) 2012. The operative provision, in effect, states:

If … apart from this subsection, the Commonwealth does not have the power to … form a company …the Commonwealth has the power to … form the company.

Schedule 2 of the Bill proposes amendments to the Financial Management and Accountability Regulations 1997 that list the 20 companies that are purportedly authorised by this Bill.

Proposed subsection 39B(3) confers any powers created by subsections 39B(1) and (2) upon the Finance Minister. Item 3 of Schedule 1 restricts any delegation of that power by the Finance Minister to a Chief Executive (that is, the Secretary of a Commonwealth department, or the head of a Commonwealth agency): proposed subsection 62(3).

Item 1 of Schedule 1 excludes the exercise of any power under proposed section 39B from the scope of the Administrative Decisions (Judicial Review) Act 1977. Nothing in the Bill, however, would reduce the ability to issue constitutional writs under section 75 of the Constitution, or seek relief under section 39B of the Judiciary Act 1903.

Proposed subsection 39B(4) deals with the interaction of the proposed section 39B and the executive power of the Commonwealth. It is recognised by the courts that:

[t]he executive power can be abrogated, modified or regulated by laws of the Commonwealth.[18]

Proposed subsection 39B(4) seeks to ensure, however, that nothing in the proposed section can be taken to limit the Commonwealth’s executive power.

Item 4 of Schedule 1 is a transitional provision that deems actions taken prior to the commencement of the proposed section 39B to be nonetheless authorised by that section.

Other provisions

Parts 2, 3 and 4 of Schedule 1 insert equivalent provisions in the Social Security Act 1991, the Judges’ Pensions Act 1968, and the Remuneration Tribunal Act 1973 respectively to prevent the inadvertent payment of moneys under those Acts in breach of the section 83 of the Constitution.

Section 83 of the Constitution provides:

No money shall be drawn from the Treasury of the Commonwealth except under appropriation made by law.

The three Acts to be amended currently provide that various payments may be made, subject to certain legal requirements. Where those legal requirements are inadvertently breached—such as where the payment of a pension is made to an individual who has, unknown to the Commonwealth, died—the Commonwealth may be considered to have breached section 83 of the Constitution.

These amendments are technical in nature. They firstly authorise any payments made in good faith and then secondly make such a payment a debt due to the Commonwealth; thereby avoiding inconsistency with section 83 of the Constitution.

Schedule 3 contains a technical provision that will facilitate the transfer of accounting losses from the Military Superannuation and Benefits Fund (MSBF) to the ARIA Investments Trust. The assets of the MSBF were transferred to ARIA Investments Trust in May 2012. The transfer of losses from MSBF to ARIA Investments Trust will ensure that they may be used to offset any capital gains tax liability from future capital gains in the ARIA Investment Trust.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

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ISSN 1328-8091

[1].              Williams v Commonwealth 86 ALJR 713. See also [2012] HCA 23 (20 June 2012), viewed 24 April 2013, http://www.austlii.edu.au/au/cases/cth/HCA/2012/23.html

[2].              Pape v Commissioner of Taxation (2009) 237 CLR 309. See also [2009] HCA 23 (7 July 2009), viewed 24 April 2013, http://www.austlii.edu.au/au/cases/cth/HCA/2009/23.html

[3].               Davis v Commonwealth (1988) 166 CLR 79. See also [1988] HCA 63 (6 December 1988), viewed 24 April 2013, http://www.austlii.edu.au/au/cases/cth/HCA/1988/63.html

[4].              Pape v Commissioner of Taxation, op. cit.

[5].              A Twomey, ‘Parliament's abject surrender to the Executive', Constitutional Critique, 27 June 2012, viewed 15 April 2013, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22library%2Fjrnart%2F1923062%22

[6].              New South Wales v Commonwealth (Incorporation Case) (1990) 169 CLR 482 (8 February 1990). See also [1990] HCA 2, viewed 24 April 2013, http://www.austlii.edu.au/au/cases/cth/HCA/1990/2.html

[7].              Australian National Airways Pty Ltd v Commonwealth (No 1) (Airlines Nationalisation Case), (1945) 71 CLR 29 per Latham CJ, p. 58. See also [1945] HCA 41, viewed 24 April 2013, http://www.austlii.edu.au/au/cases/cth/HCA/1945/41.html

[8].              J Clarke, P Keyzer, J Stellios, Hanks’ Australian constitutional law, eighth edn, Chatswood, NSW, LexisNexis Butterworths, 2009, p. 392.

[9].              See, for example, Corporations (Commonwealth Powers) Act 2001 (NSW), viewed 24 April 2013, http://www.austlii.edu.au/au/legis/nsw/consol_act/cpa2001392/

[10].              D Bradbury (Parliamentary Secretary to the Treasurer), Extension of the referral of corporations power, media release, 24 August 2011, viewed 15 April 2013, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressrel%2F1026888%22

[11].              Selection of Bills Committee, Report No. 4 of 2013, The Senate, Canberra 21 March 2013, viewed 15 April 2013, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=selectionbills_ctte/reports/2013.htm

[12].              A Robb, ‘Second reading speech: Financial Framework Legislation Amendment (No. 2) Bill 2013’, House of Representatives, Debates, 20 March 2013, p. 2876, viewed 16 April 2013, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F8143f75e-7f37-4128-8d3b-e62455d99a32%2F0291%22

[13].              The Statement of Compatibility with Human Rights can be found at page 2 of the Explanatory Memorandum to the Bill, viewed 29 April 2013, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fems%2Fr5000_ems_b1f40d18-86c2-4413-a4c4-4319f32aeee0%22;rec=0

[14].              The Social Security (Administration) Act 1999 is available at: http://www.austlii.edu.au/au/legis/cth/consol_act/ssa1999338/index.html

[15].              Parliamentary Joint Committee on Human Rights, Fourth Report of 2013, The Senate, March 2012, p. 38, viewed 18 April 2013, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=humanrights_ctte/reports/index.htm

[16].              Social Security (Administration) Act 1999, section 59.

[17].              The Financial Management and Accountability Act 1997 is available at: http://www.comlaw.gov.au/Details/C2012C00510

[18].              Ruddock v Vadarlis [2001] FCA 1329 (18 September 2001), per French J paragraph 181, viewed 24 April 2013, http://www.austlii.edu.au/au/cases/cth/federal_ct/2001/1329.html