Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)Chapter 2 - The National Housing and Investment Corporation
Summary of new law
2.1 Part 2 of the Bill:
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- establishes the NHFIC and sets out its functions, powers and constitutional limits; and
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- provides for the Investment Mandate for the NHFIC.
Detailed explanation of the new law
Establishment of the NHFIC, functions, powers and constitutional limits
Establishment
2.2 This Bill establishes the NHFIC as a corporate Commonwealth entity. This reflects the intention that the NHFIC will operate independently from government in exercising its functions and adopt a corporate model of governance.
2.3 As a corporate Commonwealth entity the NHFIC is subject to the PGPA Act, which imposes obligations regarding reporting and the use and management of public resources. [Subclause 7(1) and note to Subclause 7(1)]
2.4 The NHFIC is:
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- a body corporate;
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- required to have a seal that must be secured as directed by the Board and only used as authorised by the Board;
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- able to acquire, hold and sell real and personal property; and
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- able to sue and also be sued.
[Subclauses 7(2) and (3)]
Functions of NHFIC
2.5 The functions of the NHFIC include:
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- making loans, investments and grants to improve, directly or indirectly, housing outcomes;
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- setting terms and conditions for such loans, investments and grants;
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- providing business advisory services and other assistance in capacity building to CHPs;
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- any other functions conferred on the NHFIC by the Bill or any other Commonwealth law;
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- doing anything that is incidental to or assists in the performance of the above functions;
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- granting financial assistance to States and Territories for the purposes of any of the matters mentioned above in this paragraph; and
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- setting the terms and conditions of such grants of financial assistance.
[Subclauses 8(1) and (2)]
2.6 A CHP is defined in the Bill as a community housing provider (however described) that is registered under a law of, or under a scheme administered by, a State or Territory. [Clause 5, definitions]
2.7 NHFIC's functions reflect its role as an intermediary providing financial and other assistance to improve, whether directly or indirectly, housing outcomes for Australians. NHFIC may also provide business advisory services and related assistance to further develop the community housing sector.
2.8 The initial activities or 'business lines' of the NHFIC will be to operate the Bond Aggregator and NHIF, details of which are intended to be included in the Investment Mandate. The NHFIC will have the capacity to deliver other housing related programs in the future in accordance with its functions, as prescribed by the Government.
2.9 In performing its functions, the NHFIC is required to act in a proper, efficient and effective manner. This ensures that public monies are used in an appropriate way. [Subclause 8(3)]
Powers of the NHFIC
2.10 The NHFIC has power to do all things necessary or convenient to be done for or in connection with the performance of its functions. For example, the NHFIC will have the power to enter into any contract and enter into arrangements known as swaps, foreign exchange agreements, forward rate agreements, options or hedge agreements. [Clause 9]
Constitutional limits
2.11 The Bill ensures that it is not implied that the NHFIC can perform functions that exceed the Commonwealth's legislative power under the Constitution. The Bill expressly enables the NHFIC to perform its functions only for purposes related to specific constitutional powers. The NHFIC is likely to perform its functions for purposes related to:
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- the corporations power in paragraph 51(xx) of the Constitution, however it may only do so if:
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- the NHFIC has entered into an arrangement, with a constitutional corporation, that sets out the terms and conditions on which money may be payable to the corporation under the arrangement; and
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- those terms and conditions provide for the circumstances in which the corporation is required to repay amounts paid under the arrangement;
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- the external affairs power in the Constitution, including:
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- implementing the International Covenant on Economic, Social and Cultural Rights [3] done at New York on 16 December 1966, and in particular Article 11 of that Covenant; or
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- implementing another international agreement to which Australia is a party;
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- addressing matters of international concern; or
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- performing its functions in a place outside Australia;
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- granting financial assistance to which section 96 of the Constitution applies; and/or
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- a Territory.
2.12 The Bill also lists other Constitutional powers on which the NHFIC may rely in performing its functions, enabling the NHFIC to perform its functions for purposes related to:
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- collecting statistics; or
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- trade or commerce:
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- between Australia and places outside Australia; or
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- among the States or within a Territory, between a State and a Territory or between two Territories; or
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- using postal, telegraphic, telephonic or other like service under paragraph 51(v) of the Constitution; or
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- people of any race under paragraph 51(xxvi) of the Constitution; or
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- railway construction or extension under paragraph 51(xxxiv) of the Constitution; or
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- providing service, or financial assistance, to the Commonwealth or an authority of the Commonwealth for a purpose of the Commonwealth; or
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- the implied power of the Parliament to make laws with respect to nationhood; or
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- the executive power of the Commonwealth; or
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- incidental matters to the execution of any of the legislative powers of the Parliament or the executive power of the Commonwealth.
[Clause 10]
Privileges and immunities of the Crown
2.13 The NHFIC does not have the privileges and immunities of the Crown in right of the Commonwealth. [Clause 11]
The Investment Mandate
2.14 The Minister may, by legislative instrument, give the Board directions about the performance of the NHFIC's functions, and must give at least one such direction. The directions together constitute the Investment Mandate. The Investment Mandate will be the key vehicle for the Government to set out its expectations for the NHFIC. [Subclause 12(1)]
2.15 The legislative instrument is not subject to disallowance under the Legislation Act as it forms part of a class of legislative instruments to which disallowance does not apply - see regulations made for the purposes of paragraph 44(2)(b) of that Act. [Note to subclause 12(1)]
2.16 Directions made by the Minister for the Investment Mandate must take into account the object of the Bill and any other matters the Minister considers relevant. [Subclause 12(2)]
2.17 In performing its functions, the NHFIC must take all reasonable steps to comply with the Investment Mandate in the course of undertaking its functions. This ensures that the NHFIC focuses on satisfying the Investment Mandate that applies to it. [Subclause 12(3)]
Matters covered by the Investment Mandate
2.18 The Investment Mandate may include:
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- strategies and policies that the NHFIC must adhere to for its effective performance;
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- decision-making criteria for the provision of financial assistance and capacity building activities;
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- limits on the extent of financial assistance; and
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- risk and return relating to the NHFIC's investments.
[Paragraphs 13(a), (b), (c) and (d)]
2.19 The Minister may also include other matters in the directions to ensure that there is sufficient flexibility to address emerging issues or other matters that the Government considers are important. [Paragraph 13(e)]
2.20 As noted above, the details of the Bond Aggregator and NHIF are intended to be included in the Investment Mandate. The inclusion of these details in the Investment Mandate provides flexibility to allow NHFIC's operations to respond to the needs of the community housing sector and other recipients of financial assistance.
2.21 It is expected that the Investment Mandate will set out:
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- the eligibility criteria for NHIF finance, investments and grants, and bond aggregator finance;
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- the types of financing mechanisms for the NHIF and the bond aggregator functions;
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- matters that must be considered by the Board when making lending decisions;
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- matters that must be considered by the Board in determining lending conditions;
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- benchmark returns for NHFIC investments and finance;
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- the level of risk acceptable for NHFIC investments and finance;
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- additional corporate governance and transparency matters; and
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- the types of support services that the NHFIC may provide to CHPs to assist in building the capacity and capability of the sector.
Limits on Investment Mandate
2.22 The Bill provides a number of limits on the direction making power to ensure the independence of the NHFIC. A Government direction cannot require that specific projects or entities receive (or not receive) assistance or investment. The Bill also requires that a direction cannot be inconsistent with the Bill or the objects of the Bill. This ensures that directions cannot conflict with the intention of the Bill or its objects. [Clause 14]
2.23 Accordingly, the Minister must not give a direction concerning the Investment Mandate that:
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- directly or indirectly has the purpose or effect of requiring the Board to:
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- make (or not make) a particular investment; or
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- provide (or not provide) financial assistance for a particular project or entity; or
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- take (or not take) an action relating to an investment or financial assistance provided for a project or to an entity.
[Clause 14]