Explanatory Memorandum
(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)Chapter 6: National skills and workforce development payments
Outline of chapter
6.1 Schedule 6 to the Bill amends the FFR Act to support Commonwealth payments to the States in accordance with the National Skills Agreement and any successor agreements.
Context of amendments
6.2 The NSA is a 5-year joint agreement between the Commonwealth and the States that commenced on 1 January 2024. The NSA replaces the NASWD which was the previous arrangement between the Commonwealth and the States for payments in relation to expenditure on skills and workforce development. As part of the NSA, the States committed to implementing improved funding arrangements, with a view that these would replace the NSPP for skills and workforce development established by the FFR Act.
6.3 Both the NSA and the NASWD operate within the framework of the FFR Act, and both agreements involve funding covered under the intergovernmental agreement on Federal Financial Relations. However, the NSA operates differently to the NASWD as the NSA contains clauses that impose various obligations on States in relation to their use of funding. For example, Clause A47 of the NSA provides a list of obligations that States must meet to access flexible funding up to an initial cap. The NASWD, together with the FFR Act, provided lump sum funding with only a general condition that the financial assistance be spent on skills and workforce development.
6.4 These amendments amend the FFR Act to ensure that financial assistance is spent in accordance with, and is subject to the terms and conditions of, the NSA (or a successor agreement).
Comparison of key features of new law and current law
Table 6.1 Comparison of new law and current law
| New law | Current law |
| Financial assistance for skills and workforce development is payable to a State for a financial year provided:
|
Financial assistance is payable to a State each financial year, for the purpose of expenditure on skills and workforce development (through the NSPP for skills and workforce development). Financial assistance is payable to a State on the condition that the financial assistance is spent on skills and workforce development. |
Detailed explanation of new law
6.5 Schedule 6 to the Bill amends the FFR Act to update the funding arrangements under which the Commonwealth provides financial assistance to the States in relation to skills and workforce development. The new funding arrangements ensure that financial assistance is spent in accordance with, and is subject to the terms and conditions of, the skills and workforce development agreement (currently the NSA).
Current funding arrangements
6.6 The amendments repeal the NSPP for skills and workforce development which currently provide for lump sum funding that is indexed each financial year and shared amongst the States. The only condition placed on this funding is that it is spent on skills and workforce development. [Schedule 6, item 4, section 12 of the FFR Act]
6.7 While the current funding arrangements were suitable to support payments under the NASWD, they are not fit for purpose to support payments under the NSA. The NSA employs a flexible funding model. It includes terms and conditions relating to the types of expenditure that the Commonwealth will co-fund, Commonwealth contribution rates that can vary by State or by funding type, and funding caps for different categories of expenditure. This cannot be appropriately provided for under the NSPP for skills and workforce development.
New funding arrangements
6.8 The amendments introduce new funding arrangements to support payments from the Commonwealth to the States relating to skills and workforce development. The new funding arrangements apply to the 2024-25 financial year and later financial years, provided the State is a party to a skills and workforce development agreement. [Schedule 6, item 3, subsection 12A(1) of the FFR Act]
Definition of skills and workforce development agreement
6.9 A 'skills and workforce development agreement' is the NSA or a successor agreement that is entered into between the Commonwealth and one or more States that relates to skills and/or workforce development. It must also be expressed to be a skills and workforce development agreement for the purposes of the FFR Act. [Schedule 6, item 2, the definition of 'skills and workforce development agreement' in section 4 of the FFR Act]
6.10 Given that the NSA is intended to operate for a 5-year period from 1 January 2024, the amendments allow for the payment arrangements to continue under a successor agreement, provided the successor agreement meets the definition of a 'skills and workforce development agreement'.
Conditions of payments
6.11 Under the new funding arrangements, financial assistance is payable to the States on the condition that the financial assistance is spent in accordance with the skills and workforce development agreement. The financial assistance is also subject to any additional terms and conditions set out in the skills and workforce agreement. [Schedule 6, item 3, subsections 12A(4) and (5) of the FFR Act]
6.12 These conditions are not provided for under the current funding arrangements and have been included in the amendments to ensure that funding is spent consistently with States' obligations under the NSA and any successor agreements.
6.13 The conditions of the NSA have not been replicated in the FFR Act to provide flexibility in ensuring the amendments can support successor agreements that may impose different or additional conditions on financial assistance payable.
Payment determinations
6.14 For the 2024-25 financial year and later financial years, the Minister may determine an amount to be paid to a State for that financial year for the purpose of making a grant of financial assistance that the State is to spend in accordance with the skills and workforce development agreement. [Schedule 6, item 3, subsection 12A(2) of the FFR Act]
6.15 In accordance with subsection 44(1) of the Legislation Act 2003, the Minister's determination is a legislative instrument but is not subject to disallowance. This is because the determinations facilitate the operation of an intergovernmental scheme involving the Commonwealth and a State and are made for the purpose of that scheme. In this instance, the scheme is the skills and workforce development agreement, and payments made by the Commonwealth are for the purpose of that scheme. [Schedule 6, item 3, subsection 12A(3) of the FFR Act]
6.16 The exemption from disallowance is consistent with other funding arrangements provided for under the FFR Act, such as national health reform payments, where there is an obligation on the Commonwealth to make payments in a prescribed manner as part of an intergovernmental body or scheme involving the Commonwealth and the States.
Consequential amendments
6.17 Schedule 6 to the Bill makes a number of technical amendments to ensure national skills and workforce development payments receive equivalent treatment to other payments provided for under the FFR Act, such as national health reform payments. [Schedule 6, items 1 and 5 to 7, paragraphs 3(1)(aa), 17(b), 18(1)(b), 18(2)(b) and 21(a) and section 22 of the FFR Act]
Commencement, application, and transitional provisions
6.18 Schedule 6 to the Bill commences the day after Royal Assent.
6.19 The new funding arrangements apply in relation to the 2024-25 financial year and later financial years. The current funding arrangements continue to apply in relation to the 2024-25 financial year and earlier financial years.
6.20 Both the new and current funding arrangements apply in relation to the 2024-25 financial year to provide transitional arrangements as the amendments are likely to commence part way through the 2024-25 financial year. The current funding arrangements have been modified in relation to the 2024-25 financial year to ensure that the Minister can determine an amount that is payable to a State only in relation to the period that the current funding arrangements were in place for. [Schedule 6, item 9]
6.21 The Minister can also make a determination for the 2024-25 financial year of an amount payable to a State for the portion of that financial year that the new funding arrangements are in place. The total amount payable to the State for the 2024-25 financial year will be the sum of the amounts determined under the current funding arrangements and new funding arrangements. [Schedule 6, item 3, subsection 12A(2) of the FFR Act]
6.22 Consistent with the Minister's determinations under both the new and current funding arrangements, the Minister's determination made under the transitional arrangements is a legislative instrument but is not subject to disallowance. This is because the determinations facilitate the operation of an intergovernmental scheme involving the Commonwealth and a State and are made for the purpose of that scheme. [Schedule 6, subitem 9(5)]
6.23 Determinations made by the Minister under the current funding arrangements continue in to be in force despite the amendments. As a result, financial assistance is still payable for those past years. The FFR Act, including the Minister's powers and obligations under that Act, continues to apply in relation to those earlier determinations and payments of financial assistance. [Schedule 6, item 10]
6.24 To assist with the administration of the transition period, the amendments provide that any overpayments or underpayments made under the current funding arrangements in relation to both the 2023-24 and 2024-25 financial years can be reconciled under the new funding arrangements. This is appropriate to ensure States receive funding amounts that reflect their entitlements under the NSA. [Schedule 6, item 11]
6.25 Schedule 6 defines Act for the purpose of the application and savings provisions in Part 2 of Schedule 6 as the FFR Act. [Schedule 6, item 8]