House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Finance and Administration, Senator the Honourable Nick Minchin)

Overview of amendments proposed in Schedule 1 of the FFLA Bill

17. As noted above regarding the effect of clause 3 of the FFLA Bill, Schedule 1 covers amendments that reflect the concepts of a self-executing CRF and of a Special Account.

Overview of the CRF

18. The CRF is created under the Australian Constitution at section 81 which provides that:

All revenue and moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund to be appropriated for the purposes of the Commonwealth.

19. As explained in the second submission made by the Department of Finance and Administration (Finance) to the JCPAA during its enquiry into the Draft FFLA Bill, section 81 does not deal with the manner in which the moneys forming the CRF shall be kept nor with the keeping and auditing of the public accounts. Importantly, however, the CRF under the Constitution needs to be distinguished from the way that it was previously described in legislation, specifically, the Audit Act 1901. This Act approached the financial framework through fund accounting: for example, it created the Loan Fund and the Trust Fund, which were interpreted as being separate from the accounting fund called the CRF.

20. The FMA Act replaced the Audit Act 1901 on 1 January 1998 and originally the FMA Act largely continued these fund accounting arrangements. Specifically, it continued the Loan Fund and replaced the Trust Fund with the RMF and the Commercial Activities Fund (CAF). Amendments made to the FMA Act by the FMLA Act 99 abolished fund accounting and introduced the concept of a Special Account. A Special Account is a record of amounts in the CRF that are allocated for a specific purpose. Components of the RMF and the CAF were transferred to individual Special Accounts.

21. Most of the amendments proposed in Schedule 1 of the FFLA Bill arise as a direct consequence of the commencement of the FMLA Act 99 on 1 July 1999. Provisions in the FMLA Act 99 deemed that specified consequential amendments to other Acts and instruments were made from that date. These deeming provisions are outlined in Attachment C of this Explanatory Memorandum. The amendments in Schedule 1 make textual changes to Acts, to align the Acts with the deeming provisions, thereby making those deeming provisions redundant.

22. The introduction of a Bill to make these changes was foreshadowed by then Parliamentary Secretary to the Finance Minister in the Second Reading Speech, made on 10 February 1999, for the introduction of the Financial Management Legislation Amendment Bill 1999, which lead to the FMLA Act 99.

23. The main proposed amendments that arise as a consequence of the FMLA Act 99 are:

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abolition of references to the Loan Fund and reflecting that any amounts that would have been in that Fund are instead within the CRF;

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abolition of the RMF, with amounts allocated to the RMF being, instead, allocated to the CRF;

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replacement of references to components of the RMF with Special Accounts; and

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replacement of references to paid "into the Consolidated Revenue Fund" with references to paid "to the Commonwealth".

Overview of Schedule 1, Part 1 - Removal of references to Loan Fund

24. Part 1 of Schedule 1 deletes references to "Loan Fund" and, where appropriate, replaces them with references to the "Consolidated Revenue Fund". This type of amendment replaces the deeming provision contained in section 6 of the FMLA Act 99.

25. Seventeen Acts are included in Part 1 for amendment.

Overview of Schedule 1, Part 2 - Special Accounts and references to paid into the CRF

26. Part 2 of Schedule 1 contains two broad types of proposed amendments:

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references to components of the RMF are replaced with references to Special Accounts; and

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references to "paid to Consolidated Revenue Fund" are replaced with references to "paid to the Commonwealth".

27. These types of amendments are outlined below.

28. Seventy-four Acts are included in Part 2 for amendment, five of which are also included in Part 1 of Schedule 1.

Overview of replacement of references to components of the RMF with references to Special Accounts

29. The first type of amendment in Part 2 of Schedule 1:

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replaces references to "Reserve" or "component of the Reserved Money Fund" with "Account" or "Special Account". In most cases the individual name of the Reserve is not changed, apart from replacing "Reserve" at the end of the name with "Account";

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replaces words used to describe financial transactions relating to the Reserve. For example the words "money", "paid into" and "paid out of" are replaced with the words "amount", "credited to" and "debited from" respectively. This is done to reflect the fact that Special Accounts are ledgers recording amounts in the CRF whereas the RMF was drafted on the basis of being a Fund containing money outside the CRF.

30. This type of amendment replaces the deeming provisions contained in subsections 5(5) and 5(6) of the FMLA Act 99.

Overview of replacement of references to "paid to CRF" with references to "paid to the Commonwealth"

31. As stated in the Explanatory Memorandum for the FMLA Act 99, a self-executing CRF means that "money raised or received by the Executive Government automatically forms part of the CRF, without the need to credit a ledger account designated CRF or make a payment into a bank account so designated." This type of amendment arises as a consequence of the adoption of a self-executing CRF that underpinned the FMLA Act 99.

32. Accordingly, the deeming provision in section 7 of the FMLA Act 99 states that "a reference to payment of an amount into the Consolidated Revenue Fund is to be read as a reference to payment of the amount to the Commonwealth (unless the amount is already public money)".2

33. However, if the amount is public money it is in the CRF and therefore the reference "paid to the Commonwealth" is redundant and should not be used to replace "paid to the Consolidated Revenue Fund". In these circumstances the latter reference is repealed in the FFLA Bill without being replaced.

34. This type of amendment replaces the deeming provisions contained in section 7 of the FMLA Act 99. It reflects the fact that public money under the FMA Act is also within the CRF, and hence and an appropriation is required before it can be used to make any payments.

Overview of amendments that are not a direct consequence of the FMLA Act 99

35. Proposed amendments in Schedule 1 that are not a direct consequence of the commencement of the FMLA Act 99 are outlined below.

Adoption of the phrase "debited from the Account and paid by the Commonwealth"

36. The deeming provision in paragraph 5(6)(c) of the FMLA Act 99 states that a reference in an instrument to paying an amount out of a component of the RMF is to be read as paying the amount out of the CRF and debiting the amount from the Special Account.

37. In the FFLA Bill, reference to "debited from the Account and paid by the Commonwealth" is used instead of the deeming provision, where it is clear that the amount is to be paid out of the CRF. This proposal:

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complements the reference to paid to the Commonwealth, used in the deeming provision contained in section 7 of the FMLA Act 99; and

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recognises that some amounts debited from a Special Account are for the purpose of making notional payments3, rather than real payments, and therefore are not payments of the amount "out of the CRF".

Provisions that specify amounts must be paid to the Commonwealth

38. The FFLA Bill does not propose the repeal of references to amounts paid into the CRF in Acts that provide for the collection of public money by an entity that is not part of the legal entity of the Commonwealth and that has the power to hold money on its own account. An example of such a body is one subject to the Commonwealth Authorities and Companies Act 1997 (CAC Act). The FFLA Bill proposes, instead, that the provisions be replaced with a reference to paid "to the Commonwealth". This approach is intended to clarify that the money is to be paid to the Commonwealth by the collecting entity even though it has already entered the CRF. Details of these proposed amendments are recorded in Attachment D of this Explanatory Memorandum.

Provisions that authorise crediting appropriated amounts to individual Special Accounts

39. The enabling legislation of some Special Accounts specifically authorise the crediting of amounts to the Account that are appropriated by Parliament for the purposes of the Special Account. Details are recorded in Attachment E of this Explanatory Memorandum.

40. These provisions are not aligned with the Appropriation Acts in that the Appropriation Acts no longer appropriate amounts for the purposes of specific Special Accounts. Accordingly, the FFLA Bill proposes that these provisions be replaced with a Note providing a cross-reference to the general authority provided in the Appropriation Acts. These Notes are identical to the Notes proposed for insertion in the FMA Act (Items 140 and 143 of Schedule 1). These amendments are linked to the Government's response to recommendation 3 of JCPAA Report 395.

Amendments arising from recommendation 1 of JCPAA Report 395

Financial Management and Accountability Act 1997

41. The proposed amendments to the FMA Act in Schedule 1 are designed to clarify the framework applying to Special Accounts that was initially established by the FMLA Act 99 and inserted into the FMA Act on 1 July 1999.

42. This amendment relates to recommendation 1 of the JCPAA Report 395 that proposed amendments in the FFLA Bill to subsection 20(1) of the FMA Act should specify that a determination of the Finance Minister establishing a Special Account:

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should include a reference to amounts that are allowed or required to be debited from a Special Account, linked to the reference to the purposes of the Special Account; and

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may specify that amounts debited from a Special Account may be or must be otherwise than for the making of real or notional payments.

Amendments arising from recommendation 4 of JCPAA Report 395

Aboriginal Land (Lake Condah and Framlingham Forest) Act 1987

43. Item 58 of Schedule 1 proposes that this Act establish the Aboriginal Advancement Account. This will to replace the ability, under subsection 38(6) of the Act, for the Minister (that is, the Minister responsible for the Act) to establish the Aboriginal Advancement Account.

44. This amendment derives from recommendation 4 of the JCPAA Report 395 that the FFLA Bill should include an amendment to establish the Aboriginal Advancement Account under section 38 of the Aboriginal Land (Lake Condah and Framlingham Forest) Act 1987. The Condah Land Account and the Framlingham Forest Account should be subsumed into the Aboriginal Advancement Account."

Amendments arising from consultation with Departments

Telstra Corporation Act 1991

45. Item 458 of Schedule 1 proposes the abolition of the Untimed Local Call Access Account from the date of Royal Assent. Items 456 and 491 of Schedule 1 propose the abolition of the Rural Transaction Centres Account and the Television Fund Account, respectively from 1 July 2005.