Senate

Revised Explanatory Memorandum

(Circulated by authority of the Minister for Finance, Senator the Hon Mathias Cormann)

General outline

1. The Public Governance, Performance and Accountability Amendment Bill 2014 (the Bill) would, if enacted, amend the PGPA Act to:

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make technical amendments to improve the understanding and operation of the Act;

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better align the general duties in the PGPA Act with the duties in the Public Service Act 1999 (PS Act);

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provide greater certainty over the use and management of public resources and the capacity of an accountable authority to issue instructions on resource management and governance matters within entities;

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include a requirement that Commonwealth entities must provide annual reports to their Minister by the 15th day of the fourth month after the end of the reporting period;

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clarify the nature of various legislative instruments, including the introduction of a new Part to the PGPA Act (Part 4-1A) to deal with other instruments that are not subject to disallowance, but are subject to appropriate scrutiny as they relate to procurement and grant activities and arrangements covering intelligence or security agencies and listed law enforcement agencies.

2. The PGPA Act replaces the FMA Act and the CAC Act as the primary financial legislation of the Commonwealth from 1 July 2014.

3. The transition to the PGPA Act has required the development of supporting rules and other legislative instruments, as well as consequential amendments to be made to the enabling legislation of Commonwealth entities to replace references to provisions in the FMA and CAC Acts with references to the equivalent provisions in the PGPA Act.

4. The process of developing the supporting rules and identifying consequential amendments to the enabling legislation of Commonwealth entities has also provided an opportunity to further improve the features of the PGPA Act and to ensure the supporting rules can be implemented in a fashion supportive of the overall intent of the PGPA Act and the broader public management reform agenda of which it forms a part.

5. This Bill reflects the results of these considerations and the consultations within and outside of government on the effective implementation of the PGPA Act.

Financial Impact Statement

6. The Bill would add to and amend a number of provisions in the PGPA Act to clarify, simplify, enhance and improve the understanding and operation of the Commonwealth's financial management framework within the context of a modernised financial regime.

7. While the effect of the proposed amendments is difficult to quantify in monetary terms, it is expected that simplification of the regulatory requirements for Commonwealth entities will contribute to long-term efficiencies in terms of achieving improved governance, transparency and accountability arrangements for Commonwealth entities (including both non-corporate Commonwealth entities and Commonwealth entities) within the Australian Government.

Statement of compatibility with human rights

8. The Bill, if enacted, will not affect any of the applicable rights or freedoms outlined in the Human Rights (Parliamentary Scrutiny) Act 2011, such as those in the International Covenant on Civil and Political Rights.

9. The Bill does not propose any offences or penalties that limit any human rights.

10. The 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.

The Bill in the context of broader reform activities

11. The Commonwealth's financial framework provides rules for the governance of Commonwealth entities and Commonwealth companies and for the proper management and use of public resources. The framework supports the government in meeting its obligations and responsibilities to the public and the Parliament. It is an important feature of an accountable and transparent public sector and guides the daily work of Commonwealth entities and Commonwealth companies, including the work of office holders and employees.

12. The PGPA Act is the cornerstone of a broad, integrated package of reforms to the Commonwealth's financial framework. Taken together, the reforms seek to deliver long-lasting benefits, including:

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improved quality of information to Parliament to support its constitutional role in relation to Commonwealth expenditure;

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a more mature approach to risk across the Commonwealth;

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improved productivity and performance of the Commonwealth public sector with accompanying benefits for a broad range of stakeholders; and

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reduced red tape within the Commonwealth and for partners who contribute to delivering Australian Government programs and services, including grant recipients.

13. The aim of the reform agenda, through the PGPA Act, is to create a financial framework where entities have the flexibility and incentives to adopt appropriate systems and processes that help them to achieve diverse policy and statutory objectives efficiently and effectively. The Act is also intended to underpin other aims in reducing red tape, achieving appropriate simplification, and encouraging joint ventures with partners both within and external to government.

14. It will take several years to implement the reforms and integrate them fully into the practices and processes of Commonwealth entities and Commonwealth companies. Gradual introduction of the reforms will ensure that they are appropriately tested and refined in light of experience.

Related legislative activity

15. The PGPA Act was passed by the previous Parliament and was given Royal Assent on 29 June 2013, with the first five sections coming into effect on 1 July 2013. Sections 6 to 112 of the Act are subject to delayed implementation and are to come into effect 12 months later, on 1 July 2014.

16. The intervening 12 month period has been taken up with the development of supporting rules to give effect to the operation of the Act and an assessment of any consequential amendments that may be required to the legislation of Commonwealth entities arising from the introduction of the PGPA Act and the replacement of the FMA and CAC Acts.

PGPA rules and other instruments

17. The PGPA rules and other instruments made by the Finance Minister under the PGPA Act will replace a range of instruments under current legislation, including the FMA Regulations, CAC Regulations and Finance Minister's Orders. They will be used to prescribe the requirements and procedures necessary to give effect to the governance, performance and accountability matters covered by the PGPA Act.

18. For an Act to enable rules, rather than regulations, is consistent with current drafting practice. The Office of Parliamentary Counsel reserves the use of regulations to a limited range of matters, which it considers are more appropriately dealt with in regulations made by the Governor-General than in an instrument made by some other person. Matters in this category include offence provisions, powers of arrest or detention, entry provisions and search or seizure provisions. The rules will be legislative instruments subject to disallowance by Parliament and will sunset under the provisions of the LI Act.

19. The majority of rules are to be in place for 1 July 2014, and will be presented to Parliament before that date for the 15 sitting days of the disallowance period for legislative instruments of this type. A number of rules do not need to be in place for 1 July 2014. The Department of Finance intends to engage in further consultation with stakeholders, including the Parliament, before these rules are released in late 2014. Amongst these proposed rules are the rules in relation to corporate planning, performance statements and annual reports. Time will be taken to provide stakeholders with the opportunity to provide their views on the form and content of these rules.

20. The Bill would also allow the Finance Minister to make other instruments that are not disallowable under the LI Act. This arrangement in relation to procurement and grants is consistent with existing arrangements under the FMA Act. An exemption from the LI Act for modified arrangements in relation to intelligence and security agencies and listed law enforcement agencies is consistent with arrangements operating under the FMA and CAC Acts.

Consequential amendments

21. The Public Governance, Performance and Accountability (Consequential and Transitional Provisions) Bill 2014 (Consequential and Transitional Bill) is scheduled for presentation to Parliament in the same sittings as this Bill. The intent of the Consequential and Transitional Bill is to amend the enabling legislation of Commonwealth entities and companies so as to:

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replace references to the FMA and CAC Acts with the equivalent provisions in the PGPA Act;

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simplify enabling legislation where provisions of the PGPA Act cover a matter previously dealt with in enabling legislation; and

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amend enabling legislation to clarify which matters are covered by the PGPA Act and which matters are covered by the enabling legislation, such as in the case of planning and reporting, or disclosure of interest arrangements where an entity may have additional obligations over and above those imposed through the PGPA Act.

22. The variety of entity governance and operational arrangements across the Commonwealth is such that the degree of amendment required to enabling legislation varies from entity to entity, but the overall approach is one of seeking alignment between the PGPA Act and enabling legislation in introducing a more consistent and coherent framework that does not impinge on the ability of an entity to meet its statutory obligations to Parliament and to the community.

Application and transitional provisions

23. The Consequential and Transitional Bill will also include application and transitional provisions to ensure that some provisions in the PGPA Act will not impose substantive requirements until after 1 July 2014, and that some provisions within the FMA and CAC Acts would continue to operate for a limited period.

24. For example, there will be an application provision in relation to corporate plans. Corporate plans will need to be developed and published for the 2015-16 financial year, but will not need to be available on 1 July 2014. Corresponding transitional provisions will be available to confirm that entities with existing requirements to produce a corporate plan will continue to do so for 2014-15 under the requirements of their enabling legislation before those provisions cease to have effect.

25. A further example is that existing provisions in relation to the presentation of audited financial statements and annual reports will continue to apply after 1 July 2014 in relation to matters for the 2013-14 financial year, until those reporting obligations have been met.

Consultation

26. The PGPA Act was presented to Parliament following two years of consultation and consideration of issues. The period since its passage has provided an opportunity for reflection and consultation on the provisions of the Act and whether they could be further improved.

27. The Department of Finance has continued to engage in an extensive consultation program with stakeholders within and outside government, including the establishment of a Project Board supported by steering committees considering issues in relation to:

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appropriations and resourcing;

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planning and reporting;

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governance and risk management;

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streamlining and reducing red tape; and

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legislation and rules.

28. All of the steering committees include wide representation from across government, and arrangements have been put in place to consult with other jurisdictions and sectors as part of an ongoing approach to seeking views on how to develop and implement the aims of the broader reform agenda.

29. These consultation efforts have been supplemented through workshops and consultations with entities in Sydney, Melbourne, Adelaide, Alice Springs and Darwin, as well as ongoing conversations with, and feedback from, Commonwealth entities across Australia.

30. Several of the proposed amendments included in the Bill are the result of consultation with Commonwealth entities about their enabling legislation and its operation, as well as the result of consultation on the PGPA rules, with the final form of those rules requiring amendments to the PGPA Act to allow their implementation in as simplified and streamlined manner as possible.

Structure of the Bill

31. The structure of the Bill involves:

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a clause that provides for the short title of the legislation;

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a commencement clause, stating that the Bill will come into effect immediately after section 6 of the PGPA Act;

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a clause that refers to the Schedule containing the substantive amendments to the PGPA Act; and

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Schedule 1 to the Bill.

32. An explanation of the amendments proposed in Schedule 1 is provided in sequential order in this Explanatory Memorandum.

Main features of the Bill

33. The Bill, if enacted, would make a number of technical amendments to clarify aspects of the Act and improve its operation as well as amendments supporting the effective operation of the proposed PGPA rules. The key features of the Bill involve:

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amendments to definitions and technical aspects covering the recognition and operation of provisions relating to entities, officials and accountable authorities;

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the introduction of a provision (section 20A) to provide explicit authority for accountable authorities to issue instructions in relation to the operation of the PGPA Act and the broader finance law;

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expanding section 23 to provide explicit authority to the accountable authorities of non-corporate Commonwealth entities to make commitments of relevant money (as well as power to enter into arrangements);

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amending sections 26 to 28 to better align the terminology with the PS Act;

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clarifying who is subject to section 30, as well as its application to "ex officio" members of accountable authorities;

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amending provisions in relation to planning, performance and reporting to clarify responsibilities and accountabilities, including a requirement that Commonwealth entities must provide annual reports (under section 46) to their Minister by the 15th day of the fourth month after the end of the reporting period;

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amending requirements in relation to the banking of and dealing with relevant money by Ministers and officials (under section 55) to provide more clarity in relation to responsibilities in relation to dealing with bankable and unbankable money;

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clarifying the status of authorisations made in relation to borrowing, investments and payments, as well as clarifying how similar provisions in other legislation interacts with these provisions;

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amendments to rule making powers to amend and clarify the scope of matters covered; and

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the introduction of a new Part to the PGPA Act (Part 4-1A) to enable the Finance Minister to make other instruments (relating to procurements, grants, intelligence or security agencies and listed law enforcement agencies) that are not subject to disallowance.