Finance and Deregulation Portfolio
The committee took evidence from the Department of Finance and
Deregulation (Finance) and portfolio agencies on Wednesday, 28 May and Thursday, 29 May 2008.
The committee examined a range of topics including the following which
are discussed below:
- Ministerial and Parliamentary Services;
- changes to the Portfolio Budget Statements; and
- the Charter of Budget Honesty Act 1998.
Department of Finance and Deregulation
Ministerial and Parliamentary Services
Considerable time was spent examining officers from the Ministerial and
Parliamentary Services business group. The committee was provided with the
usual insightful information on staffing levels.
Senator Faulkner informed the committee that on 1 July 2008, when the
Senate reflects the changes in distribution of Senators due to the 2007 Federal
election, there will be additional staff positions created to support
Australian Greens' Senators. During the hearing, Senator Faulkner declined to
outline the specifics of the increase in staffing numbers allocated to the
Australian Greens as a letter from Senator Faulkner advising of the changes had
not been received by Senator Brown. Senator Faulkner advised the committee that
he would take on notice the question of how many staff the Australian Greens'
Senators would be entitled to.
Senator Faulkner informed the committee that there is currently a total of
5 Ministerial staff with personal classifications that are paid above the
standard salary range usually applied to other staff. This compares to over 30
who were employed at the higher level at the end of the last government.
This led Opposition Senators to question Senator Faulkner extensively about the
decision making process for appointing staff with personal classifications.
Changes to the Portfolio Budget Statements
The committee discussed the different content and form of the recently
released Budget Papers. Senator Abetz highlighted concerns about the new structure
of the Portfolio Budget Statements (PB Statements) asking why there was a
reduction in the number of pages devoted to the presentation of Budget information
for various agencies. 
A Finance official informed the committee that some previous information that
was duplicated has now been placed into an 'agency resource statement' located
within the PB Statements:
...key financial information was spread throughout the document
and often repeated. What we were trying to do was to allow agencies just to
provide the information in one place rather than at various times throughout
The issue of the changes to the PB Statements is further discussed in
Chapter 1 of this report.
Senator Abetz sought a copy of the document Portfolio Budget
Statements Constructors Kit that Finance has developed to provide advice to
agencies about how they should be presenting their Portfolio Budget Statements.
This was tabled before the committee.
The decision to no longer mandate the capital budget statement, and the
property, plant, equipment and intangibles in PB Statements was also raised.
The Secretary of Finance responded that it did not make much sense for smaller
agencies to have to include this information if it did not relate to them. He
also explained that although these items may not be included in the PB
Statements, they would still be included in financial statements.
Senator Murray also questioned officials about the changes to the
Portfolio Budget Papers more broadly. Specifically, Senator Murray asked
whether Finance has received any feedback about the resource statement contained
in Budget Paper No. 4. The Secretary responded positively, and stated that he
believed that the document enhances the transparency of the Budget Papers.
Furthermore he stated:
I think one of the tests of Budget Paper No.4, as it stands now,
will be after this round of estimates hearings rather than still very much at
the beginning of them. Whether it attracts any attention on other committees
and gets any commentary and use will be one indication of whether or not the
changes are useful.
Charter of Budget Honesty Act 1998
Senator Fifield questioned Finance about the commitments the government made
under Operation Sunlight, to amend the Charter of Budget Honesty Act
1998 in order to provide access to the Opposition in the pre-election period
to government costing resources.
The Secretary replied that Finance will provide advice to the government about this
commitment, but that there were other priorities relating to the implementation
of Operation Sunlight that needed to be addressed more urgently in the
current Budget round (2008–09). He added that any other commitments would be
addressed towards the second half of 2008.
Other matters that the committee discussed during the examination of
- car parking arrangements and alterations at Commonwealth
- register of private interests for ministerial staff;
- certification of management accounts;
- the supply of, and technical support for PDAs to Members and
- the addition of the COAG working group to the responsibilities of
- the progress made in implementing Operation Sunlight;
- the government's deregulation agenda;
- the application of the efficiency dividend;
- advice given by Finance in relation to changes to the Medicare
- consultants employed to undertake an audit into the Northern Land
The committee discussed a range of issues during its examination of
Medibank Private, including:
- an overview of Medibank Private's performance;
- the effect of the changes to the Medicare levy surcharge;
- private health insurance premiums; and
- board appointments.
Medibank Private's performance
The Managing Director of Medibank Private informed the committee of the
private health insurance fund's performance over recent years:
The fund over the last five years has performed very well. It
had a tough journey back in 2002. The fund lost $175 million. Since that time,
we have had a steady and progressive improvement to our business performance,
and the margin improvement continued right through on a steady basis, so that
last year our financial results showed a net profit around $295 million, with a
revenue line-up of just over $3 billion...
Senator Cormann questioned the Managing Director about the company’s
role in the overall Australian health system, and what was the size of the
share that the company delivered in private hospital services across Australia.
A response was provided that Medibank Private is the largest procurer of
hospital services in the country.
The effect of changes to the Medicare levy
With the government's recent Budget announcement to increase the
threshold of the Medicare levy surcharge, Senator Cormann asked the Managing
Director about a range of issues concerning the effect on Medibank Private's
Senator Cormann asked whether Medibank Private had been advised by the
government of its plans to change the Medicare levy surcharge prior to the
release of the Budget on 13 May 2008. The Managing Director replied that he was
not advised of the government's plans in advance.
In response to questioning from Senator Cormann about the likely outcome
of the changes of the Medicare surcharge will have on its customer base, the
Managing Director of Medibank Private replied:
We would expect that the Medicare levy surcharge changes that
have been made or indicated will contract the growth in that particular cohort
of members who come through on those salary bands. We have seen the Treasury
assumption document. Out of that, and we are not necessarily saying it is
exactly the same view we have, but, if you use it as a guide, it has the
ability to slow down our hospital growth rate probably by about, at the light
end, seven per cent and maybe up to 10 per cent.
Private health insurance premiums
Senator Fielding asked several questions relating to the basis on which
private health insurance companies seek approval to increase their premiums. Senator
Fielding was particularly interested to know if increases in premiums are
granted by the government above the consumer prince index, which is often used
to justify increases.
The committee was informed that the Private Health Insurance
Administration Council (PHIAC), the regulator of the sector, sets the criteria
for increases. Senator Fielding asked Medibank Private whether they would be
prepared to table their submission to PHIAC. The Managing Director stated that
it was highly sensitive commercial document, whilst Senator Sherry indicated
that he would consider the issue of supplying the document on notice.
Senator Bernardi questioned Senator the Hon Nick Sherry, representing
the Finance Minister, about whether the government has decided to reappoint
board members who hold appointments that expire in June 2008. Senator Sherry
replied that he would provide this information on notice to the committee.
Australian Reward Investment Alliance
The committee discussed a range of issues during its examination of the
Australian Reward Investment Alliance (ARIA), including:
- scrip lending, margin lending and short selling.
Scrip lending, margin lending and short selling
Several Senators were interested to question the ARIA about the
practices of scrip lending, margin lending, and short selling. Senator Watson
questioned officials on whether ARIA participates in scrip lending.
An official from ARIA replied:
No...securities are lent through an arrangement with our custodian
and the transaction of lending securities is undertaken by our custodian rather
than by ARIA itself...there are strict purposes for which stock is lent under our
agreement with our custodian. Our rights to dividends, franking credits, bonus
issues, voting rights and every other entitlement that goes with out shares is
preserved. We do not participate in vote renting I think is the expression.
Senator Watson asked when Senator Murray could expect to receive answers
to Questions on Notice that he had provided to ARIA well before the hearings:
in order to facilitate a more informed discussion of the topics he wished to
discuss. The committee was informed that ARIA had sent the answers to the
Minister's office where they were yet to be cleared.
On 13 June 2008 the answers to these questions were tabled.
Officials were asked by Senator Watson whether ARIA participates in the
practice of margin lending. It was stated that ARIA does not margin lend
because it is a regulated superannuation fund that is not leveraged and does
When asked if ARIA participates in short selling an ARIA official
replied that it does. In defence of the practice the official stated:
There would be some hedge fund managers who are engaged by [ARIA]
who participate in what is known as short selling...that practice is in
accordance with the law and those managers operate under investment mandates
and investment agreements entered into with ARIA. One of the requirements in
those investment management agreements is that the managers comply with the
Future Fund Management Agency
Status of the Future Fund
Senator Brandis opened his examination into the operations of the Future
Fund Management Agency (the Future Fund) with general questions relating to the
status and value of the fund. A Future Fund official informed the committee
that the performance of the fund generated a return of 2.7 per cent during the
last financial year until April 2008. This figure is expected to move towards,
and possibly over and above, four per cent by the middle of May 2008 due to a recovery
in the equity markets.
Furthermore it was stated that the components of the fund were estimated
to be spread across three areas: 30 per cent invested in equities; 5 per cent
in debt instruments; and 65 per cent in cash. When asked to state what the 30
per cent invested in equities is currently valued at the official from the
Future Fund stated that it was worth $14 billion.
When asked to comment on whether the spread of two thirds of the Future
Fund’s investment located offshore was thought to be appropriate, it was stated
that the balance between funds invested offshore and in Australia was right and
appropriately diverse for the type of fund it is.
When asked by Senator Brandis to provide the aggregate value of all
equities in the fund as its highest point in the current financial year, Senator
Sherry and officials responded that the answer to this question would be
provided on notice.
Margin lending, stock lending and short selling
Senator Murray examined the Future Fund's approach to margin lending,
short selling and stock lending practices.
The General Manager of the Future Fund explained that the Future Fund does not
have a policy regarding margin lending because it is prohibited from any form
of borrowing, and that for this reason margin lending would be an illegal
activity for the Future Fund.
On the question of the Future Fund’s stock lending practices Senator Murray
defined his question between two different classes to stock lending: profit
taking; and stock lending for the purposes of voting. In reply the General
The legislation does specifically permit the board of guardians
to engage in securities lending. You would appreciate that securities lending
is a practice used by many institutional investors, both here and around the
world. The Future Fund does not engage presently in securities lending. We have
decided to wait until the current reviews of market activity with respect to
securities lending is finalised.
Responding to Senator Murray’s question in relation to the practice of
lending shares for voting rights, the General Manager stated that he was aware
of that the value of voting rights transfer to the party who is lent shares.
Similarly to the practice of stock lending Senator Murray was concerned that
the Future Fund does not currently have a fixed view on whether it condones the
practice of lending shares. The General Manager acknowledged Senator Murray’s
concern and agreed to convey Senator Murray’s concerns to the Future Fund’s
On the question what practices does the Future Fund currently maintain
in relation to short selling, the committee was informed that there is
currently no mandate with any investment manager used by the Future Fund to
adopt this practice, and it is a practice that the Future Fund will not engage
Building Australia, Higher Education and the Health
and Hospitals Funds
Senator Fifield questioned Finance officials about the differences
between the Future Fund and the three newly announced funds: the Building
Australia Fund, the Education Investment Fund and the Health and Hospitals
The Secretary of Finance replied that there were substantial difference
including: the proceeds of the Future Fund are not to be drawn down until the
value of the fund has reached a specific target, whilst the other funds are designed
to be accessed for specific spending purposes from the financial year 2009-10. The Secretary also stated that resources
from the funds not including the Future Fund will be subject to ‘advisory
processes’ about how the resources will be spent.
Australian Electoral Commission
The committee explored the following issues with the Australian
Electoral Commission (AEC):
- current investigations into compliance maters; and
- electoral advertisements.
Current investigations into compliance maters
Following on from previous practices the AEC provided an update on
compliance matters that it is currently investigating.
The AEC outlined the specific matters, which include: an allegation
involving payment of legal fees; donations made by the Transport Workers Union
to the ALP in New South Wales; and contributions made by trade unions to the
The AEC informed the committee that there is currently a smaller number
of investigation matters because there is an increase in the awareness of
people's legal obligations under the Commonwealth Electoral Act 1918
(Electoral Act). An official stated that there were several reasons for this:
It has mainly [been because of] the internet and by letters that
we have been making people aware of their obligations, and particularly with
the new 314AEB obligations on third parties. The first lodgements under that
obligation were required in February. We are still going through and evaluating
those who indicated that they did not have an obligation to return, and we will
be doing various compliance audits to ensure that we are reasonably satisfied
that they are current in indicating that they did not have any reportable
expenditure above the $10,300 limit.
Senator Carol Brown questioned AEC officials about the legislative
framework that defines under what circumstances electoral advertising must be
authorised. Specifically Senator Brown was interested in advertising in newspapers
that mimic news content.
The committee was informed that this is difficult to determine as
the definition of electoral matter in the Electoral Act is very wide. In the
case of newspaper content an AEC official stated that there are two relevant
provisions of the Electoral Act that apply. Furthermore, that even if it was
believed that a criminal offence had
occurred, that the chances of successfully convicting someone was remote:
Our problem is that, if we are going to police this, we are
dealing with a criminal offence and we would need to have evidence of the
requisite criminal standard of proof to be able to successfully do a prosecution.
There is a grey area there. We have published on the internet Electoral
Backgrounder No. 15: Electoral Advertising. We try to give an explanation as to
what the legal requirements are. But there is a grey area there.
Other matters examined by the committee with the AEC include:
- consultation between the government and the AEC about the
Commonwealth Electoral Amendment (Political Donations and Other Measures) Bill
- the AEC's submission to the Joint Standing Committee on Electoral
- current Federal electorate redistributions;
- the Electoral Reform Green Paper;
the AEC's financial statements;
- Key Performance Indicators and targets.
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