Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2013-2014-2015
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
MEDICAL RESEARCH FUTURE FUND BILL 2015
EXPLANATORY MEMORANDUM
(Circulated by the authority of the Minister for Finance,
Senator the Hon Mathias Cormann)
Table of abbreviations and common terms
Abbreviation or Description
common term
Agency means the Future Fund Management Agency established by
section 74 of the Future Fund Act 2006
COAG Reform Fund means the Fund established by section 5(1) of the
COAG Reform Fund Act 2008
Corporations Act means the Corporations Act 2001
corporate Commonwealth has the meaning set out in subsection 11(a) of the Public
entity Governance, Performance and Accountability Act 2013
CRF means the Consolidated Revenue Fund
CSIRO means the Commonwealth Scientific and Industrial Research
Organisation established by section 8 of the Science and
Industry Research Act 1949
Finance Minister has the same meaning as defined in the Public Governance,
Performance and Accountability Act 2013
Future Fund means the Future Fund established by section 11 of the Future
Fund Act 2006
Future Fund Act means the Future Fund Act 2006
Future Fund Special Account means the Future Fund Special Account established by
section 12 of the Future Fund Act 2006
Health Minister means the Minister who administers the Health Insurance Act
1973
HHF means the Health and Hospitals Fund established by
section 214 of the Nation-building Funds Act 2008
HHF Special Account means the Health and Hospitals Fund Special Account
established by section 215 of the Nation-building Funds Act
2008
Investment Mandate Means the Medical Research Future Fund Investment Mandate
and has the same meaning as defined in the Medical Research
Future Fund Bill 2015
ITAA means the Income Tax Assessment Act 1997
Legislative Instruments Act means the Legislative Instruments Act 2003
MRFF means the Medical Research Future Fund
MRFF Act means the Medical Research Future Fund Act 2015
MRFF Special Account means the Medical Research Future Fund Special Account
established by section 11 of the Medical Research Future Fund
Bill 2015
MRFF Health Special Account means the Medical Research Future Fund Health Special
Account established by section 23 of the Medical Research
Future Fund Bill 2015
Nation-building Funds means the Nation-building Funds established by section 12, 131
and 214 of the Nation-building Funds Act 2008
2
Abbreviation or Description
common term
NHMRC means the National Health and Medical Research Council
established by section 5B of the National Health and Medical
Research Council Act 1992
PGPA Act means the Public Governance, Performance and Accountability
Act 2013
responsible Ministers means the following:
(a) the Treasurer; and
(b) the Finance Minister
The Board means the Future Fund Board of Guardians established by
section 34 of the Future Fund Act 2006
3
Medical Research Future Fund Bill 2015
Context
The Medical Research Future Fund Bill 2015 gives effect to the Government's decision
(announced as a 2014-15 Budget measure) to establish a dedicated financial asset - the
Medical Research Future Fund - as an endowment that supports medical research and
innovation (including in health disciplines).
The Government wishes to accumulate assets that can be invested to create earnings used
to financially support medical research and medical innovation over the long-term - such
activity is expected to make a positive contribution to the health and wellbeing of all
Australians.
Summary
The Bill establishes the Medical Research Future Fund on the later of the day after this
Act receives the Royal Assent; or the day after the Medical Research Future Fund
(Consequential Amendments) Act 2015 receives Royal Assent.
The Medical Research Future Fund consists of the:
MRFF Special Account; and
the investments of the Medical Research Future Fund.
The Medical Research Future Fund is a dedicated investment vehicle to provide a secure
revenue stream to be used for medical research and medical innovation.
Credits
The Medical Research Future Fund will be credited with amounts equal to the:
uncommitted balance of the Health and Hospitals Fund (expected to be around
$1 billion); and
the value of health saving measures announced.
Debits
The Finance Minister can direct in writing that specified amounts be debited from the
Medical Research Future Fund and credited to:
the MRFF Health Special Account for the purpose of making grants of financial
assistance to medical research institutes, non-profit organisations, universities
and corporations;
the COAG Reform Fund for making payments to the States and Territories for
expenditure on medical research and medical innovation - including application
and commercialisation activity that translates discoveries to new treatments and
practice; and
corporate Commonwealth entities outside the General Government Sector (for
example, CSIRO).
4
Investment of the Fund
The Future Fund Board will be responsible for deciding how to invest the Medical Research
Future Fund to enhance the Commonwealth's ability to make grants for medical research.
The Bill requires the responsible Ministers to issue an investment mandate to the Future
Fund Board regarding the investment of the Fund. The purpose of the investment
mandate is to provide a mechanism for the Government to provide strategic guidance to
the Board on its expectations for the investment of the Fund.
Maximum annual distributions
The Future Fund Board will be responsible for advising the Government on the
maximum cash amount that can be withdrawn from the Medical Research Future Fund in
a given financial year to fund grants for medical research and innovation. This amount
will be provided by earnings on investments after management costs, and will be
determined on the basis of preserving the nominal value of the Government's capital
investment over the long-term and moderating fluctuations in the amount available for
distribution as grants on a year-on-year basis. The nominal value of the capital may
fluctuate from time to time, but the Future Fund Board must act to preserve the nominal
value of the capital over the long-term.
Expenses
Expenses associated with investment and administration of the Medical Research Future
Fund incurred by the Future Fund Board will be met from the Fund.
Reporting
The Finance Minister is responsible for ensuring that the Future Fund Board complies
with Medical Research Future Fund reporting requirements, including in the financial
statements and annual report prepared by the Board.
The Finance Minister has the power to request additional information required to
satisfy the Government that the Future Fund Board's management of the Medical
Research Future Fund complies with legislation and the Fund's Investment Mandate.
The Finance Minister has the power to publish information received from the Future
Fund, as the Government deems appropriate and in the public interest. This includes
publishing information about the maximum annual distributions available in a given
financial year for the purposes of making grants of financial assistance to support
medical research and medical innovation.
5
Financial Impact Statement
The initial credit of funds from the Health and Hospitals Fund into the Medical Research
Future Fund will not have a direct impact on underlying cash and fiscal balances, as these
are already part of, and remain within, the CRF.
The interest earnings of the Fund have a positive impact on the underlying cash and fiscal
balances. Costs incurred by the Future Fund Board have a negative impact on the
underlying cash and fiscal balances.
The payments from the Fund will be based on net earnings (interest earnings less
management fees) of the Fund, with payments to commence from when the Fund is
established, and with capital managed to allow for a steady flow of distributions over
time. Payments from the Medical Research Future Fund will have a negative impact on
the underlying cash and fiscal balances.
Statement of Compatibility with Human Rights
The provisions in the Bill 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; or
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.
6
MEDICAL RESEARCH FUTURE FUND BILL 2015
NOTES ON CLAUSES
Preamble
The preamble sets out a number of considerations taken into account by the Parliament
in enacting this law.
Part 1 - Preliminary
Section 1 - Short Title
Section 1 provides for the Act to be cited as the Medical Research Future Fund
Act 2015.
Note: The sections in the Bill will become sections of the Act on Royal Assent.
Section 2 - Commencement
Section 2 provides that the Bill commences on the later of: the day after this Act
receives the Royal Assent; or the day after the Medical Research Future Fund
(Consequential Amendments) Act 2015 receives the Royal Assent.
Section 3 - Object
Section 3 sets out the object of the Bill, namely to improve the health and well being of
Australians by providing grants of financial assistance to support medical research and
medical innovation.
Section 4- Simplified outline of this Act
Section 4 provides a high level introduction to the provisions in the Bill, to aid
readability. The outline is not intended to be comprehensive and should not be relied on
in place of the substantive provisions in the Bill.
Section 5 - Definitions
Section 5 provides definitions of the terms and expressions used in the Bill.
Section 6 - Crown to be bound
Section 6 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 7 - Extension to external Territories
Section 7 provides that the Act extends to every external Territory.
7
Section 8 - Extra-territorial application
Section 8 provides for the geographical reach of this Act to apply outside of Australia -
due to the possibility that the recipients of grants of financial assistance from the
Medical Research Future Fund may collaborate with international partners.
Section 9 - Alternative constitutional basis
Section 9 details the constitutional basis upon which making grants of financial
assistance to support medical research and medical innovation relies.
8
Part 2 - Medical Research Future Fund
Division 1 - Introduction
Section 10 - Simplified outline of this Part
Section 10 is an overview of Part 2 to assist with readability.
Division 2 - Establishment of the Medical Research Future Fund and
the Medical Research Future Fund Special Account
Section 11 - Establishment of the Medical Research Future Fund
Section 11 establishes a financial asset fund - the Medical Research Future Fund -
consisting of amounts credited to a MRFF Special Account and investments of the
Medical Research Future Fund.
Section 12 - Determination of amount of Medical Research Future Fund
Section 12 establishes procedures for determining the value of assets to be transferred
from the Health and Hospitals Fund to the Medical Research Future Fund.
A determination made under subsection 12(1) is not disallowable. Such determinations
would usually be regarded as administrative, rather than legislative, in character. It is not
appropriate that they be disallowable as they are a one-off instrument made when funds
are about to be credited. Subsection 12(2) is included to assist the reader.
Section 13 - Allocation of investments to the Medical Research Future Fund from
the Health and Hospitals Fund
Section 13 establishes processes for the transfer to the Medical Research Future Fund of
an amount forming part of the Health and Hospitals Fund.
The Future Fund Board will have 28 days to effect a transfer of financial assets to the
value of the amount determined by the Finance Minister under subsection 12(1). During
this period the Board will identify the assets to be transferred and make whatever
commercial arrangements are required to manage these assets as investments of the
Medical Research Future Fund.
At the 28th day following the making of the determination under subsection 12(1), the
balance of the Health and Hospitals Fund not transferred to the Medical Research Future
Fund will stand to the credit of the HHF Special Account. These cash amounts will be
used to meet commitments related to previously approved Health and Hospitals Fund
projects under an appropriation to be established by the Medical Research Future Fund
(Consequential Amendments) Bill 2015.
9
Section 14 - Establishment of the Medical Research Future Fund Special Account
Section 14 establishes the MRFF Special Account - a special account for the purposes
of the PGPA Act.
A special account is an appropriation mechanism that sets aside an amount within the
CRF to be expended for specific purposes. Any amounts credited to the MRFF Special
Account are quarantined from the rest of the CRF and can only be debited from the
Medical Research Future Fund for the purposes set out in the Bill.
The note immediately following this section is included to assist the reader by clarifying
that amounts could be credited to the MRFF Special Account by an Appropriation Act.
Division 3 - Credits of amounts to the Medical Research Future Fund
Special Account
Section 15 - Credits of amounts
Section 15 establishes a mechanism for amounts - other than the initial transfer of assets
from the Health and Hospitals Fund - to be credited to the MRFF Special Account.
Amounts are credited by a written determination of the responsible Ministers or their
delegates (refer to sections 60 and 61 for delegation powers of the Finance Minister and
the Treasurer).
Subsection 15(3) provides that a determination to credit a specified amount to the MRFF
Special Account is a legislative instrument for the purposes of the Legislative
Instruments Act and, as such, will be tabled in the Parliament and published on the
Federal Register of Legislative Instruments.
However, the determination, as a ministerial direction, is not disallowable. Such
determinations would usually be regarded as administrative, rather than legislative, in
character. It is not appropriate that they be disallowable as they are a one-off instrument
made when funds are about to be credited. The same approach was taken for equivalent
provisions in the Future Fund Act 2006.
Division 4 - Debits of amounts from the Medical Research Future Fund
Subdivision A - Limitation on total annual debits from the Medical Research
Future Fund Special Account
Section 16 - Limitation on total annual debits from the Medical Research Future
Fund Special Account
Section 16 establishes that the amount debited for expenditure from the Medical
Research Future Fund cannot exceed the maximum annual distributions determined as
prescribed under section 34.
10
Subdivision B - Purposes
Section 17 - Purposes of the Medical Research Future Fund Special
Account - main purposes
Section 17 sets out the main purposes of the MRFF Special Account. These purposes are
consistent with the objects of the Bill, namely to transfer amounts to:
the COAG Reform Fund for the purpose of making grants of financial
assistance to the States and Territories for expenditure on medical research and
innovation; and
the MRFF Health Special Account for the purpose of making grants that
support medical research and medical innovation to medical research institutes,
universities and corporations; and
corporate Commonwealth entities (for example, CSIRO) that are, by definition,
outside the General Government Sector.
Section 18 - Purposes of the Medical Research Future Fund Special Account -
purposes related exclusively to the investments etc. of the Medical Research
Future Fund
Section 18 relates to the payment of various expenses that may be incurred by the Future
Fund Board, which relate exclusively to the investments of the Medical Research Future
Fund, and which do not relate to the main purposes of the Fund. It sets out the additional
purposes for which the Medical Research Future Fund may be debited.
Section 19 - Purposes of the Medical Research Future Fund Special Account -
purposes not related exclusively to the Medical Research Future Fund
Section 19 relates to the payment of various expenses that may be incurred by the Future
Fund Board in respect of its broader functions under this Bill, as well as the Future Fund
Act, the Nation-building Funds Act 2008 and the DisabilityCare Australia Fund Act
2013.
Section 19 sets out the range of additional purposes for which the MRFF Special
Account may be debited in respect of costs that are common to the funds for which the
Future Fund Board has responsibility.
Section 19 additionally provides for expenses incurred in relation to the management of
the Health and Hospitals Fund prior to its abolition to be met from the MRFF Special
Account. This provision recognises that these costs (for example investment manager
fees) will be primarily related to assets transferred from the Health and Hospitals Fund to
the Medical Research Future Fund.
11
Subdivision C - Channelling State/Territory grants through COAG Reform Fund
Section 20 - Channelling State/Territory grants through COAG Reform Fund
Section 20 provides for the Finance Minister to direct that a specified amount be debited
from the MRFF Special Account and credited to the COAG Reform Fund to make grants
of financial assistance to the States and Territories for medical research and innovation.
This would occur following a Government decision.
The Finance Minister's direction is administrative, rather than legislative, in character
and is therefore not a legislative instrument for the purposes of the Legislative
Instruments Act. Directions of this type are administrative in character because they are
merely the application of a legal power in a particular case; that is, they do not determine
or alter the content of the law itself.
Subsection 20(5) requires the Finance Minister to give a copy of the direction to the
Health Minister and the Treasurer.
Section 21 - Debits from the COAG Reform Fund
Section 21 reflects the intention of the Government that the COAG Reform Fund
operates as a vehicle through which payments from the Medical Research Future Fund
will be distributed to States and Territories.
Consistent with this, 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 payment.
If the payment cannot be made, subsection 21(2) provides the mechanism for its return
to the MRFF Special Account. The intention is that the payment be returned to be
invested by the Future Fund Board until such time as the payment can be made.
Section 22 - Terms and conditions of grant to a State or Territory
Section 22 provides that the terms and conditions upon which a grant is made to the
States and Territories are to be set out in a written agreement between the
Commonwealth and the State or Territory, that the State or Territory must comply with
any such terms and conditions, and that such an agreement may be entered into by any
Minister on behalf of the Commonwealth.
Subdivision D - Channelling grants through the MRFF Health Special Account
Section 23 - Establishment of the MRFF Health Special Account
Section 23 establishes the MRFF Health Special Account as a special account for the
purposes of the PGPA Act.
A special account is an appropriation mechanism that sets aside an amount within the
CRF to be expended for specific purposes. Any amounts credited to the MRFF Health
Special Account are quarantined from the rest of the CRF and can only be debited for the
purpose set out in section 24.
12
The note immediately following this section is included to assist the reader by clarifying
amounts that could be credited to the MRFF Health Special Account by an
Appropriation Act.
Section 24 - Purpose of the MRFF Health Special Account
Section 24 provides that the purpose of the MRFF Health Special Account is to enable
the making of medical research and medical innovation payments, which may either be
by way of a grant of financial assistance or otherwise.
The Bill will allow payments to be made to bodies such as medical research institutes,
universities, corporate Commonwealth entities and corporations.
Section 25 - Channelling grants through the MRFF Health Special Account
Section 25 provides that the Finance Minister may direct that a specified amount will be
debited from the MRFF Special Account and credited to the MRFF Health Special
Account for the purposes of making payments to certain bodies. This would occur
following a Government decision.
The Finance Minister's direction is administrative, rather than legislative, in character
and is therefore not a legislative instrument for the purposes of the Legislative
Instruments Act. Directions of this type are administrative in character because they are
merely the application of a legal power in a particular case; that is, they do not determine
or alter the content of the law itself.
Subsection 25(5) requires the Finance Minister to give a copy of the direction to the
Health Minister and the Treasurer.
Section 26 - Debits from the MRFF Health Special Account
Section 26 reflects the Government's intention that the MRFF Health Special Account
operates as a vehicle through which payments from the Medical Research Future Fund
will be distributed to recipients in respect of medical research and medical innovation
initiatives.
Consistent with this, the Health Minister is required to ensure that, as soon as practicable
after an amount is credited to the MRFF Health Special Account, the amount is debited
for the purposes of making the payment.
If for any reason the payment cannot be made, subsection 26(2) provides the mechanism
for its return to the MRFF Special Account. The intention is that the payment be returned
to be invested by the Future Fund Board until such time as the payment can be made.
In providing for debits from the MRFF Health Special Account by the Health Minister,
section 26 provides the mechanism through which the Government could ask the
NHMRC to manage distributions from the Medical Research Future Fund.
13
Section 27 - Terms and conditions of grant to a person other than a State
Section 27 is concerned with the conditions for making a grant of financial assistance to
a medical research institute; a university; a corporate Commonwealth entity or a
corporation by means of a debit from the MRFF Health Special Account.
The section provides that the terms and conditions upon which the grant is made are to
be set out in a written agreement between the Commonwealth and the person receiving
the grant, that the person must comply with any such terms and conditions, and that such
an agreement may be entered into by the Health Minister on behalf of the
Commonwealth.
Section 28 - Delegation by the Health Minister
Under subsection 28(1) the Health Minister may delegate his or her powers under
section 26 and 27 to the Secretary of the Health Department or to an SES employee (or
acting SES employee) of the Health Department or to the CEO of the NHMRC or to an
SES employee (or acting SES employee) of the NHMRC.
The Health Minister's powers under sections 26 and 27 relate to the making of debiting
determinations to authorise payments from the MRFF Health Special Account, and
requiring that the use of such grants comply with the terms and conditions of a written
agreement. Delegation of these functions to the Secretary of, or an SES official in, the
Health Department or NHMRC is consistent with the efficient administration of these
matters.
The notes at subsection 28(1) remind the reader of the definition of an SES employee
and indicate the delegations under subsection 28(1) allow the NHMRC to administer
medical research and medical innovation programmes. This is consistent with the
Government's intention to rely on the expertise of the NHMRC to aid the distribution of
funds from the Medical Research Future Fund for the purpose of making grants of
financial assistance to support medical research and medical innovation.
It is envisaged that the delegate will be accountable to the Health Minister for his or her
actions under any delegation. Subsection 28(2) reinforces this intention by requiring the
delegate to comply with any direction of the Health Minister in exercising powers under
a delegation.
Subdivision E - Making payments directly to corporate Commonwealth entities
Section 29 - Making payments directly to corporate Commonwealth entities
Section 29 provides that the Finance Minister may direct that a specified amount be
debited from the MRFF Special Account and credited to a corporate Commonwealth
entity for the purpose of supporting medical research and medical innovation. This
would occur following a Government decision.
Under the definition of a corporate Commonwealth entity provided for by
paragraph 11(a) of the PGPA Act, such entities are legally separate from the
Commonwealth. Payments made from the MRFF Special Account will therefore be
considered to have left the CRF once received by a corporate Commonwealth entity.
14
The Finance Minister's direction is administrative, rather than legislative, in character
and is therefore not a legislative instrument for the purposes of the Legislative
Instruments Act. Directions of this type are administrative in character because they are
merely the application of a legal power in a particular case; that is, they do not determine
or alter the content of the law itself.
Subsection 29(4) requires the Finance Minister to give a copy of the direction to the
Health Minister and the Treasurer.
Section 30 - Terms and conditions of grants to corporate Commonwealth entities
Section 30 provides that the terms and conditions upon which the grant is made under
section 29 are to be set out in a written agreement between the Commonwealth and the
entity, that the entity must comply with any such terms and conditions, and that such an
agreement may be entered into by any Minister on behalf of the Commonwealth.
Subdivision F - Obligation to ensure sufficient money
Section 31 - Future Fund Board must ensure that there is sufficient money in the
Medical Research Future Fund Special Account to cover authorised debits etc.
Section 31 requires the Future Fund Board to take all reasonable steps to ensure that the
amount standing to the credit of the MRFF Special Account is sufficient to cover
amounts to be debited from the MRFF Special Account.
The note immediately below this section assists readers to understand the obligations of
the Future Fund Board in respect of this requirement.
Division 5 - Inter-fund transfers
Section 32 - Transfers from the Medical Research Future Fund to the Future Fund
Section 32 allows for transfers from the MRFF Special Account to the Future Fund
Special Account.
Section 32 allows for amounts to be transferred between the Medical Research Future
Fund and the Future Fund. The purpose of this is to enable reimbursement to the Future
Fund Special Account of expenses incurred in relation to the Medical Research Future
Fund that have been debited from the Future Fund Special Account.
The section allows the Finance Minister to direct that one Fund is to be debited and the
other Fund credited by a specified amount.
The Finance Minister's direction is administrative, rather than legislative, in character
and is therefore not a legislative instrument for the purposes of the Legislative
Instruments Act. Directions of this type are administrative in character because they are
merely the application of a legal power in a particular case, i.e. they do not determine or
alter the content of the law itself. Subsection 32(3) has been included to assist readers.
15
Part 3 - Maximum annual distributions
Division 1 - Introduction
Section 33 - Simplified outline of this Part
Section 33 is an overview of Part 4 to assist with readability.
Division 2 - Maximum annual distributions
Section 34 - Maximum annual distributions
Section 34 sets out the obligations of the Future Fund Board - and the principles to be
taken into account - in determining the maximum annual distributions available for
release from the Medical Research Future Fund in a given financial year.
Subsections 34(1) and 34(2) require the Finance Minister to make a written
determination advising of a date when the Future Fund Board must make (and give to the
Finance Minister) a determination of the maximum annual distributions available in a
given financial year.
Subsection 34(3) requires that a written determination issued by the Finance Minister
under subsection 34(2) must provide the Future Fund Board with at least 90 days notice
of the deadline for making a determination of the maximum annual distribution amount.
A written determination issued by the Finance Minister under subsection 34(2) may
have effect over multiple years if not superseded by a determination issued by the
Finance Minister at a later date.
Subsection 34(4) requires the Future Fund to take into account the following criteria
when making a determination of the maximum annual distribution amount:
preservation of the nominal value over the long term of financial assets
transferred from the Health and Hospitals Fund to the Medical Research Future
Fund at the time a determination was made under subsection 13(1) (that
nominal value being the amount determined under subsection 12(1)); and
preservation of the nominal value over the long term of the total amount of the
credits made under section 15; and
moderation of the year-on-year variability of the maximum annual distribution
amount; and
maintenance of the Future Fund Board's capacity to comply with the
Investment Mandate issued under section 39 (including the Future Fund
Board's ability to pursue the returns within the level of risk set out in that
Investment Mandate).
The principle of preserving the nominal value of capital invested in the Medical Research
Future Fund by the Government is to be applied over a long-term time horizon.
16
Subsection 34(4) also requires that the Future Fund Board make the determination of
annual maximum distribution amounts after taking into account costs that are likely to be
incurred by the Future Fund Board in making and managing Medical Research Future
Fund investments. The reader is reminded that the costs allowed in this regard are
prescribed by sections 18 and 19.
Subsection 34(5) allows the Finance Minister to provide written advice of additional
matters the Government may wish the Future Fund Board to consider in determining
the maximum annual distribution in a given year (or over multiple years). Such written
advice must be provided to the Future Fund Board at least 90 days before the next
written determination of the maximum annual distribution is due under a written
determination made through subsection 34(2).
Subsection 34(6) requires that any additional matters advised under subsection 34(5)
are only to be taken into consideration by the Future Fund Board to the extent that they
do not interfere with the principles described at subsection 34(4) or its ability to
comply with an Investment Mandate issued under subsection 39(1) or any other
provision in the Act.
Subsection 34(7) requires that any additional matters advised under subsection 34(6) are
to be provided in writing to the Future Fund Board at least 90 days before the date
specified in a written determination made under subsection 34(2).
Subsection 34(8) requires the Future Fund Board to provide a copy of the maximum
annual distribution determination to the Finance Minister by the date prescribed by a
written determination made under subsection 34(2). The Future Fund Board is also
required to provide a description of the methodology used for determining the amount
and any considerations taken into account.
Subsection 34(9) allows the Finance Minister to make the maximum annual distribution
(and any supporting documentation) available to the public on the internet.
Subsection 34(10) has been included to assist readers. The determinations under
subsections 34(1) and 34(2) are administrative, rather than legislative, in character and
are therefore not a legislative instrument for the purposes of the Legislative Instruments
Act.
17
Part 4 - Investment of the Medical Research Future Fund
Section 35 - Simplified outline of this Part
Section 35 is an overview of Part 4 to assist with readability.
Section 36 - Objects of investment of the Medical Research Future Fund
Subsection 36(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 provide grants
for medical research and innovation.
Subsection 36(2) sets out that the ancillary objects of the investment of the Medical
Research Future 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 18 and 19.
Section 37 - Investment of the Medical Research Future Fund
Section 37 takes account of the investment powers provided for under section 58 of the
PGPA Act. However, subsection 37(1) expands on those powers to provide for the
investment of the Medical Research Future Fund in a broad range of financial assets.
Specific conditions on the acquisition of derivatives are separately covered in section 47.
This approach to the investment of the Medical Research Future Fund is consistent with
investment arrangements for the Future Fund.
Investments of the Medical Research Future Fund will be made in the name of the Future
Fund Board (rather than the Commonwealth) to make clear that the Future Fund Board
manages the Medical Research Future Fund at arm's length from the Government.
However beneficial ownership of the Medical Research Future Fund assets remains with
the Commonwealth at all times.
Section 38 - Management of investments of the Medical Research Future Fund
Subsections 38(1) and (2) provide that income derived from an investment of the
Medical Research Future Fund, including a return of capital or another form of financial
distribution, must be credited to the MRFF 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 CRF 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 the MRFF Special Account.
Subsections 38(3) to (5) relate to the arrangements that will apply in relation to the
realisation of assets, and allow 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 CRF, only to be then
reappropriated and reinvested. Any reinvestment is an investment of the Medical
Research Future Fund.
18
Subsection 38(6) provides that section 58 of the PGPA Act does not apply to an
investment of the Medical Research Future Fund. Section 58 of the PGPA Act authorises
the Finance Minister or the Treasurer to invest public money in only a limited range of
investments, such as government bonds and bank deposits. However, section 38(1)
provides for the investment of the Medical Research Future Fund in a broader range of
financial assets.
Section 39 - Medical Research Future Fund Investment Mandate
This section provides the Government, as owner of the Medical Research Future Fund,
with a mechanism for articulating its expectations for how the Medical Research Future
Fund will be invested and managed by the Future Fund Board. Section 39 establishes a
framework that enables the Government to give strategic guidance to the Future Fund
Board while preserving the Board's role in managing the investments of the Medical
Research Future Fund at arm's length from the Government. This approach is consistent
with the arrangements in place for the Future Fund.
Section 39(1) provides the responsible Ministers with 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 such
direction, and these directions will be collectively known as the Medical Research Future
Fund Investment Mandate (subsection 39(3) refers). Note that the Medical Research
Future Fund investment function is defined in section 5.
While the responsible Ministers can issue new directions at any time, the intention is that
the Investment Mandate will reflect the Government's policy intent with regard to the
investments of the Medical Research Future Fund. Any new directions would therefore
be expected to take account of significant policy changes or material changes in the
investment environment faced by the Medical Research Future Fund.
These requirements will give the Future Fund Board and Parliament assurance that the
responsible Ministers must make appropriately considered directions in regard to
investment targets, while providing flexibility to take account of broader policy issues
and national interest considerations.
Section 39(2) provides that in setting an Investment Mandate the responsible Ministers
must have regard to maximising the return on the Medical Research Future Fund over the
long term consistent with international best practice for institutional investment, and of
the need to enhance the Commonwealth's ability to provide grants of financial assistance
to support medical research and medical innovation, and any other matters the
responsible Ministers consider to be relevant.
Subsection 39(4) provides 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 Medical Research Future Fund to particular asset
classes. This may include restrictions or thresholds for investing the Medical Research
Future Fund in certain jurisdictions or asset classes and statements of the Government's
appetite for risk.
19
Subsection 39(5) makes it clear that a Ministerial direction under subsection 39(1)
prevails over section 40 to the extent of any inconsistency, and places limitations on
responsible Ministers in issuing the Investment Mandate. This means that the Investment
Mandate cannot have the effect of requiring the Future Fund Board to do anything that is
inconsistent with Act, including the aim of enhancing the Commonwealth's ability to
provide grants of financial assistance to support medical research and medical
innovation.
Subsection 39(6) 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 39(7) provides that directions under subsection 39(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. However, any directions issued by the responsible Ministers as part of
the Investment Mandate are exempt from parliamentary disallowance provided for by
section 44 of the Legislative Instruments Act, and are exempt from the sunsetting
provided for by section 54 of the Legislative Instruments Act.
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 the 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.
Section 40 - Obligation on Future Fund Board in performing investment functions
Section 40 specifies that in making the investments for the Medical Research Future
Fund, the Future Fund Board will seek to maximise the return earned on the Fund,
similar to the requirements for the Future Fund. It is expected that international best
practice will be reflected in the investment policies of the Medical Research Future
Fund. In making investments for the Medical Research Future Fund the Future Fund
Board will aim to enhance the government's ability to achieve the objects of the Act i.e.
to enhance the Commonwealth's ability to provide grants of financial assistance to
support medical research and medical innovation.
Section 41 - Limitation on Medical Research Future Fund Investment Mandate
Section 41 specifies that the responsible Ministers cannot direct the Future Fund Board
to use the assets of the Medical Research Future Fund to invest in a particular financial
asset, for example shares in a particular company. It also prevents the responsible
Ministers from issuing a direction that has the effect of requiring the Future Fund Board
to use the assets of the Medical Research Future Fund to support a particular business
entity, activity or business.
20
Section 42- Future Fund Board to be consulted on Medical Research Future Fund
Investment Mandate
Consistent with the Future Fund arrangements, the responsible Ministers are required to
consult the Future Fund Board on any changes to the Investment Mandate.
Subsection 42(1) requires the responsible Ministers to send a draft of the new direction
to the Future Fund Board and invite 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 substantial, it would be
reasonable to provide the Future Fund Board with sufficient time to consider a draft
direction.
Subsection 42(2) provides that any submission received from the Future Fund Board on
a draft direction must be tabled in the Parliament, with the direction. In this way, the
views of the Future Fund Board on the expected impact of any changes will be publicly
known.
Section 43 - Compliance with Medical Research Future Fund Investment Mandate
Subsection 43(1) requires the Future Fund Board to take all reasonable steps to ensure
that all policies and decisions regarding the operation and investment of Medical
Research Future Fund are in accordance the 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 judgment on whether or not Medical Research Future Fund investments comply
with the Investment Mandate.
Subsection 43(2) requires that if the Future Fund Board becomes aware of a breach of
the Investment Mandate, the Board must inform the responsible Ministers in writing as
soon as is practicable, including a proposed strategy to bring the operations of the
Medical Research Future Fund into compliance with the Investment Mandate.
Similarly, subsections 43(3) and 43(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 Future Fund 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 43(5) provides that any transactions undertaken by the Future Fund Board
and subsequently deemed not to have complied with the Investment Mandate remain
valid, and the Future Fund Board is required to honour any commitments made. This
protects third parties who enter into transactions with the Future Fund Board or its agents
in good faith.
21
Subsection 43(6) makes it clear that a direction under subsection 43(3) is not a
legislative instrument. This provision is simply 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; i.e. they do not determine or alter the content of the law itself.
Section 44 - Future Fund Board must not trigger the takeover provisions of the
Corporations Act
Section 44 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 of 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 per
cent to a figure above 20 per cent (or from a figure above 20 per cent but below 90 per
cent to a higher figure) - unless the shares are acquired in one of the circumstances set
out at section 611 of that Act.
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 44(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.
Subsection 44(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 39 of the Future Fund Act 2006) 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.
Section 45 - Borrowing
Section 45 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 the rules.
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.
22
Subsection 45(3) provides that rules may be made to specify circumstances in which it
is considered appropriate for the Future Fund Board to be able to borrow. The rules 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 unforeseen events or changes in the investment
environment without the need to amend the primary legislation. The rules will be
disallowable by either House of the Parliament.
Section 46 - Medical Research Future Fund investment policies
Section 46 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 Medical Research Future
Fund, including risk management, performance assessment and benchmarks.
Subsection 46(1) and 46(7) requires the Future Fund Board to formulate and comply
with policies and any additional matters specified in the rules.
A note at the end of subsection 46(1) reminds the reader that, under subsection 33(3) of
the Acts Interpretation Act 1901, the Future Fund Board is able to repeal, rescind,
revoke, amend, or vary any such policies.
Subsection 46(2) provides that the policies that the Future Fund Board develops must be
consistent with the Investment Mandate.
Subsection 46(3) and 46(4) provides that the Future Fund Board must publish such
policies on the internet.
Subsections 46(5) and 46(6) provide that the Future Fund Board must conduct reviews
of these policies periodically, and when the responsible Ministers change the Investment
Mandate. It is not expected that the results of the reviews would be published. However,
if a review resulted in any changes to policies, it is intended that the updated policies
would be published on the internet.
Subsection 46(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 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 46(7) provides that the
Future Fund Board is required to take all reasonable steps to comply with the policies it
develops under subsection 46(1).
Subsection 46(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. Rather they are administrative policies that the
Future Fund Board are require to formulate and comply with, to ensure rigour and
transparency around how the Board performs its investment function.
23
Section 47 - 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 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 47 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.
Section 47 makes it clear that the Future Fund Board of Guardians cannot acquire or use
derivatives for the purposes of speculation or leverage.
Subsection 47(2) provides that the acquisition of derivatives under this section cannot be
inconsistent with the requirement under section 46 for the Future Fund Board to
formulate a policy on its investment strategy and take all reasonable steps to comply
with that policy.
Subsections 47(3) and 47(4) provide that derivatives must be held in the name of the
Future Fund Board and are taken to be an investment of the Medical Research Future
Fund.
Similar to other investments, derivatives may be realised by the Future Fund Board
under subsection 38(3).
Section 48 - Additional financial assets
Section 48 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
Medical Research Future Fund and is therefore subject to all the restrictions and
requirements for investments of the Medical Research Future Fund.
Section 49 - Securities lending arrangements
Section 49 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 MRFF Special Account or becomes an investment of the
Medical Research Future Fund.
Section 50 - Investment managers
Subsection 50(1) provides that the Future Fund Board is able to hire one or more
investment managers. An 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.
24
Unless approved by the responsible Ministers, the Future Fund Board must use
investment managers to invest money in financial assets, acquire derivatives, and enter
into securities lending arrangements or to realise financial assets.
Subsection 50(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 50(3) and 50(4) provide that the Future Fund Board is required to ensure
that investment managers operate within this Act and must report on the state of
investments of the Medical Research Future Fund to the Future Fund 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 51 - 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.
Section 51 deals with the 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 Medical Research Future Fund, any refund received is credited
to the MRFF Special Account.
Section 52 - Realisation of non-financial assets
Section 52 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 Medical Research
Future 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 Australian
Bureau of Statistics Government Finance Statistics Manual, for example.
The section requires that a non-financial asset be treated as a financial asset up to the
time it is realised. Section 52(1) ensures that the asset is considered an investment of
Medical Research Future Fund and that relevant provisions relating to investments of the
Medical Research Future Fund apply to that asset for the time it is held by the Future
Fund Board.
Section 53 - Additional function of the Future Fund Board
Section 53 provides that the functions of the Future Fund Board include the function of
investing amounts in accordance with the Act.
25
Part 5 - Reporting obligations etc.
Section 54 - Simplified outline of this Part
Section 54 is an information provision which provides an overview of Part 5 to assist
with readability.
Section 55 - Finance Minister may require Future Fund Board to prepare reports
or give information
Section 55 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 56 - Keeping the responsible Ministers informed etc.
Section 56 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 57 - Finance Minister may give reports to other Ministers etc.
Section 57 allows the Finance Minister to give reports, documents and other information
to another Minister. This includes reports and documents under sections 55 and 56 and
any other information obtained by the Finance Minister under the Act.
Section 58 - Health Minister must publish information
Section 58 requires the Health Minister to publish information on grants funded from the
MRFF Health Special Account on the internet. It is anticipated that, where appropriate,
this reporting will make use of existing mechanisms for providing public information on
grants provided by the Commonwealth (for example, those previously implemented to
comply with reporting requirements under the Commonwealth Grant Rules and
Guidelines).
26
Part 6 - Miscellaneous
Section 59 - Simplified outline of this Part
Section 59 is an information provision which provides an overview of Part 7 to assist
with readability.
Section 60 - Delegation by the Finance Minister
Under subsection 60(1), the Finance Minister may, in writing, delegate his or her
powers under sections 15, 20, 25, or 29 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 15, 20, 25, or 29 relate to the making of
crediting determinations to the Medical Research Future Fund and authorising payments
from the Medical Research Future Fund. Delegation of these functions to the Secretary
of, or SES official in, the Finance Department is consistent with the efficient
administration of these matters.
Subsection 60(2) allows the Finance Minister to delegate, in writing, his or her powers
under Section 32 to the Secretary of the Finance Department; or to an SES employee (or
acting SES employee) in that Department; or to the Chair of the Future Fund Board of
Guardians; or an SES employee (or an acting SES employee) of the Future Fund
Management Agency. Section 32 relates to the transfer of funds from the MRFF Special
Account to the Future Fund Special Account for the purpose of apportioning
management costs incurred by one fund but paid from the special account related to the
other.
A note in this section assists the reader by referring to the relevant section of the Acts
Interpretation Act 1901 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. Subsection 60(3) reinforces this intention by requiring the
delegate to comply with any direction of the Minister in exercising powers under a
delegation.
Section 61 - Delegation by the Treasurer
Under section 61 the Treasurer may, in writing, delegate his or her powers under
section 15 or subsection 21(1) to the Secretary of the Treasury Department or to an SES
employee (or acting SES employee) in that Department.
A note in this section assists the reader by referring to the relevant section of the Acts
Interpretation Act 1901 in relation to the expressions 'SES employee' and
'acting SES employee'.
27
The Treasurer's powers under section 15 and subsection 21(1) relate to the making of
crediting determinations to the Medical Research Future Fund and ensuring payments
are made from the COAG Reform Fund. 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 62 - Review of operation of Act
Section 62 allows for the responsible Ministers to require that a review of the Act be
undertaken by 30 June 2023 or another date the responsible Ministers deem appropriate.
This review mechanism is intended to provide the opportunity to consider whether the
Act is providing the outcomes envisaged.
Section 63 - Rules
Section 63 provides that the Finance Minister, by legislative instrument, may make rules
covering matters required to be prescribed in this Act, or matters that it would be
convenient to prescribe for the purposes of this Act.
28