House of Representatives

Explanatory Memorandum

Circulated By Authority of the Minister for Finance and Deregulation, the Honourable Lindsay Tanner Mp

Glossary

The following abbreviations and acronyms are used in this explanatory memorandum.

Financial Impact Statement

The financial implications relating to the introduction of the BAF, EIF and HHF are outlined in the Explanatory Memorandum to the Nation-building Funds Bill 2008.

Outline

The Nation-building Funds (Consequential Amendments) Bill 2008 is one of a package of three Bills giving effect to the Government's 2008-09 Budget announcement to establish:

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three new financial asset funds to provide financing sources to meet the Government's commitment to Australia's future by investment critical areas such as transport, communications, energy, water, education, and health; and

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a COAG Reform Fund as a vehicle through which:

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capital transfers from the Funds may be disbursed to the States and Territories; and

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funding provided in future budgets may be disbursed to the States and Territories.

The Bill:

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Repeals the HEEF Act, consistent with the HEEF being closed and the assets transferred to the EIF.

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Amends the Future Fund Act to extend its operation to deal with the Future Fund Board's duties in relation to the BAF, EIF and HHF.

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Allows for amounts to be transferred from the Future Fund to the BAF, EIF and HHF for the purposes of apportioning expenses that have been paid from one Fund that should properly be apportioned between two or more of the Funds.

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A similar framework is proposed for the legislation enabling each of the BAF, EIF and HHF.

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Makes amendments to the ITAA to repeal provisions allowing tax deductible gifts to be made to the HEEF, consistent with that Fund being closed.

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Makes amendments to the Consumer Protection Act and the Telstra Corporation Act 1991 to remove references to the Communications Fund, consistent with that Fund being closed.

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Includes a number of transitional provisions relating to closure of the HEEF, including annual reporting requirements and the continuity of certain arrangements that may have previously been entered into by the Future Fund Board in managing the HEEF.

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Includes a number of transitional provisions relating to the Government's announcement to fast track its nation-building agenda, in response to the global financial crisis. As a result, certain arrangements have been adopted on an interim basis, in anticipation of the passage of the Nation-building Funds Bill 2008.

Clause 1-Short Title

Clause 1 provides for the Act to be cited as the Nation-building Funds (Consequential Amendments Act) 2008.

Note : The clauses in the Bill will become sections of the Act on Royal Assent.

Clause 2 - Commencement

Clause 2 provides for commencement of clauses 1 to 3 on Royal Assent. Schedules 1 to 3, which contain the main repeal and amendment provisions, commence at the same time as section 3 of the Nation-building Funds Act 2008. This is because those provisions are consequential to the passage of the Nation-building Funds Bill 2008.

Clause 3 - Schedule(s)

Clause 3 provides for the repeal of, or amendments to, other Acts as set out in Schedules to this Act.

Schedule 1-Repeal

Higher Education Endowment Fund Act 2007

Item 1 of Schedule 1 repeals the HEEF Act, consistent with the HEEF being closed and its balance being transferred to the EIF. Transfer of the balance of the HEEF to the EIF is covered in the legislation establishing the EIF.

Schedule 2-Amendments

Future Fund Act 2006

The purpose of Schedule 2 is to amend the provisions of the Future Fund Act to extend the Future Fund Act's operation to deal with the Future Fund Board's functions in relation to the BAF, EIF and HHF. The amendments are mostly technical in nature and are consequential to the enactment of the Nation-building Funds Act 2008 and the repeal of the HEEF Act (which would be effected by Schedule 1 to this Bill).

As far as possible, the amendments have been grouped so as to aid readability.

Notes and definitional provisions

Item 1 omits the reference to the HEEF Act in the note at the end of section 4 of the Future Fund Act and replaces it with a reference to the Nation-building Funds Act 2008. Section 4 provides a simplified outline of the Future Fund Act.

Items 2 to 12 and 17 to 19 insert new definitions into section 5 of the Future Fund Act that reflect various terms proposed to be used in the Nation-building Funds Act 2008.

Items 13 to 16 repeal various definitions used in the HEEF Act.

Inter-fund transfers

A new Schedule 2A will be added to the Future Fund Act to provide for amounts to be transferred from the Future Fund to the BAF, EIF and HHF. This will be done by Item 44 .

The purpose of this is to cover the situation where one of the BAF, the EIF or the HHF pays for an expense that should properly have been contributed to by the Future Fund. The new Schedule 2A will allow the nominated Minister to direct that a specified amount be debited from the Future Fund and credited to the relevant Fund. Corresponding provisions permitting credits to be made to the Future Fund are to be provided for in the Nation-building Funds Bill 2008.

Items 20 and 21 make amendments of section 13 of the Future Fund Act to reflect the addition of Schedule 2A.

Items 39 and 40 will amend section 84 of the Future Fund Act, which deals with miscellaneous receipts that might have been credited to the Future Fund Account. At present the nominated Minister may specify that an amount relating to that credit is to be transferred to the HEEF. These amendments will remove the present references to the HEEF Act and the HEEF Special Account and substitute references to the Nation-building Funds Act 2008 and the BAF, EIF and HHF Special Accounts.

Item 38 adds a new section 83A to provide for the nominated Minister to delegate his or her powers in relation to transfers (either under Schedule 2A or section 84) to the Secretary of a department or to an SES employee or acting SES employee in a department. This item also adds a new section 83B which is discussed below.

Investment managers

Item 22 substitutes a new subsection 28(5) of the Future Fund Act to make it clear that an investment manager may be engaged by the Future Fund Board in relation to investment activity for two or more of the Funds.

Item 38 adds a new section 83B to provide for the Future Fund Board to delegate the function of engaging investment managers to the Chair of the Future Fund Board or to an SES employee (or acting SES employee) in the Agency. This recognises the increased workload for the Board because of the additional functions it will have in relation to the BAF, the EIF and the HHF.

The Future Fund Board

A number of items amend the Future Fund Act as a consequence of the additional functions to be given to the Board by the Nation-building Funds Bill 2008 and the removal of the functions provided under the HEEF Act.

Item 23 omits the reference to the HEEF Act in the note at the end of section 33 of the Future Fund Act and replaces it with a reference to the Nation-building Funds Act 2008. Section 33 provides a simplified outline of Part 4 of the Future Fund Act (which deals with the Future Fund Board).

Section 35 of the Future Fund Act sets out the basic functions of the Future Fund Board. Item 24 amends section 35 to remove reference to the functions conferred by the HEEF Act and include reference to the functions conferred by the Nation-building Funds Act 2008.

Item 25 similarly amends section 55 of the Future Fund Act (which deals with keeping responsible Ministers informed) by omitting the reference to the HEEF Act and including a reference to the Nation-building Funds Act 2008.

Duties of Future Fund Board members and Agency staff

Items 26 to 28 update sections 60 to 62 of the Future Fund Act to add a reference to a financial penalty for breach of the duties established by those sections. The maximum penalties will now be 'Imprisonment for 5 years or 2000 penalty units.' The penalty unit level reflects that which applies to the corresponding provisions in the Corporations Act. This amendment also reflects amendments recently made to the Commonwealth Authorities and Companies Act 1997.

Items 29 and 30 amend section 63 of the Future Fund Act by omitting existing references to the HEEF Act and substituting references to the Nation-building Funds Act 2008.

Item 31 amends section 65 of the Future Fund Act which deals with when it is reasonable for a Future Fund Board member to rely on information. The words proposed to be substituted would include circumstances when a Future Fund Board member makes an independent assessment in good faith and will make the wording consistent with the corresponding provisions of the Corporations Act. This amendment also reflects amendments recently made to the Commonwealth Authorities and Companies Act 1997.

Annual reports

There are a number of amendments required to be made as a consequence of annual reports having to be provided in relation to the operation of the BAF, EIF and HHF, and no longer being provided in relation to the operation of the HEEF.

Item 32 inserts a heading before subsection 81(1) of the Future Fund Act, which will now deal with reports in relation to the Future Fund Board, the Agency and the Future Fund. Item 33 will omit references to the HEEF and the HEEF Act.

Item 34 will insert new subsections 81(1A) to (1C) that will respectively deal with reporting in relation to the BAF, the EIF and the HHF.

Items 35 and 36 will insert a new heading and subsections providing for specific requirements about the inclusion of certain benchmarks in reports about the BAF, EIF and HHF.

Item 37 will update the list of Ministers to whom the nominated Minister must provide a copy of an annual report.

Debits of amounts from the Future Fund for expenses not exclusively related to that Fund

Paragraph 2 of Schedule 2 to the Future Fund Act provides for amounts to be debited from the Future Fund to meet costs and expenses not exclusively related to that Fund, including those costs and expenses that presently should be shared with the HEEF (such as bank account fees and insurance premiums). Items 41 to 43 will make a number of amendments by omitting references to the HEEF Act and substituting appropriate references to the Nation-building Funds Act 2008.

Income Tax Assessment Act 1997

Items 45 to 47 repeal provisions in the ITAA that provide tax deductions for gifts to the HEEF, consistent with the HEEF being closed and repeal of the HEEF Act.

Telecommunications (Consumer Protection and Service Standards) Act 1999

Items 48 to 50 repeal provisions in the Consumer Protection Act that establish the Communications Fund, consistent with the closure of the Communications Fund and the transfer of its balance to the BAF.

Telstra Corporation Act 1991

Items 51 to 56 remove references to the Communications Fund in the Telstra Corporation Act 1991, consistent with the Communications Fund being closed and repeal of the provisions in the Consumer Protection Act that establish the Communications Fund.

Schedule 3 -Transitional and application provisions etc.

Certain transitional arrangements are required to be put in place as a result of the closure of the HEEF and the transfer of the balance of the HEEF and related activities to the EIF. The following transitional arrangements are to apply:

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the annual report of the Future Fund Board for the financial year beginning on 1 July 2008 must include a report in relation to the HEEF ( Item 2 );

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any outstanding borrowing or securities lending arrangements entered into by the Future Fund Board in relation to the HEEF will be taken to be continuing arrangements in relation to the EIF ( Items 3 and 4 );

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the engagement of an investment manager in relation to the HEEF will be taken to be a continuing engagement of that investment manager in relation to the EIF ( Item 5 ); and

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any refund of franking credits attributable to the HEEF will be credited to the EIF ( Item 6 ).

(references to the 'Future Fund Board' mean the Future Fund Board of Guardians - Item 1 )

The amendment made by Item 2 of Schedule 2 to the definition of 'acquire' in the Future Fund Act, brings it into line with the definition to be used in the Nation-building Funds Act 2008. The purpose of the amendment is to make it clear that an acquisition includes an acquisition by way of an issue (say of a share, debenture or trust unit). Item 7 of this Schedule states that the amendment to the definition of 'acquire' does not imply that acquisitions could not previously occur by way of an issue.

Item 8 makes it clear that the amendment that remove from the ITAA the status of gifts to the HEEF apply only to gifts made after the commencement of this Act.

Items 9 to 16 relate to the Government's announcement to fast track its nation-building agenda, in response to the global financial crisis. As a result, certain arrangements have been adopted on an interim basis, in anticipation of the passage of the Nation-building Funds Bill 2008. These arrangements include:

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requesting Infrastructure Australia to bring forward advice on proposals that might be funded from the BAF;

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establishing an Interim EIF Advisory Board to examine and advise on proposals that might be funded from the EIF; and

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establishing an Interim HHF Advisory Board to examine and advise on proposals that might be funded from the HHF.

Infrastructure Australia and the interim advisory boards will be able to apply interim evaluation criteria in assessing these proposals, in the same way that is proposed under the Nation-building Funds Bill 2008.

Transitional provisions are required so that the work undertaken as part of these interim arrangements is properly recognised once the legislation has been enacted and the advising arrangements are placed on a statutory basis. A transitional provision is also required in relation to advice that may be provided by the Higher Education Endowment Fund Advisory Board in relation to 'transitional HEEF payments' that are to be provided for by the Nation-building Funds Bill 2008.

Items 9 to 12 apply where Infrastructure Australia has provided either the Infrastructure Minister, the Communications Minister, Energy Minister or Water Minister (as the case requires) with advice that a proposed payment satisfies the relevant interim BAF evaluation criteria. On commencement of the Nation-building Funds Act 2008, such advice is to be taken as having satisfied the requirements of the new Act with the result that it may support a decision to make a payment out of the BAF (without the need to repeat the process).

Items 13 and 14 apply where the Interim EIF Advisory Board has provided either the Education Minister or the Research Minister (as the case requires) with advice that a proposed payment satisfies the relevant interim EIF evaluation criteria. On commencement of the Nation-building Funds Act 2008, such advice is to be taken as having satisfied the requirements of the new Act with the result that it may support a decision to make a payment out of the EIF (without the need to repeat the process).

Item 15 applies where the Higher Education Endowment Fund Advisory Board, established under the HEEF Act, has given advice about a grant of financial assistance under that Act, and where such a payment may be made as a 'transitional HEEF payment' under the arrangements proposed by the Nation-building Funds Bill 2008. On commencement of the Nation-building Funds Act 2008, such advice is to be taken as having satisfied the requirements of the new Act with the result that it may support a decision to make a payment out of the EIF (without the need to repeat the process).

Item 16 applies where the Interim HHF Advisory Board has provided the Health Minister with advice that a proposed payment satisfies the relevant interim HHF evaluation criteria. On commencement of the Nation-building Funds Act 2008, such advice is to be taken as having satisfied the requirements of the new Act with the result that it may support a decision to make a payment out of the HHF (without the need to repeat the process).