House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Infrastructure and Regional Development, the Hon Jamie Briggs MP)

Outline

There are two principal objectives of this package of Bills. The first is amendment of the Norfolk Island Act 1979 to reform governance arrangements of Norfolk Island. This is in response to the "Same Country: Different World" report of the Joint Standing Committee on the National Capital and External Territories, which recommended substantial changes to the governance arrangements for Norfolk Island.

The second principal objective of this package of Bills is the extension of many mainland social security, immigration, and health arrangements to Norfolk Island, as well as changes to the tax system. This will implement the election commitment the Australian Government made in September 2013 and is consistent with the general principle that as Norfolk Island is part of Australia, those Australians who live there should have the same obligations and receive the same access to benefits as other Australians.

The current governance arrangements have been unable to deliver an adequate level of services to the community or an effective safety net for those most vulnerable in this small isolated community. The wide range of functions for which the Norfolk Island Government has been responsible, which includes national, state and local government services, coupled with the relatively narrow revenue base available for funding those services has meant large and growing revenue shortfalls for the Norfolk Island Government. As a result standards of service, particularly in the areas of social welfare and health care are well below those enjoyed by other Australians. It is beyond the resources of the small Norfolk Island community to support its current governance arrangements.

Similarly, the complexity involved in many of the services means the Norfolk Island Government has struggled to deliver an adequate level of services to the community or maintain an effective and up to date body of state-level legislation.

1. Reform of legal and governance arrangements

This package of reforms will strengthen and enhance the legal and governance framework for Norfolk Island. In broad terms, the reform of legal and governance arrangements consists of two separate phases. The first phase is the 'interim transition time' which begins on a day to be proclaimed after the passage of the Norfolk Island Legislation Amendment Bill 2015. This phase includes the abolition of the Norfolk Island Legislative Assembly and Executive Council, and the establishment of an Advisory Council as an interim consultative body.

The second phase is to commence on 1 July 2016 and includes a mechanism which applies New South Wales state law to Norfolk Island as Commonwealth law as well as provisions to allow the Commonwealth to enter into arrangements with the New South Wales Government for the delivery of state level services. It is anticipated that a Norfolk Island Regional Council body would be established under New South Wales applied law or an ordinance under the Norfolk Island Act 1979, to be an elected local government body for the Territory.

1.1 Phase 1: The interim transition time

The purpose of the interim transition time is to enable the Commonwealth to implement the reforms, and prepare the community for the introduction of tax and social security and the introduction of the final governance model including the Norfolk Island Regional Council.

During the interim transition time, amendments are proposed in relation to the legislative and executive arrangements in force on Norfolk Island. The judicial arrangements on Norfolk Island are preserved without change.

1.1.1 Legislative functions during the interim transition time

It is proposed to abolish the Legislative Assembly, with the effect that the offices of all present members of the Assembly will terminate.

Enactments of the Legislative Assembly and all ordinances made by the Governor-General that are currently in force in the Territory will be preserved, as will laws made under such enactments and Ordinances.

Legislative power for the Territory will be conferred on the Governor-General, who will have broad power to make Ordinances for the peace, order and good governance of the Territory, including amending or repealing any Norfolk Island laws, however described (for example including all enactments, Ordinances, subordinate legislation) that are in force at the time the part of the Bill commences.

Such Ordinances will be subject to the disallowance provisions of the Legislative Instruments Act 2003; however, consistent with the arrangements for Ordinances of the Christmas Island and Cocos (Keeling) Islands territories, the sunsetting provisions of that Act will not apply to them.

1.1.2 Executive functions during the interim transition time

An Advisory Council that will include Norfolk Island community representatives will be established in the Act. The Advisory Council is an important mechanism for community consultation and engagement. The Advisory Council's role will be to offer advice to the Administrator on any matter affecting the peace order and good government of the Territory. The responsible Commonwealth Minister will be able to make provision by legislative instrument in relation to how the Council is to carry on business and in relation to remuneration and allowances (if any) for members of the Advisory Council.

During the interim transition time, the statutory office of the Administrator will continue. The Norfolk Island Administration will be continued as a body politic. The Administrator may exercise all the powers of the Administration, and may delegate such powers to specified persons. All rights, liabilities and assets of the Administration in existence prior to the commencement of the amendments made by Part 1 of Schedule 1 of the Bill will continue to be rights, liabilities and assets of the Administration. Any rights, liabilities or assets (including property) relating to the government of Norfolk Island which were not, at the commencement of the amendments made by Part 1 of Schedule 1, rights, assets, or liabilities of the Administration (for example, assets, liabilities, rights or property held by Norfolk Island Ministers or the Legislative Assembly in that capacity) will become rights, liabilities, assets and property of the Administration.

Employees of the Administration prior to the commencement of the amendments made by Part 1 of Schedule 1 of the Bill, and any other person engaged on Norfolk Island, prior to that commencement, to perform duties relating to the government of Norfolk Island but who was not an employee of the Administration, will become an employee of the Administration.

The Administrator will be assisted by a new statutory position of Executive Director, who will be employed by the Norfolk Island Administration and designated by the Commonwealth Minister. The Executive Director will be delegated certain functions and powers by either the Commonwealth Minister or the Administrator. It is envisaged the Executive Director will be responsible for the day to day running of the Norfolk Island Administration and related entities including the Norfolk Island Hospital Enterprise and the Norfolk Island Government Tourist Bureau.

Through his or her ability to instruct the Administrator and delegates, the responsible Commonwealth Minister will have overarching supervisory powers in relation to the Administration and bodies corporate established under Norfolk Island enactments.

The Administrator will be subject to the instruction of the Commonwealth Minister both on matters delegated by the Commonwealth Minister and in relation to the statutory powers and functions of the Administrator. Matters on which the Commonwealth Minister may be able to instruct the Administrator are not limited by the Act and include: on what matters the Administrator is to seek advice from the Advisory Council; what powers should be delegated to the Executive Director; and how powers are to be exercised. There is provision for the Administrator to be required by the Commonwealth Minister to notify the Commonwealth Minister before exercising powers specified by the Commonwealth Minister.

During the interim period, powers and functions under Norfolk Island enactments which are at present conferred on Norfolk Island Ministers will be conferred on the Commonwealth Minister, who will be able to delegate these powers or functions. This arrangement will be provided for in an ordinance to be made by the Governor-General and is therefore not expressly provided for in the Act.

The Administrator will no longer be advised by an Executive Council. The Executive Council will be abolished. This relates to the abolition of the Norfolk Island Legislative Assembly, which will mean that there will not be any Norfolk Island Ministers to form an Executive Council.

Records currently held in relation to the Legislative Assembly, the Norfolk Island Executive Council, and persons acting in a capacity of Minister of Norfolk Island will be transferred to the Administration. Provision has been made for records of the Administration to remain in the custody of the Administration during the interim transition time.

1.1.3 Financial arrangements during the interim transition time

The financial arrangements in place prior to the interim transition time are to be maintained as far as possible during the interim transition time. The Public Account of Norfolk Island is to continue as the repository of public money of the Territory, and each Territory authority shall continue to keep separate accounts.

Authorisation for expenditure of money from the Public Account is to be by legislative instrument made by the Governor-General; however, current annual and standing appropriations will remain in place (unless and until varied by the Governor-General) to allow the continued function of the Administration.

Control of spending during the interim transition time will ultimately rest with the Commonwealth Minister, however it is anticipated that delegations will be made to enable spending decisions to be made the Executive Director, the Chief Executive Officer of the Norfolk Island Administration and the responsible managers of Territory authorities (but only in relation to spending by the Territory authority). Existing delegations made for the purposes of approving proposals to enter into arrangements will remain in effect.

As the structure and arrangements relating to the financial framework are to be kept in place, there are a large number of minor amendments dealing with the abolition of various offices and bodies, and transferring duties and functions conferred on certain persons to the Administrator, or another appropriate person.

1.1.4 Employment arrangements during the interim transition time

All employees of the Administration prior to the interim transition time will remain as such. In addition, the Bill provides that any person who at the interim transition time was not an employee of the Administration or of a territory instrumentally but was employed to perform duties relating to the government of Norfolk Island will become an employee of the Administration, on existing terms and conditions, which may be varied. All such employees will continue on existing terms and conditions of employment. Such employees are not Commonwealth Public Service Act 1999 employees.

1.2 Second phase: Final governance arrangements

The final governance arrangements for Norfolk Island will be established on the commencement of Schedule 2 of the Bill. The final governance arrangements are similar to those applying to Christmas Island and the Cocos (Keeling) Islands, with the exception that the Norfolk Island judicial arrangements will continue.

1.2.1 Legislative arrangements at the final transition time

The Bill establishes an applied laws regime for Norfolk Island similar to that operating on Christmas Island and the Cocos (Keeling) Islands. From commencement of the final transition time, the default body of law on Norfolk Island is New South Wales applied law (including as amended, suspended or repealed by legislative instrument of the Governor-General under Norfolk Island Act 1979). The application of New South Wales law as Commonwealth law does not in any way place any obligation on New South Wales or its officials to deliver services or administer legislation in respect of Norfolk Island.

After the commencement date, the Governor-General may also exercise legislative power for peace, order and good governance of the Territory by Ordinance under the Norfolk Island Act 1979. These post-commencement instruments prevail to extent of any inconsistency with any other applied NSW law or pre-existing law of the Territory.

However, instruments made by the Governor-General cannot affect nor effect the operation of Commonwealth law in Norfolk Island (so Commonwealth legislation will apply according to its terms, and will take priority over any local Territory law, unless the relevant Commonwealth law provides otherwise (see subsection 8E(2) of Christmas Island Act 1958 for equivalent provision)). Subsection 18(1) of the Norfolk Island Act 1979 will remain in place, meaning that Commonwealth legislation does not extend to Norfolk Island unless it is expressed to extend.

The application of New South Wales laws will not, of itself, confer powers or impose responsibilities on New South Wales authorities or officers. Non-judicial powers and duties will be vested in the Commonwealth Minister administering the Norfolk Island Act 1979, who will have a capacity to delegate the powers, or direct that they be delegated to some other person or authority.

1.2.2 Executive arrangements at the final transition time

Executive functions provided for under applied New South Wales law will be the responsibility of the Commonwealth Minister, who may choose to delegate these functions to officers in his or her Department or other appropriate individuals or authorities.

The Commonwealth Minister will also be able to enter into arrangements with the Government of New South Wales for assistance in the administration of applied laws and other laws in force in the Territory, including the performance of functions and provision of services by New South Wales agencies on behalf of the Commonwealth.

At the local level, a Norfolk Island Regional Council will be established as an elected body to perform local level and municipal functions.

1.2.3 Employment arrangements at the final transition time

Employees of the Norfolk Island Administration will be transferred to the Norfolk Island Regional Council at the final transition time. It is expected that they will perform many of the same functions in the Regional Council as they already do, with some allowance for modernisation and restructuring. Employees will not be entitled to any payment when they cease as an employee of the Administration, but will be employed under the same terms and conditions.

1.2.4 Treatment of Assets and liabilities of the Norfolk Island Administration

Upon commencement of the final transition time, the Norfolk Island Administration will cease to exist. Provision has been made for assets and liabilities of the Norfolk Island Administration to vest in the Norfolk Island Regional Council, unless the Commonwealth Minister determines via a transition rule that any specified such asset or liability is to vest in the Commonwealth. Provision is made for the Commonwealth Minister to make transitional rules dealing with the transfer of Administration records to the Commonwealth or the Regional Council.

2. Extension of mainland social security, immigration, and health arrangements to Norfolk Island and changes to Australia's taxation system

Norfolk Island is the only inhabited place in Australia where residents do not participate in the taxation system, and the only place where Australians cannot access the Australian social security system. During the 2013 Federal election, the Government committed to extend federal taxation and social welfare systems to Norfolk Island to address issues of community welfare and ensure Australian citizens are treated equally throughout the country.

Extending the mainland social security system and, by extension, the mainland taxation and superannuation systems, will address issues of equity and welfare for Australian citizens and bring the rights and responsibilities of Norfolk Island residents in line with Australians living in Australia's other external territories such as Christmas Island.

The Norfolk Island Legislation Amendment Bill 2015 deals with the introduction of mainland social security (including the Medicare Benefits Schedule and the Pharmaceutical Benefits Scheme) and immigration arrangements. Amendments relating to the application of taxes and levies are part of this package of reforms but are dealt with in separate Bills, consistent with s. 55 of the Constitution.

The extension of health and social welfare arrangements is to take effect on commencement of Schedule 2 Part 1 of the Norfolk Island Legislation Amendment Bill 2015, which is 1 July 2016.

2.1 Extension of social security

This Bill extends mainland social security arrangements to Norfolk Island. Programmes and payments extended include the Age Pension, Newstart Allowance, Disability Support Pension and Youth Allowance. This will ensure Norfolk Island residents have access to social security on the same terms as other Australians.

Transitional provisions are included in the Bill to ensure both that these changes do not create a retrospective entitlement to payments for Norfolk Island Residents, and also so that Norfolk Island residents are not disadvantaged by legislated waiting periods for payments.

The Aged Care (Accommodation Payment Security) Levy Bill 2006 supports this measure by making consequential amendments to Aged Care (Accommodation Payment Security) Levy Act 2006 as a result of the extension of associated aged care legislation to Norfolk Island.

2.2 Extension of health arrangements

This Bill extends a number of health arrangements which exist on mainland Australia, including the Medicare Benefits Schedule, the Pharmaceutical Benefits Scheme and the Private Health Insurance Rebate. These measures commence from 1 July 2016 and are an important part of ensuring the ongoing welfare of Australians on Norfolk Island.

In relation to Private Health Insurance, this Bill ensures that the same rules that apply to the calculation of the lifetime health cover base day for others will be applied equally to residents of Norfolk Island once they become eligible for Medicare. Transitional arrangements providing Norfolk Islanders a period of 12 months to take out Private Health Insurance and avoid the Lifetime Health Cover Loading are therefore included in the Bill.

The extension of health arrangements are supported by a number of other bills which make minor consequential amendments to health related acts:

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Health and Other Services (Compensation) Care Charges Amendment (Norfolk Island) Bill 2015;

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Health Insurance (Approved Pathology Specimen Collection Centres) Tax Amendment (Norfolk Island) Bill 2015;

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Health Insurance (Pathology) (Fees) Amendment (Norfolk Island) Bill 2015; and

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Private Health Insurance (Risk Equalisation Levy) Amendment (Norfolk Island) Bill 2015

These additional bills extend tax and levy related health measures to Norfolk Island, as part of the extension of mainland health arrangements to the Territory.

2.3 Extension of immigration arrangements

This Bill normalises immigration arrangements for Norfolk Island by extending the application of the Migration Act 1958 and the Immigration (Guardianship of Children) Act 1946 to Norfolk Island. These amendments will have the effect of ensuring that Norfolk Island is treated in a way consistent with Australia's other inhabited external territories such as Christmas Island. Transitional arrangements will be put in place to ensure that non-citizens on Norfolk Island can be granted visas under the Australian Migration system to ensure they do not inadvertently become unlawful as a result of the transition.

2.4 Changes to Australia's tax system

Schedule 1 to the Tax and Superannuation Laws Amendment (Norfolk Island Reforms) Bill 2015 amends the Income Tax Assessment Act 1936, Income Tax Assessment Act 1997 and Superannuation Guarantee (Administration) Act 1992 to repeal the:

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income tax exemptions that apply to Norfolk Island resident individuals, companies and trustees in relation to their Norfolk Island sourced income and their foreign sourced income, bringing them fully into Australia's income tax system;

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Medicare levy exemptions that apply to Norfolk Island residents, bringing them fully into Australia's Medicare levy system; and

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superannuation guarantee charge exemptions that apply to Norfolk Island employers and employees in relation to work performed on Norfolk Island, bringing them fully into Australia's superannuation guarantee system.

The A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Amendment Bill 2015 supports this measure by making consequential amendments to A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Act 1999 as a result of the repeal of the Medicare levy exemptions. The taxation and superannuation reforms generally apply from 1 July 2016; with transitional arrangements applying in relation to capital gains tax and superannuation guarantee charge.

Financial impact statement

The total Norfolk Island reform package (including this Bill and related measures) is estimated to cost $136.2 million over the forward estimates.