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2013
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
DISABILITYCARE AUSTRALIA FUND BILL 2013
EXPLANATORY MEMORANDUM
(Circulated by the authority of the Deputy Prime Minister and
Treasurer, the Hon Wayne Swan MP)
DISABILITYCARE AUSTRALIA FUND BILL 2013
Table of abbreviations and common terms
Abbreviation or Full term or description
common term
Agency Future Fund Management Agency
COAG Reform Fund means the Fund to be established under the COAG Reform
Fund Act 2008 for the purpose of making grants of financial
assistance to the States and Territories
DisabilityCare Australia The National Disability Insurance Scheme Act 2013
established the National Disability Insurance Scheme, known
as DisabilityCare Australia
FMA Act Financial Management and Accountability Act 1997
Finance Minister The Minister who administers the Financial Management and
Accountability Act 1997
Future Fund Board Future Fund Board of Guardians
Future Fund Special Account means the Future Fund Special Account established by
section 12 of the Future Fund Act 2006
ITAA Income Tax Assessment Act 1997
Legislative Instruments Act Legislative Instruments Act 2003
National Disability Insurance means the Minister administering the National Disability
Minister Insurance Scheme Act 2013
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1. Outline
Main features of the DisabilityCare Australia Fund Bill
2013
Context of the Bill
The National Disability Insurance Scheme Act 2013 established the National Disability
Insurance Scheme, known as DisabilityCare Australia. The establishment of DisabilityCare
Australia is Australia's most fundamental social reform since the Medicare.
DisabilityCare Australia will ensure that Australians with significant and permanent
disabilities get the support they need and allow them to live with choice and dignity.
To provide a strong and stable revenue stream for DisabilityCare Australia, and to provide
certainty to people with a disability, their families and carers that it will be funded in the long
term, the Government is increasing the Medicare levy by half a percentage point.
All revenue raised from increasing the Medicare levy will be placed in a special fund, the
DisabilityCare Australia Fund, which is being established by this Bill.
The Medicare levy currently applies at a rate of 1.5 per cent of a person's taxable income.
Low income earners receive relief from the Medicare levy through the low income thresholds
for singles, families, seniors and pensioners. A number of taxpayers are also exempt from the
Medicare levy, including for blind pensioners and sickness allowance recipients.
From 1 July 2014, the Medicare levy will increase by half a percentage point, from 1.5 per
cent to 2 per cent of a person's taxable income. Low income earners will continue to receive
relief through the low income thresholds and the current exemptions from the Medicare levy
will remain in place.
Increasing the Medicare levy also requires a number of consequential amendments to other
tax rates that are linked to the top marginal rate and Medicare levy. Consequential
amendments include changes to fringe benefits tax, excess contributions tax and the tax
withheld on bank accounts when the account holder has not provided their tax file number.
Summary of the Bill
The Bill:
Establishes the DisabilityCare Australia Fund, which consists of:
the DisabilityCare Australia Fund Special Account, and
the investments of the DisabilityCare Australia Fund.
Establishes the DisabilityCare Australia Transitional Special Account which will fund
the implementation of the National Disability Insurance Scheme Act 2013 in its initial
period of operation.
Credits
Provides for the Treasurer to determine that a specified amount be credited into the
DisabilityCare Australia Fund Special Account.
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The amount to be credited will be based on the advice provided by the Australian
Taxation Office on the amount of revenue received from the increase to the Medicare
levy.
Debits
Provides that the Finance Minister will, in writing, direct a debit from the
DisabilityCare Australia Fund Special Account be made to transfer a specified
amount to the COAG Reform Fund for the purpose of reimbursing the States and
Territories for their expenditure in relation to DisabilityCare Australia. This direction
will only be made on the recommendation of the National Disability Insurance
Minister.
Requires that debits for the reimbursement to the States and Territories from the
DisabilityCare Australia Fund Special Account will be governed by written agreement
between the Commonwealth and each State and Territory.
Requires the Treasurer ensure that, as soon as practical after an amount is credited to
the COAG Reform Fund debited for the purposes of making the grant to a State or
Territory.
Provides that the Finance Minister will, in writing, direct a debit in relation to a
reimbursement to the Commonwealth for expenditure in relation to DisabilityCare
Australia from the DisabilityCare Australia Fund Special Account to transfer a
specified amount to the general Consolidated Revenue Fund.
Investment of the Fund
The responsible Ministers will issue an Investment Mandate, a collection of
Ministerial directions, to the Future Fund Board regarding the investment of the
DisabilityCare Australia Fund. The purpose of the Investment Mandate is the same as
provided for in the Future Fund Act.
The Future Fund Board is responsible for deciding how to invest the DisabilityCare
Australia Fund.
Allows investments to be made from the DisabilityCare Australia Fund to include the
acquisition, in the name of the Future Fund Board, of financial assets (such as shares,
debentures and trust units). The Future Fund Board is bound by any Investment
Mandate issued for the DisabilityCare Australia Fund.
Earnings of the Fund
All earnings of the DisabilityCare Australia Fund will be retained for the benefit of
the Commonwealth.
All expenses associated with investment and administration of the DisabilityCare
Australia Fund by the Future Fund Board, including funds managers' fees, will be met
from the earnings of the Fund, not from the increase to the Medicare levy. The Future
Fund will keep the fund management costs as low as possible.
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Reporting
Gives responsibility to the Finance Minister to report on the balances of the
DisabilityCare Australia Fund Special Account.
Transitional Special Account
Establishes a Transitional Special Account to be administered by the Department of
Families, Housing, Community Services and Indigenous Affairs to support the
delivery of the National Disability Insurance Scheme as set out in the National
Disability Insurance Scheme Act 2013 in its initial period of operation.
Review
Requires a review of the DisabilityCare Australia Fund arrangements before 30 June
2024, unless the responsible Ministers agree to a later date.
Financial Impact Statement
The Budget impacts arising from the proposed legislation consists of the interest
earnings (net of investment management fees) and the payments to reimburse the
States. The Medicare levy proceeds credited into the Fund and the reimbursements
back to the Commonwealth will not result in any additional Budget impacts, as these
are already part of and remain within the CRF.
The Government committed to providing all revenue raised from increasing the
Medicare levy to deliver DisabilityCare Australia.
To deliver this commitment, all expenses associated with investment of the
DisabilityCare Australia Fund by the Future Fund Board will be met only from the
earnings of the fund, not from the increase to the Medicare levy.
Statement of Compatibility with Human Rights
The proposed amendments do not engage any of the applicable rights or freedoms
outlined in the Human Rights (Parliamentary Scrutiny) Act 2011, such as
encompassed in the International Covenant on Civil and Political Rights.
The proposed amendments do not limit any human rights, nor propose any offences or
penalties.
This Bill is therefore compatible with the human rights and freedoms recognised or
declared in the international instruments listed in subsection 3(1) of the Human Rights
(Parliamentary Scrutiny) Act 2011.
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DISABILITYCARE AUSTRALIA FUND BILL 2013
NOTES ON CLAUSES
Part 1 Preliminary
Section 1 - Short Title
Section 1 provides for the Act to be cited as the DisabilityCare Australia Fund Act
2013.
Note: The sections in the Bill will become sections of the Act on Royal Assent.
Section 2 - Commencement
Section 2 is the commencement provision for the Bill. The commencement dates for
the specific provisions are provided in the table in subsection 2(1).
Provision 1 of the table provides that sections 1 and 2 and anything not covered by
this table commences on the day the Act receives Royal Assent.
Provision 2 of the table provides that sections 3 to 8 commence on 1 July 2013.
Provision 3 of the table provides that parts 2, 3 and 4 commence on the later of 1 July
2014 or the commencement of Schedule 1 to the Medicare Levy Amendment
(DisabilityCare Australia) Act 2013. However, the provision(s) does not commence at
all if Schedule 1 of that Act does not commence.
Provision 4 provides that Part 5 commences on 1 July 2013.
Provision 5 provides that section 52 commences on the later of 1 July 2014 or the
commencement of Schedule 1 to the Medicare Levy Amendment (DisabilityCare
Australia) Act 2013. However, the provision(s) does not commence at all if Schedule
1 of that Act does not commence.
Provision 6 provides that section 53 commences on 1 July 2013.
Section 3 - Simplified outline
Section 3 is an information provision which is intended to provide a high level
introduction to the contents of the Bill, in order to aid readability.
Section 4 - Definitions
Section 4 provides definitions of the terms and expressions used in the Bill.
Section 5 - Crown to be bound
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Section 5 provides that the Act binds the Crown in each of its capacities but does not
make the Crown liable to be prosecuted for an offence.
Section 6 - Extension to external Territories
Section 6 provides that the Act extends to every external Territory, including Norfolk
Island.
Section 7 - Extra-territorial application
Section 7 provides for the geographical reach of this Act to be very wide - applying
both within and outside of Australia -- due to the possibility that the DisabilityCare
Australia Fund may be invested in overseas markets.
Section 8 - Object
Section 8 sets out the objects of the Bill, namely to enhance the Commonwealth's
ability to:
reimburse the Commonwealth, States and Territories for expenditure incurred in
relation to the National Disability Insurance Scheme Act 2013, and
to fund the implementation of the National Disability Insurance Scheme Act 2013
in its initial operation.
Part 2 - Disability Care Australia Fund
Division 1 - Introduction
Section 9 - Simplified outline
Section 9 is an overview of Part 2 to assist with readability.
Division 2 - Establishment of the DisabilityCare Australia Fund etc.
Section 10 - Establishment of the DisabilityCare Australia Fund
Section 10 establishes a financial asset fund -- the DisabilityCare Australia Fund --
consisting of amounts credited to a DisabilityCare Australia Fund Special Account
and investments of the DisabilityCare Australia Fund.
Section 11 - Establishment of the DisabilityCare Australia Fund Special Account
Section 11 establishes the DisabilityCare Australia Fund Special Account-- a Special
Account for the purposes of section 21 of the FMA Act.
A Special Account is an appropriation mechanism that sets aside an amount within
the Consolidated Revenue Fund to be expended for specific purposes. Any amounts
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credited to the DisabilityCare Australia Fund Special Account are quarantined from
the rest of the Consolidated Revenue Fund and can only be debited from the
DisabilityCare Australia Fund for the purposes set out in sections 14 to 17 and to the
COAG Reform Fund, in order to make DisabilityCare Australia Fund related
reimbursements.
The note immediately following this section is included to assist the reader by
clarifying that, in addition to the processes set out in section 12, amounts can be
credited to the DisabilityCare Australia Fund Special Account by an Appropriation
Act.
Division 3 - Credits of amounts to the DisabilityCare Australia Fund
Section 12 - Credits to Special Account - determinations by the Treasurer
The crediting provisions are for the purpose of providing all revenue from the
increase to the Medicare levy to the DisabilityCare Australia Fund Special Account.
These credits will only be drawn down to make reimbursements to the
Commonwealth and States and Territories for expenditure directly related to
DisabilityCare Australia.
Section 12 establishes the mechanism that the Treasurer may, in writing, determine
that a specified amount is to be credited to the DisabilityCare Australia Fund Special
Account on a specified day or by instalments on specified days.
Subsection 12(3) deems that a determination to credit a specified amount to the
DisabilityCare Australia Fund Special Account is not a legislative instrument.
The credits will be made periodically in arrears based on Australian Taxation Office
advice of revenue received from the increase to the Medicare levy.
The making of the determination will be a mechanical process in that the amounts
specified in the determination will be based on the advice provided by the Australian
Taxation Office, and will not involve the exercise of a discretion by the Treasurer.
Section 13 - Maximum amount of credits for States and Territories for a
financial year
Section 13 sets out the maximum amount of credits available to States and Territories
for each financial year, until 2024. This amount is $825 million in 2014-15 and will
increase by 3.5% annually until 2023-24. States and Territories will be reimbursed
for expenditure on the scheme once key conditions are met. The conditions will be
formalised in agreements between governments.
Division 4 - Debits of amounts from the DisabilityCare Australia Fund etc.
Section 14 - Purposes of the DisabilityCare Australia Fund Special Account -
main purposes
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Section 14 sets out the main purposes of the DisabilityCare Australia Fund Special
Account. These purposes are to reimburse the States, Territories and the
Commonwealth for expenditure incurred in relation to the DisabilityCare Australia.
Section 15 - Purposes of the DisabilityCare Australia Fund Special Account -
purposes related exclusively to the investments etc. of the DisabilityCare
Australia Fund.
Sections 15 relates to the cost that may be faced when investing the DisabilityCare
Australia Fund. The Future Fund will keep the fund management costs as low as
possible and any costs will be met from investment earnings, not from the levy. This
delivers on the Government's commitment to provide all revenue raised from
increasing the Medicare levy to deliver DisabilityCare Australia.
Section 15 sets out the purposes for which the DisabilityCare Australia Fund Special
Account may be debited that relate exclusively to the DisabilityCare Australia Fund.
Section 16 - Purposes of the DisabilityCare Australia Fund Special Account--
purposes not related exclusively to the DisabilityCare Australia Fund
Section 16 relates to the cost that may be faced when investing the DisabilityCare
Australia Fund. The Future Fund will keep the fund management costs as low as
possible and any costs will be met from investment earnings, not from the levy.
Section 16 sets out the purposes for which the DisabilityCare Australia Fund Special
Account may be debited that do not relate exclusively to the DisabilityCare Australia
Fund.
This ensures that the DisabilityCare Australia Fund Special Account can only be
debited for Future Fund costs that are in relation to the DisabilityCare Australia Fund.
Section 17 - Reimbursing the Commonwealth - transfer to general CRF
Section 17 provides that the Finance Minister may, in writing, direct that a specified
amount may be debited to reimburse the Commonwealth for expenditure incurred in
relation to DisabilityCare Australia from the DisabilityCare Australia Fund Special
Account.
Section 18 - Reimbursing the States and Territories - channelling of
State/Territory grants payments through the COAG Reform Fund
Section 18 provides that the Finance Minister may direct that a specified amount will
be debited from the DisabilityCare Australia Fund Special Account and credited to the
COAG Reform Fund for the purposes of making a grant of financial assistance to a
State or Territory to reimburse them for expenditure incurred in relation to
DisabilityCare Australia.
The terms and conditions upon which the financial assistance is granted to the State or
Territory are to be set out in a written agreement between the Commonwealth and the
State or Territory.
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Section 19 - Reimbursing the States and Territories - limit on annual debits from
based on Maximum amount of credits for States and Territories
Section 19 relates to Section 18 and the table provided at Section 13 regarding the
maximum amount of credits available to States and Territories each year for ten years
from the increase to the Medicare levy.
Section 19 establishes the maximum amount of credits for the States and Territories
in a given year. States and Territories are reimbursed for expenditure in relation to
DisabilityCare Australia through the COAG Reform Fund. The DisabilityCare
Australia Fund is debited, and the COAG Reform Fund is credited, to enable these
reimbursements to be effected.
It also provides that any credits unspent in a given year can be rolled over to
subsequent years. States' and Territories' reimbursements cannot exceed the value of
the credits in a given year, as per the table, plus any funds not debited in a previous
year(s). In effect, the total State and Territory reimbursement cannot exceed the total
credits over the ten year period.
Section 20 - Reimbursing the States and Territories - recommendations about
grants payments
Section 20 requires the National Disability Insurance Minister to recommend to the
Finance Minister that amounts be debited from the DisabilityCare Australia Fund to
reimburse the States and Territories for expenditure in relation to DisabilityCare
Australia.
Section 21 - Reimbursing the States and Territories - debit from the COAG
Reform Fund
Section 21 reflects the Government`s intention that the COAG Reform Fund is not an
asset fund like the DisabilityCare AustraliaFund, but rather will act as a vehicle by which
payments from the COAG Reform Fund will be distributed to States and Territories.
The Treasurer is required to ensure that, as soon as practicable after an amount is credited
to the COAG Reform Fund, that amount is debited for the purposes of making the grant.
Section 22 - Reimbursing the States and Territories - grant to a State or
Territories Section 22 is concerned with grants of financial assistance to a State or
Territory through the COAG Reform Fund in relation to reimbursement of expenditure
for DisabilityCare Australia. The note immediately following subsection 22(1) assists the
reader by referring to subsection 21(2), which deals with payments channelled through
the COAG Reform Fund.
The section provides that the terms and conditions upon which the financial assistance is
granted to States or Territories are to be set out in a written agreement between the
Commonwealth and the State or Territory.
Section 23 - Future Fund Board must ensure that there is sufficient money in the
DisabilityCare Australia Fund Special Account to cover authorised debits etc.
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Section 23 requires the Future Fund Board to take all reasonable steps to ensure that
the amount of money standing to the credit of the DisabilityCare Australia Fund
Special Account is sufficient to cover amounts to be debited from the DisabilityCare
Australia Fund Special Account.
Division 5 - Inter-fund transfers
This section only provides for transfers from the DisabilityCare Australia Fund to the
Future Fund Special Account.
Sections 24 allows for amounts to be transferred between the DisabilityCare Australia
Fund and the Future Fund. The purpose of this is to enable reimbursement to the
Future Fund for expenses incurred in relation to the DisabilityCare Australia Fund
that have been debited from the Future Fund Special Account.
The section allows the Finance Minister to direct one Fund is to be debited and the
other Fund credited by a specified amount.
Subsection 24(3) makes it clear that directions of the Finance Minister are not
legislative instruments. Directions of this type are administrative in character because
they are merely the application of a legal power in a particular case; they do not
determine or alter the content of the law itself.
Part 3 Investment of the DisabilityCare Australia Fund
Section 25 - Simplified outline
Section 25 is an information provision which provides an overview of Part 3 to assist
with readability.
Section 26 - Objects of investment of the DisabilityCare Australia Fund
Subsection 26 (1) is intended to reinforce that amounts are invested by the Future
Fund Board for the main object of enhancing the Commonwealth's ability to
reimburse the States and Territories and the Commonwealth for expenditure incurred
in relation to DisabilityCare Australia.
Subsection 26(2) sets out that the ancillary objects of the investment of the
DisabilityCare Australia Fund are for enhancing the ability of the Commonwealth and
the Future Fund Board to discharge costs, expenses, obligations and liabilities and
make payments for the ancillary purposes as set out in Sections 15 and 16.
Section 27 - Investment of the DisabilityCare Australia Fund
Section 27 is modelled on the investment powers under section 39 of the FMA Act.
However, subsection 27(1) expands those powers to specifically provide for the
investment of the DisabilityCare Australia Fund in a broad range of financial assets,
which could include cash, interest-bearing securities and global property securities,
11
with the use of derivatives for risk management. Specific conditions on the
acquisition of derivatives are separately covered in section 36. This approach to
investment of the DisabilityCare Australia Fund is consistent with similar
arrangements for the Future Fund.
Investments of the DisabilityCare Australia Fund will be made in the name of the
Future Fund Board (rather than the Commonwealth) to reinforce the position that the
Future Fund Board manages the DisabilityCare Australia Fund at arm's length from
the Government. However, beneficial ownership of the DisabilityCare Australia Fund
remains with the Commonwealth at all times.
Subsection 27(3) provides that money invested in financial assets are `investments of
the DisabilityCare Australia Fund' and may be realised, disposed of or redeemed by
the Future Fund Board.
Section 28- Management of investments of the DisabilityCare Australia Fund
Subsections 28(1) and (2) provide that income derived from an investment of the
DisabilityCare Australia Fund, including a return of capital or another form of
financial distribution, must be credited to the DisabilityCare Australia Fund Special
Account. This is consistent with the requirements under sections 81 and 83 of the
Constitution (which, in effect, provide that public money forms part of the
Consolidated Revenue Fund and can only be spent if authorised by an appropriation
made by law). In practice, any money that has not been invested must be held in an
official bank account. The requirement to hold the money in an official bank account
is covered in the FMA Act.
Subsections 28(3) to (5) relate to the arrangements that will apply in relation to the
realisation of assets. While subsections 28(3) to (4) are self explanatory,
subsection 28(5) allows the Future Fund Board to authorise, prior to an investment
maturing, that the proceeds of this investment be automatically reinvested with the
same entity. This avoids the need for the proceeds of realisation of the investment to
be treated as public money and credited to the Consolidated Revenue Fund only to be
then reappropriated and reinvested. Any reinvestment is an investment of the
DisabilityCare Australia Fund.
Subsection 28(6) provides that section 39 of the FMA Act does not apply to an
investment of the DisabilityCare Australia Fund. Section 39 of the FMA Act
authorises the Finance Minister to invest public money in only a limited range of
investments, such as government bonds and bank deposits. However, section 27(1)
provides for the investment of the DisabilityCare Australia Fund in a broader range of
financial assets, which could include cash, interest-bearing securities and global
property securities, with the use of derivatives for risk management.
Section 29 - DisabilityCare Australia Fund Investment Mandate
It is appropriate that the Government, as owner of the DisabilityCare Australia Fund,
has a mechanism for articulating its overall expectations for how the DisabilityCare
Australia Fund will be invested and managed by the Future Fund Board. Section 29
establishes a framework that enables the Government to give strategic guidance to the
12
Future Fund Board while preserving the Board's role in managing the investment of
the DisabilityCare Australia Fund at arm's length from the Government. This
approach is consistent with that existing in relation to the Future Fund.
Subsection 29(1) provides that the responsible Ministers have the power to give the
Future Fund Board written directions in relation to the performance of its investment
functions and the exercise of its powers. The responsible Ministers must issue at least
one direction to ensure that an Investment Mandate is in force at all times and to
provide clarity and certainty to the Future Fund Board. Note that the DisabilityCare
Australia Fund investment function is defined in section 4.
Subsection 29(2) provides that any direction issued under subsection 29(1) has effect
subject to the limitations set out in section 30 - Limitation on DisabilityCare Australia
Fund Investment Mandate.
The fact that a direction has already been issued does not prohibit the responsible
Ministers from issuing additional directions. All of these directions together comprise
the Investment Mandate (see subsections 29(1) and 29(4)).
While the responsible Ministers can issue new directions at any time, the intention is
that the Investment Mandate will reflect the nature of the Government's policy. Any
new directions will therefore only be issued in light of significant policy changes or
material changes in the investment environment faced by the DisabilityCare Australia
Fund.
Subsection 29(3) provides that in setting an Investment Mandate, the responsible
Ministers must have regard to maximising the return on the DisabilityCare Australia
Fund, consistent with international best practice for institutional investment,
enhancing the Commonwealth's ability to reimburse the Commonwealth and the
States and Territories for expenditure incurred in relation to DisabilityCare Australia,
and any other matters the Ministers consider to be relevant. This requirement will
give the Future Fund Board and the Parliament assurance that the responsible
Ministers must consider the scope of their directions from an investment perspective,
while ensuring that there is flexibility to take account of broader policy issues and
national interest considerations.
Subsections 29(5) and 29(6) provide that the Investment Mandate may include, but is
not limited to, statements about policies the Future Fund Board must pursue in
relation to risk and return and the allocation of the DisabilityCare Australia Fund to
particular asset classes. This may include restrictions or thresholds for investing the
DisabilityCare Australia Fund in certain jurisdictions or asset classes and statements
of the Government's tolerance for losses.
Subsection 29(7) provides that any policies are subject to the limitations set out in
section 30.
Subsection 29(8) ensures that the Future Fund Board is not given conflicting
directions regarding the Government's tolerance for risk, its expectations for returns
and any associated allocation of the DisabilityCare Australia Fund across asset
classes.
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To avoid doubt, subsection 29(9) makes it clear that the scope of the responsible
Ministers' powers to issue directions to the Future Fund Board in relation to the
investment of the DisabilityCare Australia Fund is bound by the Act. For example,
the responsible Ministers could not direct the Future Fund Board to use derivatives in
a manner that contradicts section 36 (which deals with the acquisition of derivatives
by the Future Fund Board).
Subsection 29(10) provides that the Investment Mandate will not formally commence
until at least 15 calendar days after it is issued. This is to allow the Future Fund
Board time to adjust to any revised directions issued by the responsible Ministers.
Importantly, the Future Fund Board will be able to know with certainty when the new
direction will come into force.
Subsection 29(11) provides that directions under subsection 29(1), which set out
certain rules that the Future Fund Board must comply with, are legislative in character
and are therefore legislative instruments for the purposes of section 5 of the
Legislative Instruments Act 2003. However, any directions issued by the responsible
Ministers as part of the Investment Mandate are exempt from parliamentary
disallowance provided by section 44 of the Legislative Instruments Act 2003 and
exempt from sunsetting provided by section 54 of the Legislative Instruments Act
2003).
As legislative instruments, any directions given to the Future Fund Board under this
section are required to be registered on the Federal Register of Legislative Instruments
and tabled in the Parliament.
This approach enables the public and Parliament to hold the Government accountable
for the directions it issues to the Future Fund Board without impeding the
Government's ability to manage its finances.
Subsections 29(12) and 29(13) provide that, subject to the restrictions set out in the
Act and the expectations of the Government as articulated in the Investment Mandate,
the Future Fund Board has a statutory obligation to seek to maximise returns,
consistent with international best practice for institutional investment and enhancing
the Commonwealth's ability to make payments in relation to the objects of the
DisabilityCare Australia Fund (set out in section 8(a) and (b)).
This provision (together with subsection 29(8)) establishes a clear hierarchy of
priorities for the Future Fund Board -- the responsibility to maximise returns is
subordinate to the investment parameters set out by the Parliament and the
Government. This framework provides appropriate flexibility while still ensuring
suitable accountability for any directions the Government gives the Future Fund
Board regarding the investment of the DisabilityCare Australia Fund.
It also provides the Future Fund Board with clarity as to the extent of its
accountability -- the Future Fund Board must be able to demonstrate that it is
pursuing policies and strategies that are clearly directed at maximising investment
returns in a manner that is consistent with best practice.
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It is expected that the Future Fund Board will adopt a best practice approach to a
range of issues by learning from the experiences of other investors and funds of
national significance.
The purpose of subsection 29(13) is to clarify that subsection 29(12) is the default
position in the event that a direction under subsection 29(1) is not issued or is
revoked. However, a direction issued by the Ministers under subsection 29(1) will
override subsection 29(12).
Section 30 - Limitation on DisabilityCare Australia Fund Investment Mandate
Subsection 30 specifies that the responsible Ministers cannot direct the Future Fund
Board to use the assets of the DisabilityCare Australia Fund to invest in a particular
financial asset, for example, shares in a particular infrastructure company. It also
prevents the responsible Ministers from issuing a Ministerial direction that has the
effect of requiring the Future Fund Board to use the assets of the DisabilityCare
Australia Fund to support a particular business entity, a particular activity or a
particular business.
This section does not limit the ability of the Investment Mandate to set out the
policies as intended under the Bill, such as those to be pursued by the Future Fund
Board in relation to matters of risk and return.
Section 31- Future Fund Board to be consulted on DisabilityCare Australia
Fund Investment Mandate
Consistent with the Future Fund arrangements, the responsible Ministers are required
to consult the Future Fund Board on any changes or additions to the Investment
Mandate. Subsections 31(1) and 31(3) achieve this by requiring the responsible
Ministers to send a draft of the new direction to the Future Fund Board and inviting
the Board to make a submission within a specified time limit.
The specified time limit will be determined on a case by case basis with regard to
relevant circumstances and priorities at the time. It may be the case that urgent
changes are required in the national interest. In this situation, it would be reasonable
for the Future Fund Board to be asked to consider a draft direction quickly. However,
where there is less urgency, or the change in the Investment Mandate is quite
substantial, it would be reasonable to provide the Future Fund Board with more time
to consider a draft direction.
Subsection 31(2) provides that any submission received by the responsible Ministers
from the Future Fund Board must be tabled in the Parliament with the new direction.
In this way, the Future Fund Board will be able to ensure that their views on the
expected impact on their ability to maximise returns are publicly known.
Section 32 - Compliance with DisabilityCare Australia Fund Investment
Mandate
Subsection 32(1) provides that it is the responsibility of the Future Fund Board to
take all reasonable steps to ensure that all policies and decisions regarding the
15
operation and investment of the DisabilityCare Australia Fund are in accordance with
any directions (Investment Mandate) issued by the responsible Ministers. Since the
Investment Mandate is intended to provide broad guidance to the Future Fund Board,
it may contain directions that require the Board to apply its judgement on whether or
not DisabilityCare Australia Fund investments that comply with the Mandate.
Subsection 32(2) provides that if the Future Fund Board becomes aware of a breach
of the Investment Mandate, it must inform the responsible Ministers in writing as
soon as is practicable, including a proposed strategy to bring the operations of the
DisabilityCare Australia Fund into accordance with the Investment Mandate.
Similarly, subsections 32(3) and 32(4) provide that if the Government identifies
areas where the Future Fund Board is not complying with the Investment Mandate,
the responsible Ministers can issue written directions to the Board to take action to
remedy the situation. The Future Fund Board is required to comply with any such
directions, noting that the responsible Ministers are the final arbiters on what is
intended by the Investment Mandate.
Subsection 32(5) provides that any transactions undertaken by the Future Fund Board
that are deemed later not to have complied with the Investment Mandate, are still
valid and the Board is required to honour any commitment made. This protects third
parties who enter into transactions with the Future Fund Board or its agents in good
faith.
Subsection 32(6) makes it clear that a direction under subsection 32(3) is not a
legislative instrument. This provision is merely declaratory in nature. Directions of
this type are administrative in character because they are merely the application of a
legal power in a particular case; they do not determine or alter the content of the law
itself.
Section 33 - Future Fund Board must not trigger the takeover provisions of the
Corporations Act 2001
Section 33 aims to minimise market distortion and eliminate the potential for conflicts
of interest for the Government as a market regulator. It provides that the Future Fund
Board is prohibited from triggering the takeover provisions under section 606 of the
Corporations Act.
Section 606 of the Corporations Act essentially prohibits acquisitions in relevant
interests in the voting shares of a listed company, or unlisted company with more than
50 share holders, if a person's voting power increases from a figure at or below 20%
to a figure above 20% (or from a figure above 20% to a higher figure above 20% but
below 90%) - unless the shares are acquired in one of the circumstances set out at
section 611 of that Act.
However, it is the Government's intention that the takeover threshold be adhered to
quite strictly in relation to listed companies and unlisted companies with more than
50 shareholders. Therefore, subsection 33(1) provides that the exceptions provided
under section 611 of the Corporations Act (that is, exceptions to the prohibition in
section 606) do not apply in relation to acquisitions by the Future Fund Board.
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The prohibition on the Future Fund Board is not expected to have a material impact
on the investment efficiency of the DisabilityCare Australia Fund as such limits are
quite similar to those often used by other fund managers. However, the Future Fund
Board will need to have regard to the entirety of its interest (i.e. through investment of
the DisabilityCare Australia Fund) in a particular company when the Board is
proposing a particular acquisition in the context of the DisabilityCare Australia Fund.
Subsection 33(2) provides that if for some reason the Future Fund Board has not
complied with section 606 of the Corporations Act (as it is applied to the Future Fund
Board under section 33), the relevant transactions will still be valid. The aim of this
provision is to ensure third parties are not adversely affected by any non-compliance
of the Future Fund Board.
A note at the end of the section assists the reader by referring to section 39 of the
Future Fund Act, which sets out the application of the Corporations Act to the Future
Fund Board.
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Section 34 - Borrowing
Section 34 prohibits the Future Fund Board from borrowing money, except for short
term borrowing associated with the settlement of transactions or in other
circumstances prescribed in regulations (see subsection 34(3) below).
The overall aim of this section is to ensure that the Future Fund Board is able to
operate efficiently without exposing the budget to undue risk.
Subsection 34(3) provides that regulations may be made to specify circumstances in
which it is considered appropriate for the Future Fund Board to be able to borrow.
Regulations may also be used to clarify any uncertainty on whether a particular
activity constitutes borrowing. While it is not anticipated that the Future Fund Board
will have a need to borrow, this provision allows for unforseen events or changes in
the investment environment without the need to amend the primary legislation. The
regulations would be disallowable by either House of the Parliament.
Section 35 - DisabilityCare Australia Fund investment policies
Section 35 provides that the Future Fund Board is required to formulate, publish and
comply with a number of policies on its investment activities.
The aim of this provision is to ensure rigour and transparency around how the Future
Fund Board performs its investment function in relation to the DisabilityCare
Australia Fund, including risk management, performance assessment and
benchmarks.
Subsection 35(1) and 35(7) requires the Future Fund Board to formulate and comply
with policies and any additional matters specified in regulations.
A note at the end of subsection 35(1) reminds the reader that, under subsection 33(3)
of the Acts Interpretation Act, the Future Fund Board is able to repeal, rescind,
revoke, amend, or vary any such policies.
Subsection 35 (2) provides that the policies that the Future Fund Board develops
must not be incompatible with the Investment Mandate.
Subsection 35(3) and (4) provides that the Future Fund Board must publish the first
set of policies on the internet.
Subsections 35(5) and 35(6) provide that the Future Fund Board must conduct
reviews of these policies periodically and where the responsible Ministers change the
Investment Mandate. It is not expected that these reviews would be a formal process
or that the results of the reviews would be required to be published. However, if the
review resulted in any changes to the policies, it is intended that the updated policies
would be published on the internet.
Subsection 35(8) provides that if the Future Fund Board enters into a transaction
which is not consistent with a policy that it has published under this section, the
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transaction will still be valid. This will ensure that third parties are not affected by
any inconsistency with the Future Fund Board's policies. However, subsection 35(7)
provides that the Future Fund Board is required to take all reasonable steps to comply
with the policies it develops under subsection 35(1).
Subsection 35(9) makes it clear that the policies of the Future Fund Board are not
legislative instruments, because they are administrative in character. They do not
determine or alter the content of the law.
Section 36 - Derivatives
Derivatives are widely used by financial market participants as a tool for risk
management. As the sophistication, size and mobility of capital markets around the
world increases, investment managers are looking for more ways to maximise the
returns on investments while minimising the volatility of results. The types and
volumes of derivatives being traded has grown exponentially as the underlying
markets have created demand for these types of instruments.
Section 36 provides for the Future Fund Board to make use of derivatives for certain
purposes. This includes as a risk management tool and to achieve indirect exposure to
assets that it could not otherwise achieve. The Future Fund Board may also use
derivatives to reduce the transaction cost of achieving required exposures. However,
subsection 36(1)(e) and (f) provides that it may not use derivatives for speculative
purposes or for leverage.
Subsection 36(2) provides that the acquisition of derivatives under this section cannot
be inconsistent with the requirement under section 35 for the Future Fund Board to
formulate a policy on its investment strategy and take all reasonable steps to comply
with that policy.
Subsections 36(3) and 36(4) provide that derivatives must be held in the name of the
Future Fund Board and are taken to be an investment of the DisabilityCare Australia
Fund. Similar to other investments, derivatives may be realised by the Future Fund
Board under subsection 28(3).
Section 37 - Additional financial assets
Section 37 provides that if the Future Fund Board becomes a holder of another
financial asset, for example through a capital distribution, that asset becomes an
investment of the DisabilityCare Australia Fund and is therefore subject to all the
restrictions and requirements for investments of the DisabilityCare Australia Fund.
Section 38 - Securities lending arrangements
Section 38 provides that the Future Fund Board is able to enter into securities lending
arrangements. Lending of securities is commonplace among institutional investors. It
may also take collateral as part of a securities lending arrangement. Any collateral it
takes is either credited to the DisabilityCare Australia Fund Special Account or
becomes an investment of the DisabilityCare Australia Fund.
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Section 39 - Investment managers
Subsection 39(1) provides that the Future Fund Board is able to hire one or more
investment managers. Investment manager is defined broadly to include custodians,
transition managers and other investment managers. However, the Agency is
excluded from this definition as it is generally expected that investment activities,
such as acquiring derivatives or investing money, will be outsourced.
Unless approved by the responsible Ministers, the Future Fund Board must use
investment managers to invest money in financial assets, acquire derivatives, enter
into securities lending arrangements or realise financial assets.
Subsection 39(2) provides that the responsible Ministers may provide approval in
writing for certain methods of investment, other than through investment managers,
should it be prudent and cost effective to do so.
Subsections 39(3) and 39(4) provide that the Future Fund Board is required to ensure
that investment managers operate within the Act and must report on the state of
investments of the DisabilityCare Australia Fund to the Board and the Agency. It
would be expected that such obligations are set out in the contractual arrangements
between the Future Fund Board and the investment manager.
Section 40 - Custody of securities
Section 40 provides that section 40 of the FMA Act does not apply to investment of
the DisabilityCare Australia Fund.
Section 40 of the FMA Act requires officials who receive any bonds, debentures or
other securities in the course of their duties to deal with them in accordance with the
Finance Minister's Orders. This provision is designed for departments of state which
carry out a more limited range of investment activities than is envisaged for the Future
Fund Board (and Agency) in relation to the DisabilityCare Australia Fund. Further,
making custodians and other investment managers comply with the
Finance Minister's Orders for investment purposes could impose an undue
administrative burden.
While section 40 of the FMA Act is excluded, a framework for how the Future Fund
Board must deal with securities that it receives in relation to the DisabilityCare
Australia Fund is covered by sections 27 and 36.
Section 41 - Refund of franking credits
Under subsection 84B(1) of the Future Fund Act, the Future Fund Board is deemed to
be an exempt institution that is eligible for a refund of franking credits under the
ITAA. As the Future Fund Board is exempt from income tax, it may have an
investment bias towards assets whose return had not previously been subject to
income tax (such as debt instruments or unfranked dividends). Refunding franking
credits removes any potential bias against franked dividends.
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Section 41 deals with refund of franking credits and provides that if the Future Fund
Board receives a refund of a tax offset under the ITAA and the tax offset is
attributable to the investment of the DisabilityCare Australia Fund, any refund
received is credited to the DisabilityCare Australia Fund Special Account.
Section 42 - Realisation of non-financial assets
Section 42 requires the Future Fund Board to realise an asset that ceases to be a
financial asset or any asset acquired by the Board (as an investment of the
DisabilityCare Australia Fund) that is not a financial asset. This could include
circumstances where the Future Fund Board holds an asset which was mistakenly
acquired by the Board, or given to the Board, or which ceases to be a financial asset
due to a revision of the ABS government finance statistics manual, for example.
The section provides that a non-financial asset is treated as a financial asset up to the
time it is realised. Sections 42(1)(b) and 42(2)(b) ensure that the asset is considered
an investment of the DisabilityCare Australia Fund and that relevant provisions
relating to investments of the DisabilityCare Australia Fund apply to that asset for the
time it is held by the Future Fund Board.
Section 43 - Additional function of the Future Fund Board
Section 43 provides that the functions of the Future Fund Board include the function
of investing amounts in accordance with the Act.
Part 4 Reporting obligations etc.
Section 44 - Finance Minister to prepare report on balance of DisabilityCare
Australia Special Account etc.
Section 44 sets up the requirement that, starting on 1 July 2014, the Finance Minister
must cause a quarterly report to be prepared, setting out the quarterly balance of the
DisabilityCare Australia Special Account and also the total States' and Territories'
share of the DisabilityCare Australia Fund.
Section 45 - Finance Minister may require Future Fund Board to prepare
reports or give information
Section 45 provides that the Finance Minister may require, in writing, that the Future
Fund Board prepare a report or a document on one or more specified matters relating
to the performance of the Future Fund Board's functions under Part 3. This report or
information must be provided within the timeframe outlined in the Finance Minister's
request.
The Finance Minister may choose to publish any report or document provided.
Section 46 - Keeping the responsible Ministers informed etc.
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Section 46 requires the Future Fund Board to notify the responsible Ministers of any
information that the responsible Ministers should know, including by providing any
written information to the Finance Minister. This could include significant
investment results, concerns regarding fraud and any non compliance with the
Board's policy on conflicts of interest.
Section 47 - Finance Minister may give reports to other Ministers etc.
Section 47 allows flexibility for the Finance Minister to give reports, documents and
other information to the Treasurer or the National Insurance Disability Minister. This
includes reports and documents under sections 45 and 46 and any other information
obtained by the Finance Minister under the Act.
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Part 5 - Disability Care Australia Transitional Special Account
Division 1 Establishment of the DisabilityCare Australia Transitional
Special Account
Section 48 - Establishment of the DisabilityCare Australia Transitional Special
Account
Section 48 establishes the DisabilityCare Australia Fund Transitional Special
Account.
The DisabilityCare Australia Fund Transitional Special Account is to commence on
1 July 2013 and will hold the State, Territory and Commonwealth contributions for
2013-14 for DisabilityCare Australia until the National Disability Insurance Scheme
Launch Transition Agency is financially separated from the Department of Families,
Housing, Community Services and Indigenous Affairs.
The DisabilityCare Australia Fund Transitional Special Account provides certainty
that the appropriate financial arrangements will be in place on 1 July 2013 to deliver
DisabilityCare Australia.
Division 2 - Credits of amounts to the DisabilityCare Australia
Transitional Special Account
Section 49- Credits to Transitional Special Account - determination by National
Disability Insurance Minister
Section 49 establishes the mechanism that the National Disability Insurance Minister
may, in writing, determine that the specified amount is to be credited to the
DisabilityCare Australia Fund Special Account on a specified day or by instalments
on specified days.
Section 49(3) provides that a determination to credit amounts to the DisabilityCare
Australia Transitional Special Account is a not a legislative instrument
This determination will only be used to credit the amounts paid in by the States and
Territories. The credits from the States and Territories will be frequent but irregular
in timing.
The making of the determination will be a mechanical process in that the amounts
specified in the determination will be tied to the amounts received from States and
Territories, and will not involve the exercise of discretion by the National Disability
Insurance Minister.
The credit to the DisabilityCare Australia Transitional Special Account from the
Commonwealth will be sourced from an appropriation to the Department of Families,
Housing, Community Services and Indigenous Affairs.
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The note immediately following this section is included to assist the reader by
clarifying that, in addition to the processes set out in sections 49, amounts can be
credited to the DisabilityCare Australia Fund Special Account by an Appropriation
Act. For completeness, if any of the purposes of a Special Account is a purpose that is
covered by an item (whether or not the item expressly refers to the Special Account),
then amounts may be debited against the appropriation for that item and credited to
that Special Account.
Division 3 - Debits of amounts to the DisabilityCare Australia Fund
Transitional Special Account
Section 50 - Purposes of the DisabilityCare Australia Transitional Special
Account--General
Section 50 sets out the purposes for which the DisabilityCare Australia Transitional
Special Account may be debited. The purpose of the DisabilityCare Australia
Transitional Special Account is restricted to the payments to cover the expenses,
charges and obligations incurred by the Commonwealth or the National Disability
Insurance Scheme Launch Transition Agency during the period before the National
Disability Insurance Scheme Launch Transition Agency receives financial separation
from the Department of Families, Housing, Community Services and Indigenous
Affairs.
Division 4 - Payments
Section 51 - Authorisation of payments
Section 51 provides for the National Disability Insurance Minister to authorise
payments from the DisabilityCare Australia Transitional Special Account for the
purposes of DisabilityCare Australia.
Part 6 Miscellaneous
Section 52 - Delegation by the Finance Minister
Under subsection 52(1), the Finance Minister may, in writing, delegate his or her
powers under sections 17, 18 or 24 to the Secretary of the Finance Department or to
an SES employee (or acting SES employee) in that Department.
The Finance Minister's powers under sections 17, 18 and 24 relate to the making of
authorisations for payments from the DisabilityCare Australia Fund and directing that
specified amounts be transferred from the DisabilityCare Australia Fund Special
Account to the COAG Reform Fund for the purposes of making a specified grant of
financial assistance to a State or Territory or to the Consolidated Revenue Fund for
the purposes of DisabilityCare Australia. Delegation of these functions to the
Secretary of, or SES official in, the Finance Department is consistent with the
efficient administration of these matters.
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Subsection 52(3) allows the Finance Minister to delegate, in writing, his or her
functions under section 24 of the Act, to the Chair of the Future Fund Board or to an
SES employee (or acting SES employee) in the Agency. The Finance Minister's
functions under this provision allows for amounts to be transferred from the
DisabilityCare Australia Fund Special Account and the Future Fund Special Account.
Accordingly, the Minister delegating this function to the Chair of the Future Fund
Board or an SES official in the Agency is considered to be a normal administrative
arrangement for the efficient handling of these matters.
A note at the end of subsections 52(1) and 52(3) assists the reader by referring to the
relevant section of the Acts Interpretation Act in relation to the expressions `SES
employee' and `acting SES employee'.
It is envisaged that the delegate will be accountable to the Finance Minister for his or
her actions under any delegation. Subsections 52(2) and (4) reinforce this intention
by requiring the delegate to comply with any direction of the Minister in exercising
powers under a delegation.
Section 53 - Delegation by the National Disability Insurance Minister
Under section 53, the National Disability Insurance Minister may, in writing, delegate
his or her powers under sections 20, 49 and 51 to the Secretary of the National
Disability Insurance Department or to an SES employee (or acting SES employee) in
that Department.
A note at the end of the subsection assists the reader by referring to the relevant
section of the Acts Interpretation Act in relation to the expressions `SES employee'
and `acting SES employee'.
The National Disability Insurance Minister's powers under sections 20, 49 and 51
relate to the making of authorisations for credits to and payments from the
DisabilityCare Australia Transitional Special Account. Delegation of these functions
to the Secretary of, or SES official in, the National Disability Insurance Department is
consistent with the efficient administration of these matters.
Section 54 - Delegation by the Treasurer
Section 54 allows the Treasurer to, in writing, delegate his or her functions under
section 12 and subsection 21(2) to the Secretary of the Treasury Department or to an
SES employee (or acting SES employee) in that Department.
A note at the end of the section assists the reader by referring to the relevant section
of the Acts Interpretation Act in relation to the expressions `SES employee' and
`acting SES employee'.
Delegation of these functions to the Secretary of, or SES official in, the Treasury
Department is consistent with the efficient administration of these matters.
Section 55 - Review of operation of Act
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Section 55 sets up a mechanism for the review of the operation of the Act before
30 June 2024 or at a later date if the responsible Ministers consider it appropriate.
This provision is to ensure there is a review mechanism in place at the intended point
that credits into the DisabilityCare Australia Fund are due to cease.
Section 56 - Regulations
Section 56 provides that the Governor-General may make regulations covering
matters required to be prescribed in this Act, or matters that it would be convenient to
prescribe for the purposes of this Act.
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