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Community Affairs Legislation Committee - Senate Standing - National Health and Hospitals Network Bill 2010 [Provisions] - Report, dated November 2010 [and] Schedule 2 and 3 of the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Bill 2010 [Provisions] - Report, dated November 2010

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Australian Senate

Senate Legislation Committees

Reports on the consideration of bills July-December 2010

Volume 1

Australian Senate

Senate Legislation Committees

Reports on the consideration of bills

July-December 2010

Volume 1

Community Affairs Committee

Economics Committee Education, Employment and Workplace Relations Committee Environment and Communications Committee

ISSN 1834-4062

This document was printed by the Printing Unit, Department of the Senate, Parliament House, Canberra.

TABLE OF CONTENTS

Community Affairs Committee â¢ National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, dated November 2 0 1 0 ................................................................................1

â¢ National Health and Hospitals Network Bill 2010, dated November 2 01 0 .............................................................................................................49

â¢ Schedules 2 and 3 of the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Bill 2010*, dated November 2 010............................................................................................................115

Economics Committee â¢ Corporations Amendment (No.1) Bill 2010*, dated November 2 010............................................................................................................155

â¢ Tax Laws Amendment (Public Benefit Test) Bill 2010, dated September 2 01 0 ...........................................................................................................187

Education, Employment and Workplace Relations Committee â¢ Education Services for Overseas Students Legislation Amendment Bill 2010, dated November 2010........................................................ 277

Environment and Communications Committee â¢ National Broadcasting Legislation Amendment Bill 2010*, dated November 2 01 0 ........................................................................................................... 303

Minority Report by Coalition Senators..................................................................... 353

â¢ Radiocommunications Amendment Bill 2010*, dated November 2 01 0 ........................................................................................................... 357

â¢ Water (Crisis Powers and Floodwater Diversion) Bill 2010, dated November 2 010................................................................................................ 375

‘ Provisions of bill referred to committee.

The Senate

Community Affairs Legislation Committee

National Health Amendment (Pharmaceutical

Benefits Scheme) Bill 2010 [Provisions]

N ovem ber 2010

ISBN 978-1-74229-383-7

Senate Community Affairs Committee Secretariat:

Ms Naomi Bleeser (Secretary)

Ms Sophie Dunstone (Senior Research Officer)

Ms Leonie Peake (Research Officer)

Ms Victoria Robinson-Conlon (Executive Assistant)

Ms Tegan Gaha (Executive Assistant)

The Senate Parliament House Canberra ACT 2600

Phone: 02 6277 3515

Fax: 02 6277 5829

E-mail: community. affairs. sen@aph.gov. au Internet: http://www.aph.gov.au/senate_ca

This document was produced by the Senate Community Affairs Committee Secretariat and printed by the Senate Printing Unit, Parliament House, Canberra.

I l l

MEMBERSHIP OF THE COMMITTEE

42nd Parliament

Members

Senator Claire Moore, Chair

Senator Rachel Siewert, Deputy Chair

Senator Judith Adams

Senator Sue Boyce

Senator Carol Brown

Senator Mark Burner

ALP, Queensland

AG, W estern Australia

LP, Western Australia

LP, Queensland

ALP, Tasmania

ALP, Queensland

Participating Senators

Senator Concetta Fierravanti-Wells

Senator Russell Trood

LP, New South Wales

LP, Queensland

TABLE OF CONTENTS

M E M B E R S H IP O F T H E C O M M I T T E E ................................................................ iii

A C R O N Y M S .......................................................................................................................vii

R E C O M M E N D A T IO N .................................................................................................... ix

N A TIO N A L H E A L T H AM EN D M EN T (PH A R M A C EU TIC A L BENEFITS SC H EM E) B IL L 2010 [P R O V IS IO N S ]....................................................................... 1

The in quiry........................................................................................................................ 1

Background........................................................................................................................2

Overview o f the bill..........................................................................................................5

Relationship between the bill and the M O U ................................................................9

Issues raised during the inquiry....................................................................................10

Conclusion.......................................................................................................................22

A dditional C om m ents by Coalition S e n a to rs ........................................................... 25

Support for the Pharmaceutical Benefits S chem e.................................................... 25

The Impact o f the 2007 Reform s................................................................................. 25

The rising costs of the P B S .......................................................................................... 26

The Negotiation o f the MOU between the Commonwealth and Medicines Australia........................................................................................................................... 27

Shortcomings in the substance of the legislation..................................................... 28

Conclusion.......................................................................................................................30

Coalition Senators therefore recommend th a t:..........................................................30

A d d itio n a l C o m m e n ts b y S e n a to r R a c h e l S i e w e r t ...............................................33

A P P E N D IX 1 ....................................................................................................................... 35

Subm issions received by the C o m m itte e ....................................................................35

A P P E N D IX 2 ....................................................................................................................... 37

Public H e a rin g .................................................................................................................. 37

ACRONYMS

CHF

CSO

D o h a

GMiA

M OU

NPSA

PBAC

Consumers Health Forum

Community Service Obligation

Department o f Health and Ageing

Generic Medicines Industry Association

memorandum o f understanding

National Pharmaceutical Services Association

Pharmaceutical Benefits Advisory Committee

PBS Pharmaceutical Benefits Scheme

RECOMMENDATION

Recommendation 1

1.89 The committee recommends that the bill be passed.

NATIONAL HEALTH AMENDMENT (PHARMACEUTICAL BENEFITS SCHEME) BILL 2010 [PROVISIONS]

The inquiry

Previous inquiry

1.2 On 16 June 2010, the Senate, on the recommendation of the Selection o f Bills Committee, referred the provisions of the National Health Amendment

(Pharmaceutical Benefits Scheme) Bill 2010 (the bill) to the Community Affairs Legislation Committee for inquiry and report by 26 August 2010.

1.3 The committee received eight submissions to the inquiry.

1.4 No public hearings were held.

1.5 On 26 August 2010, the committee tabled a brief report concluding:

On 19 July 2010, the Governor-General prorogued the 42nd Parliament and dissolved the House of Representatives. After due consideration, the committee has resolved not to continue its inquiry into the bill. If the bill is reintroduced in the new parliament, the Senate may again refer it to the committee for inquiry.1

1.6 The evidence received by the committee was tabled in the Senate at that time.

Current inquiry

1.7 On 30 September 2010, the Senate, on the recommendation o f the Selection of Bills Committee, referred the provisions o f the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 for inquiry and report by

16 November 2010.

1.8 In accordance with usual practice, the inquiry was advertised in

The Australian and on the Internet inviting submissions by 20 October 2010. The committee wrote directly to a number o f organisations and individuals inviting submissions to the inquiry. Having decided to consider the evidence received in the 42nd Parliament, the committee also wrote to those organisations and individuals that had submitted to the previous inquiry advising that they need only re-submit should they wish to update or amend their previous submission.

1.9 The committee received 32 submissions in total (including those received during the 42nd Parliament), listed at Appendix 1. 1

1 Community Affairs Legislation Committee, National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 [Provisions] Report, 26 August 2010, p. 1.

1.10 The committee held a public hearing in Canberra on 9 Novem ber 2010. The witnesses are listed at Appendix 2.

Background

The Pharmaceutical Benefits Scheme

1.11 The Pharmaceutical Benefits Scheme (PBS) was created in 1948 and is governed under the National Health Act 1953.2

1.12 The scheme enables Australians to access government-subsidised

prescriptions at a cost o f $33.30 for general patients and $5.40 for concessional patients.3

1.13 There are currently over 760 medicines in more than 1900 forms available on the PBS.4 In 2009-10, approximately 184 million PBS prescriptions were dispensed at a cost to government o f $8.4 billion.5

1.14 Before being listed on the PBS, medicines must be considered by the

Pharmaceutical Benefits Advisory Committee (PBAC).6 The PBAC is an independent, statutory body comprising health professionals (doctors, academics, a pharmacist and a health economist) and a consumer representative.7 The PBAC considers the clinical and cost-effectiveness o f a medicine in comparison to other available treatments and provides advice to the M inister for Health and Ageing as to whether a medicine should be listed on the PB S.8

PBS reform

1.15 In 2007, the government implemented a major reform to the PBS. The goal of this reform:

2 Department of Health and Ageing (DoHA), What is the PBS?, available: http://www.Dbs.gov.au/html/consumer/Dbs/about (accessed 2 May 2010).

3 DoHA, New PBS Safety Net thresholds, available: http://www.health.gov.au/intemet/main/publishing.nsf/Content/pbs-safetvnet-changes (accessed 6 May 2010).

4 DoHA, Submission 31, p. 4.

5 DoHA, Submission 31, p. 4.

6 DoHA, Submission 31, p. 4.

7 DoHA, Pharmaceutical Benefits Advisory Committee, available: http://www.health.gov.au/intemet/main/publishing.nsf/Content/health-pbs-general-listing- committee3.htm (accessed 3 November 2010).

8 DoHA, Pharmaceutical Benefits Advisory Committee, available: http://www.health.gov.au/intemet/main/publishing.nsl7Content/health-pbs-general-listing- committee3.htm (accessed 3 November 2010).

...was to recognise the different market circ*mstances within which single brand and multiple brand medicines are sold, and to enable more effective targeting of savings measures while ensuring continued patient access to medicines.9

1.16 The reform comprised a range of measures, including:

â¢ Formularies - medicines on the PBS were divided into two separate

formularies, FI comprising single brand medicines (except those

interchangeable at a patient level with multiple brand medicines) and F2 comprising multiple brand medicines and single brand medicines

interchangeable at the patient level.10 * 1 2 The division was intended to address the difficulty the government experienced in paying competitive (lower) prices for multiple brand drugs by separating single brand medicines from multiple brand medicines for the purposes o f reference pricing.11

At the time, the F2 formulary was further separated into two parts, F2A (drugs where price competition between brands was low) and F2T (drags where price competition between brands was high) until 1 January 2011 when the two sub-formularies would be merged to form a single F2 form ulary.1"

â¢ Pricing - pricing rules for the medicines on each formulary were specified; in particular the circ*mstances in which price reductions would occur. In summary, the following pricing rales were applied:

â¢ a minimum 12.5 per cent reduction in the price o f any bioequivalent or biosimilar brand o f a drag upon PBS listing (so long as the drag had not previously been subject to a 12.5 per cent reduction);

â¢ from 1 August 2008, a staged two per cent price reduction every year for three years for drags in F2A; and

â¢ on 1 August 2008, a one-off price reduction o f 25 per cent for drags in F2T.13

â¢ Price disclosure - price disclosure provisions for medicines listed on the F2 formulary were introduced to ensure that the price the government paid for multiple brand drags more closely reflected the actual price at which those drags were being supplied to pharmacies. The price disclosure requirements

9 DoHA, Submission 31, p. 6.

10 DoHA, Fact Sheet: Pharmaceutical Benefits Scheme (PBS) Reform, 2 February 2007, available: http://www.health.gov.au/intemet/main/publishing.nsf/Content/24693658DD49E286CA257275 0081DB74/$File/PBS%20Reform%202Feb07.pdf /accessed 4 August 2010).

Î1 Senate Standing Committee on Community Affairs, National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007 [Provisions] Report, June 2007, p. 2.

12 National Health Act 1953, s. 99ACJ.

13 Senate Standing Committee on Community Affairs, National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007 [Provisions] Report, June 2007, p. 2.

were applied to all new brands o f a drug listed on F2A from 1 August 2007.14 Upon merging the F2A and F2T sub-formularies (originally scheduled for 1 January 2011), the price disclosure requirements apply to all drugs listed on the F2 form ulary.15

Memorandum o f Understanding

1.17 On 6 M ay 2010, the M inister for Health and Ageing and Medicines Australia signed a memorandum of understanding (MOU) with effect until 30 June 2014. The M OU is intended to 'promote the efficiency and sustainability o f the PBS and support, by the provision o f a stable pricing policy environment, a viable and responsible medicines industry in A ustralia'.16

1.18 The M OU seeks to address the following issues regarding PBS reform and the listing and pricing of pharmaceuticals on the PBS:

â¢ price reductions;

â¢ price disclosure timing and calculations;

â¢ therapeutic groups;

â¢ consistent treatment o f brands o f drugs sold at the same price;17

â¢ comparators;

â¢ parallel Therapeutic Goods Administration (TGA) and PBAC processes;

â¢ a managed entry scheme from 1 January 2011;

â¢ timing and maximum time frames for PBS pricing negotiations and

consideration by Cabinet; and

â¢ resolution o f issues in good faith.

1.19 Paragraph 6 o f the M OU requires Medicines Australia 'to support legislative changes required to effect policy changes arising from, or which reflect, this M O U '.18

14 DoHA, Price disclosure requirements, available: http://www.Dbs.gov.au/html/industrv/static/pricing matters/price disclosure/price disclosure r equirements (accessed 4 August 2010).

15 DoHA, Price disclosure requirements, available: http://www.pbs.gov.au/html/industrv/static/pricing matters/price disclosure/price disclosure r equirements (accessed 4 August 2010) & National Health Act 1953, s. 99ADA(2).

16 Commonwealth Government & Medicines Australia, Memorandum o f Understanding, 6 May 2010, p. 1.

17 That is, the Commonwealth undertook not to introduce any measure which favours the prescribing or dispensing of generic brands of a drug over originator brands of the same drug where the approved price to pharmacists is the same.

18 Commonwealth Government & Medicines Australia, Memorandum o f Understanding, 6 May 2010, p. 1.

Overview of the bill

Introduction of the bill

1.20 On 2 June 2010, the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 was first introduced into the House o f Representatives.

1.21 In her second reading speech at that time, the Minister stated that the bill was intended 'to achieve a more efficient and sustainable [PBS], better value for money for Australian taxpayers, and policy stability for the pharmaceutical sector'.19 2 0 2 1

1.22 The bill lapsed on 19 July 2010 with the dissolution o f the 42nd Parliament.”0

1.23 On 29 September 2010, the bill was (re-)introduced to the House of

Representatives.

1.24 Upon re-introduction o f the bill, the M inister explained the need for the bill given the continued growth o f the PBS:

The bill sets out new PBS pricing arrangements aimed at reducing growth in PBS expenditure, ensuring access to quality medicines at a lower cost to the taxpayer, and providing certainty to the pharmaceutical industry in relation to PBS pricing policy.

The PBS plays a vital role in Australia’s health system, particularly for the prevention and management of chronic disease, and for the treatment of life-threatening conditions. The PBS provides reliable and timely access to

a wide range of medicines at a cost individuals and the community can afford.

In the coming years, medicines will continue to be a significant and growing component of health expenditure. Since the previous major pricing reforms in 2007, the growth rate for PBS expenditure has increased from 4.3 per cent in 2006-07 to an estimated 10.5 per cent for the 2009-10

financial year.

In conclusion, the reforms in this bill provide a firm basis for achieving a more efficient and sustainable PBS while, at the same time, providing a period of certainty to industry in relation to medicines pricing policy. 1

19 The Hon Nicola Roxon, Minister for Health and Ageing, Second reading speech, 2 June 2010, p. 4897.

20 Parllnfo, National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, available: http://parlinfo.aph.gov.au/parlInfo/search/displav/displav.w3p:auerv=Id%3A%221egislation%2 Fbillhome%2Fr4385%22 (accessed 13 September 2010).

21 The Hon Nicola Roxon, Minister for Health and Ageing, Second reading speech, 29 September 2010, pp 80 & 82.

1.25 The bill seeks to give legislative effect to a number o f arrangements,

including some o f those outlined in the MOU agreed between the M inister for Health and Ageing and Medicines Australia, by amending the National Health Act 1953 in relation to:

â¢ price reductions for certain drugs listed on the PBS;

â¢ price disclosure arrangements;

â¢ the collection o f under co-payment data; and

â¢ section 100 medicines.

1.26 The bill seeks to make consequential amendments to the Health Insurance Act 1973 and the Medicare Australia Act 1973.

Main provisions of the bill

Price reductions

1.27 Schedule 1 o f the bill increases to 16 per cent the current statutory price reduction o f 12.5 per cent applied to an existing PBS-listed brand o f a medicine upon the listing o f the first bioequivalent brand o f that m edicine.22 The increase in price reduction will come into effect from 1 February 2011,23

1.28 Schedule 2 introduces one-off statutory price reductions o f two and five per cent to be applied to all medicines that were listed in the F2A and F2T

sub-formularies (as at 11 October 2010), respectively.24 These price reductions will take place on 1 February 2011.25

1.29 In the case of medicines that were allowed to take a staged 25 per cent price reduction (a one-off 25 per cent price reduction was applied to all medicines in the F2T formulary on 1 August 2008)26 the five per cent price reduction will be applied as if the full 25 per cent reduction had already occurred.27

22 Explanatory Memorandum, p. 1.

23 National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, clause 99ACA(2)(a).

24 Explanatory Memorandum, p. 1 & National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, schedule 2.

25 Explanatory Memorandum, p. 1.

26 DoHA, Fact sheet: Pharmaceutical Benefits Scheme (PBS) Reform, 2 February 2007, available: http://www.health.gov.au/intemet/main/publishing.nsf/Content/24693658DD49E286CA257275 0081DB74/$File/PBS%20Reform%202Feb07.pdf (accessed 15 July 2010).

27 Explanatory Memorandum, p. 1.

Merging the F2A and F2T sub-formularies

1.30 Schedule 3 of the bill provides for the merging of parts A and T of the F2 formulary.28 The separation o f the F2 formulary 'was always intended to be a temporary measure when the concept o f formularies was introduced' during the 2007 PBS reform.29 However, the bill brings the merge forward from 1 January 2011 to

1 December 2010.30 Merging the F2A and F2T sub-formularies will mean that price disclosure applies to all medicines in F2 and not just to those in the F2A

sub-formulary.

Price disclosure

1.31 The bill provides for mandatory price disclosure to be applied to all (non exempt) medicines on F2 from 1 December 2010.31

1.32 Clause 99ADB(1) defines the terms "adjusted approved ex-manufacturer price", "agreed quantity", "applicable approved ex-manufacturer price" and "unadjusted price reduction" for the purposes o f price disclosure.

1.33 Arrangements for the price disclosure round concluding on 1 April 2012 are outlined in clause 99ADJ o f the bill, including:

â¢ a minimum average price reduction o f 23 per cent for brands of

pharmaceuticals where the average unadjusted price reduction for all brands of the relevant pharmaceutical item are less than 23 per cent;

â¢ calculation of the average unadjusted price reduction; and

â¢ calculation of the adjusted approved ex-manufacturer price, including the guaranteed adjustment proportion (GAP) and GAP-adjusted reduction.32

Under co-payment data

1.34 "Under co-payment data" is data collected on the dispensing o f a PBS-listed medicine to a patient where the Commonwealth does not make a payment to the supplier because the price o f the medicine does not exceed the applicable patient co

28 National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, schedule 3.

29 Explanatory Memorandum, p. 17.

30 National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, clause 85AC.

31 National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, commencement.

32 National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, clause 99ADJ.

payment33 (currently $33.30 for general patients and $5.40 for concessional patients).34

1.35 Under co-payment data is not currently collected by the government.

1.36 Clause 98AC o f the bill requires an approved supplier (pharmacist, medical practitioner or hospital)35 o f a "pharmaceutical benefit"36 to provide information about that benefit to the government. This change will mean that prescriptions dispensed to general and concessional patients where the cost o f those medicines is under the co-payment amount will be included in future data collection.

1.37 The minister is responsible for determining, by legislative instrument, the rules specifying the information which suppliers must give regarding the supply o f a pharmaceutical benefit.37

1.38 The collection o f under co-payment data will commence on 1 April 2012.38 3 9 4 0

Special arrangements

1.39 The bill provides a clearer method for listing drugs supplied under section 100 of the A ct.39 40 The proposed amendments in schedule 6 o f the bill seek to simplify and streamline the listing process for section 100 medicines, resulting in section 100 medicines being considered a "pharmaceutical benefit", a "pharmaceutical item"41 and a "listed drug"42 under the A ct.43 This means that the provisions o f the Act will apply to section 100 medicines in the same way that they apply to all other PBS medicines

33 Explanatory Memorandum, p. 2.

34 DoHA, New PBS Safety Net thresholds, available: http://www.health.gov.au/intemet/main/publishing.nsf/Content/pbs-safetvnet-changes (accessed 6 May 2010).

35 National Health Act 1953, s. 84.

36 A "pharmaceutical benefit" is a drug or medicinal preparation listed on the PBS.

37 National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, clause 98AC(4).

38 National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, commencement.

39 Explanatory Memorandum, p. 2.

40 Section 100 of the National Health Act 1953 provides for alternative ways of providing medicines where supply through community pharmacies is unsuitable (reasons might include the cost of storage, requirements for particular controls over dispensing, the need for medical supervision or administration during treatment). These medicines, however, must still meet the government's criteria for clinical and cost-effectiveness.

41 A "pharmaceutical item" is a particular form and strength of a drug or medicinal preparation listed on the PBS.

42 A "listed drug" is a drug or medicinal preparation listed on the PBS for the purposes of allocating that drug or medicinal preparation to a formulary, and / or to a therapeutic group.

43 Explanatory Memorandum, p. 37.

(however, a section 100 arrangement may modify the application o f those provisions).44

Relationship between the bill and the MOU

Price reductions

1.40 The MOU provides for an increase in the price reduction applied to

single-brand PBS drugs upon listing o f a competitor brand from 12.5 per cent to 16 per cent from 1 February 2011.45 This is outlined in schedule 1 of the bill.46

1.41 The MOU also provides for a one-off statutory price reduction o f two per cent to be applied on 1 February 2011 to all drugs listed on the F2A sub-formulary47 and a one-off five per cent price reduction to be applied on 1 February 2011 to all drugs listed on the F2T sub-formulary.48 These price reductions are outlined in schedule 2 of the bill.49 5 0 5 1

Price disclosure

1.42 The MOU outlines 'strengthened price disclosure arrangements' to apply from 1 October 2010.30 These strengthened arrangements include the application o f price disclosure to all brands o f all drugs in the F2 formulary (except for exempt item s).31 This is provided for in clauses 99 AD and 99 AD A o f the bill.

Price disclosure cycle o f 1 December 2010 to 1 April 2012

1.43 The MOU details arrangements for the price disclosure cycle from

1 October 2010 to 1 April 2012, including:

â¢ A minimum average price reduction of 23 per cent for brands of

pharmaceuticals where the average unadjusted price reduction for all brands o f the relevant pharmaceutical item are less than 23 per cent;

44 Explanatory Memorandum, p. 37.

45 Commonwealth Government & Medicines Australia, Memorandum o f Understanding, 6 May 2010, p. 2.

46 National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, schedule 1.

47 Commonwealth Government & Medicines Australia, Memorandum o f Understanding, 6 May 2010, p. 2.

48 Commonwealth Government & Medicines Australia, Memorandum o f Understanding, 6 May 2010, p. 2.

49 National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, schedule 2.

50 Commonwealth Government & Medicines Australia, Memorandum o f Understanding, 6 May 2010, p. 2.

51 Commonwealth Government & Medicines Australia, Memorandum o f Understanding, 6 May 2010, p. 2.

JO___________________________________________________________________________________

â¢ Calculation of the average (unadjusted) price reduction; and

â¢ Calculation o f the guaranteed adjustment proportion (GAP).32

1.44 Clause 99ADJ of the bill provides for these arrangements for the price disclosure cycle concluding on 1 April 2012. However, given the delay to the bill's passage through the parliament due to the federal election, the price disclosure arrangements in the bill will commence on 1 December 2010 (rather than

1 October 2010 as outlined in the M OU).33

Other issues addressed in the MOU

1.45 The other issues addressed in the MOU, as listed below, are not covered by the bill:

â¢ the creation o f new therapeutic groups;

â¢ consistent treatment of brands of drugs sold at the same price;

â¢ comparators;

â¢ parallel Therapeutic Goods Administration (TGA) and PBAC processes;

â¢ a managed entry scheme from 1 January 2011;

â¢ timing and maximum time frames for PBS pricing negotiations and

consideration by Cabinet; and

â¢ resolution of issues in good faith.

Issues raised during the inquiry

1.46 While a number of submitters were in support o f the bill and recommended that it be passed, numerous submitters raised issues regarding the bill during the course o f the inquiry. These concerns included lack o f consultation, particularly with the generic medicines sector which claimed to have been excluded from consultation; the potential impact of the bill on the supply o f medicines; and the commencement date for price disclosure proposed in the bill.

Consultation

1.47 Some submitters said that the Department of Health and Ageing had not undertaken proper consultation when developing the M OU and the bill by failing to negotiate with all parties affected by the proposed changes. 5 2 5 3

52 Commonwealth Government & Medicines Australia, Memorandum o f Understanding, 6 May 2010, p. 3.

53 National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, clause 99ADJ.

1.48 The Generic M edicines Industry Association (GMiA) expressed

dissatisfaction that the generic medicines sector had not been consulted on the bill, or the M OU.54 Individual generic manufacturers agreed.55

1.49 The GMiA's concerns were based primarily on the argument that their membership represented a majority of the off-patent medicine market:

There was no consultation, negotiation or agreement about the MoU or the underpinning Bill with the GMiA. Members of GMiA supply approximately 70% of the volume of generic products. Without the insight and contribution of this significant sector of the industry, both the MoU and

the Bill lack balance and detail flawed and irresponsible public policy. Sectional interests have been promoted at the expense of unfavourable financial consequences for the PBS, taxpayers and other sectors of the industry.56

1.50 The Consumers Health Forum (CHF), whilst supportive of the bill, indicated that consumers should also have been consulted on the MOU:

...it is clear from other submissions that we are not the only group to consider that the negotiation of the MOU would have been strengthened by consultation with other affected parties. CHF argues that the process for the negotiation of future agreements of this kind should involve consumer

consultation. We are the people who pay for and use medicines in Australia.57

1.51 The Department o f Health and Ageing gave evidence regarding the

consultation it had undertaken with respect to sustainability of the PBS, and the invitation the department had extended to numerous stakeholders, including the GMiA and Medicines Australia, to contribute to those discussions.58 M r David Learmonth, Deputy Secretary, Department of Health and Ageing, explained that this was the context in which the MOU had come about, but was keen to point out that the government had not entered into discussions with the intention o f arriving at an MOU:

'We did not start the process with a notion o f an MOU or agreement— indeed, that was not our suggestion; it came late in the piece'.59 M r Learmonth went on:

It was relatively late in the piece. As I said, it was not the intention upfront. Indeed, it was a suggestion from Medicines Australia and not us. My guess

54 Generic Medicines Industry Association (GMiA), Submission 8, p. 15.

55 See Sigma Pharmaceuticals, Submission 12, p. 1 & Hospira, Submission 20, p. 3.

56 GMiA, Submission 8, p. 15.

57 Ms Carol Bennett, Executive Director, Consumers Health Forum (CHF), Proof Committee Hansard, 9 November 2010, p. 32.

58 Mr David Learmonth, Deputy Secretary, DoHA, Proof Committee Hansard, 9 November 2010, pp 46-47 & 51.

59 Mr David Learmonth, Deputy Secretary, DoHA, Proof Committee Hansard, 9 November 2010, p. 51.

would be that it was April this year but I do not think we could even nail down a day. It was not an a priori objective.60

1.52 M edicines Australia could not recall who had suggested the M OU but described their experience o f consultation with the department:

...I think certainly the process that we went through in discussing with the government in 2010 was very similar to the process we had in 2006 in discussing the reforms of the previous government. The similarities are eerie in some ways. In both cases, the government of the day approached us to ask how to find savings in the PBS. Then as now, the areas for efficiency were in the off-patent generics market because generic prices are too high. Then as now in 2006 and 2010, we decided we wanted to be part of the solution not part of the problem and we worked collaboratively with the government of the day.61

And:

We had certainly been discussing with the government since probably the middle of last year. We talked a lot about the PBS and growth trends and, in fact, put some of the proposals the generics had previously put to the government as well. Further discussions went through. I think we were talking about this before. February or March of this year was when we

started conceptualising. There was enough agreement on the policy tools that could be used that we started talking about finding some sort of agreement on this. We had our issues and the government had their issues. So it was probably around February or March that we started talking about it. I am not ‘memorandum of understanding’ is the right phrase—it was too embryonic at that stage—but we talked about some sort of understanding or agreement about the PBS.62

1.53 The GMiA informed the committee that they had been invited by the

Department o f Health and Ageing to provide a review o f the 2007 PBS reform s.63 In response, the GMiA submitted 'a number o f concerns with the 2007 reforms and put forward an integrated package o f amendments'.64

1.54 Ms Kate Lynch, C hief Executive Officer o f the GMiA, went on:

60 Mr David Learmonth, Deputy Secretary, DoHA, Proof Committee Hansard, 9 November 2010, pp 53-54.

61 Dr Brendan Shaw, Chief Executive, Medicines Australia, P roof Committee Hansard, 9 November 2010, p. 24.

62 Dr Brendan Shaw, Chief Executive, Medicines Australia, Proof Committee Hansard, 9 November 2010, p. 26.

63 Ms Kate Lynch, Chief Executive Officer, GMiA, Proof Committee Hansard, 9 November 2010, p. 3.

64 Ms Kate Lynch, Chief Executive Officer, GMiA, Proof Committee Hansard, 9 November 2010, p. 3.

GMiA became aware subsequent to putting that submission to the department, which was early November 2009, that some of the overarching principles such as the government’s commitment to the price disclosure policy were to remain in place. As a consequence of that GMiA, in a desire to stay engaged, contributed to policy amendments moving forward and then was in the unenviable position of needing to put suggestions forward. We continued to have the opportunity to put suggestions forward but we were unaware of where the mainstream debate was happening, which was clearly around the construction of the MOU.

In a vacuum we had an opportunity to put forward some suggestions, which we continued to do in good faith. But there was no opportunity to debate the merits of those particular suggestions because any policy from this needs to be considered in the context of the overarching reform or changes. It was not even a constructive dialogue. It was, ‘Here are some suggestions that we think have good merit.’ The response was, ‘Well, we don’t think they will work.’ That was pretty much the response: ‘They’re just not going to work. Go back and think of some more.’ Without the ability to know where the mainstream debate was happening, it was impossible to have a robust discussion and real input.65

1.55 The GMiA claimed that, ultimately, they became aware o f the MOU on budget night and 'had no input into the actual reform'.66 The committee notes, however, that the GM iA informed the committee that they had been offered a briefing by the Department of Health and Ageing 'on what was to be announced on budget night' several days prior to the budget announcement.67 The GMiA:

...did not take up the briefing, because we could wait 24 hours. Frankly, we did not want the department to be able to say, ‘We had consulted with all parties prior to the publication.’ There was zero consultation with us during the MOU or anything to do with this legislation.68

1.56 The department explained the outcome o f its discussions with Medicines Australia and the GMiA:

In the case of Medicines Australia, we had a discussion over months that started off with the same general proposition: how can we make the PBS more sustainable? Clearly we would look to what we already have by way of price disclosure and the other framework as a good starting point for

discussion. I think that if I were to characterise the discussion with

65 Ms Kate Lynch, Chief Executive Officer, GMiA, Proof Committee Hansard, 9 November 2010, p. 4.

66 Ms Kate Lynch, Chief Executive Officer, GMiA, Proof Committee Hansard, 9 November 2010, p. 4.

67 Ms Kate Lynch, Chief Executive Officer, GMiA, Proof Committee Hansard, 9 November 2010, p. 4.

68 Dr Martin Cross, Chairman, GMiA and Managing Director, Alphapharm Pty Ltd, Proof Committee Hansard, 9 November 2010, p. 4.

Medicines Australia, I would say that it was a bit like grief, denial and anger. It started off with a discussion about why we would still need it and the whole issue around the 2007 reforms and how they played out in terms of the sustainability in the future of the PBS. There was a degree of acceptance of the need for us still to look to more, so the discussion then turned to, ‘Well, what can we do?’ There was a process that led ultimately, very late in the piece, to the notion of an agreement—that is, the MOU that was struck.

In the case of GMiA, again we had a range of discussions. Some of them came off the back of submissions that GMiA had put in before about various ideas, and we talked about sustainability. There were a number of meetings that we detailed in our submission. I would add that no meeting was ever refused—it all was opened to GMiA—but I could not really characterise the way discussions evolved with GMiA as a negotiation in the same way as I could with others. We put our view that we were looking for sustainability, and GMiA made their views extremely clear on what they thought about the notion of price disclosure and any further saving. In other words, they did not really want to be a party to that. They did have some other ideas that were fundamentally about increasing competition. From our perspective, there would be two things to say about that. One is that competition generated by asking for consumers to pay more for the same product was not going to be something that was attractive...The proposition was that consumers would pay $5 more for a script that came from their competitor-originated off-patent as opposed to a generic off-patent. As she acknowledged in her testimony, it was made very clear to Ms Lynch that the government would not support that, so it is not as though there was not an exchange of views on those things; there very clearly was. In relation to the other measures to generate competition, there was some exchange. In looking at them, part of how we responded was to ask ourselves, ‘Well, what benefit is the competition?’ That is part of the issue— where does the benefit of competition lie? So if you were to do things that generate competition—competition in this context kind of means market share for GMiA, and the benefits of that competition or market share essentially remain private; in other words the profit derived up and down the supply chain from heavy discounting rather than the public sharing in some of that benefit of competition by taking a share of that discounting—it was going to be less attractive in terms of the sustainability of the PBS. So those discussions ultimately were not fruitful.69

Percentage share and representation o f the off-patent market

1.57 The question o f what percentage o f the off-patent medicine market was represented by members o f the GM iA versus M edicines Australia arose during the course o f the inquiry. This was at issue due to the question of which association best

69 Mr David Learmonth, Deputy Secretary, DoHA, Proof Committee Hansard, 9 November 2010, p. 51.

represents the off-patent medicine market and therefore should have been engaged in consultation about the changes proposed in the bill.

1.58 The GMiA claimed that 75 per cent of the volume, or 68 per cent by value, of the off-patent PBS market in Australia is supplied by its members and that, as the companies most affected by the changes proposed by the bill, the GMiA should have been consulted on the MOU and the bill.70

1.59 Medicines Australia disputed the GMiA's claim and argued that members of Medicines Australia accounted 'for about 60 per cent o f the off-patent market by value'.71 Dr Brendan Shaw, Chief Executive of Medicines Australia, stated 'W hichever way you cut it, our members account for the majority o f the off-patent m arket'.72

1.60 The GMiA acknowledged difficulties with determining market share because of a paucity of data, and stated 'that this is an imperfect world for market share'.73 Medicines Australia similarly acknowledged that the GMiA 'may have other data that we are not privy to', suggesting that this may account for the different figures for share

of the off-patent m arket.74 7 5

1.61 The Department o f Health and Ageing advised the committee that members of Medicines Australia represented 60 per cent o f the off-patent market by price, whilst members of the GMiA represented around one-third by price.73 The department informed the committee that percentage share o f the off-patent market by value, rather than volume, was the relevant statistic:

...when it comes to the impacts of PBS reform, it seems to be a reasonable assumption that those who have the majority of the sector by price will also have the majority of the impacts of price cuts. So, in that sense, that is our view.76

70 Dr Martin Cross, Chairman, GMiA and Managing Director, Alphapharm Pty Ltd, Proof Committee Hansard, 9 November 2010, p. 5.

71 Dr Brendan Shaw, Chief Executive, Medicines Australia, Proof Committee Hansard, 9 November 2010, p. 23.

72 Dr Brendan Shaw, Chief Executive, Medicines Australia, Proof Committee Hansard, 9 November 2010, p. 22.

73 Dr Martin Cross, Chairman, GMiA and Managing Director, Alphapharm Pty Ltd, Proof Committee Hansard, 9 November 2010, p. 5.

74 Dr Brendan Shaw, Chief Executive, Medicines Australia, Proof Committee Hansard, 9 November 2010, p. 22.

75 Mr David Learmonth, Deputy Secretary, DoHA, Proof Committee Hansard, 9 November 2010, pp 47-48.

76 Mr David Learmonth, Deputy Secretary, DoHA, Proof Committee Hansard, 9 November 2010, p. 48.

1.62 M r David Learmonth, Deputy Secretary o f the Department o f Health and Ageing, also acknowledged difficulties with data: Î think everyone has got an imperfect view o f the market because there is no one source...W e have a perfect view of what we pay for, which is the overwhelming majority o f the PB S'.77

1.63 In response to the arguments about whether the GM iA or M edicines Australia best represented the off-patent medicine market, the department stated:

...in the context of a discussion about representative organisations who, as I think someone said earlier, have skin in the game, from any reckoning we can do, based on any data that we have, Medicines Australia represents the majority share of the off-patent sector by price, and, thus, the majority of

the impact.78

1.64 The department provided the committee with charts illustrating the percentage share o f the off-patent market by both value and volum e:79

Formulary 2 market share by PBS expenditure

Other innovators 14%

GMiA 34.2%

Medicines' Australia 57.4%

Other generic 7.0%

77 Mr David Learmonth, Deputy Secretary, Department of Health and Ageing, Proof Committee Hansard, 9 November 2010, p. 47.

78 Mr David Learmonth, Deputy Secretary, Department of Health and Ageing, Proof Committee Hansard, 9 November 2010, p. 48.

79 DoHA, Answers to questions on notice, 9 November 2010 (received 12 November 2010).

Formulary 2 market share by PBS volume

Other innovators 2. 8%

Medicines Australia 47.3%

\ GMiA

\ 43.8%

Other generic 6. 1%

Potential impact on the supply o f medicines

1.65 The National Pharmaceutical Services Association (NPSA), The Pharmacy Guild o f Australia and the GMiA all raised concerns about the impact o f the bill on the supply o f medicines.80

1.66 The NPSA explained the role o f their members as wholesalers in 'ensuring that products are passing from manufacturers and suppliers through to every pharmacy not just those pharmacies that perhaps are located in major metropolitan settings' and:

Beyond pure logistics, the facilities of putting products into a shed, putting them onto a truck and sending them to a pharmacy, we play a role that I think is not well understood—that is, to help support the financing of the sector. What I mean by that is that, when we buy products and inventory

from all of the manufacturers and the suppliers, they have confidence that we will pay their bills. When pharmacists order all of those products, including the very low-volume items—those products that are stocked by pharmacists only when they need them—so products that are on the PBS

80 See National Pharmaceutical Services Association (NPSA), Submission 3, p. 7; Ms Toni Riley, Chair, Health Economics Committee, The Pharmacy Guild of Australia, Proof Committee Hansard, 9 November 2010, p. 15 & Dr Martin Cross, Chairman, GMiA and Managing Director, Alphapharm Pty Ltd, Proof Committee Hansard, 9 November 2010, p. 2.

but are not used particularly frequently, the pharmacists have confidence that the wholesalers will have that inventory available for them.81

1.67 The NFS A was particularly concerned about the potential impact o f price reductions applied on 1 April 2012 as a result o f price disclosure and the implications this would have for supply o f medicines:

When prices are reduced, wholesalers are at risk of holding stock that reduces in value significantly overnight. This risk is very real in the face of the need to forecast stocking requirements in a manner that ensures that wholesalers are able to deliver medicines to pharmacies generally within 24 hours of when the order is placed whilst working with manufacturers and delivery lead times to each distribution centre around Australia. With pharmacists also needing to keep their stocks low when price reductions are imminent, the management skills of the [Community Service Obligation] Distributors are critical to ensure that patient access remains timely and viable.82

1.68 The NPSA acknowledged their obligations to supply medicines under the Community Service Obligation (CSO), and that they had experienced price reductions as a result o f price disclosure on 1 August 2008, but stated:

...we are facing, on 1 April 2012, an unprecedented impact on the sector. We cannot look back necessarily to what happened in August 2008 as a guide to what might happen in April 2012. In August 2008, although it was a frantic time—and I am referring to a 25 per cent price cut that occurred on

1 August 2008— we did ultimately work with the suppliers, with the manufacturers, to help the wholesaler and ultimately the pharmacist deal with the price reduction.

What I am hearing from GMIA and from others, more loosely, is that the scale of the change that we are facing in April 2012 does not necessarily assure that they will step forward in the same way as they did in the past. For the wholesale sector to absorb stock devaluations that will tally into the tens of millions of dollars on a single day puts the viability of the businesses at risk. Whether we are obligated to the CSO or not, we have to run a business to have people employed and be able to move the products around. We are juggling two very significant obligations at the same time. My point is: without the supplier community giving us commitments in advance—and there are typically two things that happen. Either the supplier community allow us access to the lower prices well in advance so we can manage our inventory carefully or they provide us with what is known as a stock-on-hand claim. On the day that the devaluation hits, 1 April, we tell them that we have 100 units of the products that are their products in our warehouse and they compensate us for the devaluation impact, because it is

81 Mr Patrick Davies, President, NPSA and Chief Executive Officer, Symbion Pharmacy Services, Proof Committee Hansard, 9 November 2010, p. 38.

82 NPSA, Submission 3, p. 7.

typically not the role of the wholesaler to wear those massive devaluations. But this time we do not have that...83

1.69 The Pharmacy Guild of Australia was also concerned about potential disruptions to the supply o f medicines as manufacturers adjust to the price disclosure arrangements and the associated price reductions. The Guild suggested that community pharmacies may:

...be faced with a rapidly changing purchasing environment and may suddenly face a deterioration in margins if they do not react immediately. It could involve purchases being delayed, switched to different suppliers...84

1.70 Ms Toni Riley, Chair o f The Pharmacy Guild o f Australia's Health Economics Committee, emphasised the impact this could have on the ability o f community pharmacies to fill consumers' prescriptions:

We are the last point in the supply chain, as you would well know. We are the link between the wholesaler, or the manufacturer, and the consumer. As a community pharmacist, somebody comes in with a prescription and you need to be able to dispense that and give it to them at the time they need it. Usually that is when they come into the pharmacy. If we are unable to order

and receive stock in our normal routine manner, that creates quite a problem in community pharmacy.85

1.71 The GMiA was more forthright about the impact o f price reductions applied on 1 April 2012:

What will happen is that they will destock the supply chain and then on 1 April we will be asked to supply seven weeks of stock into the market. We are not going to be able to do that. There will be stock outs and patients will not get their essential medicines.86

1.72 In response to these claims, the Department o f Health and Ageing noted the 'range o f contractually enforced standards in operation' under the CSO and stated:

(a) In recognition of the impact of the transition to the 2007 PBS reforms on wholesalers, in August 2008, the Community Service Obligation (CSO) was increased by around $23 million a year. This is an indexed amount and continues to be paid today, well after wholesalers have adjusted to the original reforms.

83 Mr Patrick Davies, President, NPSA and Chief Executive Officer, Symbion Pharmacy Services, Proof Committee Hansard, 9 November 2010, p. 40.

84 Ms Toni Riley, Chair, Health Economics Committee, The Pharmacy Guild of Australia, Proof Committee Hansard, 9 November 2010, p. 12.

85 Ms Toni Riley, Chair, Health Economics Committee, The Pharmacy Guild of Australia, Proof Committee Hansard, 9 November 2010, p. 15.

86 Dr Martin Cross, Chairman, GMiA and Managing Director, Alphapharm Pty Ltd, Proof Committee Hansard, 9 November 2010, p. 2.

(b) The Department does not believe there will be any supply issues as a result of the Further PBS Reforms. The Department will provide over three months notice of which medicines are affected by the further PBS reforms under price disclosure arrangements. This allows time for wholesalers and community pharmacies to effectively manage stock levels, as they have demonstrated with previous price reductions under the 2007 PBS reforms.

Australian Pharmaceutical Industries (API), a pharmaceutical wholesaler and member of the National Pharmaceutical Services Association, has noted in a release to the Australian Stock Exchange on 28 October 2010 that ‘The impact of PBS reforms announced this year is significant, however we are confident that initiatives are in place to offset or mitigate any major impact on the business’.

This statement reflects that eligible wholesalers are sharing in some $950 million over five years to distribute medicines under CSO arrangements, 43 per cent more than the previous agreement. The payments from the CSO are in addition the wholesale margin of 7.52 per cent for most drugs which is paid

under the Fifth Community Pharmacy Agreement (5CPA). Further, the wholesale remuneration for PBS medicines that are priced over $930.06 is a fixed payment of $69.94 and is not impacted by price reductions.

Australia’s biggest supplier of medicines to wholesalers and community pharmacies, DHL Supply Chain (DHL), in their submission to the Inquiry is supportive of the Bill. Further, DHL suggest that the Commonwealth pays too much in wholesaler remuneration ($3.24 per prescription on average in

2008-09, including both wholesale margin and CSO) and recommends the application of a significantly reduced unit rate for all PBS items of $0.70 per unit.

(c) The Department expects that the management of stock levels in the context of changing stock prices is an aspect of their business operations that wholesalers are responsible for and that the arrangements already in places [sic] are sufficient to ensure the continued supply of medicines, and as such no additional measures are considered necessary.

Finally, it should be noted that $1 billion in savings were achieved under the 5CPA, however in recognition of the important role pharmaceutical wholesalers play in the PBS medicines supply chain wholesale remuneration remained unchanged.87

Commencement date o f price disclosure arrangements

1.73 The Pharmacy Guild o f Australia was supportive of the bill but expressed concern about the short period o f time between the bill's expected passage through parliament and the commencement date o f 1 December 2010 for the collection o f data for the April 2012 price disclosure round.88

87 DoHA, Answers to questions on notice, 9 November 2010 (received 12 November 2010).

88 The Pharmacy Guild of Australia, Submission 4, pp 2 & 5.

1.74 Ms Riley explained that December was 'an extremely busy prescription month and of course an extremely busy retail month for pharmacies' and that implementation of the extended price disclosure and associated data collection arrangements at this time 'would be fraught with danger and inevitably lead to mistakes in data and, ultimately, calculations that do not correctly match the market situation'.89

1.75 In answer to a question on notice, M r Kos Sclavos, National President of The Pharmacy Guild o f Australia, clarified the Guild's concern with respect to data collection:

I also wish to elaborate on the Guild's assertion that manufacturers will be subject to an unprecedented increase in data management. Even where systems are in place, rushing this expansion in December is likely to cause problems for these companies and, ultimately, for PBS pricing and our members.90

1.76 The Guild recommended that data collection for the purposes o f the

April 2012 price disclosure round commence on 1 February 2011, to ensure 'a sufficient timeframe for manufacturers to start data collection' and 'a sufficient timeframe for community pharmacies to react to potential changes in trading terms from suppliers as a result o f the changes'.91 The Guild emphasised that a

commencement date o f 1 February 2011, whilst shortening the data collection period from 10 months to eight months, would cause 'no change to savings estimates or the timing o f price reductions'.92

1.77 M r Patrick Davies, President o f the NPSA, supported this view:

On the timing in relation to the start of price disclosure-I think the government are currently proposing 1 December-I agree with the guild that that date should be pushed backwards...My knowledge of the industry is that that would be a dangerous time to bring in the implementation. I

support the guild's position on the revised timing for that.93

1.78 The Department of Health and Ageing clarified the issue o f the

commencement date for data collection:

There is no impact on pharmacies of this measure over the Christmas period.

89 Ms Toni Riley, Chair, Health Economics Committee, The Pharmacy Guild of Australia, Proof Committee Hansard, 9 November 2010, pp 11-12.

90 The Pharmacy Guild of Australia, Answers to questions on notice, 9 November 2010 (received . 11 November 2010).

91 The Pharmacy Guild of Australia, Supplementary Submission, p. 2.

92 The Pharmacy Guild of Australia, Supplementary Submission, p. 2.

93 Mr Patrick Davies, President, NPSA and Chief Executive Officer, Symbion Pharmacy Services, Proof Committee Hansard, 9 November 2010, p. 44.

The 1 December 2010 date marks the commencement of the period in which pharmaceutical companies (not pharmacies) will begin collecting data about the prices at which they sell their drugs to pharmacies and wholesalers. The data is not required to be submitted to the Department until mid-May 2011. The data will be the same type and format that is collected under the existing program which commenced in 2007, and is sales data that pharmaceutical companies already collect in the operation of their businesses.

The collection of data from 1 December 2010 does not change trading terms or prices in the in the [sic] 2010 pre Christmas period because any price changes as a result of price disclosure will not take effect until 1 April 2012.94

Conclusion

1.79 The committee recognises the vital role o f the PBS in ensuring Australians have reliable, timely and affordable access to medicines. The committee also acknowledges the need to ensure the ongoing sustainability o f the PBS so that Australians can continue to have access to affordable medicines when they need them.

1.80 PBS costs are growing quickly. In 2008-09 the cost o f the PBS was 9.2 per cent higher than that in 2007-08, and in 2009-10, the PBS grew a further 9.3 per cent to an annual cost o f $8.4 billion.95 This continued growth has been acknowledged by the Intergenerational Report 2010 Australia to 2050: Future Challenges which forecasts that spending on the PBS will increase in real terms from $443 per capita in 2012-13 to $534 per capita in 2022-23 96 9 7

1.81 Managing the high growth o f the PBS will help allow continued investment in new, innovative drugs. For example, there have been $1.4 billion in new drug listings during 2008-09 for conditions like multiple sclerosis, heart disease and cancer.

1.82 The 2007 PBS reforms show that price disclosure is an effective mechanism for getting better value from medicines prices by taking advantage o f discounting that is occurring in the market. The first four completed rounds of price disclosure have seen a number o f drugs take a price reduction ranging from 13 per cent to 72 per

. 97

cent.

1.83 However, it is the committee's view that the 2007 PBS reforms do not go far enough. W hile the 2007 PBS reforms are anticipated to provide more savings than

94 DoHA, Answers to questions on notice, 9 November 2010 (received 12 November 2010).

95 DoHA, Submission 31, p. 4.

96 The Treasury, Australia to 2050: Future Challenges, available: http://www.treasurv.gov.au/igr/igr2010/report/pdf/IGR 2010.pdf(accessed 15 November 2010), p. 54.

97 DoHA, Submission 31, p. 11.

originally estimated, these will be more than outweighed by higher than expected growth in PBS costs. The February 2010 Impact o f PBS Reform report to government stated that on current projections, PBS outlays in 2018 will be in the order of $13 billion to $13.7 billion.98

1.84 Price disclosure currently applies to only about 45 medicines99 - only about one fifth o f the medicines where there currently is competition and discounting is occurring in the market. Medicines that have come off patent but are not currently subject to price disclosure, such as simvastatin, have decreased significantly more in price in some countries like the United Kingdom than in Australia.100

1.85 Expanding the 2007 PBS reforms through the measures in the bill will improve the sustainability of the PBS. The projected savings to taxpayers generated from the combined package o f further pricing reform are estimated to be some $1.9 billion over five years.101 At the same time patients will benefit from lower prices for medicines where the price falls below the general patient co-payment.

1.86 The 2007 reforms were estimated to benefit consumers through direct reductions in prices for some prescriptions by $600 to $800 million over the ten years to 2018.102 The additional direct savings to consumers from the new measures under the bill have been independently estimated to double this previous estimate, and to

save general patients on average almost $3.00 per prescription over the ten years to 2018.103 With current price disclosure arrangements producing savings o f between 13 and 72 per cent, some general patients will see significant price cuts for their m edicines.104

1.87 Two key goals o f the bill are to contribute to the sustainability o f the PBS and maintain access to quality medicines at a lower cost to the taxpayer. The committee acknowledges that the ways in which the bill seeks to achieve these goals are not new but rather build on the reforms made to the PBS in 2007 by extending the pricing policies introduced at that time, whilst maintaining the separation o f medicines in the FI and F2 formularies, and retaining the concepts o f statutory price reductions and price disclosure. The committee further notes that the changes proposed in the bill are expected to deliver substantial savings to government.105

98 DoHA, Submission 31, p. 5.

99 DoHA, Submission 31, p. 10.

100 DoHA, Submission 31, pp 12-13.

101 DoHA, Submission 31, p. 3.

102 DoHA, Submission 31, p. 20.

103 DoHA, Submission 31, p. 20.

104 DoHA, Submission 31, p. 20.

105 DoHA, Submission 31, p. 3.

1.88 The committee believes that the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 will assist in achieving the goal o f a sustainable PBS into the future. On that basis, the committee recommends that the bill be passed.

Recommendation 1

1.89 The committee recommends that the bill be passed.

Senator Claire Moore Chair

November 2010

Additional Comments by Coalition Senators

National Health Amendment

(Pharmaceutical Benefits Scheme) Bill 2010 (Provisions)

Support for the Pharmaceutical Benefits Scheme

1.1 Coalition Senators acknowledge the many strengths o f Australia’s existing Pharmaceutical Benefits Scheme (PBS). Overall the PBS delivers to the Australian community a wide range o f both older and newer prescription medicines in a way that offers patients a high degree of confidence that they are o f high quality, safe and compared to the cost o f medicines in some other countries, reasonably priced.

1.2 Maintaining the integrity of the Scheme requires constant vigilance on the part o f the various regulatory authorities responsible for its administration, including the Department o f Health and Ageing (DHA).

1.3 Coalition Senators acknowledge that it is a particular challenge to contain the costs o f medicines listed on the PBS and that the reforms reflected in the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 aim to address this issue.

1.4 The Coalition supports the $1.9 Billion savings measures sought to be

achieved by this Bill. These reforms build on the extensive reforms to the PBS introduced by the Coalition Government in 2007. However, the extent and wide ranging nature o f the new reforms raise some significant issues o f public policy that in the view of Coalition Senators have not been adequately addressed and should be reviewed before the Bill is permitted to proceed.

The Impact of the 2007 Reforms

1.5 The 2007 reforms to the PBS were among the most radical undertaken. Among other things they involved the creation o f two categories o f formularies for medicines, new pharmacy and wholesale support arrangements, the promotion of generic medicines, the streamlining o f approval processes for some medicines, and the use o f price disclosure techniques to secure cost savings. Given their wide ranging nature, the reforms were to be implemented over a 10 year period and in so far as price disclosure was concerned, applied to only a small number o f medicines (162)

listed on the PBS.

1.6 In evidence before the committee witnesses noted that the changes introduced by the 2007 reforms were to be implemented in stages and are only now beginning to yield savings. Nevertheless a submission from the Pharmacy Guild o f Australia noted that several independent studies of the effect of the reforms had shown that the

savings being achieved by the reforms will be far greater than anticipated and could well be near double original projections (in the vicinity of $6 billion).

1.7 W hile Coalition Senators welcome these potential cost savings to the PBS, they query the Government's reasons for introducing an extensive new set o f reforms when the Pharmaceutical industry has barely been able to adjust to those o f 2007. It is clear from evidence to the Committee that the new reforms will be very disruptive to the pharmaceutical industry which requires a certain business environment.

1.8 In addition, the 2007 reforms were implemented following an extensive consultation by the Coalition Government across all stakeholders. As a consequence they had widespread acceptance, no doubt a strong reason for the fact that they will yield well in excess o f anticipated savings to the PBS.

1.9 Given that those reforms were undertaken with the support of the commitment of the whole industry, it is possible that with more comprehensive negotiations with all relevant stakeholders, the existing identified savings o f $1.9 billion and possibly other savings could be made to the PBS. Broader consultation would result in broader consensus and commitment and potentially more equitable savings identified.

The rising costs of the PBS

1.10 The evidence before the Committee was that the costs o f the PBS are rising and will grow significantly in coming years. W hile the costs o f all PBS medicines are increasing (in both the FI and F2 formularies) the evidence from various witnesses, including the DHA was that the costs o f medicines in the FI category is growing more quickly.

1.11 In its submissions and evidence to the committee the Generic Medicines Industry Association (GMIA) noted that between 2005-06 and 2009-10 the cost to the Government of F2 medicines had declined by 21.4 percent while the cost o f those in FI formulary over the same period had risen by 35.4 percent. M oreover, it is clear that the trend where FI costs rise more rapidly than F2 costs will continue into the

future.

1.12 Conscious of this trend, Coalition Senators are concerned that the effect of the proposed reforms will be to extract all the cost savings from the medicines in the F2 formulary and do nothing to contain the rapidly rising costs in the F I formulary. This will mean that the cost burden o f the reforms will fall exclusively on the companies

and enterprises whose businesses are built around the sales o f medicines in this category o f the pharmaceutical industry. While some members of the Medicines Australia group selling generic drugs will be affected, the implications for the businesses o f the members o f the GMIA will be greater as they only sell generic medicines in this section o f the market.

1.13 The proposed reforms not only target the F2 section o f the market, they appear to have been designed to insulate FI medicines (essentially patented medicines) from price savings. The Committee received evidence that the cost of these medicines in Australia was considerably lower than in some other parts o f the

world and that the unique characteristics o f the PBS are largely responsible for this benefit.

1.14 While Coalition Senators acknowledge that the structure o f the PBS is one of the great strengths o f the way medicines are made available to the Australian public, they do not accept that the Commonwealth should not do all it reasonably can to drive cost savings in all sectors o f the pharmaceuticals market, including the FI category.

1.15 Far from seeking to secure costs savings from FI medicines, these reforms establish significant barriers which will almost certainly limit the possible extent of savings. The M OU between the Commonwealth and Medicines Australia, for example, explicitly rules out the creation any additional therapeutic groups except in a very narrow set o f circ*mstances. The Committee received evidence, most notably

from DHA, that therapeutic groups were a well established way of securing significant cost savings for the PBS. Under the MOU new groups cannot be created for four years, a prohibition that could deny the Government hundreds o f millions o f dollars of savings to the PBS.

1.16 The wide consultation with stakeholders prior to the implementation o f the 2007 reforms ensured wide acceptance and commitment to reform. A certainty that yielded savings well in excess o f those anticipated. Arguably, had the Government in this instance consulted with all stakeholders and achieved agreement to reforms, it is possible that broader parameters of reform, and in turn, greater savings could have been achieved.

The Negotiation of the MOU between the Commonwealth and Medicines Australia

1.17 In its evidence to the Committee DHA argued that the reforms proposed in the 2010 Bill reflect essentially the contents of the MOU first signed between the Commonwealth and M edicines Australia in May 2010 and later re-signed with some minor amendments in September this year.

1.18 Coalition Senators are deeply concerned by other evidence to the Committee, including from DHA, which made it clear that the only party with which the Commonwealth had any serious negotiations about the contents o f the MOU was Medicines Australia.

1.19 Several other parties with a direct interest in the contents of the agreement and likely to be seriously and materially affected by its provisions were excluded from participation. Indeed the GMIA only learnt o f the existence o f the MOU a few days before it was publicly announced in conjunction with the 2010 Commonwealth

Budget. Other key parties such as Pharmacy Guild o f Australia, Consumers Health Forum, and the National Pharmaceutical Services Association were not included in the negotiations.

1.20 At least in relation to the members of the GMIA, the supposed explanation for their exclusion from the negotiations was that they held a relatively modest, even insignificant, proportion o f the pharmaceutical market in Australia. Coalition Senators noted however, that the evidence on the extent o f company's market shares

was contentious and that there is an absence o f reliable data on the matter. W hatever its actual share, it is clear that the result o f GMIA's exclusion from the MOU negotiations is that its legitimate concerns about various aspects o f the M OU - now enshrined in the Bill - were ignored to the considerable detriment o f its interests.

1.21 Coalition Senators consider the failure to involve all the relevant parties (not merely GMIA) in the negotiations over the MOU, to be a profound shortcoming in the process leading up to the development o f proposals for reform o f the PBS. It has resulted in a set o f reforms that achieve far less than might have been possible had the Commonwealth attempted to secure a wider degree o f cooperation. In addition, some of the reforms are materially damaging to key sectors o f the pharmaceutical industry and highly likely to reduce competition in this market.

1.22 Finally, the failure o f process has led to a schedule o f changes to industry marketing arrangements that will be administratively difficult to implement and likely to prove highly disruptive to the smooth flow o f medicines through the wholesale and retail pharmaceutical markets.

Shortcomings in the substance o f the legislation

1.23 In submissions to and in evidence before the committee reference was made to a number o f problems and shortcomings with the proposed reforms that if not addressed could well frustrate the effective implementation o f the legislation and undennine its policy design. Coalition Senators consider that these issues need further

consideration and review before the Bill passes though the parliament.

The dates that trigger the start o f the reforms and the points at which they progress

1.24 The Bill proposes a series o f dates (relating to matters such as price disclosure and the reduction of medicine prices) which are integral to the progress o f the PBS reforms over the period o f the legislation.

1.25 In view o f the time it has taken for the Bill to pass through the Parliament, the massive increase in the number o f medicines which will become subject to price disclosure and the administrative burden being imposed on drug manufactures, wholesalers and retailers, Coalition Senators believe that these dates should be reviewed and discussed with industry representatives with a view to developing a revised timetable for change.

Medicines subject to price disclosure and the administrative procedures involved in efficient and accurate data collection.

1.26 The Bill proposes a very large increase (from 162) in the number o f medicines that will become subject to price disclosure over the period o f the reforms. Some o f the evidence before the committee highlighted the severe imposition that this is likely to have on business costs and profitability, medicine supply lines and industry

accounting systems throughout key parts o f the pharmaceutical sector.

1.27 While Coalition Senators acknowledge that some o f these concerns may be overstated, they are conscious that these reforms involve a massive upheaval in the pharmaceutical industry and especially in the businesses of those companies trading in the generics sector. Coalition Senators are not persuaded that some o f the key issues

necessary for the reforms to proceed successfully and efficiently and without interruption to the supply o f the medicines have been adequately thought through.

1.28 The failure of DHA to include key parties into their negotiations over the reforms have made this a more acute and critical issue than necessary. To ensure the smooth introduction o f these reforms, Coalition Senators believe that these key issues need to be addressed with all industry representatives.

The effects of reforms on Pharmaceutical Wholesalers

1.29 Medicines wholesalers are a critical part o f the pharmaceutical industry and will be required to make considerable adjustments to their businesses as a

consequence of these reforms. The impact of the price changes scheduled to occur in April 2012 is likely to be especially severe and could risk continuity o f medicines supply.

1.30 Coalition Senators consider that the DHA needs to engage members o f the National Pharmaceutical Services Association in comprehensive discussions to address these matters.

The classification o f statins medicines

1.31 Some of the submissions to the Committee drew attention to anomalies in the classification o f certain medicines listed for sale on the PBS. An example is the group of medicines know as statins, whose purpose is to reduce cholesterol. There was evidence to the Committee that of the five medicines in this category three are listed

in the F2 formulary but two newer statins - rosuvastatin and atorvastatin, are listed under FI.

1.32 While Coalition Senators are aware that the later two medicines are still under patent and are therefore typical of many o f the medicines listed in the FI formulary, they also note that pharmaceutically these medicines work in a similar way to the three medicines listed under F2. These medicines will come off patent in 2012 and

from that point forward they will deliver cost savings to the PBS and hopefully to consumers.

1.33 At the moment, however, under their current classification, they are not subject to the same competition as those other medicines. The evidence to the Committee was that were these two newer medicines reclassified into the same therapeutic group as other statins, it would have the potential to save the PBS perhaps billions o f dollars over several years.

1.34 With the costs o f the PBS rising and those o f FI medicines rising more

quickly than those in the F2 category, Coalition Senators believe the possible

reclassification o f rosuvastatin and atorvastatin into the existing statins therapeutic group deserves at the very least close investigation.

Conclusion

1.35 In summary, Coalition Senators believe the so-called 2010 reforms to the PBS have been handled very ineptly by the Government. Firstly, key sections o f the pharmaceutical industry with manifestly material interests in the nature o f the reforms were excluded from the negotiations that led to the M OU which is now the basis of the Bill before the Senate.

1.36 Secondly, in some important respects the reforms are ill-considered targeting, for example, only medicines on the F2 formulary and overlooking the opportunity for considerable cost savings to the PBS and patients through reforms to the FI listings.

1.37 Finally, some o f the key administrative elements o f the changes introduced by the reforms are ill-thought through and could well have highly disruptive impacts o f the way pharmaceuticals are delivered on to the Australian market.

1.38 Coalition Senators are very conscious o f the need to continue to contain the rising costs o f medicines listed under the PBS. They therefore support the general thrust o f the reforms in the Bill currently before the Senate. As a matter o f good public policy, however, the burden of the reforms should be more equitably shared amongst all the affected parties and especially more evenly between members o f the Medicines Australia group and the GMIA.

1.39 In light o f this need, the deficiencies of process and misgivings over the content of some o f the reforms, Coalition Senators consider that the Bill should not be supported in its present form but should be represented at a later date following a proper and comprehensive negotiation process or alternatively, that this Bill be

withdrawn and a new Bill be introduced.

Coalition Senators therefore recommend that:

Recommendation 1

1.40 The M OU negotiated between the Commonwealth and Medicines Australia be set aside.

Recommendation 2

1.41 The Commonwealth undertake a fresh set o f negotiations to develop a new MOU which will secure the identified $1.9 billion cost savings in a more equitable manner.

Recommendation 3

1.42 All parties possessing a material interest in the outcome o f the proposed reforms or whose material interests are affected by the reforms be involved in the

negotiations, including the members o f the GMIA, the Pharmacy Guild of Australia and the National Pharmaceutical Services Association.

Recommendation 4

1.43 The National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 be amended in light o f the contents o f the new MOU and be represented to the Parliament in amended form for reconsideration and approval or alternatively, that the Government withdraw the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 and a new Bill be introduced.

Senator Judith Adams

Senator Sue Boyce

Senator Concetta Fierravanti-Wells

Senator Russell Trood

Additional Comments by Senator Rachel Siewert

Senate Community Affairs Committee Inquiry National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010

The Government signed a Memorandum o f Understanding (MoU) with Medicines Australia in 2010 designed to ensure ‘a stable environment for business are continued access to new medicines for all Australians’. Measures announced in the 2010 Budget predicted to give the Government $1.9 billion of savings over five years, with savings largely achieved through the imposition o f price cuts across F2 (off-patent meds) and the extension o f price disclosure arrangements to all products listed on F2. The MoU with Medicines Australia also included a guarantee that the Government would not seek to impose any further price savings on the pharmaceutical industry before 30 June 2014 or introduce any measure which favours the dispensing of generic medicines, thereby possibly precluding further measures which could deliver additional savings to the Government.

The Greens are aware that this is a complex piece o f legislation. Australia pays among the lowest prices for new medicines in the OECD, yet generic prices have been high by international standards. The Greens have had concerns that the savings from the original PBS reform measure (estimated to be $580 million over four years) have been

revised down to $103 million. We remain concerned that budget assumptions aren't available to the public. With this in mind the Greens believe reporting o f all costs from the PBS to the taxpayer should be tabled before Parliament.

One o f the difficulties that presented itself throughout the inquiry was the credence of stakeholder claims to the proportion o f the F2 (off patent) market they represented. Medicines Australia claim they represent 60% o f the cost to government of the F2 sector. GMiA say they represent 75% o f the volume of this sector. This is clearly an

argument over market share and the Greens are concerned about what this will mean for availability o f medicines, impact on price to the government and ultimately the effect this will have for consumers.

The Bill addresses three matters contained in the MOU: statutory price reductions (by international standards price reductions are low in this country), price disclosure and under co-payment data. W hile savings are welcomed the Greens have concerns about the sustainability o f these reforms - the UK introduced a series of price cuts in 2005

and an evaluation in 2007 suggested that the effects o f the price cut could be reduced overtime. It still isn't clear whether the savings are temporary or long term.

Legislation is also silent about how the under co-payment data will be used. There should be an annual report to Parliament on the price o f under co-payment products, including average price and min-max range. The PBS reforms are supposed to deliver savings to consumers but this is (currently) unable to be measured. More importantly,

as under co-payment drugs don’t qualify for the safety net - it may adversely affect consumers in some instances.

The Greens are also concerned that there is no dispute resolution or audit process as part of the price disclosure arrangements

The Greens believe the delay between notification o f price reduction and the date that it will take effect is unnecessary. For example, the price reductions that will be calculated from the price disclosure cycle commencing on 1 October 2010 will not take effect until 1 April 2012. Given the inherent dynamic nature o f markets, it is unlikely that the price disclosed in October 2010 will be an accurate reflection o f the market price in April 2012, almost two years after the price was disclosed.

Arbitrary price cuts may unfairly penalise drugs, which are already cost-effective or have already been subject to discounting. (The impact o f further cuts to already low priced dm gs was noted in submissions to the Senate Inquiry into Consumer Access to Pharmaceutical Benefits.)

The Greens believe the Government should conduct a study on the affordability of prescription medication and access to medicines. This should also include use of generic medicines. This is the first time the government has access to under co payment data, something the Greens welcome in this legislation. At the very least it

should be reported in the same way the ‘Expenditure and prescription to 30 June’ series that is published on an annual basis by government. Concerns about medicine priced below the co-payment are twofold. First, pricing is at the discretion o f the pharmacist and there is no incentive for the pharmacist to offer the savings to the

consumer, apart from altruism. The second is that the costs for under co-payment scripts are borne entirely by the consumer and only the dollar amount will be recorded against the safety net. This may disadvantage people with chronic illness who do not qualify for a health care card.

The Greens believe an annual report should be tabled to Parliament on price reductions, and implementation. Finally, the Greens believe the 23 per cent price reduction should be explicitly linked with the minimum savings of $ 1,9billion over four years.

Senator Rachel Siewert Australian Greens

APPENDIX 1

Submissions received by the Committee

1 Ms Lois Roberts

2 Osteoporosis Australia

3 National Pharmaceutical Services Association

â¢ Attachment 1

â¢ Attachment 2

4 The Pharmacy Guild o f Australia

â¢ Supplementary Submission received 19 October 2010

5 Breast Cancer Network Australia

6 Medicines Australia

â¢ Supplementary Submission received 20 October 2010

7 DHL Supply Chain (Australia) Pty Ltd

8 Generic Medicines Industry Association Pty Ltd

â¢ Supplementary Submission received 20 October 2010

9 Consumers Health Forum

10 GlaxoSmithKline

11 Aspen Pharmacare Australia Pty Ltd

12 Sigma Pharmaceuticals

13 Australian National University

14 Spirit Pharmaceuticals Pty Ltd

15 Bristol-Myers Squibb Australia

16 Eli Lilly Australia Pty Ltd

17 MSD

18 M r Edmund Fitzgerald and M r Philip Clarke

19 Confidential

20 Hospira Pty Ltd

21 Pfizer Australia

22 Merck Serono Australia Pty Ltd

23 Abbott Australasia Pty Ltd

24 Novo Nordisk Pharmaceuticals

25 Lundbeck Australia Pty Ltd

26 Confidential

27 Confidential

28 Janssen-Cilag Pty Ltd

29 Amgen Australia Pty Ltd

30 National Prescribing Service

31 Department o f Health and Ageing

32 Australian Pharmaceutical Industries Ltd

APPENDIX 2

Public Hearing

Tuesday, 09 November 2010 Parliament House, Canberra

Committee Members in attendance Senator Claire Moore (Chair) Senator Rachel Siewert (Deputy Chair) Senator Carol Brown Senator Sue Boyce Senator Concetta Fierravanti-Wells Senator Russell Trood

Witnesses

Generic Medicines Industry Association Pty Ltd Dr Martin Cross, Chairman

Mr Robert Ellis, Board M ember

Mr Roger Millichamp, Board Member

Ms Kate Lynch, C hief Executive Officer

The Pharmacy Guild of Australia Ms Toni Riley, Chair

Mr Stephen Armstrong, National Manager, Economic Analysis and e-Health

Medicines Australia Mr William Louis Delaat, Chairman

Ms Jane Orr, Managing Director MSD Australia and New Zealand

Mr Peter Vermeer, Director Corporate Affairs and Market Access, Eli Lilly Australia

Ms Deborah W aterhouse, General Manager GlaxoSmithKline Australia and New Zealand

Dr Brendan Shaw, Chief Executive Officer

Consumers Health Forum of Australia Ms Carol Bennett, Executive Director

Ms Anna Wise, Senior Policy Manager

National Pharmaceutical Services Association M r Patrick Davies, President

M r Brett Lucas Barons, Director

Mr Mark Robert Hooper, Director

Ms Pattie Anne Beerens, Executive Director

Department of Health and Ageing M r David Learmonth, Deputy Secretary

M r Andrew Stuart, Acting Deputy Secretary

Ms Adriana Platona, Assistant Secretary, Pharmaceutical Evaluation Branch, Pharmaceutical Benefits Division

M r Nick Henderson, Acting Assistant Secretary, Policy and Analysis Branch, Pharmaceutical Benefits Division

M r Kim Bessell, Principal Pharmacy Adviser, Pharmaceutical Benefits Division

The Senate

Community Affairs Legislation Committee

National Health and Hospitals Network Bill 2010

N ovem ber 2010

ISBN 978-1-74229-387-5

Senate Community Affairs Committee Secretariat:

Ms Naomi Bleeser (Secretary)

Dr Ian Holland (Secretary)

Dr Robyn Clough (Principal Research Officer)

Ms Hanako Jones (Executive Assistant)

Ms Tegan Gaha (Executive Assistant)

The Senate Parliament House Canberra ACT 2600

Phone: 02 6277 3515

Fax: 02 6277 5829

E-mail: community.affairs.sen@aph.gov.au Internet: http://www.aph.gov.au/senate_ca

This document was produced by the Senate Community Affairs Committee Secretariat and printed by the Senate Printing Unit, Parliament House, Canberra.

MEMBERSHIP OF THE COMMITTEE

Members

Senator Claire Moore, Chair

Senator Rachel Siewert, Deputy Chair

Senator Judith Adams

Senator Sue Boyce

Senator Carol Brown

Senator Mark Fum er

Participating Senators

Senator Concetta Fierravanti-Wells

Parliament

ALP, Queensland

AG, W estern Australia

LP, W estern Australia

LP, Queensland

ALP, Tasmania

ALP, Queensland

LP, New South Wales

Ï; .:'5Î½Î½· , '

TABLE OF CONTENTS

MEMBERSHIP OF THE COMMITTEE......................................................... iii

ACRONYMS AND ABBREVIATIONS............................................................ vii

RECOMMENDATIONS....................................................................................... ix

NATIONAL HEALTH AND HOSPITALS NETWORK BILL 2010............ 1

The inquiry.........................................................................................................................1

Acknowledgem ent............................................................................................................2

Related Inquiries............................................................................................................... 2

Background........................................................................................................................ 2

Purpose of the b ill............................................................................................................. 3

Main provisions o f the B ill............................................................................................. 4

Support for the bill............................................................................................................6

Issu e s..................................................................................................................................7

Conclusion......................................................................................................................23

COALITION MINORITY REPORT.................................................................25

APPENDIX 1 ............................................................................................................35

Subm issions received by the C o m m itte e ................................................................... 35

APPENDIX 2 ............................................................................................................37

Public H e a rin g ................................................................................................................. 37

APPENDIX 3 ............................................................................................................39

Letter from the Australian Council for Healthcare Standards (ACHS), 17 November 2010....................................................................................... 39

- Answers to questions on notice from the Department o f Health and Ageing, 12 November 2010, including revisions made by the Department to take account o f the letter from ACHS, provided 18 November 2010..............................................................................................................41

ACRONYMS AND ABBREVIATIONS ACHS Australian Council on Healthcare Standards

ACSQHC the Australian Commission for Safety and Quality in

Health Care

AGPN Australian General practice Network

AMA Australian Medical Association

AM SANT Aboriginal Medical Services Alliance Northern Territory

ANF Australian Nursing Federation

AOA Australian Osteopathic Association

ASMI Australian Self-Medication Industry

CHA Catholic Health Australia

CHF Consumers Health Forum o f Australia

COAG Council of Australian Governments

DAA Dieticians Association o f Australia

DOHA Department o f Health and Ageing

IHPA Independent Hospital Pricing Authority

MHCA Mental health Council o f Australia

NHHN National Health and Hospitals Network

NHMRC National Health and Medical Research Council

NPA National Performance Authority

NPHCP National Primary Health Care Partnership

the Commission the Australian Commission for Safety and Quality in

Health Care

the Department Department of Health and Ageing

vii

RECOMMENDATIONS

Recommendation 1

1.73 The committee recommends that one of the two options above be adopted in order to ensure that the term 'clinician' explicitly includes all health care professionals in clinical practice.

Recommendation 2

1.81 The committee recommends that the following clauses be amended to explicitly include the terms consumers and carers:

â¢ Clause 9(l)(m)

â¢ Clause 10(2)(e)

â¢ Clause ll(2)(c)

Recommendation 3

1.90 The committee recommends that clause 20(3) be revised to explicitly refer to expertise relating to the management of general practice and primary health care services.

Recommendation 4

1.118 The committee recommends that clause 58(2) be amended to read 'informed consent'.

Recommendation 5

1.121 The committee recommends that the bill be passed subject to the amendments as recommended in this report.

NATIONAL HEALTH AND HOSPITALS NETWORK BILL 2010 The inquiry

Previous inquiry

1.1 On 24 June 2010 the Senate referred the National Health and Hospitals Network Bill 2010 to the Community Affairs Legislation Committee for inquiry and report by 24 August 2010.

1.2 The committee received thirteen submissions. No public hearings were held.

1.3 On 24 August 2010, the committee tabled a brief report concluding:

1.4 The evidence received by the committee was tabled in the Senate at that time.

Current inquiry

1.5 On 30 September 2010 the Senate re-referred the National Health and

Hospitals Network Bill 2010 for inquiry and report by 18 November 2010.

1.6 The inquiry was advertised in The Australian and through the Internet. The committee invited submissions by 20 October 2010. The committee resolved to accept the submissions received from the first inquiry and wrote to those organisations and individuals that had made submissions advising that they need only re-submit should they wish to amend their previous submission.

1.7 The committee received 22 submissions in total (including those received during the 42nd Parliament). A list o f individuals and organisations that made public submissions to the inquiry together with other information authorised for publication is at Appendix 1.

1.8 The committee conducted one public hearing in Canberra on Tuesday 9 November 2010. Appendix 2 lists the names and organisations o f those who appeared at the hearing. Submissions, additional information received including answers to questions on notice and the Hansard transcript o f evidence may be accessible through *

1 Senate Community Affairs Legislation Committee, National Health and Hospitals Network Bill

2010 Report, 24 August 2010, p. 1.

Page 2

the committee's website at

http://www.aph.gov.au/Senate/committee/clac ctte/index.htm

Acknowledgement

1.9 The committee thanks those organisations and individuals who made

submissions and gave evidence at the public hearing.

Related Inquiries

1.10 The committee notes that the Senate Finance and Public Administration References Committee reported to the Senate on 23 June 2010 on the overall Council o f Australian Governments' reforms relating to health and hospitals.

1.11 Further, the Senate Economics Legislation Committee is inquiring into the Federal Financial Relations Amendment (National Health and Hospitals Network) Bill 2010. That inquiry is due to report on 31 January 2011.

Background

1.12 On 19 and 20 April 2010, the Council o f Australian Governments (COAG)2 reached 'an historic agreement on health and hospitals reform - the establishment o f a National Health and Hospitals Network'. An important or 'core' component of the reforms is a series of measures that will encourage 'improved performance across the health and hospital system':

A core element o f the N ational Health and Hospitals N etw ork w ill be enhanced national standards and transparent reporting that are, for the first time, nationally consistent and locally relevant.3

1.13 These measures will include: a new National Performance Authority, which will monitor and report on the performance of Local Hospital Networks, individual hospitals and Medicare Locals; and the Independent Hospital Pricing Authority, which will be charged with setting the 'efficient price o f public hospital services'.4

2 The Commonwealth and all state and territory governments are parties to the NHHN agreement, except WA. The Department of Health and Ageing noted that: 'While Western Australia is not a party to the NHHN Agreement, its Health Minister has written to the Commonwealth Minister for Health and Ageing, expressing strong support for the Commission’, Submission 20, p. 3.

3 A National Health and Hospitals Network for Australia's Future: Delivering the Reforms, Commonwealth of Australia, 2010, p. 36.

4 A National Health and Hospitals Network for Australia's Future: Delivering the Reforms, Commonwealth of Australia, 2010, p. 36.

Page 3

1.14 Along with the two measures noted above, CO AG agreed to new clinical safety and quality standards to be developed by a permanent Australian Commission on Safety and Quality in Health Care.5 This bill seeks to legislate this agreement.

Purpose of the bill

1.15 The stated purpose of the bill is to implement the National Health and

Hospitals Network, in so far as the network involves the establishment o f the Australian Commission on Safety and Quality in Health Care (the Commission) by outlining:

(a) the establishment, functions and powers o f the Commission;

(b) the compositions, appointment, remuneration, procedures and other governance arrangements o f the Commission's Board;

(c) the establishment, role, appointment, remuneration and other conditions for the role of Chief Executive Officer o f the Commission;

(d) staffing o f the Commission;

(e) the system o f committees underpinning the Commission's Board; and

(f) core government arrangements.

1.16 The Bill provides for the establishment o f the Commission as a permanent and independent national safety and quality body. The legislation also provides an expanded role for the commission in setting national clinical standards and strengthened clinical governance. The intent is that arrangements under this expanded role will be further developed in consultation with the states and territories.

1.17 The Department of Health and Ageing explained that:

Establishing the Commission as a permanent body will ensure that it has the appropriate governance and financial framework to progress its expanded work program, and provide independent advice on safety and quality matters. The governance arrangements for the Commission reflect the shared funding and policy interests o f the Commonwealth and states and territories.6

1.18 It is intended that the Act will be amended at a later stage to include

provisions to establish the Independent Hospital Pricing Authority and the National Performance Authority. Together these three bodies form the foundation o f the national healthcare performance and accountability reforms.

5 Council of Australian Governments Meeting 19 and 20 April 2010, Canberra, Communique, www.coag.gov.au (accessed 28 October 2010).

6 Department of Health and Ageing, Submission 20, p. 1.

Page 4

The Commission

1.19 The Australian Commission on Safety and Quality in Health Care was established by the Australian, state and territory governments and commenced on 1 January 2006. The Commission is presently operating under the auspices o f the Department o f Health and Ageing. The current operating arrangements are due to expire on 30 June 2011.

1.20 The role of the current Commission is to:

â¢ lead and coordinate improvements in safety and quality in health care in A ustralia by identifying issues and policy directions, and recom m ending priorities for action

â¢ dissem inate knowledge and advocate for safety and quality

â¢ report publicly on the state o f safety and quality including

perform ance against national standards

â¢ recom m end national data sets for safety and quality, working within current m ultilateral governm ental arrangem ents for data developm ent, standards, collection and reporting

â¢ provide strategic advice to Health M inisters on best practice

thinking to drive quality improvement, including implem entation strategies, and

â¢ recom m end nationally agreed standards for safety and quality im provem ent.7

Main provisions of the Bill

Establishment, functions and powers

1.21 Part 2 of the Bill provides for the Commission's establishment, functions and powers.

1.22 Clause 8 of the Bill establishes the Commission as an independent body corporate subject to the Commonwealth Authorities and Companies Act 1997.

1.23 Clause 9 o f the Bill sets out the Commission's functions, which include:

â¢ promoting, supporting and encouraging the implementation o f initiatives relating to health care safety and quality;

â¢ collecting, analysing and disseminating information relating to safety and quality;

â¢ formulating guidelines, standards and indicators;

7 Australian Commission for Safety and Quality in Health Care website, www.safetyand quality.gov.au (accessed 12 October 2010).

Page 5

â¢ advising and reporting on quality and safety initiatives;

â¢ monitoring the implementation and impacts o f guidelines and standards;

â¢ formulating model accreditation schemes; and

â¢ promoting, encouraging and conducting relevant training and research.

1.24 Subsections (3) to (7) state that standards, guidelines, indicators, model accreditation schemes and written instruments given by the Minister, are not legislative instruments.

1.25 Clause 10 stipulates that the Commission must consult with relevant

stakeholders in the development o f any guideline, standard or indicator.

The Board of the Commission

1.26 Part 3 o f the Bill provides for the membership, appointment, procedures and role o f the Board.

1.27 The role o f the Board is to 'ensure the proper and efficient performance of the Commission's functions.'

1.28 Board members are appointed by the M inister with reference to a range of areas o f expertise of which each Board member must have substantial knowledge or experience and significant standing in at least one area. The M inister must ensure that the Board as a whole holds a balance o f skills, experience and knowledge across the following areas: public administration relating to health care; provision o f health care services; management of public or private hospitals; financial management; corporate governance; representation o f consumer interests; safety and quality; and the law.

1.29 A minimum of seven and a maximum of nine board members m ay be

appointed for a period of no more than five years.

CEO, staff and consultants

1.30 Part 4 o f the Bill provides for the appointment of the CEO o f the Commission and sets out the conditions o f employment and role o f the CEO. This section further provides for the appointment o f staff and engagement of persons assisting the Commission and the engagement of consultants.

Reporting obligations of the commission

1.31 The reporting obligations o f the commission are set out in part 6 of the Bill. These include: an annual report, and an annual work plan, which must be provided to the M inister and, in turn, each participating state/territory health minister. In addition, the M inister may request by written notice information and/or a report on matters relating to the performance o f the Commission's functions.

Page 6

Compliance with standards

1.32 Clause 57 under Part 7 o f the Bill provides that compliance with standards and guidelines developed under Part 2 o f the Bill is voluntary. However, compliance may be made a term or condition o f a grant, contract or other legally enforceable agreement.

Protection o f Patient Confidentiality

1.33 Clause 58, Part 7, provides for the protection o f patient confidentiality.

Support for the bill

1.34 The majority o f submissions explicitly stated their support for the intent o f the bill.8 Reflecting this broad support, the National Primary Health Care Partnership submitted:

W e believe that establishing the Com m ission as a perm anent and

independent authority w ith clear responsibility for developing, promoting and monitoring the im pact o f health care standards, guidelines and

indicators will help to ensure an enhanced and continued focus on driving im provem ent in health care safety and quality.9

1.35 Representatives o f the mental health care sector were also supportive:

The M HCA supports the establishm ent o f the ACSQHC and values the work it that it has undertaken in the areas o f patient safety and im proving the quality o f health care services.10 1 1

1.36 From a consumer perspective enhanced performance and accountability measures were welcomed. The Consumers Health Forum o f Australia (CHF) explained that:

Access to safe, high quality health care services is a priority for health consumers. The Com m ission’s work has the potential to enhance safety and quality in the health care system .11

1.37 Similarly, the Australian Nursing Federation noted its support o f the new quality assurance and performance framework:

The provision under this Bill for a new Performance and Accountability Fram ework which includes standards developed by the Com m ission is supported by the A N F .12

8 Submissions 1, 2, 3,4, 5, 6, 7, 8, 9, 12,15, 16,17. 19, 22.

9 National Primary Health Care Partnership, Submission 5, p. 1.

10 Mental Health Council of Australia, Submission 4, p. 1.

11 CHF A, Submission 8, p. 1.

12 Australian Nursing Federation, Submission 6, p. 1.

Page 7

1.38 As the operators o f both private and public hospitals, the members of Catholic Health Australia offered strong support for the establishment of the Commission. Catholic Health Australia submitted:

C H A 's hospital CEOs report that the work o f the Commission to date has been useful, particularly in the areas o f clinical handover and

communication, infection prevention in healthcare and m edication safety.13

Issues

1.39 Notwithstanding their commitment to a permanent safety and quality commission, witnesses identified a number o f issues with the legislation.

Title of the bill

1.40 Submitters noted that the title o f the bill is not descriptive o f what the bill actually aims to do, which is to establish the Commission as a statutory body. Rather, the title, National Health and Hospitals Network Bill 2010, suggests the bill proposes to provide the legislative underpinnings for the NHHN in its entirety.

1.41 The MHCA suggested that the bill 'be given' a 'less confusing title' in order to:

help to distinguish its content from that relating to the establishment o f other initiatives proposed to support the Health and Hospitals Network A greem ent'.14

1.42 Similarly, the Australian Osteopathic Association stated:

The Bill sim ply picks up on the COAG Agreem ent o f last April. Thus it belies its title. It provides no detail on the w ay the NHHN will operate, and in what statutory relationship with existing institutions.15

1.43 As noted earlier, the intention is to provide for the establishment o f the National Performance Authority and the Independent Hospital Pricing Authority by amendment to the Act at a later stage.16 For this reason, the title o f the Bill must be sufficiently broad. Notwithstanding this, the committee agrees that the title is

somewhat confusing.

Timing o f the legislation

1.44 The plan, as discussed above, is to establish two other agencies central to the NHHN by amendment, at a later stage, to the proposed National Health and Hospital

1-3 CHA, Submission 16, p. 1.

14 MCHA, Submission 4, p. 2. See also, The Royal Australian and New Zealand College of Psychiatrists, Submission 15, p. 1.

15 Australian Osteopathic Association, Submission 2, p. 2.

16 National Health and Hospitals Network Bill 2010, Explanatory Memorandum, p. 3.

Page 8

Network Act 2010. These agencies are the National Performance Authority and the Independent Hospital Pricing Authority.

1.45 A number o f witnesses argued that the legislation to establish the other two bodies should be considered at the same time as the legislation to establish the Commission. The Australian Medical Association (AMA) submitted:

[I]t appears there will be important synergies between the three bodies and this should be reflected in the legislation.

We believe legislation for all three bodies needs to:

â¢ Clarify the regulatory interaction between them;

â¢ Provide clarity on their roles and responsibilities; and

â¢ Ensure appropriate legislative links and references to various activities and recommendations made by these bodies.17

1.46 Dr Watson from the Royal Australian and New Zealand College of

Psychiatrists informed the committee that the College is supportive o f the work o f the Commission and o f making the Commission a permanent body. However, he emphasised the importance o f a 'mesh' between the three bodies and agreed that the legislation for all three should be considered at the same time:

[Hjaving those key bills aligned would seem to give more benefit than having them apart. ...as long as the good work of the commission is able to continue and we are not talking about years of delay, our preference would be that those things be aligned and we try to reduce the chance of there being cracks in the system or parts that are missed across those bills. 18

1.47 Ms Bennett, Executive Director o f Consumers Health Forum o f Australia, concurred:

We have noted the argument in several submissions that legislation to establish the commission should be considered in conjunction with consideration of legislation to establish the National Performance Authority and the Independent Hospital Pricing Authority. Given the likely interrelationships between these three bodies, that is an approach that makes sense to us.19

1.48 The Aboriginal Medical Services Alliance NT (AMSANT) emphasised the risks o f staging the introduction o f the legislation:

It is difficult to reach an unequivocal position on the National Health and Hospitals Network Bill 2010 as two related legislative measures, namely the establishment of the Independent Hospital Pricing Authority and the

17 AMA, Submission 11, p. 1.

18 Dr Darryl Watson, Royal Australian and New Zealand College of Psychiatrists, Committee Hansard, 9 November 2010, p. 3.

19 Ms Carol Bennett, Committee Hansard, 9 November 2010, p. 6.

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National Performance Authority. At this point, we want this to be noted, and for the Committee to note that the putative legislation may have unintended consequences with respect to the current Bill under consideration.20

1.49 M r Martin Laverty, CEO of Catholic Health Australia, agreed with the view that the legislation for the three bodies should, ideally, have been scrutinised concurrently. However, he did not accept the proposal that the present bill be delayed:

It would have been our preference to see within this bill the different bodies identified, but also through the Council of Australian Governments meeting of early this year to deal with the different quality of reporting frameworks that each of the states and territories are going to continue to operate. We are pragmatic and we recognise that to delay this bill any further is causing a loss of momentum for the commission as it currently works. For that reason alone we say that the commission is a valuable contribution to promoting continued improvement in quality and safety and we see no reason for further delay at this point.21

1.50 M r Laverty argued, however, that future attention must be directed to harmonising the various compliance requirements placed on healthcare providers:

[I]f the issue of compliance with standards is to be promoted, a necessary trade-off of that is going to need to be bringing national harmonisation. A national group like St Vincent’s Health Australia or the St John of God Health Care group that operate public and private hospitals across state boundaries continue to be subjected to different reporting regimes, at cost,

in each of the jurisdictions within which they work. That is not efficient healthcare.22

1.51 Ms Mumane, Deputy Secretary from the Department o f Health and Ageing, explained that the introduction of the bill to establish the Commission was prioritised as the current arrangements that establish the Commission as a temporary body are due to expire at 30 June 2011:

The reason that this bill has been introduced before the other bills are ready is that the commission is already an ongoing operation in some ways. Its governance must be changed and its overall status within government must be changed because there is no possibility of the current arrangements being extended beyond 30 June next year.23

1.52 Ms Mumane further explained that the early introduction o f the bill would allow sufficient time for the Commission's transition to corporate autonomy:

20 AMSANT, Submission 21, p. 3.

21 Mr Martin Laverty, Catholic Health Australia, Committee Hansard, 9 November 2010, p. 18.

22 Mr Martin Laverty, Catholic Health Australia, Committee Hansard, 9 November 2010, p. 18.

23 Ms Mary Mumane, Department of Health and Ageing, Committee Hansard, 9 November 2010, p. 23.

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The bill to establish the commission is being introduced now to ensure that a board and a CEO can be appointed and business and operational arrangements, including staffing, can be put in place in time for the commission to smoothly transition from its current arrangements to an independent authority by 1 July next year. This will allow the governance and operational structures to be put in place without compromising its important work in improving safety and quality. It is anticipated that these arrangements will take six months to put in place.24

1.53 The committee agrees that it would have been preferable for the legislation to establish the three bodies under the NHHN Performance and Accountability Framework to be considered together. At the same time, the committee considers that it is important the Commission is able to continue operating with minimal disruption. For this reason, it is essential that a sufficient time-frame is allowed for the transition o f the Commission to an independent body. On balance, therefore, the committee does not support further delay o f the bill.

1.54 However, the committee notes that it will be essential that careful

consideration is given to the issues raised by witnesses when the legislation to establish the National Performance Authority and the Independent Hospital Pricing Authority are introduced: that is, that the roles and responsibilities o f the three agencies are clearly articulated and the regulatory interaction between the three agencies is clarified.

1.55 The committee further notes the 'lost opportunity' raised by Catholic Health Australia with respect to harmonising the various healthcare regulatory and reporting regimes across the country. The committee concurs with Catholic Health Australia's argument that this work should be prioritised in the near future. Within this context, the committee notes the comments o f AM SANT:

[Aboriginal Community Controlled Health Services] already operate in a complex and highly regulated environment: national standards set by the Safety and Quality Commission should not add to this complexity.25

Stakeholder consultation

1.56 The bill provides for consultation on the development o f guidelines, standards and indicators (Clause 10(2)) and consultation on development o f a national model accreditation scheme (Clause 11(2)). A number o f submitters welcomed the emphasis given to consultation in the bill. For example, the Dieticians Association o f Australia (DAA) stated:

The DAA agrees with the Bill's emphasis on the role of consultation in the process of formulating standards, guidelines and indicators.26

24 Ms Mary Mumane, Department of Health and Ageing, Committee Hansard, 9 November 2010, p. 23. '

25 AMS ANT, Submission 21, p. 3.

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1.57 Clause 10(2) requires that the Commission consult with: clinicians; bodies known as lead clinician groups; heads o f health departments o f participating states and territories; any other persons or bodies who, in the Commission's opinion are stakeholders in relation to the particular standard, guideline or indicator; and the public.

Meaning o f 'clinician'

1.58 A number of witnesses expressed concern about the lack of definition of the term 'clinician', which is contained in clause 10(2)(a). It was argued that the bill, as it stands, leaves open the possibility of a narrow interpretation o f 'clinician', which could exclude nursing and allied health professionals.

1.59 The DAA submitted that the term 'clinician' should be seen to include allied health professionals.2 6 27 Similarly, the National Primary Health Care Partnership (NPHCP) stated:

While no definition o f the tenn ‘clinician’ is provided in the context o f tire Bill the N PH CP wishes to emphasise that it is important that this term is recognised as applying to nursing and allied health professionals as well as medical doctors and that these professionals are consulted in the

development o f standards, guidelines and indicators relevant to their scope o f practice.28

1.60 A number o f other witnesses shared these concerns. Allied Health

Professionals Australia and the Australian Psychological Society stated:

Unfortunately current practice is that allied health clinicians and their relevant representative organisations are often not invited to com m ent or participate in discussions regarding safety and quality.29

1.61 The Department informed the committee that the term 'clinician':

was not defined on the basis that it would be useful in terms o f future- proofing the legislation not to have an inclusive and an exhaustive

definition. That allows the legislation to go on in perpetuity.30

1.62 M r Broadhead from the Department commented:

I strongly believe that the term ‘clinician’ in this legislation means

somebody who deals in a clinical w ay with a patient or another person, and therefore I think that, if the commission were to confine itself to talking

26 DAA, Submission 3, p. 2.

27 DAA, Submission 3, p. 2.

28 NPHCP, Submission 5, p. 1.

29 Allied Health Professionals Australia and the Australian Psychological Society, Submission 14, p. 2.

30 Ms Anne Kingdon, Acting Assistant Secretary, Department of Health and Ageing, p. 28.

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only to doctors, it would find itself not honouring the spirit o f the

legislation...I think that the notion that clinicians are only doctors is

som ething that has not had currency for quite som e tim e.31

1.63 The Department further advised the committee that the Commission has placed considerable emphasis on broad stakeholder consultation in the development of key projects. In particular, consultation with respect to the development o f standards has been framed within a seven-stage methodology that includes different mechanisms through which stakeholder groups contribute and draft standards are tested.32

1.64 This is a practice that is expected to continue. The Department summarised:

The Com m ission has had a strong focus on stakeholder engagement throughout its work to date and is committed to consulting with a diverse range o f stakeholders and consumers on the developm ent o f standards, guidelines and indicators to ensure their relevance, effectiveness and ultimately, the appropriateness o f services being delivered in a particular healthcare setting. 3

1.65 An 'ordinary use' definition of 'clinician' was offered by the Department:

For the purposes o f the Bill an ‘ordinary use’ o f the ten n ‘clinician’ may refer to: an individual whose training and qualification is principally related to the provision of health care services and includes, but is not limited to, doctors, nurses, allied and other health practitioners,34

1.66 However, the Department did not offer legal advice or precedent as evidence that the term would have such a broad meaning.

1.67 The Explanatory M emorandum to the Bill and the Second Reading Speech state that consultation with 'relevant parties' is an important focus in the development o f standards, indicators and model accreditation schemes. For example, the Explanatory Memorandum states:

It is intended that the process o f consultation w ould ordinarily include providing an opportunity for all relevant parties to provide comments, a reasonable timeframe within which to provide those comments and that those comments would be taken into consideration by the consulting party.35

31 Mr Broadhead, Acting First Assistant Secretary, Department of Health and Ageing, p. 27.

32 DOHA, answer to question on notice, no. 2, 9 November 2010 (received 12 November 2010).

33 DOHA, answer to question on notice, no. 2, 9 November 2010 (received 12 November 2010).

34 DOHA, answer to question on notice, no. 3, 9 November 2010 (received 12 November 2010). Emphasis in original.

35 National Health and Hospitals Network Bill 2010, Explanatory Memorandum, p. 7.

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1.68 While the intention to consult is expressed in these supporting documents, the view that nursing and allied health professionals are stakeholders or relevant parties is not made explicit.

1.69 The committee is concerned that there is not a consistent understanding o f the usual meaning o f the term 'clinician'. Health professionals and researchers have a range o f views about who 'clinicians' might include, but those contacted by the committee thought the term would often be understood to mean doctors rather than health professionals generally. This is confirmed by definitions used in some reference

dictionaries. The 1987 Macquarie Dictionary defines a clinician as 'a physician who studies diseases at the bedside'. The Chambers Dictionary online says 'a doctor who works directly with patients, in a clinic, etc, as opposed to conducting experimental or theoretical work.' Likewise, the Oxford English Dictionary's definition o f the term is 'a doctor who has charge of, or who works in, a clinic', while the Australian Oxford

Online offers a similar meaning: 'a doctor having direct contact with patients rather than being involved with theoretical or laboratory studies'.

1.70 The intent o f the bill, as described by the Department, is that allied health and nursing professionals would be included. The practice of the Commission to-date also points to this intent. The committee is concerned, however, that this is not sufficiently captured in the bill and its supporting documentation. This appears to be causing

concern amongst stakeholders, who may be influenced by the widespread understanding (documented above) that 'clinicians' is a term used to refer specifically to doctors.

1.71 The committee considers this can be addressed by:

â¢ providing a definition o f the term 'clinician' in clause 5 o f the bill, OR

â¢ revising the Explanatory Memorandum to include commentary on the term 'clinician', including the definition o f the term offered by the Department in its answer to a question on notice.

1.72 The committee does not believe that either of these options are designed to be exhaustive, and therefore they would not impair the 'future-proofing' o f the legislation.

Recommendation 1

1.73 The committee recommends that one of the two options above be adopted in order to ensure that the term 'clinician' explicitly includes all health care professionals in clinical practice.

Consumers and carers

1.74 The Consumers Health Forum (CHF) o f Australia and the Australian Institute for Primary Care argued that consumers and carers should be explicitly referred to in clause 10. CHF submitted:

[A]s consumers will be the key beneficiaries o f effective standards, guidelines or indicators, health consumers should be identified as a group

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that must be consulted in the formulation of standards, guidelines or indicators.36

1.75 Similarly, the Royal Australian and New Zealand College o f Psychiatrists stated:

The Bill mentions consultation with the ‘public’ in a number of clauses. The College suggests that the phase ‘public’ is retained but that explicit mention of consumers and carers is included in the Bill. This could be considered in Section 9 in relation to the functions of the Commission, in Section 10 in relation to the formulation of standards, guidelines and indicators and in Section 11 in relation to consultation around a model for a national accreditation scheme. The College, as an organisation, has embraced consumer engagements and believes that the ACSQHC will be strengthened by input from national consumer and carer groups.37

1.76 The Australian Institute for Primary Care compared the bill to comparable legislation enacted in the United Kingdom and argued that the bill does not

'adequately include health consumers in the consultation process'.38

1.77 The Mental Health Council o f Australia advised that the specific inclusion of consumers and careers would:

better reflect the role of consumers and carers as equal partners with clinicians in health care and the important role that they play in the health system.39

1.78 The UK Health and Social Care Act 2008, in contrast to the Australian legislation, states that Britain's Care Quality Commission 'must have regard to...experiences o f people who use health and social care services and their families and friends...'40 and:

(1) The Commission must publish a statement describing how it proposes to—

(a) promote awareness among service users and carers of its functions,

(b) promote and engage in discussion with service users and carers about the provision of health and social care services and about the way in which the Commission exercises its functions,

36 CHF, Submission 8, p. 2.

37 The Royal Australian and New Zealand College of Psychiatrists, Submission 15, p. 2.

38 Australian Institute for Primary Care, Submission 13, p. 1.

39 MHCA, Submission 4, p. 2.

40 UK Health and Social Care Act 2008, s. 4(1 )(b).

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(d) arrange for any of its functions to be exercised by, or with the assistance of, service users and carers.41

1.79 That Act also contains explicit definitions o f'service users' and 'carers'. The Department indicated that 'consumer outcomes and experience are key markers o f the safety and quality o f care',42 and no arguments were put to the committee as to why it would be undesirable to explicitly identify consumers and carers in the requirements for consultation.

1.80 The committee agrees that the terms 'consumers' and 'carers' should be explicitly stated in the sections o f the bill identified by witnesses.43 This will put beyond doubt the intention to include consumers/carers in the consultation process.

Recommendation 2

1.81 The committee recommends that the following clauses be amended to explicitly include the terms consumers and carers:

â¢ Clause 9(l)(m)

. Clause 10(2)(e)

â¢ Clause ll(2)(c)

Limitations on Commission's functions

1.82 The Royal Australian and New Zealand College o f Psychiatrists noted that the wording of clause 12(a) o f the bill could be construed as meaning that the

Commission would be limited to 'working solely with medically trained practitioners and dental practitioners'. The College suggested that this clause be expanded to ensure that 'the Commission is working with allied health, nursing and other health practitioners'.44

1.83 Similarly, the Aboriginal Medical Services Alliance Northern Territory (AMSANT) made the following observation about clause 12(a):

It is unclear from this whether this would restrict the scope of the Commission's work so as to exclude from the Commission's oversight the work of multidisciplinary teams as is standard practice within comprehensive Aboriginal primary health care. This includes work, some

41 UK Health and Social Care Act 2008, s. 5(1).

42 DOHA, answer to question on notice, no. 5, 9 November 2010 (received 12 November 2010).

43 The one explicit reference to consumer consultation in documents associated with the bill is a comment in the Explanatory Memorandum: 'The commission will formulate safety and quality standards, guidelines and indicators and will work with clinicians, professional bodies and consumers to lead the drive toward practical health system improvements for the Australian public.' (p. 7).

44 The Royal Australian and New Zealand College of Psychiatrists, Submission 15, p. 2.

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of which are billable items under Medicare by Aboriginal Health Workers, nurses and allied health professionals.45

1.84 However, the Department informed the committee that the wording o f this section replicates the wording as set out in the Constitution:

These provisions relate to the Constitutional Powers of the Commonwealth and therefore they are described in the way in which the powers of the Commonwealth exist and so the Commission can function in the same areas that the Commonwealth has powers.46

1.85 On this basis, the committee considers this section of the bill should remain unchanged.

Board membership

1.86 Clause 20 of the Bill provides for the appointment o f Board members by the Minister. Clause 20(3) and clause 20(4) set out the eligibility requirements as follows:

(3) A person is not eligible for appointment as a Board member unless the Minister is satisfied that the person has:

(a) substantial experience or knowledge; and (b) significant standing; in at least one of the following fields: (a) public administration in relation to health care; (b) provision of professional health care services; (c) management of companies, or other organisations, that are

involved in the provision of health care services outside the hospital system; (d) general management of public hospitals; (e) general management of private hospitals; (f) financial management; (g) corporate governance; (h) improvement of safety and quality; (i) representation of the interests of consumers; (j) law; (m) a field that is specified in a legislative instrument made by the Minister. (4) The Minister must ensure that the Board members collectively possess an appropriate balance of experience and knowledge in each of the fields covered by subsection (3).

1.87 Submitters argued that other areas o f experience/expertise should be included under clause 20(3) as follows:

â¢ management o f general practice and primary health care services

45 AMSANT, Submission 21, p. 3.

46 Ms Mary McDonald, DOHA, Committee Hansard, 9 November 2010, p. 27.

â¢ mental health

â¢ health economics

1.88 The National Primary Healthcare Partnership (NPHP) noted that clause 20(3) provides for experience in general management o f public and private hospitals but does not specifically provide for expertise 'related to the management o f primary health care provider services as private clinics or through community health services'.

The NPHP stated:

The N PH CP is concerned that this places emphasis on health care services provided in hospitals at the expense o f services provided in the community through prim ary health care providers.47 4 8

1.89 The committee notes that the clause as currently drafted contains two separate references to management o f hospitals. It also notes clause 20(3)(e) refers to 'management of companies, or other organisations, that are involved in the provision of health care services outside the hospital system'. It is not clear whether this is intended to refer to primary health care providers, but it seems unfortunate that management o f primary health care, which is such a fundamental part o f the health

care system, is not explicitly identified as an area o f expertise warranting inclusion on the Commission's board.

Recommendation 3

1.90 The committee recommends that clause 20(3) be revised to explicitly refer to expertise relating to the management of general practice and primary health care services.

1.91 The Mental Health Council of Australia commented:

It is disappointing that the Bill does not make provision for specific

expertise from health consumers and carers or mental health professionals as part o f the Board o f the ACSQHC. Such provision would be a significant step in ensuring that the activities o f the Com m ission reflect the needs o f mental health consumers and carers and would assist the Commission to better address the acute safety and quality needs in the m ental health system.4

1.92 Dr Kathryn Antioch argued that consideration be given to including the category o f health economics expertise on the basis that it may 'facilitate the work of the commission'. Dr Antioch explained that:

Guidelines should include economic evidence in the form o f Cost

Effectiveness Analysis and/or Cost Benefit Analysis evidence. Economic evidence is an area that the health industry in Australia finds complex and

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47 National Primary Healthcare Partnership, Submission 5, p. 2. See also, Australian General Practice Network, Submission 12, p. 2.

48 MCHA, Submission 4, p. 2.

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challenging to incorporate and apply. Many reputable Australian and international Guidelines (ie ‘Clinical Practice Guidelines’) include economic, especially cost effectiveness evidence, in addition to clinical evidence. Australian Guidelines are not always up to date and the health industry often uses international Guidelines to implement at the point of care in hospitals and in other health sectors.49

1.93 The committee agrees that these are important areas o f expertise in the health system. It expects that organisations represented on the board would bring to the Commission experience in these areas and in particular a commitment to ensuring that quality and safety in mental health services are addressed.

Consumer representation on the board

1.94 Clause 20(3)(k) o f the bill provides for the representation o f the interests of consumers as one area o f experience to be considered by the M inister when appointing board members.

1.95 The Consumers Health Forum o f Australia submitted that a consumer representative should be assured a position on the board:

Health consumer perspectives provide an important balance to the views of health professionals and industry, and it is essential that consumer interests are represented on the Board.50

1.96 The committee agrees that consumers and carers bring important insights to the decision-making process and would like to see consumers interests represented on the Commission's Board.

Functions: guidelines, standards, indicators and accreditation

1.97 Section 9 of the bill sets out the functions o f the commission. It provides for the formulation, promotion and monitoring o f guidelines, standards and indicators relating to health care safety and quality matters. It further provides for the

development o f model national accreditation schemes.

Compliance: voluntaiy or mandatory?

1.98 Clause 57 provides that compliance with the standards and guidelines is voluntary. Some witnesses were concerned about the voluntary nature o f compliance. For example, the Australian Osteopathic Association stated:

The Commission is given the power to issue standards, indicators and guidelines. These, however, are deemed not to be legislative instruments. In any case, they appear not to be enforceable.51

49 Dr Kathryn Antioch, Submission 10, p. 1.

50 CHF, Submission 8, p. 3.

51 Australian Osteopathic Association, Submission 2, p .1.

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1.99 The Australian Nursing Federation submitted:

As a major contributor to the work of the Commission, the ANF is concerned that without an incentive or requirement in place, consistency in safety and quality of care for consumers of health and aged care services

will not be achieved.52

1.100 Similarly, Ms Bennett from the Consumers Health Forum of Australia stated:

Ideally, if the commission is being charged with having national oversight for improving quality and safety in health care, then we would want it to have some teeth in terms of its powers in enforcing compliance with its guidelines and standards.53

1.101 The Department explained, however, that the starting point for the legislation is not enforcement but enhancement and complementarity:

[T]he legislation is not premised on enforcement. It is premised on the fact that one of the barriers or impediments to good practice is information, standards and guidelines. The absence of same, developed in the way that this legislation contemplates, is an impediment to safety and quality in health care.54

1.102 The Department further explained that there are already a number of regulatory and enforceable requirements in place and noted that the purpose o f the Commission is not to add another layer of regulatory oversight:

There are already a vast range of mechanisms for the regulation of medical practice, the registration of medical professions, the recognition of medical professionals to practice in hospitals and so on and so forth. But all those processes take place, in part, in the absence of a mechanism such as this to provide information on what are good standards or excellent standards of practice and care. This body is established to assist in that regard. It is not

there to be the police, if you like, of medical practice; it is there to provide information that has been properly developed about what is good practice and good care in order to ensure safety and quality.55

1.103 The Department's comments reflect the bill's Explanatory Memorandum, which explains that it is possible that compliance may be mandated through other mechanisms:

[SJubsection (2) specifies that compliance against a standard or guideline that is formulated under Clause 9(1 )(e) or Clause 9(1 )(f) of the Act may be

52 Australian Nursing Federation, Submission 6, p. 1.

53 Consumers Health Forum of Australia, Committee Hansard, 9 November 2010, p. 8.

54 Mr Broadhead, Department of Health and Ageing, Committee Hansard, 9 November 2010, p. 25.

55 Mr Broadhead, Department of Health and Ageing, Committee Hansard, 9 November 2010, p. 25.

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imposed as a term or condition on receiving a grant; or in the case of a contract or other legally enforceable agreement (subsection (2)).

This Act does not prevent a standard or guideline that is formulated under Clause 9(1 )(e) or Clause 9(1 )(f) of the Act from being applied or adopted under a law of a State or Territory, or any other law of the Commonwealth apart from this Act.56

Potential fo r overlap offunctions with NHMRC

1.104 Dr Kathryn Antioch expressed concern that there is the potential for overlap o f functions with the National Health and Medical Research Council (NHMRC)— particularly in the area o f guidelines development.57

1.105 While supportive o f the Commission's functions in principle, the National Stroke Foundation and the National Heart Foundation o f Australia jointly submitted that these functions are not set out clearly in the bill:

[Sjeveral aspects of the Commission's proposed role in standards and guidelines development and accreditation are not clearly articulated. Neither the Bill nor its supporting documentation make clear the role and responsibilities that the Commission is to play in regard to clinical

standards and guidelines, and how these relate to the roles of other relevant agencies, including the Department of Health and Ageing and the NHMRC- NICS.58

1.106 The Foundations argued that the bill should be strengthened in order to:

reinforce the role of the Commission in identifying and helping address data gaps that are important to quality and safety improvement, in conjunction with data collection agencies, such as the AIHW.59

1.107 The Department explained that a strong working relationship has already been established between the Commission and the NHMRC:

Both the NHMRC and the Australian Commission on Safety and Quality in Health Care (the Commission) have a role in the development of National Clinical Safety and Quality guidelines. The work of both the Commission and the NHMRC is complementary and mutually supportive. There is an already well-established close relationship between these two national organisations with a mutual intent of preventing duplication of activity and ensuring that the ongoing work of both is complementary and mutually supportive.60

56 National Health and Hospitals Network Bill 2010, Explanatory Memorandum, p. 16.

57 Submission 10, pp 1-2.

58 National Stroke Foundation and National heart Foundation, Submission 19, pp 3-4.

59 National Stroke Foundation and National heart Foundation, Submission 19, p. 4.

60 DOHA, answer to question on notice, no. 1, 9 November 2010 (received 18 November 2010).

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1.108 The Department further stated:

The Commission will prioritise the areas in which guidelines are developed and promote and assist in their implementation. It will source the writing of guidelines from the expert groups who already do this in Australia, particularly the NHMRC.61

1.109 The Department noted that once the Commission has been established as a permanent body its relationship with the NHMRC will be formalised:

In relation to the development of guidelines, the Commission will maintain and formalise its relationship with NHMRC to ensure there are no overlapping functions. This is achieved by Commission representation on Committees, working groups and in the processes of the NHMRC.62

1.110 The committee notes that it will be important that the relationships between bodies involved in healthcare guideline development are clearly articulated in administrative arrangements following the legislation's enactment.

Building on existing standards and accreditation

1.111 The Australian Council on Healthcare Standards (ACHS) expressed concern that the wording o f the bill may prevent the Commission from building on existing work:

We are very supportive of a permanent commission and we seek to work collaboratively with such an entity...We seek reassurance that the wording of section 9(1) (e), (f) and (g) on page 6 does not in any way preclude our continued collaborative involvement.63

1.112 The Department assured the committee and the ACHS that such a situation would not occur:

It is acknowledged that ACHS is a major provider of accreditation services and there is nothing in the Bill that will preclude the ACHS from continuing to provide these services. The Commission will not deliver or develop another set of accreditation services that would overlap with the role of the ACHS or other accreditation agencies. Furthermore, there is nothing in the Bill that would prevent the ACHS from continuing to provide

accreditation services.64

1.113 The Department further sought to clarify the role o f the Commission and its relationship to existing accrediting bodies:

61 DOHA, answer to question on notice, no. 1, 9 November 2010 (received 18 November 2010).

62 DOHA, answer to question on notice, no. 1, 9 November 2010 (received 18 November 2010).

63 Associate Professor Peter Woodruff, ACHS, Committee Hansard, 9 November 2010, p. 11.

64 DOHA, answer to question on notice, no. 7, 9 November 2010 (received 18 November 2010).

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The Commission and accrediting agencies have separate roles. The Commission promotes and improves safety and quality across the whole of the Australian healthcare system...Accreditation agencies, on the other hand, will accredit health service organisations against the standards developed by the Commission.65

1.114 The committee notes that in the ACHS' view, the standards development function and the accreditation function should be undertaken by the same

organisation.66 Notwithstanding this, the committee was satisfied with the Department's response.

Patient confidentiality

1.115 The Consumers Health Forum of Australia argued that clause 58(2), which provides for the protection o f patient confidentiality should be amended to clarify the meaning o f consent:

CHF welcomes the provisions requiring that the Commission does not publish or disseminate information that is likely to enable the identification of a particular patient. CHF notes that these provisions do not apply if consent has been provided. CHF argues that the legislation should specify that this must be ‘informed consent’, so that consumer or another person who is able to give consent is fully aware of the implications of providing consent.67

1.116 The Department assured the committee that such an amendment is not necessary. They stated: 'Consent would need to be "informed" in order to be valid consent'.68

1.117 The committee understands that CHF's concern is not with the legal definition o f 'consent' but with the interpretation o f the term 'consent' by a lay person— specifically a consumer or another person who is authorised to give consent. CHF's suggestion is that amending this clause to read 'informed consent' will assist consumers in making an informed decision around the issue o f consent. On this basis, the committee supports this amendment.

Recommendation 4

1.118 The committee recommends that clause 58(2) be amended to read 'informed consent'.

65 DOHA, answer to question on notice, no. 1, 9 November 2010 (received 18 November 2010).

66 ACHS, additional information, 17 November 2010 (received 17 November 2010), p. 2.

67 CHF, Submission 8, p. 4.

68 DOHA, answer to question on notice, no. 6, 9 November 2010 (received 12 November 2010).

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Conclusion

1.119 The committee welcomes measures to enhance performance and

accountability in Australia's healthcare services. Establishing the Australian Commission on Safety and Quality in Health Care as a permanent body with responsibility for the development o f standards in safety and quality for services across the healthcare spectrum will, the committee believes, enhance outcomes for healthcare consumers.

1.120 The committee would like to see this bill enacted as soon as possible to support the smooth transition o f the Commission to corporate autonomy. At the same time, the committee considers that its recommendations will provide for more robust legislation that, in turn, will provide greater clarity to healthcare professionals and

consumers as to the bill's intent and scope.

Recommendation 5

1.121 The committee recommends that the bill be passed subject to the amendments as recommended in this report.

Senator Claire Moore

Chair

' V

»:

Coalition Minority Report 1.1 The Coalition seriously questions the need for yet another layer o f centralised health bureaucracy in the form o f Commission to be established by this Bill. The Commission already exists within the Department o f Health and Ageing and is highly regarded within the health care standards sectors. The establishment o f a new stand

alone Commission will cost the taxpayer millions of dollars supplying many services already considered to meet international best practice.

1.2 The setting o f standards and accreditation is already being performed by an independent not for profit organisation, the Australian Council H ealthcare Standards (ACHS). Responding to a Question on Notice, ACHS surveyed its members and found that 66% o f them were "satisfied to extremely satisfied" 1 with the work and performance of the ACHS.

1.3 In the same survey 98% o f the membership o f the ACHS supported the

following proposition:

I agree with the A C H S’s view that the adoption o f an existing set o f

standards (that would still m eet the C om m ission's objectives) as the national standards would be preferable to introducing a whole new set o f standards.1 2

1.4 ACHS was established in 1974 with Federal government support and is one of only four organisations that meet the international accreditation requirements o f the International Society for Quality in Health Care. Linda O'Connor o f ACHS said:

Over the last 36 years ACHS has extensively developed and implemented the areas outlined in part 2, clauses 9, 10 and 11 o f the National Health and Hospitals Network Bill 2010.3

ACHS President, Professor Peter W oodruff said:

I also think it is a shame if the com m ission wastes too m uch o f its time and effort on re-inventing the wheel.4

1 The Australian Council on Healthcare Standards/Submission (12-11.10) to Senate Community â Affairs Legislation Committee.

2 ACHS 12-11-10 submission to inquiry.

3 Linda O'Connor /The Australian Council of Healthcare Standards evidence Tuesday, 9 November 2010.

4 Associate Professor Peter Woodruff, Public Hearings Tuesday, 9 November CA11.

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1.5 W hilst supporting the establishment o f the Australian Commission on Safety and Quality in Healthcare, Carol Bennett o f the Consumers Health Forum o f Australia sounded a warning on wasteful duplication:

... The ACHS is obviously one of the key bodies—who have already been working in this space and have already spent many years developing standards and guidelines and have also looked at engaging consumers, particularly in the mental health area, in assessing how those standards are

applied. So it will be important, I think, to ensure that there is not duplication of effort between the ACHS and the commission in their work.5

1.6 Submitters were also concerned that there should be a measure o f public consultation in regard to its provisions before the Bill became law. In this regard, Associate Professor W oodruff (ACHS) said:

"I would just hate the wording of this bill to establish an authority that did not really have to engage people that have been working in this field with a good track record for decades"6

1.7 The Coalition questions the need for this Commission, given confusion within the Department of Health and Ageing on the differing roles of ACHS and the Commission. Although the Department has subsequently corrected the record, in asserting the need for the Commission as outlined in the Bill, the Department argued that there were significant gaps in the health care national standards:

The Commission will be responsible for developing national standards across all healthcare settings. The Commission is developing a nationally consistent set of safety and quality accreditation standards that can be applied across all healthcare sectors, not just restricted to hospitals, primary health care or mental health. Conversely, the ACHS’ role is focused primarily on the accreditation of hospitals, including the development of hospital accreditation standards, and does not extend across the entire healthcare system.7

ACHS subsequently pointed out:

ACHS’ role is significantly broader than hospital accreditation. ACHS develops standards and provides assessment for Community, Primary Care and Multipurpose Services, Day Hospitals, Mental Health, Drug and Alcohol, Justice Health and Oral Health Services. 8

1.8 Submissions also expressed concern about the lack o f detail about the

approach the Commission would take to accreditation with concern that it could be

5 Carol Bennett, Executive Director, Consumer Health Forum of Australia Inquiry Tuesday, 9 2010 /CA9.

6 Associate Professor Peter Woodruff, ACHS. Inquiry Tuesday, 9 2010 /CA13.

7 DOHA Response QON No 1.

8 ACHS Submission 17-10-2010 Page 2

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"...a 'tick the box' certification exercise, [rather] than a continuous quality improvement exercise. "9

1.9 Submitters also expressed concern that the standards in the mental health area were not covered in the health reform process. Dr Darryl Watson, Treasurer o f the Royal Australian and New Zealand College o f Psychiatrists, said the process "continues to neglect the needs of those with mental illness" . 1 0 1 1

Dr W atson went on to say:

"The college believes there is a need for specific focus on the special needs of the safety and quality issues in the mental health sector. Closer engagement between the commission and mental health consumers and carers would improve the influence of the commission on practice in this sector. The provision of this focus is not covered by this bill." 11

1.10 The proposed reforms also contain provisions for the future establishment of two more bodies, the Hospitals Pricing Authority and the National Performance Authority. This will require further layers of bureaucracy, again incurring a significant cost. W hilst supporting the establishment o f the authorities, Professor W oodruff from ACHS said:

"...perhaps of more critical importance is the structure and function of the Independent Hospital Pricing Authority and the National Performance Authority...we believe that it is so important that it should be available for public scrutiny and debate prior to the passage of the Bill." 12

1.11 Dr Watson, RANZCP, told the inquiry:

One of the inherent problems when you are talking about safety and quality is that there is a benefit in having separate independent authorities but in actual fact they need to mesh throughout the whole process. So there is a risk, when considering these things separately, that you reinforce the idea that safety and quality are addressed as a checklist or a tick box rather than

being an integral part of services or, in this case, an integral part of reform and future planning. 13

and,

I think there is a concern that when you look at the safety and quality in a narrow focus it is easy to tick the boxes, go through the checklist and conform with whatever the standard is, but it is much more complicated

than that. If you were looking at safety and quality as part of the effectiveness of health care, you could look at performance and pricing as

9 Associate Professor Peter Woodruff, ACHS, Inquiry, Tuesday, 9 2010/ CA11.

10 Dr Watson RANZCP Inquiry Tuesday, 9 November 2010/ CA1.

11 Dr Watson Inquiry Tuesday, 9 2010/CA1.

12 Associate Professor Woodruff ACHS Inquiry Tuesday, 9 2010/CA11.

13 Dr Watson, Inquiry Tuesday, 9 2010 / CA2.

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efficiency, and you need to balance those things. The other concern is that you could end up at a local level with an im balance around some o f those efficiency and effectiveness issues that need to be tied together.14

1.12 A number o f submitters said it would be preferable to introduce legislation the Commission, the Hospital Pricing Authority and the National Performance tribunal as a package. It's been argued that there is a danger in the separation of health and safety from pricing and efficiency, Dr Watson, Royal Australian and New Zealand College o f Psychiatrists:

...having those key bills aligned w ould seem to give m ore benefit than having them apart. I think m y answer was that as long as the good work o f the commission is able to continue and we are not talking about years o f delay, our preference w ould be that those things be aligned and we try to reduce the chance o f there being cracks in the system or parts that are missed across those bills. 15

This was supported by the submission from the Consumers Health Forum of Australia:

W e have noted the argum ent in several subm issions that legislation to establish the com m ission should be considered in conjunction with consideration o f legislation to establish the N ational Perform ance A uthority and the Independent Hospital Pricing Authority. G iven the likely

interrelationships betw een these three bodies, that is an approach that makes sense to us. 16

1.13 Some submissions have suggested that the key reform that is required is the establishment o f an independent regulator to enforce compliance with the quality healthcare standards already established by such bodies as the Australian Council on Healthcare Standards (ACHS) and other medical professionals.

1.14 One o f the most worrying aspect o f this proposed Bill is the total lack o f detail as to how the Commission would go about its work. There is no detail as to how the new body would perform the most fundamental facets o f its operations, that is, how they would measure performance and what powers they would exercise. Again in

evidence to the inquiry Associate Professor W oodruff said:

...w e m ust work out how the com m ission is going to have teeth, how

perform ance is going to be m easured and how com pliance is going to be assured. 17

14 Dr Watson, Inquiry, Tuesday, 9 2010 CA3.

15 Dr Darryl Watson RANZCP/ Inquiry Tuesday, 9-11-2010 / CA4.

16 Ms Carol Bennett Executive Director, Consumers Health Forum of Australia/ Inquiry Tuesday, 9-11-2010 CA6.

17 Associate Professor Peter Woodruff ACHS / Inquiry Tuesday, 9-11 -2010 CA11.

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This view was supported by comments from the Consumers Health Forum o f Australia, who said:

However, it appears to us from this bill that compliance with the standards and guidelines developed by the commission will remain voluntary. If we are to aim for the highest standards of safety and quality in health care, and if the commission is to drive this, somekind of incentive or sanction needs to be in place to encourage or enforce some kind of compliance. Otherwise, we run the risk of seeing a commission developing high-quality standards

and guidelines which have no value because they are not adopted by our health services. In that instance, it becomes an expensive and irrelevant body. 18

1.15 ACHS added:

The ACHS noted that in the past the ACHS has had the dilemma of being both the teacher and the policeman, i.e.: the ACHS has been both the developer of standards and the accreditation service provider. 19

1.16 In the absence o f any clear delineation of the particulars o f the enforcement methods and strategies to be employed by the proposed Commission, submissions raised concerns about the lack o f public debate on the commission's proposed approach to enforcement, especially if financial penalties and/or incentives were used to effect compliance. Associate Professor W oodruff said:

"One way of enforcing control is financial.....it is open to manipulation and anything other than safety and quality as the driving force. And that is the crux of the problem."20

1.17 In regard to what sanctions or rewards the Commission may use to achieve the desired standards o f health and safety, there was also some concern that those standards need to be set in a context for some healthcare providers facing the particular challenges o f remoteness and distance. We note, in particular, the

submission from the Aboriginal Medical Services Alliance Northern Territory [AMS ANT]:

Some of the blockages to accreditation for ACCHSs are related to infrastructure deficiencies which will require significant government funding to overcome. Therefore ACCHSs cannot always meet national standards, possibly including safety standards, due to lack of quality infrastructure and limited funding support from government. 21

18 Ms Carol Bennett Executive Director, Consumers Health Forum of Australia/ Inquiry Tuesday, 9-11-10.

19 DOHA Response to QON NO. 5 (20) DOHA Response to QON N0.5.

20 Prof. Woodruff ACHS / Inquiry, Tuesday, 9-11-10 CA13.

21 Submission to Inquiry AMSANT 3.6.

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1.18 In regard to performance tests o f clinical performance to be employed by the proposed commission, concerns were expressed that they were inadequate and that the Commission proposed to use the very screening that failed to detect the clinical performance o f Jayant Patel at Bundaberg Hospital.

Professor W oodruff said:

One of the problems is that administrative data, particularly the ICD-10 coding system, is grossly inadequate for measuring outcomes. For instance, Patel was not an outlier on his ICD-10 profile. The research group at Flinders University, looking into standardised hospital mortality rates, has done a comparative study based on using administrative data and the more definitive technique of studying case notes—which is laborious, time consuming and expensive—and found that there is very little correlation between the two. But this new entity will have, as one of its guidelines or one of its measurable, standardised hospital mortality. These are the sorts of issues that really need to be debated by people who know what is going on before they are all set in stone.22

1.19 The stated intention o f this Bill, according to the Government and the

Department o f Health and Ageing, is to continue reforms of the Australian healthcare system to save the taxpayer money and to improve the health and safety o f clients o f the system. However there are some serious shortcomings in the approach that this

proposed Bill does not resolve. In evidence to the inquiry, M artin Laverty, CEO of Catholic Health Australia, said:

"Our obvious disappointment is that the opportunity existed for some harmonisation around these matters and the bill has not achieved that.” And "...we would be seeking harmonisation and indeed the removal of the duplication, the removal of the cost to the healthcare system that exists through these multiple reporting frameworks that this legislation unfortunately is simply replicating."23

M r Laverty also raised the difficulties some national not for profit or charity healthcare providers have with the layers o f regulation and reporting that already exist in our healthcare system ...

A national group like St Vincent’s Health Australia or the St John of God Health Care group that operate public and private hospitals across state boundaries continue to be subjected to different reporting regimes, at cost, in each of the jurisdictions within which they work. That is not efficient healthcare.24

This issue was also o f concern to the Aboriginal Medical Services Alliance Northern Territory [AMSANT], who in their submission to the inquiry wrote,

22 Associate Professor Woodruff ACES Inquiry/ Tuesday, 9-11-10 CA 11.

23 Martin Laverty CEO, Catholic Health Australia / Inquiry Tuesday, 9-11-10 CA 17.

24 Martin Laverty CEO, Catholic Health Australia / Inquiry Tuesday, 9-11-10 CA 18.

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"The proposed permanent Commission will consider binding standards across primary health care, but this will require coordination with relevant standards setting bodies for primary health care including the RACGP and other bodies such as QIC and ISO. This coordination will ensure that there is not further complexity with services needing to meet two or more different sets of standards in a workplace rather than just one. ACCHSs already operate in a complex and highly regulated environment: national standards set by the Safety and Quality Commission should not to add to this complexity.25 2 6 2 7

1.20 Other concerns have been raised about the makeup o f the Commission board, the wording of the Bill and the absence o f explicit references to key stakeholders the proposed Commission should consult with. Some submissions expressed concern that the legislation, as it stands, doesn't make it clear as to whether the Board would

include consumer representatives or even key health care professionals, Martin Laverty, CEO Catholic Health Australia,

...there is not necessarily a recognition that a majority of surgical procedures in Australia are performed in the private sector and that it would be appropriate that non-government representation be considered in the event that representation is to be given to consumers and potentially others. 26

The Consumers Health Forum o f Australia noted:

Broadly speaking, our main concerns relate to, in particular, the need for specific reference to consumer engagement and identification of health consumers as a group that must be consulted as the commission undertakes its functions. We are concerned that the bill enables specific consultation with clinicians but not consumers. To simply state that the public must be

involved in consultation is not good enough. We note that many other stakeholders have made this point in their submissions. Every study around the world has supported the involvement of consumers in health decision making as a way of ensuring that you get health system improvements. Secondly, there is a need to clarify the commission’s functions and whether they extend to include allied health professionals and allied health services.

Finally, there is a need for greater clarity around how consumers will be represented and supported on the commission’s board.2

1.21 The issue o f the make up o f the Commission Board was of sufficient concern for there to be calls for amendments to this Bill to ensure a proper representation of key stakeholders on that Board, Martin Laverty said:

25 AMSANT / Inquiry Submission 3.5.

26 Martin Laverty CEO, Catholic Health Australia / Inquiry Tuesday, 9-11-10 CA 17.

27 Ms Carol Bennett Executive Director, Consumers Health Fomm o f Australia/ Inquiry Tuesday, 9-11-10 CA6.

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So, if there were to be any amendments to this legislation that would speak to the proposed governance arrangements, recognising that provision has been made for representation of skill sets, it might also be wise to formalise a representation of different bodies with that background.

And,

If there were to be amendments, it might focus on ensuring that there was NGO and consumer representation. "8

1.22 The Aboriginal Medical Services Alliance Northern Territory also had this to say in their submission in referring to Section 20 o f the Bill:

AMSANT is therefore of the very strong view that one of the potential "attributes" the Minister should take account of is for a potential Board Member to have "substantial experience or knowledge; and substantial standing" in "comprehensive Aboriginal primary health care" under Section 20(3) of the Bill. ”

1.23 This point was also taken up with particular reference to mental health in the submission by the Royal Australian and New Zealand College o f Psychiatrists whose Treasurer Dr Watson told the inquiry:

The bill mentions the term ‘the public’; we would expand that so that there is some mandated presence of consumers and carers. There are a number of reasons for that. All aspects of the health system seem to work better when they are sitting at the table with consumers and carers. There is something about that that focuses the mind; there is something that those people bring which is novel, creative and helpful around that path. It maybe, that specifically noting the representation of that group is something that could be added to the bill, in addition to the notion o f ‘public’.

And,

In any reform aiming at improvement in health you are looking at improved outcomes. I agree with you that that should be a focus."2 8 2 9 3 0 31

1.24 In reference to the title o f this Bill there has also been comment that it is

clumsy and potentially confusing, Dr Watson, Treasurer, Royal Australian and New Zealand College o f Psychiatrists submitted:

The college supports the establishment of the Australian Commission on Safety and Quality in Health Care as a statutory, permanent and independent authority as proposed through this bill. It is, however,

28 Martin Laverty CEO, Catholic Health Australia / Inquiry Tuesday, 9-11-10 CA 19 & CA 21.

29 AMSANT Inquiry Submission 4.3.

30 Dr Watson Treasurer RANZCP Inquiry Tuesday, 9-11-10 CA4.

31 Dr Watson Treasurer RANZCP Inquiry Tuesday, 9-11-10 CA3.

Page 33

suggested that the title and the object of the bill be revised to better reflect what is being considered under the bill and to distinguish it from the establishment of other bills that will be introduced under the National Health and Hospitals Network Agreement.32

Recommendation 1

Given the cost, the lack of focus and unclear governance, and the potential for duplication, the Coalition urges the Government to withdraw this Bill.

Recommendation 2

If the Government persists, the Coalition strongly recommends that this legislation to establish the Commission be deferred until the legislation for and purpose of the Independent Hospital Pricing Authority and the National Performance Authority has been fully developed.

Senator Judith Adams LP, Western Australia

Senator Sue Boyce LP, Queensland

Senator Concetta Fierravanti-Wells LP, New South Wales

32 Dr Watson Treasurer RANZCP Inquiry Tuesday, 9-11-10 CA 1.

APPENDIX 1

Submissions received by the Committee

1 Australian Self-Medication Industry (ASMI)

2 Australian Osteopathic Association

3 Dietitions Association o f Australia

4 Mental Health Council of Australia

5 National Primary Health Care Partnership

6 Australian Nursing Federation

7 Universities Australia

8 Consumers Health Forum o f Australia

â¢ Supplementary Submission received 20 October 2010

9 Business Council o f Australia

10 Dr Kathryn Antioch

â¢ Supplementary Submission received 28 October 2010

11 Australian Medical Association (AMA)

â¢ Supplementary Submission received 18 October 2010

12 Australian General Practice Network (AGPN)

â¢ Supplementary Submission received 20 October 2010

13 La Trobe University

14 The Australian Psychological Society & Allied Health Professionals Australia

15 The Royal Australian and New Zealand College o f Psychiatrists

16 Catholic Health Australia

17 Public Health Association o f Australia

18 Victorian Healthcare Association

19 National Stroke Foundation

20 Department o f Health and Ageing

21 Aboriginal Medical Services Alliance Northern Territory (AMSANT)

22 The Australian Council on Healthcare Standards

APPENDIX 2

Public Hearing

Tuesday, 09 November 2010 Parliament House, Canberra

Committee Members in attendance Senator Claire Moore (Chair) Senator Rachel Siewert (Deputy Chair) Senator Carol Brown Senator Sue Boyce Senator Concetta Fierravanti-Wells

Witnesses

Australian Council on Healthcare Standards Associate Professor Peter Woodruff, President

Ms Linda O'Connor, Executive Director

Catholic Health Australia Mr M artin Laverty, Chief Executive Officer

Consumers Health Forum of Australia Ms Carol Bennett, Executive Director

Ms Anna Wise, Senior Policy Manager

Department of Health and Ageing Mr Graeme Head, Interim C hief Executive Officer, Health Reform Transition Office

Ms Mary Mumane, Deputy Secretary

Mr Peter Broadhead, Acting First Assistant Secretary, Transition Office

Dr Masha Somi, Assistant Secretary, Transition Office

Mr Stephen Speldewinde, Acting Assistant Director

Ms M ary McDonald, First Assistant Secretary, Regulatory Policy and Governance Division

Ms Anne Kingdon, Acting Assistant Secretary, Governance, Safety and Quality Branch, Regulatory Policy and Governance Division

Royal Australian and New Zealand College of Psychiatrists Dr Darryl Watson, Treasurer

APPENDIX 3

Letter from the Australian Council for Healthcare Standards (ACHS), 17 November 2010.

The Australian Council on Healthcare Standards

Safety Quality Performance

17 N o v e m b e r 2 0 1 0

D r Ian H olland A ttending C o m m itte e S e c re ta ry S e n a te S ta n d in g C o m m itte e o n C om m unity A ffairs

P a rlia m e n t H o u s e C a n b e rra A C T 2 6 0 0

T h is lette r h a s b e e n fo rw a rd e d via em ail

S e n a te C o m m u n ity A ffa irs C o m m itte e . In q u iry in to t h e N a tio n a l H e a lth a n d H o s p ita ls

N e tw o rk Bill 2 0 1 0 - D e p a r tm e n t of H e a lth a n d A n e in g R e s p o n s e t o A C H S ’ E v id e n c e

T h e D e p a rtm e n t o f H ealth a n d A geing (D O H A ) p rovided e v id e n c e in r e s p o n s e to c o m m e n ts provided b y A ss o c ia te P r o fe s s o r P e te r W oodruff, P re s id e n t, T h e A u stralian C ouncil on H e a lth c a re S ta n d a rd s (A CH S).

T h e D e p a rtm e n t’s in te rp reta tio n of A C H S ' c o m m e n ts is n o t reflective of A C H S ’ position, a n d th e DOHA r e s p o n s e p ro v id e d d o e s n o t a d d r e s s th e is s u e ra is e d b y A C H S. A CHS s e e k s to

clarify in a c c u r a c ie s in th e s ta t e d position.

Q u e s t i o n N u m b e r 5 - D O H A R e s p o n s e

“ T e a c h e r a n d P o lic e m a n ”

"The A C H S n o te d th a t in th e p a s t th e A C H S h a s h a d th e d ile m m a o f b e in g b oth th e te a c h e r a n d th e p o lic e m a n , ie : th e A C H S h a s b e e n b o th the d e v e lo p e r o f s ta n d a rd s a n d th e

a c c re d ita tio n s e n /ic e p ro v id e r.

T h e D e p a rtm e n t a g r e e s th a t th e s e p a ra tio n o f s ta n d a rd s s e ttin g a n d s ta n d a r d s a s s e s s m e n t is a k ey re q u ire m e n t of a ro b u s t n a tio n al a c c re d ita tio n s c h e m e . H ealth M inisters a re c o n sid e rin g a d o p tin g th e C o m m is sio n 's p ro p o s e d M odel N atio n al A ccred itatio n S c h e m e w hich b u ild s on th e s tre n g th s o f th e cu rre n t a c c re d ita tio n s y s te m a n d e s ta b lis h e s clearly

d efin ed ro le s a n d re sp o n sib ilitie s for:

â¢ T h e C o m m issio n :

â¢ H ealth M inisters:

â¢ R eg u lato rs;

â¢ H ealth s e rv ic e s : a n d

â¢ A p p ro v e d a cc re d itin g a g e n c ie s s u c h a s th e A CHS.

Page 1 0 ( 2 . . ,

5 MacartKr Street Uttimo NSW 2097 AMtireto T: .61 2 988$ 9955 F- .61 5 9211 9633 E: 63vsi8ach9.

A not-fcr-ptnfi* organisation

Page 40

U n d e r th is m o d e l, t h e C o m m is s io n w o u ld n o t b e in v o lv e d in t h e p r o c e s s o f a s s e s s m e n t o r

a w a r d in g c e r tif ic a te s o f a c c r e d ita tio n . T h e C o m m is s io n w o u ld d e v e l o p a s e t of n a tio n a lly

c o n s i s t e n t s a f e t y a n d q u a lity s t a n d a r d s . A c c r e d ita tio n a g e n c i e s w o u ld u s e t h e s t a n d a r d s in

th e i r a c c r e d ita tio n a n d a s s e s s m e n t p r o c e s s e s . T h is m o d e l w o u ld th e r e f o r e r e m o v e t h e

d ile m m a p re v io u s ly e x p e r i e n c e d b y th e A C H S .”

ACHS Position

D O H A 'S r e s p o n s e s t a t e s t h a t A C H S is u n c o m f o r ta b le w ith t h e d u a l r o le s o f d e v e l o p in g

s t a n d a r d s a n d u n d e r ta k in g p e r f o r m a n c e a s s e s s m e n t s . In f a c t, A C H S b e l i e v e s t h a t t h e r o ie s

o f s t a n d a r d s d e v e l o p e r a n d a c c r e d ita tio n s e r v i c e p r o v id e r s h o u l d b e c o n d u c t e d b y t h e s a m e

o r g a n is a t io n . A C H S d o e s n o t h a v e a d ile m m a w ith th is s tr u c tu r e . E n f o r c e m e n t o f

p e r f o r m a n c e r e q u i r e m e n t s s h o u ld b e th e r e s p o n s ib ility o f ju r is d ic tio n s o r o t h e r a p p r o p r ia te ly

c o n s t r u c t e d re g u la to r y a u th o rity .

A C H S ' p o s itio n is t h a t t h e r o le o f c o n tin u o u s q u a lity im p r o v e m e n t s h o u ld b e s e p a r a t e d fro m

re g u la tio n , i.e . t h e s t a n d a r d s d e v e l o p m e n t a n d a c c r e d ita tio n fu n c tio n s h o u ld b e s e p a r a t e d

fro m t h e r e g u l a t o r / f u n c tio n . T h i s p o in t w a s n o : a d d r e s s e d in t h e D O H A r e s p o n s e , w h ic h

a d d r e s s e s a v e r y d iff e r e n t i s s u e .

Question Number 1 - DOHA Response

‘T h e C o m m is s io n will b e r e s p o n s i b l e fo r d e v e lo p in g n a tio n a l s t a n d a r d s a c r o s s a ll h e a l t h c a r e

s e tt in g s . T h e C o m m is s io n is d e v e lo p in g a n a tio n a lly c o n s i s t e n t s e t o f s a f e t y a n d q u a lity

a c c r e d ita tio n s t a n d a r d s t h a t c a n b e a p p lie d a c r o s s all h e a l t h c a r e s e c t o r s , n o t j u s t r e s tr ic te d

t o h o s p ita ls , p rim ary ' h e a l t h c a r e o r m e n ta l h e a l th . C o n v e r s e ly , t h e A C H S ' ra le is f o c u s e d

p rim a rily o n t h e a c c r e d ita tio n o f h o s p ita ls , in c lu d in g t h e d e v e l o p m e n t o f h o s p ita l

a c c r e d i t a t i o n s t a n d a r d s , a n d d o e s n o t e x t e n d a c r o s s t h e e n t i r e h e a l t h c a r e s y s te m ."

ACHS Position

A C H S ' ro le i s s ig n ific a n tly b r o a d e r t h a n h o s p ita l a c a e d i t a t i o n . A C H S d e v e l o p s s t a n d a r d s

a n d p r o v id e s a s s e s s m e n t fo r C o m m u n ity , P rim a ry C a r e a n d M u ltip u rp o s e S e r v ic e s , D a y

H o s p ita ls , M e n ta l H e a lth , D ru g a n d A lc o h o l, J u s t i c e H e a lth a n d O ra l H e a lt h S e r v ic e s .

ACHS Recommendation

A C H S r e q u e s t s t h a t t h e A C H S p o s itio n b e a m e n d e d in T h e D e p a r tm e n t o f H e a lth a n d

A g e in g r e s p o n s e , t o a c c u r a t e l y r e f le c t t h e c o m m e n t s p ro v id e d .

Y o u r s s i n c e r e l y .

B W J o h n s t o n

C h i e f E x e c u t i v e

Page 2 of 2

Page 41

Answers to questions on notice from the Department of Health and Ageing, 12 November 2010, including revisions made by the Department to take account of the letter from ACHS, provided 18 November 2010.

Community Affairs Legislation Committee

ANSWERS TO QUESTIONS ON NOTICE

HEALTH AND AGEING PORTFOLIO

Inquiry into National Health and Hospitals Network Bill 2010

9 November 2010

Question no: 1

OUTCOME 10: Health System Capacity and Quality

Topic: National Health and Hospitals Network Bill 2010

Hansard Page: CA

Senator asked:

Dr Kathryn Antioch (submission 10) notes that there is the potential for overlap of functions with the National Health and Medical Research Council (NHMRC) - particularly in the area o f guidelines development. A similar issue arises with the work o f the Australian Council on Healthcare Standards with respect to the

development of standards and indicators (submission 22).

Please outline the work the Department has undertaken on this issue including ways in which this potential for overlap will be managed?

Answer:

Interaction with NHMRC

Both the NHMRC and the Australian Commission on Safety and Quality in Health Care (the Commission) have a role in the development o f National Clinical Safety and Quality guidelines. The work o f both the Commission and the NHMRC is complementary and mutually supportive. There is an already well-established close relationship between these two national organisations with a mutual intent of

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preventing duplication o f activity and ensuring that the ongoing work of both is complementary and mutually supportive.

The Commission will prioritise the areas in which guidelines are developed and promote and assist in their implementation. It will source the writing o f guidelines from the expert groups who already do this in Australia, particularly the NHMRC.

The importance of the role o f the NHMRC in the development o f guidelines is recognised by the Australian Government through the allocation o f around $1 million per year in funding to the NHMRC to provide validation o f the process undertaken to develop the clinical guidelines. This will ensure that the guidelines are o f the highest quality and meet already well-established NHMRC standards, and that the work of both the Commission and the NHMRC is complementary and mutually supportive.

In relation to the development o f guidelines, the Commission will maintain and formalise its relationship with NHMRC to ensure there are no overlapping functions. This is achieved by Commission representation on Committees, working groups and in the processes o f the NHMRC.

The NHMRC and the Commission have experience in working together in bringing this supportive expertise to projects. The most recent example o f joint work being undertaken between the Commission and the NHMRC has been the development of the Australian Guidelines fo r the Prevention and Control o f Infection in Healthcare.

Interaction with accrediting organisations

The Commission and accrediting agencies have separate roles. The Commission promotes and improves safety and quality across the whole o f the Australian healthcare system. This will include working across the acute care, primary health care and mental health care sectors on matters relating, but not limited to,

development o f national clinical safety and quality standards, indicators and guidelines, prevention o f healthcare associated infection and patient centered care. Accreditation agencies, on the other hand, will accredit health service organisations against the standards developed by the Commission.

The Commission will be responsible for developing national standards across all healthcare settings. The Commission is developing a nationally consistent set of safety and quality accreditation standards that can be applied across all healthcare sectors, not just restricted to hospitals, primary health care or mental health. While the ACHS has a major role in the accreditation o f hospitals it also has a role in

accreditation o f other community and primary care settings, along with other accreditation agencies operating in these settings.

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While there is a multiplicity o f accreditation standards, none of these meet the need for a single set of nationally consistent safety and quality standards that can operate across all hospital and non-hospital health services. The development o f one national set o f standards will:

â¢ Reduce the variation and costs associated with multiple sets of standards; â¢ Reduce limitations in the current sets of standards; and â¢ Increase transparency and access to standards.

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Community Affairs Legislation Committee

ANSWERS TO QUESTIONS ON NOTICE

HEALTH AND AGEING PORTFOLIO

Inquiry into National Health and Hospitals Network Bill 2010

9 November 2010

Question no: 2

OUTCOME 10: Health System Capacity and Quality

Topic: National Health and Hospitals Network Bill 2010

Hansard Page: CA

Senator asked:

Catholic Health Australia has submitted that— as the organisation representing several not-for-profit hospitals— it is important they are consulted in the development of standards, indictors etc.

Given the vague or general nature of who must be consulted in the Bill, what assurance can you provide to Catholic Health Australia and other stakeholder groups that their views will be taken into account?

Answer:

Catholic Health Australia is an active contributor to the processes o f the Commission, and has two nominees on the Private Hospital Sector Committee.

The National Health and Hospitals Network Bill 2010 (NHHN Bill) makes provision under Section 10 for the establishment o f a process for consultation with a broad range o f stakeholders, including the public, and "any other persons or bodies who, in the Commission’s opinion, are stakeholders in relation to the formulation o f the standards, guidelines and indicators.’ In addition, Section 9(1 )(m) o f the NHHN Bill makes it a

function o f the Commission to consult and cooperate with other persons, organisations and governments on healthcare safety and quality matters.

It is intended that the process o f consultation would ordinarily include providing an opportunity for all relevant parties to provide comments, a reasonable timeframe

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within which to provide those comments and that those comments would be taken into consideration by the consulting party.

In making specific provision for consultation the NHHN Bill sets an expectation that the Commission will consult widely and will comply with international best practice standards. While each stakeholder is not explicitly listed in the NHHN Bill, it is anticipated that the Commission will regularly consult with consumers, carers, health

service organisations - both public and private, clinicians and peak bodies, including Catholic Health Australia.

Consultation Process fo r Development o f Key Projects

The Commission has had a strong focus on stakeholder engagement throughout its work to date and is committed to consulting with a diverse range o f stakeholders and consumers on the development of standards, guidelines and indicators to ensure their relevance, effectiveness and ultimately, the appropriateness o f services being delivered in a particular healthcare setting.

The Commission routinely invites public comment on key projects through the development of consultation papers made available on their website, and this level of stakeholder engagement is expected to continue. For example, the Commission has

developed a consultation paper on the development o f the draft National Safety and Quality Health Service Standards (the Standards). A copy o f the consultation paper is at Attachment A to this Question on Notice response. Organisations invited to provide a response are listed at Attachment B. A list o f respondents is at Attachment C.

The Commission has also adopted a formal seven-stage methodology for engaging stakeholders in the development of the Standards. A copy o f the methodology is at Attachment D to this Question on Notice response.

For example, consultation on the Standards to date has comprised:

â¢ Consultations with jurisdictions, health services, consumers, industry and member organisations and accrediting agencies between 2006 and 2008 on the Standards and their use in a model national accreditation scheme.

â¢ The development of the draft Standards initially involved a large number o f participants who are technical experts, consumers and industry representatives advising Commission programs, and/or members of working groups and/or Commission Standing Committees, including the:

â Inter Jurisdictional Committee

â¢ Private Hospital Sector Committee (noting that Catholic Health Australia has two nominees on the Private Hospital Sector Committee)

â Accreditation Implementation Reference Group

â Healthcare Associated Infection Implementation Advisory Group

â Healthcare Associated Infection Surveillance Expert Working Group

â Medication Reference Group Committee

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â Patient Identification Expert Working Group

â Clinical Handover Expert Advisory Group

â Recognising and Responding to Clinical Deterioration Advisory Committee

â Workshop o f key stakeholders involved in Blood and Blood Products

â Teleconference with jurisdictional representatives responsible for Pressure Ulcers

â¢ Teleconferences with the National Pressure Ulcers Advisory Panel

â Workshop o f key technical and consumer representatives

â¢ Release o f a consultation paper on the Draft National Safety and Quality Healthcare Standards, Novem ber 2009 for public comment, in addition to targeting health services and key industry organisations for their response.

â¢ Analysis of 183 written submissions on Standards from throughout the health industry. â¢ Focus groups involving consumers in Queensland, Victoria, South Australia and Western Australia and New South Wales. â¢ Meetings and workshops with all accrediting agencies and standard setting

bodies.

â¢ The first five standards were piloted in 26 health services across Australia and involved nine accrediting agencies.

This level o f consultation will be replicated for any review o f the standards.

W hile it is not expected to be required to ensure proper consultation, there are powers provided under section 10(6) o f the NHHN Bill that enable the M inister to make rules to be complied with by the Commission in formulating standards, guidelines and indicators.

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Community Affairs Legislation Committee

ANSWERS TO QUESTIONS ON NOTICE

HEALTH AND AGEING PORTFOLIO

Inquiry into National Health and Hospitals Network Bill 2010

9 November 2010

Question no: 3

OUTCOME 10 Health System Capacity and Quality

Topic: National Health and Hospitals Network Bill 2010

Hansard Page: CA

Senator Boyce asked:

For an ‘ordinary use’ definition o f the term ‘clinician’. It was further requested that any standard (legal or otherwise) definition be provided if such a definition exists.

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Answer:

The term ‘clinician’ appears in section 10(2) in the National Health and Hospitals Network Bill 2010 (the Bill) in relation to consultation for formulation of standards, guidelines or indicators.

The Australian Commission on Safety and Quality in Health Care has an established history o f wide consultation in the development o f such documentation to date. For the purposes o f the Bill an ‘ordinary use’ o f the term ‘clinician’ may refer to: an individual whose training and qualification is principally related to the provision of health care services and includes, but is not limited to, doctors, nurses, allied and other health practitioners.

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Community Affairs Legislation Committee

ANSW ERS TO QUESTIONS ON NOTICE

HEALTH AND AGEING PORTFOLIO

Inquiry into National Health and Hospitals Network Bill 2010

9 November 2010

Question no: 4

OUTCOME 10 Health System Capacity and Quality

Topic: National Health and Hospitals Network Bill 2010

Hansard Page: CA

Senator asked:

Dr Kathryn Antioch (submission 10, p. 1.) observes that a number of other terms used in the bill should be defined under clause 5. These include:

â¢ Standards

â¢ Indicators

â¢ Guidelines

â¢ Model accreditation scheme

â¢ Lead clinical groups

Is there any reason why definitions for these terms were not included in the bill? Please provide, where possible, definitions for these terms.

Answer:

The Department notes that these terms should be given their ordinary meaning. Below are some commonly understood descriptions o f standards, guidelines, indicators, model accreditation schemes and lead clinician groups to assist with understanding.

Standards and Guidelines

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Clinical safety and quality standards and guidelines are designed to ensure the consistent provision o f high quality clinical practice. They are based on evidence and, where necessary, “considered judgem ent” and relate to best practice and the appropriateness and effectiveness of care.

Clinical standards act as markers o f high quality, clinically cost effective patient care across a pathway or clinical area; are derived from the best available evidence or from the consolidated "considered judgement" o f clinicians; and are produced

collaboratively with healthcare professionals, organisations and consumers. A standard provides an explicit statement o f the expected level of safety and quality of care to be provided to patients by health services organisations and provide a means for assessing an organisation’s performance. Elements within a standard may be aspirational.

Clinical safety and quality guidelines are systematically developed statements designed to help practitioners and patients make decisions about the most appropriate health given the specific circ*mstances in which the care is given. These guidelines promote and encourage the provision o f effective, safe and efficient healthcare.

Indicators

Indicators provide succinct measures that aim to describe as much about a system as possible in as few points as possible. Indicators help us understand a system, compare it and improve it. Indicators can be tools to assist in assessing whether or not a standard in patient care is being met.

Model Accreditation Scheme

Health Ministers have endorsed a Model National Accreditation Scheme developed by the Commission which builds on the strengths o f the current accreditation system and clarifies the respective roles and responsibilities o f Health Ministers, regulators, health services, accrediting agencies and the Commission.

Lead clinical groups

Bodies known as Lead Clinicians Groups are ‘Lead Clinicians Groups’ for the purposes of the legislation, and therefore require no further definition.

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Community Affairs Legislation Committee

ANSW ERS TO QUESTIONS ON NOTICE

HEALTH AND AGEING PORTFOLIO

Inquiry into National Health and Hospitals Network Bill 2010

9 November 2010

Question no: 5

OUTCOME 10 Health System Capacity and Quality

Topic: National Health and Hospitals Network Bill 2010

Hansard Page: CA

Senator asked:

The Mental Health Council o f Australia states that: 'The Bill does not refer to a sustained method for better accountability based on consumer outcomes, which must be a key driver in an improved mental health service system .’ (Submission 4, p. 1).

What consideration has been given to this issue?

Answer:

The functions o f the Commission, as set out in section 9 o f the Bill, provide a framework for the scope o f work o f the Commission. As consumer outcomes and experience are key markers o f the safety and quality o f care, each of the

Commission's program s will be focussed on improved health outcomes for consumers. The Bill will enable the Commission to take on an expanded range o f work, building and continuing on its work in the hospital setting, to expand into primary and mental health care settings.

The current Com m ission’s work programs have largely focussed on improving safety in the hospital setting. As part o f its expanded role, the Commission will set and monitor national quality and safety standards and work with clinicians to identify best practice clinical care, to ensure the appropriateness o f services being delivered in a particular health care setting including hospitals, prim ary and mental health care.

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The setting and monitoring o f national safety and quality standards in hospitals, primary and mental health care is integral to promoting better accountability based on consumer outcomes. These national standards will clearly state the high expectations

all Australians have of their health care services.

In its new role, the Commission will build on the work it has already done to promote better accountability based on consumer outcomes through programs such as the evidence based Patient-Centred Care discussion and resource tool document. This

document recognises the centrality o f patient and consumer centred care to the National Mental Health Plan, the Australian Safety and Quality Framework for Healthcare, and the Australian Charter o f Healthcare Rights and its Consumer Engagement Standard, which is included in the Commission’s accreditation standards.

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Community Affairs Legislation Committee

ANSW ERS TO QUESTIONS ON NOTICE

HEALTH AND AGEING PORTFOLIO

Inquiry into National Health and Hospitals Network Bill 2010

9 November 2010

Page 52____________________________________________________________

Question no: 6

OUTCOME 10 Health System Capacity and Quality

Topic: National Health and Hospitals Network Bill 2010

Hansard Page: CA

Senator asked:

The Consumers Health Forum o f Australia argues that clause 58(2), which provides for the protection o f patient confidentiality' should be amended to specify that 'consent' should be 'informed consent'.

Can you envisage any problems with such an amendment?

Answer:

The Department does not consider that an amendment o f this nature is necessary. Consent w ould need to be “informed” in order to be valid consent.

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Community Affairs Legislation Committee

ANSWERS TO QUESTIONS ON NOTICE

HEALTH AND AGEING PORTFOLIO

Inquiry into National Health and Hospitals Network Bill 2010

9 November 2010

Question no: 7

OUTCOME 10 Health System Capacity and Quality

Topic: National Health and Hospitals Network Bill 2010

Hansard Page: CA

Senator Fierravanti-Wells asked:

Comments from the Department on Professor W oodruffs evidence.

Professor Woodruff, Australian Council on Healthcare Standards, provided evidence to the Committee, with a focus on the issues o f compliance and the issue of the potential duplication with respect to bodies already developing standards and accreditation in the healthcare field.

Answer:

Development of National Healthcare Standards

The Australian Council on Healthcare Standards (ACHS) supports the establishment o f a national set o f healthcare standards allowing national healthcare seiwices to report against a single, consistent set o f standards. However, the ACHS considers that the adoption o f a set o f existing standards as the national standards is preferable.

Health Ministers have endorsed the Commission’s proposed Model National Accreditation Scheme as the Australian Health Service Safety and Quality Accreditation Scheme. The Scheme will optimise the benefit of a set of National Safety and Quality Health Service Standards being developed by the Commisison that

will cover all areas o f the health sector.

In developing the Accreditation Scheme, the Commission undertook a stock take of existing standards and identified that there is no one set of nationally consistent safety and quality standards that is suitable to be applied across all health services. Relevant elements of standards reviewed during the national stock take are incorporated into a national set of safety and quality standards. The development o f these national safety

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and quality standards involved extensive consultation with key stakeholders, including accreditation agencies such as the ACHS.

In addition, the review o f existing safety and quality standards revealed that the standards against which a service is assessed are determined by the sector in which the health service operates and the accrediting agency chosen by the health service.

Collaboration between the ACHS and the Commission

The ACHS is supportive o f a permanent Commission but is seeking assurance that the Bill will not preclude A C H S’s collaboration with the Commission.

It is acknowledged that ACHS is a major provider o f accreditation services and there is nothing in the Bill that will preclude the ACHS from continuing to provide these services. The Commission will not deliver or develop another set of accreditation services that would overlap with the role o f the ACHS or other accreditation agencies. Furthermore, there is nothing in the Bill that would prevent the ACHS from continuing to provide accreditation services.

The ACHS is one o f a number o f organisations that develop various standards in specific areas o f health care that have been extensively consulted in the ongoing processes of National Safety and Quality Health Service Standards development. Their input continues to be o f value. This is supported by section 10(2) o f the Bill, which requires that before formulating standards, guidelines or indicators, the Commission must consult broadly with a range o f stakeholders. The Commission has an established history of extensive consultation in the development o f its guidelines and standards and it is expected that this would continue.

“Teacher and Policeman”

The ACHS noted that in the past the ACHS has had the dilemma o f being both the teacher and the policeman.

ACHS has indicated that it believes that the roles o f standards developer and accreditation services provider should be conducted by the same organisation.

As there are multiple accreditation providers in the market it would follow that there would be multiple standards set by those accreditation providers.

While there are many accreditation standards, none of these meet the need for a single set of nationally consistent safety and quality standards that can operate across all hospital and non-hospital health services. The development o f one national set of standards will:

â¢ Reduce the variation and costs associated with multiple sets o f standards; â¢ Reduce limitations in the current sets o f standards; and â¢ Increase transparency and access to standards.

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The separation o f standards setting and standards assessment is a key requirement o f a robust national accreditation scheme. Health Ministers have endorsed the Commission’s proposed Model National Accreditation Scheme which builds on the strengths o f the current accreditation system and establishes clearly defined and

separate roles and responsibilities for:

â¢ The Commission; â¢ Health Ministers; â¢ Regulators;

â¢ Health services; and â¢ Approved accrediting agencies such as the ACHS.

Under this model, the Commission will not be involved in the process o f assessment or awarding certificates of accreditation. The Commission will develop a set of nationally consistent safety and quality standards. Accreditation agencies would use the standards in their accreditation and assessment processes.

The Bill supports the clear separation o f standard setting and standards assessment processes by providing the Commission with the standards setting function, while accrediting bodies will continue to undertake standards assessment.

Quality Improvement

The ACHS considers that the met/not met basis as an indicator o f further need does not provide sufficient means fo r quality improvement.

The Model National Accreditation Scheme is designed to ensure that standards developed by the Commission are a key element of a quality improvement cycle for health services. In addition, identified risks and issues will be addressed at a national level to enable appropriate improvements to measurements, actions and data. This method will focus on improving the safety and quality of patient outcomes.

Meeting standards will achieve a range o f purposes including

â¢ improving safety systems, â¢ standardising processes; â¢ implementing quality improvement practices; and â¢ providing a quality basis on which funding can be made.

Achieving better outcomes

The ACHS are concerned that there is no evidence that the Commission will provide any better outcomes than what is already in place.

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The Bill will enable the Commission to continue to develop national safety and quality standards, guidelines and indicators that address known safety and quality issues. These are selected on the basis that:

â¢ they impact on a large number of patients; â¢ there is a known gap between the current situation and best practice outcomes; and â¢ improvement strategies exist that are evidence based and achievable.

The establishment o f the Commission as an independent body will enable it to take a national perspective in systematically assessing and addressing gaps in safety and quality.

Inter-relationship between the Commission and IHPA and NPA.

The ACHS expressed concerns about the relationship between the Commission and the IHPA and NPA.

The National Health and Hospitals Network Agreement sets out the inter-relationships between the Australian Commission on Safety and Quality in Health Care, the Independent Hospital Pricing Authority and the National Perfonnance Authority. In

setting the state-specific and nationally efficient price to be used for Commonwealth funding, the Independent Hospital Pricing Authority will consider reasonable access to public hospital services, clinical safety and quality, efficiency and effectiveness and financial sustainability o f the public hospital system (clause E3).

The National Performance Authority will produce Hospital Performance Reports and Healthy Communities Reports which will include selected clinical and safety measures drawn from the safety and quality standards developed by the Australian Commission on Safety and Quality in Health Care (clause D3).

We expect close and collaborative relationships between these three national governance bodies, that will, in partnership with existing agencies, ensure that the new funding arrangements are efficient yet clinically safe, and that safety and quality are reported on in a manner that ensures innovative practices are shared nationally and that poor performance can be identified early and remedied quickly.

The Senate

Community Affairs Legislation Committee

Provisions of Schedules 2 and 3 of the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Bill 2010

N ovem ber 2010

ISBN 978-1-74229-382-0

Senate Community Affairs Committee Secretariat:

Ms Naomi Bleeser (Secretary)

Ms Sophie Dunstone (Senior Research Officer)

Ms Sharon Babyack (Research Officer)

Ms Tegan Gaha (Executive Assistant)

The Senate Parliament House Canberra ACT 2600

Phone: 02 6277 3515

Fax: 02 6277 5829

E-mail: community.affairs.sen@aph.gov.au Internet: http: //w ww. aph. gov. au/senate_ca

This docum ent was produced by the Senate Com m unity Affairs Committee Secretariat and printed by the Senate Printing Unit, Parliament House, Canberra.

MEMBERSHIP OF THE COMMITTEE

43rd Parliament

Members

Senator Claire Moore, Chair

Senator Rachel Siewert, Deputy Chair

Senator Judith Adams

Senator Sue Boyce

Senator Carol Brown

Senator Mark Fum er

ALP, Queensland

AG, W estern Australia

LP, W estern Australia

LP, Queensland

ALP, Tasmania

ALP, Queensland

Participating Senators

Senator Mitch Fifield LP, Victoria

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118

TABLE OF CONTENTS

M E M B E R S H IP O F T H E C O M M I T T E E .................................................................iii

A C R O N Y M S A N D A B B R E V IA T IO N S ...................................................................vii

R E C O M M E N D A T IO N S .................................................................................................. ix

C h a p te r 1.................................................................................................................................. 1

Introduction....................................................................................................................... 1

Referral of the b i ll ............................................................................................................ 1

Conduct o f the inquiry......................................................................................................1

Overview of the b ill..........................................................................................................2

Main provisions of the b i ll ............................................................................................. 2

Issues raised regarding the b ill.......................................................................................4

Other issues raised during the inquiry......................................................................... 11

Conclusion....................................................................................................................... 16

A D D IT IO N A L C O M M E N T S ........................................................................................19

C O A LITIO N S E N A T O R S .............................................................................................19

M IN O R IT Y R E P O R T ......................................................................................................23

AU STRALIAN G R E E N S ...............................................................................................23

A P P E N D IX 1 ........................................................................................................................25

Subm issions received by th e C o m m itte e.................................................................... 25

A P P E N D IX 2 ....................................................................................................................... 27

Public H e a rin g ...................................................................................................................27

A P P E N D IX 3 ....................................................................................................................... 29

In tern atio n al Social Security A greem ents th a t include the D S P ......................... 29

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vii

ACRONYMS AND ABBREVIATIONS

AAT Administrative Appeals Tribunal

ARO Authorised Review Officer

FaHCSIA Department o f Families, Housing, Community Services and Indigenous Affairs

DFAT Department o f Foreign Affairs and Trade

DSP Disability Support Pension

NEDA National Ethnic Disability Alliance

NWRN National W elfare Rights Network

SSAT Social Security Appeals Tribunal

the Act Social Security Act 1991

UN United Nations

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RECOMMENDATIONS

Recommendation 1

1.56 The Department of Families, Housing, Community Services and Indigenous Affairs establish a mechanism to monitor the ongoing cost impact of the changes contained in this bill.

Recommendation 2

1.68 The committee recommends that the bill be passed.

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Chapter 1

Introduction

Referral of the bill

1.1 The Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Bill 2010 (the bill) was introduced into the House o f Representatives on 20 October 2010 by the Minister for Families, Housing, Community Services and Indigenous Affairs,

the Hon Jenny M acklin M P .1

1.2 On 28 October 2010, the Senate adopted the Selection o f Bills Committee Report No. 13 o f 2010 and referred the provisions o f schedules 2 and 3 of the bill to the Community Affairs Legislation Committee (the committee) for inquiry and report by 22 November 2010.1 2

1.3 After examination o f the bill, the committee determined that the focus o f the inquiry should be on schedule 2, particularly because o f the time critical nature of these provisions.

Conduct of the inquiry

1.4 In accordance with usual practice, the committee advertised the inquiry in The Australian and on the internet. In addition, the committee contacted a number of organisations in writing alerting them to the inquiry and inviting them to make a submission. The committee received 10 submissions, listed at Appendix 1.

1.5 The committee held a public hearing in Canberra on 15 November 2010. A list o f witnesses who attended the hearing can be found at Appendix 2.

1.6 The committee notes the short period o f time between referral of the inquiry, lodgement of the submissions and the public hearing. The committee appreciates the effort required to meet this timeframe, and thanks those organisations and individuals that made contributions to the committee's inquiry.

1.7 The committee would also like to thank the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) for their assistance and prompt response to questions on notice arising from the public hearing on

15 November 2010.

1 Votes and Proceedings, No. 6, 20 October 2010, p. 99.

2 Journals o f the Senate, No. 7, 28 October 2010, p. 253.

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Overview of the bill

1.8 The purpose o f schedule 2 of the bill is to amend the Social Security Act 1991 (the Act) to introduce a requirement for ongoing residence in Australia to qualify for the disability support pension (DSP), bringing the DSP into line with other workforce age paym ents.3 The main purpose o f the DSP is to assist recipients with the cost of living in Australia, and to support their engagement in workforce age activities that lead to greater levels o f social and economic participation.4 5 The amendments are intended to prevent payment o f the DSP to people who live permanently overseas but return to Australia every thirteen weeks in order to retain their pension." The bill is scheduled to commence on 1 January 2011.6

Main provisions of the bill

Residency requirement

1.9 The Act states that in order to qualify for the DSP, a person must be a resident at the time they apply for the D SP.7

1.10 Sections 1 to 4 o f schedule 2 o f the bill propose to amend the Act so that

instead, the person is required to be an "Australian resident", or show ongoing residency, to continue to qualify for the DSP.

1.11 Subsection 7(2) o f the Act defines an Australian resident as a person who:

(a) resides in Australia; and

(b) is one of the following:

(i) an Australian citizen;

(ii) the holder o f a permanent visa;

(iii) a special category visa holder who is a protected [special category visa] holder.8

1.12 Subsection 7(3) o f the Act requires certain factors to be considered when determining whether or not a person resides in Australia. These include elements o f a person's lifestyle in Australia such as the type of accommodation used; the nature of

3 Explanatory Memorandum, p. 8.

4 Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), Submission 8, p. 6 and Explanatory Memorandum, p. 8.

5 Explanatory Memorandum, p. 8.

6 Explanatory Memorandum, p. 8.

7 Social Security Act 1991, ss 94(l)(e) and 94A(l)(j).

8 Social Security Act 1991, s. 7(2).

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family relationships; the extent of employment, financial ties and assets; and the frequency and duration o f a person's travel outside of Australia.9

1.13 The proposed ongoing residency requirement will not apply to recipients whose DSP is portable under an international social security agreement; nor will the new requirement apply to disability support pensioners who were grandfathered from certain portability changes made in 2000 and 2004.10 *

1.14 FaHCSIA informed the committee that there are 19 countries with which Australia has international social security agreements that include the D SP.11 A list of these agreements can be found at Appendix 3.

Terminally ill overseas disability support pensioner

1.15 Sections 5 and 6 of schedule 2 o f the bill define an "Australian resident disability support pensioner" and a "terminally ill overseas disability support pensioner". The bill proposes different portability status for these two categories o f the DSP as follows:

â¢ Australian resident disability support pensioner - 13 weeks; or

â¢ terminally ill overseas disability support pensioner - unlimited period.12

1.16 To qualify as a "terminally ill overseas disability support pensioner" a person must meet the requirements of section 1218AA of the Act, which requires all o f the following:

(a) the person is severely disabled;13 and

(b) the person is receiving DSP; and

(d) the person's absence from Australia is or will be permanent; and

(e) the purpose o f the person's absence is:

(i) to be with or near a family member of the person; or

(ii) to return to the person's country o f origin.14

1.17 The DSP may also be paid for the duration o f overseas study, so long as the study can be credited towards the recipient's full time Australian course.13

9 FaHCSIA, Submission 8, p. 2.

10 Explanatory Memorandum, p. 8.

1Î FaHCSIA, Answers to questions on notice, 15 November 2010 (received 18 November 2010).

12 Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Bill 2010, s. 7.

13 For definition of "severely disabled" under the Social Security Act 1991 refer to s. 23(4B).

14 Social Security Act 1991, s. 1218AA.

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"Grandfather" exemptions

1.18 Several past amendments to the Act, in 2000 and 2004,1 5 16 included

"grandfather" provisions to exempt existing recipients o f the DSP from the effects the amendments would otherwise have had on their portability. Pensioners who had made lifestyle or travel decisions based on previous legislation were thereby not affected by those amendments. Section 8 o f schedule 2 o f the bill proposes that these exemptions be maintained.

Issues raised regarding the bill

1.19 A number o f submitters expressed various concerns about the impact the proposed ongoing residency requirements would have on DSP recipients. These concerns particularly focussed on:

â¢ disability support pensioners who have already established a life overseas, including those with family ties and children also living overseas, 7 and

â¢ disability support pensioners with no independent living capacity whose carers are required to work overseas for extended periods o f time, including the impact o f the proposed changes on the carer(s).18

DSP recipients already residing overseas

1.20 Under the proposed amendments, there will be a requirement for ongoing residency in Australia to receive the DSP, unless a DSP recipient is exempted from this requirement.

1.21 FaHCSIA advised the committee:

Centrelink data indicate that there are approximately 1,000 DSP recipients who take 3 or more return trips overseas each year. DSP recipients in this cohort will be affected by this measure if they are found not to be residing

in Australia.19

1.22 It was suggested by some submitters that some DSP recipients may have chosen to live overseas as it was easier, and less expensive, than attempting to contend with the cost o f living in Australia on a pension.20 In other cases, the committee heard

15 FaHCSIA, Answers to questions on notice, 15 November 2010 (received 18 November 2010).

16 Explanatory Memorandum, p. 8.

17 See Mr Julian Donn, Submission 2, p. 1; Mr Brett Matthews, Submission 3, pp 1-4 and Name withheld, Submission 9, p. 2.

18 Mr Hugh Borrowman and Ms Suzanne Marley, Submission 5, p. 1.

19 FaHCSIA, Answers to questions on notice, 15 November 2010 (received 18 November 2010).

20 Mr Julian Donn, Submission 2, p. 1 and Name withheld, Submission 9, p. 7.

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that returning to Australia may have major mental health impacts for some DSP recipients.21

1.23 Some submitters called for a greater level o f discretion in the bill to cater for individual circ*mstances.22 A number o f possible exemptions were suggested such as a "grandfather" exemption for those living overseas before the proposed

commencement o f the bill on 1 January 2011.23 Pensioners who may have made lifestyle or travel decisions based on previous legislation would thereby not be affected by the amendments.

1.24 The National W elfare Rights Network (NWRN) called for a greater level of discretion for DSP recipients requiring an extended portability period:

In the past when such significant changes have been introduced in relation to portability there have been grandfathering provisions provided to protect those who have made decisions prior to a legislative change. There continue to be protections for those on disability support pension who are deemed severely disabled and were overseas on a perm anent basis prior to the changes on 1 July 2004. It is unfair that the group impacted by these

impending changes will have fewer protections.24 2 5

1.25 FaHCSIA informed the committee that the DSP is intended to support people with the cost o f living in Australia, in line with other workforce age pensions.23 FaHCSIA provided information to the committee which shows other workforce age pensions include portability of up to 13 weeks.26 Payments made to DSP recipients

living overseas do not therefore fulfil the intended purpose o f the pension,27 consistent with the government's agenda to encourage participation rehabilitation for people with a disability:

As to governm ent priorities for disabilities, the government has a strong agenda in the disabilities area to support people with a disability to address barriers and to encourage participation rehabilitation which would have physical and economic benefits for the individual and the taxpayer as well

as social benefits and positive life outcomes. Increasing participation rates

21 Ms Sibylle Kaczorek, Executive Officer, National Ethnic Disability Alliance (NEDA), Proof Committee Hansard, 15 November 2010, p. 3 and Mr Brett Matthews, Submission 3, p. 1.

22 See Mr Julian Donn, Submission 2, p. 1; Mr Brett Matthews, Submission 3, p. 3; Mr Hugh Borrowman, Submission 5, pp 2-3; Name withheld, Submission 7, p. 6 and Name withheld, Submission 9, p. 4.

23 Mr Julian Donn, Submission 2, p. 1 and Name withheld, Submission 7, p. 6.

24‘ Ms Kate Beaumont, Vice-President, National Welfare Rights Network (NWRN), Proof Committee Hansard, 15 November 2010, p. 16.

25 FaHCSIA, Submission 8, p. 6.

26 FaHCSIA, Answers to questions on notice, 15 November 2010 (received 18 November 2010).

27 FaHCSIA, Submission 8, p. 6.

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across areas has been identified in both the intergenerational report and the tax review as crucial for economic developm ent and sustainability.28

DSP recipients where carer spends extended periods overseas

1.26 The committee also explored the challenges for DSP recipients dependent on a carer where the carer is required, in the course o f their employment, to spend extended periods of time overseas. Under the proposed amendments in schedule 2, the DSP recipient travelling with a carer would lose entitlement to the DSP if the DSP recipient was deemed to be no longer resident in Australia. One submitter outlined that this would also be detrimental to carers by restricting the ability o f carers to travel overseas.29

1.27 M r Hugh Borrowman and Ms Suzanne M arley described their situation to the committee. They are legal guardians o f their 27 year old son who is classified as "severely disabled" under the A ct.30 As part o f his career, M r Borrowman is required to periodically live overseas. As Mr Borrowman's son has no independent living capacity, he necessarily accompanies M r Borrowman and Ms M arley on these trips.31 M r Borrowman explained how the proposed amendments could impact him, and his family:

I would like to invite you to consider what the alternatives are for people in our situation. Is it to give up our son’s care to the state? Clearly, that is not a possibility...Is it not to follow the career option that I have chosen? I do not know how that squares with m odern sentim ents about carers in our

community, as exem plified in my submission and in the Carer Recognition Bill 2010, which includes ‘the fundamental principle that all carers should have the same rights, choices and opportunities as other A ustralians’. Should DFAT, the defence forces, BHP, anybody operating in an

international environm ent add a rider to their jo b ad saying, ‘Carers need not apply’?32

1.28 M r Borrowman went on to suggest the use o f a legal guardianship order to qualify for an exemption to the ongoing residency requirement as a possible solution to the issue facing his family.

1.29 M r Borrowman and Ms Marley proposed that the bill allow for severely disabled DSP recipients with a legal guardian to be exempt from the residency requirement. They outlined that guardianship orders are determined independently by Australian courts, and it would only be necessary for DSP recipients with no

28 Ms Michalina Stawyskyj, Branch Manager, International Branch, FaHCSIA, Proof Committee Hansard, 15 November 2010, p. 20.

29 Mr Hugh Borrowman and Ms Suzanne Marley, Submission 5, p. 2.

30 Mr Hugh Borrowman and Ms Suzanne Marley, Submission 5, p. 1.

31 Mr Hugh Borrowman and Ms Suzanne Marley, Submission 5, p. 1.

32 Mr Hugh Borrowman, Proof Committee Hansard, 15 November 2010, p. 6.

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independent living capacity intending to spend extended periods o f time overseas with a carer to apply for a guardianship order.33 M r Borrowman and Ms Marley outlined that the exemption would only apply for the intended period o f travel overseas:

It would be a simple matter to insert an additional exemption to cover persons subject to a guardianship order issued by a competent judicial authority...There would be no additional cost to the Commonwealth through such an exemption: by definition, affected persons would already be

receiving DSP - it does not create a new category of recipient. And on this model, because the assessment of guardianship is carried out independently by the courts, there is an existing compliance mechanism in place.34

1.30 FaHCSIA argued that many DSP recipients have a non-formal care

arrangement and applying for a guardianship order may place an undue burden on carers to formalise what, in many cases, may be a fragile care arrangement.3" FaHCSIA further argued that using guardianship orders in this manner may be contrary to the principles o f state and territory guardianship tribunals, as tribunals seek to encourage the use of non-formal arrangements to provide the least restrictive outcome for the person with a disability.36

1.31 FaHCSIA went on to state that using guardianship orders would create administrative complexities for Centrelink and as a result would not be an effective compliance mechanism.37 As guardianship orders are a state and territory-based responsibility, there are different types of orders across jurisdictions; therefore it would be difficult for Centrelink to make consistent and equitable assessments at a national level.38 Furthermore, guardianship orders are granted for a limited time which would require Centrelink to track variations to guardianship orders o f DSP recipients

living overseas.39

1.32 The committee was concerned by the issues raised by M r Borrowman. The committee is o f the view that FaHCSIA and the Minister continue to examine ways in which to address this situation.

Human rights

1.33 The National Ethnic Disability Alliance (NEDA) expressed concern that the proposed amendments are contrary to the United Nations (UN) Convention on the

33 Mr Hugh Borrowman and Ms Suzanne Marley, Supplementary Submission, p. 1.

34 Mr Hugh Borrowman and Ms Suzanne Marley, Submission 5, p. 2.

35. FaHCSIA, Submission 8, p. 5.

36 FaHCSIA, Submission 8, pp 5-6.

37 FaHCSIA, Submission 8, pp 5-6.

38 FaHCSIA, Submission 8, p. 6.

39 FaHCSIA, Submission 8, p. 6.

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Rights o f Persons with Disabilities ratified by the Australian Government in 2008, and the freedom o f movement guaranteed to all Australians:

On the Department of Immigration and Citizenship website, one comes across the five freedoms guaranteed to all Australians. This includes the freedom of movement, including the quote: ‘We can leave and return to Australia at any time.’ While it may not be intentional, the amendments as proposed restrict this freedom in a negative way. Human rights are firm on the basis of the UN Convention on the Rights of Persons with Disabilities— and I would like to raise the question at this point as to whether the amendments conform with the rights as embedded in the convention.40

I do not think that people with disabilities who are recipients of the DSP are necessarily in a position to make the same choices that other people have in their lives. So in that respect I do not think people on disability support pension should have an additional restriction on their rights and freedoms. In that sense I do believe that there is a difference when it comes to the residency requirements, especially if living overseas would mean a substantive improvement in quality of life for that person. Given that difference in terms of the limitations on options, I do think that is a justifiable distinction.41

1.34 FaHCSIA stated that matters relating to breaches of human rights law on the rights o f people with a disability had not been raised with them in the course o f discussions relating to the bill.42

1.35 The committee notes that the Australian social security system is a non contributory system, unlike most other countries, where payments are tied to the contributions a person makes during their working life.43 Further:

A person does not have to have paid taxes to be eligible but at the same time paying taxes does not create an entitlement. Our system is also a residence based system; that is, the person needs to be a permanent resident and residing in Australia for most benefits.44

40 Ms Sibylle Kaczorek, Executive Officer, NED A, Proof Committee Hansard, 15 November 2010, p. 1.

41 Ms Sibylle Kaczorek, Executive Officer, NED A, Proof Committee Hansard, 15 November 2010, p. 3.

42 Ms Michalina Stawyskyj, Branch Manager, International Branch, FaHCSIA, Proof Committee Hansard, 15 November 2010, p. 31.

43 Ms Michalina Stawyskyj, Branch Manager, International Branch, FaHCSIA, P roof Committee Hansard, 15 November 2010, p. 20.

44 Ms Michalina Stawyskyj, Branch Manager, International Branch, FaHCSIA, Proof Committee Hansard, 15 November 2010, p. 20.

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Equity with the age pension

1.36 NEDA suggested that the proposed amendments limiting the portability of the DSP was not consistent with other pension categories, namely the age pension:

The amendments are inconsistent with other approaches the Australian government takes for other population groups. For instance, they do not apply to aged pensioners. In no way is NEDA proposing that the amendments should therefore be applied to aged pensioners. Quite to the contrary, the view that is put forward here is that the approach taken should be one to support human rights and quality of life, especially for those

whose quality of life is already compromised due to disability, ill health or age related restrictions.45

1.37 M r Borrowman explained how the inability o f a DSP recipient with a

congenital intellectual disability to participate in the workforce is comparable to an age pensioner:

People of the sort I am talking about have reached a threshold condition of a congenital intellectual disability, like an age threshold of the age pension. That is never going to change. It cannot go backwards. They are not going to get better. That is why I say that that category of people is more analogous to people who are on an age pension. They are not going to be reintegrated into the workforce. They are not going to get better.46

1.38 FaHCSIA outlined that the term "severely disabled" is used in relation to assessment for social security agreements and it is for people who will not be able to work for more than 8 hours per week in the coming two years.47

1.39 The committee was advised that:

FaHCSIA does not know the number of the people who are severely disabled who have the potential to get into jobs and be rehabilitated to join the workforce. However, there are currently around 90,000 people with an intellectual disability receiving the DSP who would generally be assessed as being severely disabled. This group of DSP recipients have permanent life long impairments that will not improve.48

1.40 Prior to the amendments made by the Family and Community Services and Veterans' Affairs Legislation Amendment (2003 Budget and Other measures) Act 2003, severely disabled DSP recipients were granted an unlimited portability period, while DSP recipients without a severe disability were given a 26 week portability

45' Ms Sibylle Kaczorek, Executive Officer, NEDA, P roof Committee Hansard, 15 November 2010, p. 1.

46 Mr Hugh Borrowman, Proof Committee Hansard, 15 November 2010, p. 8.

47 FaHCSIA, Submission 8, p. 4.

48 FaHCSIA, Answers to questions on notice, 15 November 2010 (received 18 November 2010).

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period.49 DSP recipients with a severe disability were acknowledged as a separate category for portability entitlements.

1.41 FaHCSIA defined the DSP as a 'workforce age payment' and informed the committee that the DSP had been so defined by the Hon Senator Kay Patterson, then M inister for Family and Community Services, in 200350 when she described the DSP as being:

...in line with the government's overall welfare reform strategy which aims to engage people of work force age in activities in Australia that will lead to greater levels of economic and social participation.51

1.42 FaHCSIA argued that whilst the participation prospects of certain DSP recipients are generally constrained, 'the main purpose o f the DSP is to assist people with the cost o f living in Australia and to support their social and economic

participation'.52 FaHCSIA outlined that in addition to the increased payment levels for DSP recipients, these principles are supported through Australian Disability Enterprises; the Supported W age Scheme; Disability Employment Services; and the National Disability Agreement.53

1.43 FaHCSIA further outlined that there were risks involved in offering

portability to a category as broad as those defined as "severely disabled" under the Act:

People who may be severely disabled may be severely disabled for a short period of time and may have some capacity for participation and can, therefore, be assisted and perhaps have some access to work. The issue is, of course, if you grant unlimited portability to a group of people that may

include a very broad category of people, it may be difficult for us to continue to monitor their improvement or whether or not they are still eligible for disability payments and/or for extended portability. One of the reasons for the 2004 changes was that there was a growing number of people who were perhaps coming into those categories and the government was looking to assist them into work at that stage.54

1.44 The committee acknowledges that the "severely disabled" category covers a broad range o f people; some o f whom are in that category temporarily while

49 Family and Community Services and Veterans' Affairs Legislation Amendment (2003 Budget and Other measures) Bill 2003, s. 12.

50 FaHCSIA, Answers to questions on notice, 15 November 2010 (received 18 November 2010).

51 The Hon Kay Patterson, Minister for Family and Community Services, Senate Hansard, 25 November 2003, p. 17918.

52 FaHCSIA, Submission 8, p. 6.

53 FaHCSIA, Submission 8, p. 5.

54 Ms Michalina Stawyskyj, Branch Manager, International Branch, FaHCSIA, Proof Committee Hansard, 15 November 2010, p. 20.

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undertaking rehabilitation, and others who will remain severely disabled for the rest of their lives. The committee considers there is a need for further work to be undertaken on the definition o f "severely disabled" to recognise this distinction. The committee is of the view that FaHCSIA should examine the feasibility o f distinguishing between those who have the potential to be rehabilitated to work in the future; and those who

due to the nature o f their disability will never be able to participate in work.

Retrospectivity

1.45 The amendments in schedule 2 o f the bill are scheduled to commence on 1 January 2011,55 * The Senate Scrutiny of Bills Committee noted if the bill passes after 1 January 2011 then the provisions in schedule 2 will commence retrospectively and 'the provisions o f the bill are designed to be detrimental to some people and their possible retrospective commencement therefore attracts the Committee's attention'.36

1.46 The committee notes that the M inister for Families, Housing, Community Services and Indigenous Affairs has advised the Scrutiny o f Bills Committee:

I f passage in 2010 does not happen, the com m encem ent would not be retrospective.

Despite the public announcement o f the measure...I would not intend the measure to apply retrospectively (with adverse effect) should passage be delayed. In that event, I would intend to m ove an am endm ent delaying

com m encem ent o f the measure to the day after Royal A ssent.57

1.47 The Scrutiny o f Bills Committee noted, therefore, 'that there is no intention for the provision to apply retrospectively with adverse effect, which addresses its concerns'.58

Other issues raised during the inquiry

1.48 In addition to the concerns raised specifically regarding the impact o f the changes proposed in the bill, issues were also raised regarding the government's savings estimates, as well as consultation on and communication of the changes proposed in schedule 2.

55 Explanatory Memorandum, p. 8.

56. Senate Standing Committee on the Scmtiny of Bills, Ninth Report o f 2010,1 7 November 2010, p. 336.

57 Senate Standing Committee on the Scmtiny of Bills, Ninth Report o f 2010, 17 November 2010, p. 337.

58 Senate Standing Committee on the Scmtiny of Bills, Ninth Report o f 2010, 17 November 2010, p. 337.

Estimated savings to government

1.49 The changes proposed in the bill have been estimated to result in savings to government o f $3 m illion.59

1.50 FaHCSIA informed the committee that the figure o f $3 million only included savings which were within the FaHCSIA portfolio: '...in the current costing model we do not include any government programs or the add-on costs or the other costs that are outside our portfolio'.60

1.51 Ms Sibylle Kaczorek, Executive Officer o f NED A, raised concern about FaHCSIA's calculation o f the savings, and particularly whether the department had included additional costs which might be incurred if recipients o f the DSP currently residing outside Australia decided to return to Australia permanently:

Now I would like to address the question of false accounting. NEDA would be interested to hear how the projected figure of $3 million in savings is calculated, as we do not believe that the figure is correct. In fact, we believe that the changes, if accepted, would create an additional cost to taxpayers. We believe that what has been forgotten in the costing is the additional expenses for people on the DSP who are residing in Australia. This may include a combination of things, which I will list—and I might warn you that this list is rather long. We question whether the costing includes consideration for carer allowance; carer payment; utility allowance; rail concessions; national partnership agreement concessions such as the reciprocal transport concessions or compensation through Treasury for concessions on services such as municipal and water rates, utilities, motor vehicle registration and public transport; the National Mental Health and Disability Employment Strategy; Australian Disability Enterprises; Disability Employment Network; postal concessions for the blind; print disability services; disability parking permit scheme; National Companion Card; rent assistance and public housing; and home and community care services. This list could probably be extended even further.61

1.52 The NRW N also flagged potential costs as a result o f the changes:

There are additional costs if someone returns to Australia because the rate payable would be higher than the rate which is payable when they are overseas. There are also costs associated with them accessing health services. Similarly, there are pharmaceuticals and those sorts of things and

59 Mr Philip Moufarrige, Section Manager, International Policy, FaHCSIA, Proof Committee Hansard, 15 November 2010, p. 25 and The Hon Jenny Macklin MP, Minister for FaHCSIA, 'Introduction of legislation for new residency mles for Disability Support Pensioners', media release, 20 October 2010.

60 Ms Michalina Stawyskyj, Branch Manager, International Policy, FaHCSIA, Proof Committee Hansard, 15 November 2010, p. 27.

61 Ms Sibylle Kaczorek, Executive Officer, NEDA, Proof Committee Hansard, 15 November 2010, p. 2.

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even concessions that, in a way, they do not have access to because they are overseas.

A lot of the clients that we see who are going backwards and forwards between other countries and Australia have got new families and often dependants and there are the issues that will raise if all of a sudden there is

no payment of disability support pension to the primary person who is an Australian citizen; there will be more applications for residency for spousal visas and also visas for children to come to Australia and the associated support that will go hand in hand with that, because these people are

disability support pensioners, so there is the issue of whether or not there will be that capacity for a spouse to actually earn money and those types of things. We see that there will be longer-term costs that have not necessarily been factored in.62

1.53 Ms Kate Beaumont, Vice-President o f the NRWN, raised further concern about the potential for other costs to government as a result of:

...a high number of appeals in this area because we only have to look at the Administrative Appeals Tribunal cases related to portability, residence and returning residence, which causes quite a headache for Centrelink and also people challenging decisions that are made because they regard that, as they

are an Australian citizen or they have Australian residency, they should be eligible for all of the payments and things like that. We can see that there will be those sorts of costs.63

1.54 FaHCSIA acknowledged that 'there are certainly potential savings'64 6 5 to government elsewhere, for example medical and pharmaceutical expenditure, which might arise if some current recipients o f the DSP choose to permanently reside outside Australia as a result o f the change to the residency requirements proposed in the bill.63

The department went on:

...it is a common perception that if a person [is] living overseas on a disability they save the Australian taxpayer money in terms of medical costs. We found that if a DSP recipient were given unlimited portability their access to Australian pharmaceutical benefits, the PBS and the MBS, was substantially reduced. However, if they were only leaving Australia

62 Ms Kate Beaumont, Vice-President, NWRN, Proof Committee Hansard, 15 November 2010, p. 17.

63, Ms Kate Beaumont, Vice-President, NWRN, Proof Committee Hansard, 15 November 2010, p. 17.

64 Ms Michalina Stawyskyj, Branch Manager, International Policy, FaHCSIA, Proof Committee Hansard, 15 November 2010, p. 27.

65 Mr Philip Moufarrige, Section Manager, International Policy, FaHCSIA, Proof Committee Hansard, 15 November 2010, pp 25 and 26.

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under portability provisions—that is the 13-week arrangement—there was no real change in their usage patterns.66

1.55 In response to questions on notice, FaHCSIA advised:

The measure is expected to save the Government $8.4 million over the forward estimates period. The assumptions used are based on 2007/08 Centrelink data, which shows that approximately 1,000 DSP recipients made more than 3 trips outside Australia in that financial year. Out of this group, 154 spent less than 8 weeks in Australia.

FaHCSIA administered savings are based on the assumption that 150 DSP recipients (or 15 % of the DSP population who travel overseas regularly each year) will chose [sic] to remain overseas and will have their payment cancelled. It is assumed that once this provision is enacted the number of people choosing to remain overseas and cancelled from payment will reduce to 15 people each year over the out years.

The costing assumptions and estimates were agreed with the Department of Finance and Deregulation.67

Recommendation 1

1.56 The Department of Families, Housing, Community Services and Indigenous Affairs establish a mechanism to monitor the ongoing cost impact of the changes contained in this bill.

Consultation and communication

1.57 During the course of the inquiry, some submitters expressed concern about the way in which the changes to the DSP proposed in the bill were communicated to those likely to be affected.68 One submitter was particularly concerned that:

...there are DSP recipients that are completely unaware of this proposed change. There were a couple of media releases in March. If they were overseas at the time, they possibly may not have read an Australian paper that day. Sure enough it was in the budget, if you knew where to go looking

for it.69

1.58 The NRWN was similarly concerned:

I do not think that very many people affected by these rules would be aware of them. We have made some efforts to contact one of our clients who is a

66 Mr Philip Moufarrige, Section Manager, International Policy, FaHCSIA, Proof Committee Hansard, 15 November 2010, p. 26.

67 FaHCSIA, Answers to questions on notice, 15 November 2010 (received 18 November 2010).

68 See Name withheld, Submission 7, p. 5; Ms Sibylle Kaczorek, Executive Officer, NEDA, Proof Committee Hansard, 15 November 2010, p. 4 and Mr Gerard Thomas, Policy Officer, NRWN, Proof Committee Hansard, 15 November 2010, p. 16.

69 Name withheld, Submission 7, p. 5.

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blind pensioner who lives in Indonesia to inform him through his brother about these impending changes. That is just one out of essentially 1,000 or so people that, according to FaHCSIA, would be affected by these changes. I do not think there is a great deal of awareness. Whilst there were the media statements from the minister and a media story in March which got a

little bit of publicity, most people would not be aware of the implications of these changes or when they are due to start.70

1.59 FaHCSIA informed the committee that there had 'not been any formal consultation on the initiative' but that information on the proposed changes had been made public by way o f two media releases:

There was a much earlier media release-in March of this year-by the minister for FaHCSIA...So, there have been two media releases-one in March and one in October...71

1.60 FaHCSIA went on to state that the department had not received any requests for consultation.72

1.61 The committee notes that the Minister's media release on 20 October 2010 advised that:

From January 2011 only DSP recipients permanently residing in Australia will be able to continue to receive the DSP except under limited and specific circ*mstances. This change will bring DSP into line with other workforce age payments.73

1.62 The media release also stated that the 13 week tem porary absence rule would remain 'to allow DSP recipients to legitimately travel overseas for short periods' and that:

The legislation will not affect any disability support pensioner who has portability under an international social security agreement, is grandfathered from changes introduced in 2001 or 2004, or is entitled to

portability because they are severely disabled and terminally ill and overseas to be cared for by a family member.74

70 Mr Gerard Thomas, Policy Officer, NRWN, Proof Committee Hansard, 15 November 2010, p. 16.

71 Mr Philip Moufarrige, Section Manager, International Policy, FaHCSIA, Proof Committee Hansard, 15 November 2010, p. 31.

72. Mr Philip Moufarrige, Section Manager, International Policy, FaHCSIA, Proof Committee Hansard, 15 November 2010, p. 31.

73 The Hon Jenny Macklin MP, Minister for FaHCSIA, 'Introduction of legislation for new residency rules for Disability Support Pensioners', media release, 20 October 2010.

74 The Hon Jenny Macklin MP, Minister for FaHCSIA, 'Introduction of legislation for new residency rules for Disability Support Pensioners', media release, 20 October 2010.

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1.63 In response to a question on notice, the department informed the committee that DSP recipients currently residing outside Australia would be advised o f the new residency requirement:

The proposed residency changes will affect approximately 1,000 DSP recipients who have been identified as having a high likelihood of residing overseas. The identification of this group is based on a “presence test”, which measures length of time spent overseas.

All DSP recipients identified in this process will be sent a letter by Centrelink informing them of the changes to the residency rules for DSP. The letter will invite the recipient to contact Centrelink if they want more information about the changes. Centrelink also plans to contact all customers identified in this process by telephone. Centrelink has a range of publications and communication products which will be used to inform

DSP recipients about the changes to the legislation.

Any recipient who is formally reviewed will be invited to discuss their personal situation and reasons for their long overseas absences with a specialist Centrelink review officer prior to any review outcomes being implemented. A customer who is overseas when Centrelink contacts them will be given time to discuss their personal situation directly with Centrelink in Australia at the end of their 13 week portability period.

DSP recipients found to be not residing in Australia and who have their payment cancelled by Centrelink will be entitled to the normal customer appeal mechanisms, including having the decision reviewed by a Centrelink Authorised Review Officer (ARO) in the first instance and then by the

Social Security Appeals Tribunal (SSAT) and Administrative Appeals Tribunal (AAT).75

1.64 The committee was concerned by the evidence it received regarding

consultation on the changes proposed in the bill. Consultation by the department was not effective, and did not involve those affected by or with an interest in the change to the residency requirement.

1.65 The committee suggests that FaHCSIA develop effective consultation processes, subject to budget constraints, to ensure in the future that relevant stakeholders are appropriately engaged.

Conclusion

1.66 The committee notes that the changes proposed in schedule 2 o f the bill are consistent with the purpose o f disability support pension, which is to assist people with the cost o f living in Australia, and is designed to engage people o f workforce age in activities in Australia that will lead to greater levels o f economic and social participation.

75 FaHCSIA, Answers to questions on notice, 15 November 2010 (received 18 November 2010).

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1.67 As discussed earlier, the committee was concerned by the issues described by Mr Borrowman. The committee suggests that FaHCSIA and the Minister look for ways to resolve this situation.

Recommendation 2

1.68 The committee recommends that the bill be passed.

Senator Claire Moore Chair

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ADDITIONAL COMMENTS COALITION SENATORS

2.1 Senators believe that whilst limits on portability of the Disability Support Pension (DSP) are necessary, these limits are proving punitive to a small class of recipients owing to circ*mstances beyond their control. In particular, recipients with a severe disability who have impaired decision-making capacity.

2.2 Such recipients, who by virtue of their disability are unable to make their own decisions, can find themselves travelling overseas because of the decision of their carer. As a consequence if the recipient travels to a country without a social security treaty, they forfeit their pension after 13 weeks.

2.3 This situation is not only punitive to the DSP recipient but also to their guardian, whose career options in particular are limited by the restricted portability of the DSP entitlement of the person for whom they are caring.

2.3 The Committee heard evidence from a carer in this situation, Mr Hugh Borrowman, who together with his wife is the legal guardian and carer of his severely intellectually disabled adult son.1 Mr Borrowman described how the current situation affects him and his family:

I would like to invite you to consider what the alternatives are for people in our situation. Is it to give up our son’s care to the state? Clearly, that is not a possibility, but I would invite you to consider the economic and social cost of actually doing that. Is it not to follow the career option that I have chosen? I do not know how that squares with modem sentiments about carers in our

community, as exemplified in my submission and in the Carer Recognition Bill 2010, which includes "the fundamental principle that all carers should have the same rights, choices and opportunities as other Australians’. Should DFAT, the defence forces, BHP, anybody operating in an international environment add a rider to their job ad saying, ‘Carers need not apply’?"

2.4 Senators contend that as the current DSP arrangements are preventing quality individuals from serving Australia overseas and there is clearly an issue that needs to be systematically addressed.

2.5 DSP recipients such as Mr Borrowman’s son should not lose their entitlements when their carers and legal guardians move overseas for work. Mr Borrowman expressed the inherent unfairness in taking away a disability support pensioner’s entitlement in these circ*mstances:

The social security system deems my son as making a choice to go and live somewhere else. He cannot make that choice. The law recognises that. He has no concept of that choice. It is just not a meaningful concept and yet he is being penalised for it because in pursuit of our lives, which are - all bound up, we would need to take him with us or not go.1 2 3

1 Reference Borrowman/Marley sub 2 Mr Hugh Borrowman, Proof Committee Hansard, 15 November 2010, p.6 3 Mr Hugh Borrowman, Proof Committee Hansard, 15 November 2010, p.8

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2 0

2.6 Senators reject the view of FaHCSIA that guardianship orders are always an inappropriate vehicle for determining portability arrangements.4 The use of guardianship orders, as a means for determining eligibility for an exemption to cover recipients such as Mr Borrowman’s son, may not suit all but would not affect the existing informal care arrangements of others. The FaHCSIA submission appears to suggest that all informal care arrangements would suddenly need to be formalised through guardianship orders. Plainly this is not the case. Except for a very small number of recipients who find themselves in the situation described above, there will be no need for anyone not currently subject to a guardianship order to become subject to one.

2.7 The provision of an exemption for recipients needs to be clearly defined so that it is not open to exploitation. In particular, an exemption needs to be carefully targeted to capture DSP recipients who are severely intellectually disabled, are unable to make their own decisions, and are travelling overseas with their carer who is doing so for work purposes. A guardianship order can be a mechanism for demonstrating that an individual does not have their own decision-making capacity.

2.8 Senators are also sceptical of FaHCSIA’s view that an exemption based on guardianship orders would be difficult for Centrelink to administer. Senators consider that Centrelink has the capacity to monitor such an exemption just like any other circ*mstance that is monitored as a matter of course. Additionally, the exemption would only be expected to be taken up by a very small number of recipients.

2.9 It is recognised, however, that guardianship orders may not cover all recipients who are nevertheless severely disabled and without their own decision-making capacity. It is further recognised that guardianship orders require a comprehensive, difficult and often lengthy application process. Therefore the use of guardianship orders may not, therefore, resolve the issue for all DSP recipients in this situation. For example, a DSP recipient whose carer is a member of the ADF and the carer is ordered overseas on deployment at short notice.

2.10 Senators also express disappointment at FaHCSIA’s unwillingness to discuss solutions to the issue before the Committee. Correspondence between affected stakeholders and the former Parliamentary Secretary for Disabilities demonstrates that FaHCSIA has been

aware of the particular issue of DSP portability for recipients such as Mr Borrowman’s son for more than 12 months. That is more than enough time for the Department to have developed a workable solution to the problem. It is not good enough for Departments to appear before Senate Committees prepared to discuss only why something can’t be solved in a particular way, rather than to discuss solutions. Surely Senate Legislation Committees are an appropriate forum to find solutions to legislative issues so that appropriate amendments can be introduced and debated in the Senate.

2.11 It was also clear to the Committee that FaHCSIA has given thought to the issue as the Department developed a specific offer of compensation for the loss of Mr Borrowman’s son’s DSP entitlement as part of negotiations to secure Mr Borrowman’s appointment as Australia’s Ambassador to Sweden.5 It is of concern to Senators that this process of seeking a

4 FaHCSIA sub, p.5 5 Mr Hugh Borrowman, Proof Committee Hansard, 15 November 2010, pp. 10-11

144

solution was not a broader one focussed on achieving a systemic change to benefit anyone who finds themselves in this situation.

2.12 The view of Government Senators, that FaHCSIA and the Minister be left to examine ways in which to address this situation, is a recipe for further inaction. Both the Government and FaHCSIA have had ample time to adequately address the issue. The time has come for

action.

Recommendations

1. That the Bill be supported with an amendment to address the portability issue affecting DSP recipients with a severe disability and impaired decision-making capacity and whose carers are travelling overseas for work purposes.

2. That the Government reviews the assessment processes for Disability Support Pension recipients with a view to removing the ongoing requirement for all individuals to satisfy re-assessments where the individual is severely disabled and has no prospect of recovery from their disability or of their condition improving to a point where they may be able to work and support themselves.

__________________________________________________________________________ 21

Senator Mitch Fifield

Senator Sue Boyce

Senator Judith Adams

Î¿ - - : - ;

146

Schedule 2 of the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Bill 2010 (Changes to Disability Support Pension)

MINORITY REPORT

AUSTRALIAN GREENS

The Greens have concerns about the ramifications o f changes to portability arrangements o f the Disability Support Pension (DSP) for recipients particularly those with a severe disability who are dependent on a carer, and their carer is required to work overseas for long periods. We believe that the bill should be amended to address this issue. While we support many o f the comments in the Coalition M inority report we are concerned that some carers do not have guardianship arrangements.

We believe the Secretary should be granted discretion to adjudicate on portability for recipients with a life long disability whose carer has to travel overseas for extended periods. This should be based on a set of criteria developed by the Departm ent which should include guardianship orders and other criteria where such orders are not in place.

This inquiry has highlighted deficiencies in the definition o f 'severe disability' and how it relates to the working age pension. The definition does not adequately address those with a life long severe disability and subjects those with a life long severe disability to the same tests that apply for a working age pension where there is a prospect o f a recovery or partial recovery that would enable someone to work. W e believe that the definition needs to be reviewed.

Senator Rachel Siewert Australian Greens

147

)

148

APPENDIX 1

Submissions received by the Committee

1 Confidential

2 Mr Julian Bonn

3 Mr Brett Matthews

â¢ Supplementary Submission

4 Mr Richard Kearney

5 M r Hugh Borrowman

â¢ Supplementary Submission

6 Confidential

7 Name W ithheld

â¢ Supplementary Submission (Confidential)

8 Department o f Families, Housing, Community Services and Indigenous

Affairs

9 Name Withheld

10 Name Withheld

149

/ ..

150

APPENDIX 2

Public Hearing

Monday, 15 November 2010 Parliament House, Canberra

Committee Members in attendance:

Senator Claire Moore (Chair) Senator Rachel Siewert (Deputy Chair) Senator Judith Adams Senator Sue Boyce Senator Mitch Fifield Senator Mark Fum er

Witnesses

National Ethnic Disability Alliance Ms Sibylle Kaczorek, Executive Officer

Mr Hugh Borrowman

National Welfare Rights Network Ms Kate Beaumont, Vice President

M r Gerard Thomas, Policy Officer

Department of Families, Housing, Community Services and Indigenous Affairs Ms Michalina Stawyskyj, Branch Manager, International Branch

Mr Philip Moufarrige, Section Manager, International Policy

Mr Andrew Hatch, Section Manager, DSP Policy and Review

151

152

APPENDIX 3

International Social Security Agreements that include the DSP

Austria

Belgium

Canada

Chile

Croatia

Cyprus

Denmark

Germany

Ireland

Italy

Malta

Netherlands

New Zealand

Norway

Portugal

Slovenia

Spain

Switzerland

USA

154

The Senate

Economics

Legislation Committee

Corporations Amendment (No. 1) Bill 2010

[Provisions]

November 2010

ISBN 978-1-74229-390-5

Printed by the Senate Printing Unit, Parliament House, Canberra.

Senate Econom ics Legislation Committee

Members

Senator Annette Hurley, Chair Senator David Bushby, Deputy Chair

South Australia, ALP Tasmania, LP

Senator Doug Cameron Senator Louise Pratt

New South Wales, ALP Western Australia, ALP New South Wales, NATS Senator John Williams Senator Nick Xenophon South Australia, IND

Participating Member participating in this inquiry

Secretariat

Mr John Hawkins, Secretary Dr Richard Grant, Principal Research Officer Ms Hanako Jones, Administrative Officer

PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3540

Senator Mathias Cormann Western Australia, LP

Fax: 02 6277 5719 E-mail: economics.sen@aph.gov.au Internet: http://www.aph.gov.au/senate/committee/economics ctte/index.htm

158

TABLE OF CONTENTS

M em bership o f C o m m itte e ............................................................................................. iii

C hapter 1...................................................................................................................................1

Introduction......................................................................................................................... 1

Background........................................................................................................................ 1

Conduct o f the inquiry......................................................................................................1

Structure o f the report.......................................................................................................1

Criticism o f the Explanatory Memorandum.................................................................2

C h apter 2 .................................................................................................................................. 3

Access to information in share registers........................................................................3

Accessing information in company registers...............................................................3

Misuse of information in share registers...................................................................... 4

The need for a provision to prevent misuse o f company register information..... 6

Improper purposes in the Corporations Regulations...................................................7

Committee view .................................................................................................................9

C h apter 3 ................................................................................................................................ 11

Higher penalties and improved detection powers for insider trading and market misconduct offences...........................................................................................11

Higher penalties for insider trading and market misconduct offences...................11

Improved offence detection pow ers............................................................................ 12

Telecommunications interception powers...................................................................15

ASIC's coercive powers................................................................................................. 17

A d ditional com m ents from C oalition S en a to rs...................................................... 21

A P P E N D IX 1 - Sub m issions R e c e iv e d .......................................................................23

A P P E N D IX 2 - Public H earing and W itn e sse s...................................................... 25

159

160

Chapter 1

Introduction

Background

1.1 The Corporations Amendment (No. 1) Bill 2010 was introduced into the House o f Representatives on 24 June 2010 and reintroduced— following the August federal election— on 29 September 2010. On 30 September, the Senate referred the bill to the Senate Economics Legislation Committee for inquiry and report by

16 November 2010.

1.2 The bill has three main elements. The first is to change the way that people are able to access information held on company registers. Specifically, the bill will require persons seeking a copy of the register o f members to apply to the company, stating the purpose for which they will use the register. The company can refuse to provide a copy o f the register if the purpose is improper. The second aspect o f the bill

enhances the Australian Securities and Investment Commission's (ASIC) powers to investigate offences relating to insider trading and market manipulation. It also enables an interception agency to apply for warrants in the course o f a joint

investigation into these offences. Thirdly, the bill increases criminal penalties for insider trading and market manipulation under Part 7.10 o f the Corporations Act.

Conduct of the inquiry

1.3 The committee advertised the inquiry in The Australian on 13 and 27 October 2010 and invited written submissions by 15 October 2010. The committee received ten submissions which are listed in Appendix 1.

1.4 A public hearing was held on 3 November 2010 in Sydney. The committee received evidence from Treasury officials and officers from ASIC, as well as representatives from Chartered Secretaries Australia, the Law Council of Australia, the New South Wales Council for Civil Liberties and the Rule of Law Institute. A list

of those who gave evidence is presented in Appendix 2.

1.5 The committee thanks those who participated in the inquiry.

Structure of the report

1.6 The report has three chapters. The remainder of this chapter looks at criticism of the Explanatory M emorandum (EM) to the bill by the Senate Standing Committee for the Scrutiny o f Bills. Chapter 2 presents the committee's evidence on the issue of accessing information in company registers. Chapter 3 considers the committee's evidence on the provisions to extend ASIC's powers to detect insider trading and market misconduct offences through extended search warrant and telecommunications interception powers.

Page 2

Criticism of the Explanatory Memorandum

1.7 In October 2010, the Senate Standing Committee for the Scrutiny o f Bills made a number o f criticisms o f the EM to the bill. Specifically, the committee noted that it is:

...extremely concerned about the poor quality of the explanatory memorandum to this bill, in which a number of the items are not explained or are inadequately explained, and the index is incorrect in many ways. Particular care should be taken to ensure that explanatory memoranda which adopt a narrative style (rather than a more traditional structure in which each item is referred to in numerical order) still adequately address

and cross-reference each provision in a bill.1

1.8 In this context, the Scrutiny o f Bills Committee highlighted the absence of any explanation in the EM to the bill's search warrant provisions. It noted that while the index to the EM states that paragraph 2.6 explains items 1 to 3, the paragraph is 'in fact a very brief paragraph that relates to an amendment to section 1019G o f the Coiporations Act'.1 2 Chapter 3 o f this report looks at the issue o f the bill's search warrant provisions in more detail and the Scrutiny o f Bills Committee's concerns that these provisions may trespass unduly on personal rights and liberties.

1.9 Treasury has informed the Senate Economics Legislation Committee that a revised EM with a new index and an explanation for the rationale and scope o f the bill's search warrant provisions will be forthcoming. The committee trusts that the revised EM will address the Scrutiny o f Bills Committee's concerns.

1 Senate Standing Committee for the Scrutiny of Bills, Alert Digest 8/10, 27 October 2010, p. 19.

2 Senate Standing Committee for the Scrutiny of Bills, Alert Digest 8/10, 27 October 2010, p. 20.

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Chapter 2

Access to information in share registers

2.1 This chapter examines the bill's provisions on access to companies' share registers. It notes how the information in share registers has been used (and abused) and highlights broad support for the introduction o f a provision to prevent improper use o f register information through a list o f improper purposes in the Corporations Regulations.

Accessing information in company registers

2.2 Companies are required to keep registers o f their members containing

members' names, postal addresses and shareholding details. These registers provide necessary information to assist current and future members to exercise their membership rights, and members and interested third parties to engage in comm erce.1

2.3 Currently, anyone may request a copy o f a company's shareholder register without providing any indication o f the purpose for which they intend to use the information.1 2 There are various well-accepted reasons for a person to access the register.3 These include:

â¢ members checking that their personal details are accurately recorded on the register;

â¢ members communicating with other members about their potential rights to bring or join an action against the company for relief against oppression or to bring a statutory derivative action;

â¢ members or interested third parties wishing to write to existing members with an offer to purchase shares at a fair price;

â¢ members or interested third parties wishing to canvass a small number of

members to identify sellers, as a step preliminary to a takeover bid;

â¢ members wishing to contact other members in order to influence company management about the operation of the company or to obtain support for a members' resolution; and

1 . Treasury, Proposals paper: Access to company registers and related issues, February 2010, p. 2, http://www.treasurv.gov.au/documents/1716/PDF/Access to registers proposals.pdf (accessed 10 November 2010).

2 Mr Geoff Miller, Treasury Proof Committee Hansard, 3 November 2010, p. 1.

3 See Mr Tim Sheehy, Chatered Secretaries Australia, Proof Committee Hansard, 3 November 2010, p. 12.

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â¢ candidates for directorship contacting members about their election.4 5

2.4 However, Treasury told the committee that 'increasingly, members' contact details are being used for a number o f purposes that are not considered proper, but currently there are insufficient mechanisms in the legislation to prevent this'.3 The bill introduces a proper purpose test for the use o f a company's share register. It requires persons seeking a copy o f a register o f members to apply to the company, providing their name, address, corporation, the purpose for which they will use the information in the register and whether this information will be disclosed to a third party.6 The company can refuse to provide a copy o f the register where the purpose is an improper purpose.7

2.5 The bill's proper purpose test exclude undesirable uses o f company register information (rather than specifying proper purposes). The Corporations Regulations (rather than the Act) will list these improper uses as:

â¢ specific groups in the community (such as charities) soliciting donations from shareholders;

â¢ brokers soliciting clients;

â¢ obtaining information about the personal wealth o f shareholders; and

â¢ making off-market offers to purchase securities (other than for a takeover of an unlisted company).

2.6 The government's intent is to eliminate the improper use o f registers,

particularly 'predatory', unsolicited, off-market share offers. Where the purpose o f an application is for an improper use, the request to provide a copy will be refused.8 There is scope for judicial review o f this decision under section 1324 o f the

Corporations Act.

Misuse of information in share registers

2.7 The committee received evidence from various submitters to this inquiry that the information in share registers has been accessed by some for an inappropriate use. Dr Greg Golding, a partner at Mallesons Stephen Jaques representing the Law Council of Australia, told the committee that there are a small number o f players who make offers to primarily unsophisticated retail shareholders to acquire shares 'on uneconomic terms'. He explained that many companies listed on the stock exchange

4 Treasury, Proposals paper: Access to company registers and related issues, February 2010, p. 2, http://www.treasuiv.gov.au/documents/1716/PDF/Access to registers proposals.pdf (accessed 10 November 2010).

5 Mr Geoff Miller, Treasury, Proof Committee Hansard, 3 November 2010, p. 1.

6 Schedule 1, items 6 and 8.

7 Explanatory Memorandum, p. 6.

8 Explanatory Memorandum, p. 7.

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over the last two decades have large shareholding bases of unsophisticated retail shareholders, especially where the shares are held as a consequence of

demutualisation. Some o f these shareholders have been the target o f offers that, in the Law Council's view, are unacceptable. Dr Golding elaborated:

This year...there have been a number of offerings in those types of companies that we believe illustrate unacceptable behaviour in terms of the approach of the industry players. The way they mutate is illustrative of the fact that investor protection in this area has not been assisted by disclosure regimes. The legislation on the books at the moment is based on disclosure

and an assumption that, given proper disclosure, a retail investor confronted with one of these offers will make a logical and rational choice not to accept the offer, particularly in circ*mstances where the market price of the relevant securities is available to the retail investor on far better terms. This is not patronising, but what we experience day to day is behaviours on the part of investors that are not rational in dealing with these offers. It is our belief that it is the behaviours that need to be protected, rather than through disclosure regimes. Therefore we have been a prominent supporter of

further reforms to try to protect investors in this situation.9

2.8 Company Secretaries Australia (CSA) has surveyed its members (company secretaries) to seek information on who is accessing the company registers o f the top 100 ASX companies. Ms Judith Fox, Director o f Policy at CSA, told the committee that:

Ninety-five per cent of the requests are coming from non-shareholders, and they are certainly not coming from people who are seeking to initiate some sort of action to do with the governance and management of the company...For example, one major bank received 11 requests. Only one of those requests was from a shareholder, which is entirely proper. One was from an offerer to purchase shares at below market value, four were from charities, three were from investment companies and two were from estate finders. A major retailer received six requests. Two came from charities, one from a genealogical research company specialising in discovering unclaimed or forgotten assets, one from an offerer making below-market offers to purchase shares and two from investment companies. A major resources company received 10 requests, none of which were from

shareholders. They included offerers to purchase shares at below market value, charities and requests from investment companies. A major supplier to the gaming industry received three requests, one from a merchant bank

asking for the details of the holdings of one individual shareholder who had recently been in the media, one from a firearms dealer, which is genuinely alarming, and one from an unknown party, but research indicated that it was

9 Dr Greg Golding, Law Council of Australia, Proof Committee Hansard, 3 November 2010, p. 16.

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probably a genealogical research company specialising in discovering unclaimed or forgotten assets.10 1 1

The need for a provision to prevent misuse of company register information

2.9 Submitters and witnesses to this inquiry were in broad agreement on the need for tighter regulation to prevent misuse o f share register information (see

paragraph 2.5).

2.10 CSA 'unequivocally supports' the bill's provision for persons seeking a copy of the register of members to apply to a company stating how they will use the information. Its position rests on both principled and practical considerations. CSA emphasised the 'basic privacy principle' that every shareholder has the right to know that their information will only be disclosed for the purposes for which it is

provided— the management o f the shareholding.11 In practical terms, M r Tim Sheehy, Executive Director o f CSA, told the committee that company secretaries repeatedly have had to deal with 'sometimes angry and often distressed shareholders' who have been sold their shares at below market value. It is for this reason, he explained, that CSA has pushed for reform on the issue o f access to share registers.12 Ms Fox added:

In particular, given our Members' knowledge over the past decade of sources of requests for the registers from third parties (other than shareholders or for the purpose of a takeover), CSA confirms that the four improper uses of information from the register identified to date and specified in the Corporations Regulations align with the majority of requests with which our Members have had to contend over these past years.13

2.11 Telstra also supports the bill's provision on share register access. It noted in its submission to this inquiry that:

...the introduction of a provision into the Act which expressly grants a company the ability to prevent members or third parties from accessing its share register unless the members or third parties satisfy the company that they wish to access or take copies of the register for a 'proper purpose'. Telstra is also supportive of the introduction of offence provisions to prevent the misuse of share register information.14

10 Ms Judith Fox, Chartered Secretaries Australia, Proof Committee Hansard, 3 November 2010, p. 11.

11 Ms Judith Fox, Chartered Secretaries Australia, Proof Committee Hansard, 3 November 2010, p. 12.

12 Mr Tim Sheehy, Chartered Secretaries Australia, Proof Committee Hansard, 3 November 2010, p. 11.

13 Chartered Secretaries Australia, Submission 1, p. 1.

14 Telstra, Submission 5, p. 1.

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Improper purposes in the Corporations Regulations

2.12 Submitters and witnesses also supported the government's approach o f stating improper uses in the Corporations Regulations, as opposed to defining a proper purpose.

2.13 CSA supported the inclusion o f the four improper purposes in the

Corporations Regulations. It noted that these can be added to if the people who currently make below-market offers to purchase shares devise other methods and means to access shareholders' personal shareholding details.13

2.14 The Law Council also supports the list of improper purposes, although it argued that the scope of these proscribed purposes should be expanded to include 'dividend chaser' activities.1 5 16

An undertaking not to misuse?

2.15 Treasury's February 2010 Proposals Paper suggested a requirement that a person applying for information in a share register must satisfy the company that they are doing so for a 'proper purpose'.17 One of the key issues arising from the

consultative process was whether to define these 'proper purposes' directly18 or whether they are best defined through specifying improper purposes.

2.16 The Law Council o f Australia criticised the path mooted in the Proposals Paper. While it supports the list of improper purposes, the Council is concerned with the bill's requirement that persons seeking access to the register must state the purpose

for which they require access. It argued that a statement o f proper purposes may enable a company to delay providing the register in cases where a lawful purpose is unwelcome to the com pany.19 Mr Golding explained that:

...to test whether the company had taken the right action, you would need to go to court, and companies have all the power in that situation and it would take a period of time for courts to determine what the legislation intended by that. So we were concerned that companies may use this as a defensive tactic or for ulterior purposes quite unrelated to the particular offers that we

are concerned about. We think a much better solution is to take that power from the company and have a negative specification of an improper purpose through the regulation so that the determination is effectively not being

_______________________________________________________________________ Page 7

15 Ms Judith Fox, Chartered Secretaries of Australia, Proof Committee Hansard, 3 November 2010, p. 12.

16' Law Council of Australia, Submission 6, p. 2.

17 Treasury, Proposals paper: Access to company registers and related issues, February 2010, p. 2, http://www.treasurv.gov.au/documents/1716/PDF/Access to registers proposals.pdf

18 This was the approach initially supported by the Insurance Australia Group. See Submission 4.

19 Law Council of Australia, Submission 6, p. 2.

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made subjectively by the company but objectively by reference to a list of prescribed wrongful purposes.20

2.17 The same concern was raised by the New South Wales Council for Civil Liberties. It stated in its submission:

We have read the submission of the Law Council of Australia on this matter, and agree with them in particular about the capacity the proposed legislation creates for delay. Amongst other things, allowing a corporation to decide what is an improper purpose would allow its management potentially to defend their own interests (e.g. during a hostile takeover

when time is of the essence). This creates intolerable conflicts of interests.21

2.18 Instead o f a statement o f purposes with the company as the gatekeeper, the Law Council favours a process whereby the applicant is required to provide to the company an undertaking not to use the information contained in the register for an improper purpose.22

2.19 CSA, on the other hand, argued that the process established by the bill is 'very practical' as it allows for complete transparency about why the register is being requested so the company is clearly aware o f these reasons. As mentioned above, CSA

sees the list o f improper purposes as important to this process. It claimed that if a request seems improper and the applicant disagrees, 'then it is an entirely fair and relatively speedy process to go to the courts and to challenge that decision'.23

’Use' and 'purpose' o f share register information

2.20 The main area o f difference among witnesses on the bill's share register provision relates to whether a person seeking information in a register should only be required to verify the use rather than the purpose o f this information.

2.21 The Law Council has argued that it is the behaviour in question (the use) that needs addressing, not the means by which the behaviour is implemented (the purpose). As M r Golding observed:

...we continue to believe it is not the purpose of the request for a register that is the evil here; it is the use to which it is put and, in particular, it is the behaviours of a small number of players in creatively mutating their offers that are the evil. So, at one level, an improper purpose negative power is still not addressing the root evil. We have a residual concern that unless you

20 Mr Greg Golding, Law Council of Australia, Proof Committee Hansard, 3 November 2010, p. 16.

21 New South Wales Council for Civil Liberties, Submission 8, p. 1. See also Dr Martin Bibby, Proof Committee Hansard, 3 November 2010, p. 21.

22 Mr Greg Golding, Law Council of Australia, Proof Committee Hansard, 3 November 2010, p. 18.

23 Ms Fox, Chartered Secretaries Australia, Proof Committee Hansard, 3 November 2010, p. 12.

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deal with the root evil it will continue to be circumvented in some way. That being said, as I say, we think the legislation should be enacted broadly in its current form.24

2.22 In contrast, CSA argued that the law needs to cover both the use o f the

information and the purpose. Ms Fox told the committee:

It really does need to cover the purpose because that comes back to that basic privacy principle that the shareholder needs comfort and confidence that the information is being used for the purpose for which it was provided. That it is being used appropriately is actually a separate issue. To just say,

‘Let’s just have an undertaking that it’s going to be used appropriately and forget the purpose,’ I think really defeats the very policy objective that was talked about that we referred to by providing the historical data around when the legislation was introduced.25

Committee view

2.23 The committee supports the bill's provision to screen access to information in share registers. It is satisfied that the list of improper purposes will serve as the most efficient and effective way to determine whether an applicant proposes to access information for a proper purpose. It is important that this list is non-exhaustive and that the regulations can be expanded to ensure that share register information

continues to be used only for proper purposes.

24 Mr Greg Golding, Proof Committee Hansard, 3 November 2010, p. 16.

25 Ms Judith Fox, Proof Committee Hansard, 3 November 2010, p. 14.

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170

Chapter 3

Higher penalties and improved detection powers for insider trading and market misconduct offences

3.1 This chapter examines the bill's provisions to enhance the Australian

Securities and Investments Commission's (ASIC) search warrant powers to detect insider trading and market manipulation offences and enable an interception agency to apply for telecommunications interception warrants to investigate these offences. The chapter begins by outlining the bill's provision to increase criminal penalties for insider trading and market misconduct offences.

Higher penalties for insider trading and market misconduct offences

3.2 The bill increases the penalties associated with breaches o f the insider trading and market misconduct provisions in section 7.10 of the Corporations Act. This misconduct includes false trading and market rigging, artificially maintaining a trading price, dissemination of information about illegal transactions, false or misleading statements, inducing persons to deal in financial products and dishonest conduct in relation to a financial service or product.1 Currently, the maximum criminal penalty for insider trading is five years imprisonment and/or 2000 penalty units, while the maximum criminal penalty for market manipulation offences is five years imprisonment and/or 200 penalty units.

3.3 In his Second Reading Speech, the Parliamentary Secretary to the Treasurer, the Hon. Mr David Bradbury MP, explained that insider trading and market manipulation can 'distort Australia's financial markets and cause serious harm to their

fair and efficient functioning'. Further, he noted that the benefit to be gained from engaging in insider trading or market manipulation often far outweighs the maximum penalty that can currently be imposed for a breach.1 2

3.4 Accordingly, the bill will increase the maximum criminal penalties for both insider trading and market manipulation to ten years' imprisonment and/or the greater of 4500 penalty units, or three times the profit gained or loss avoided.3 Currently, 4500 penalty units is $4 950 000 for a corporation and $495 000 for an individual.

3.5 Witnesses to this inquiry supported these amendments.

1 Mr Geoff Miller, Treasury, Proof Committee Hansard, 3 November 2010, p. 2.

2 The Hon. Mr David Bradbury MP, Second Reading Speech, House o f Representatives Hansard, 29 September 2010.

3 Explanatory Memorandum, p. 14.

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Improved offence detection powers

Search warrant powers

3.6 The bill amends the current search warrant pow er in the ASIC Act to permit ASIC to apply for a search warrant without first having to issue a notice to produce for the material sought. Treasury told the committee that the Act's current requirement for a notice to produce has meant that ASIC's search warrant power is rarely used. When the power is sought, the documents are often destroyed. Accordingly, the search warrants employed by ASIC are often only used in criminal proceedings under

section 3 o f the Crimes A ct.4

3.7 W hile the bill rem oves the notice to produce requirement from the

Corporations Act, the new search warrant provisions will retain various other protections. An application to the court for a search warrant may only be made in a situation where a notice to produce a document under sections 30, 30A, 31, 32A and 33 could also be issued. These notices may only be issued where the requirements of section 28, regarding the perm itted purposes for seeking records, are actually satisfied.

Sections 28 and 35 o f the ASIC Act

3.8 ASIC's power to apply for a search warrant is set out in section 35 o f the

ASIC Act. This section obliges ASIC to require the production o f corporate records under another provision o f Division 3 and only if those records are not produced may ASIC then apply for a search w arrant.5 Division 3 (section 28) relates to section 35

insofar as it sets out the param eters within which ASIC m ay exercise its powers.

3.9 Section 28 of the ASIC A ct requires that ASIC's search warrant powers are only exercised:

â¢ in connection with the performance or exercise o f ASIC's functions or powers under the corporations legislation;

â¢ for the purposes of ensuring compliance with the corporations legislation;

â¢ in relation to an alleged or suspected contravention o f the corporations

legislation, or another law which relates to a corporation; and

â¢ in connection to an investigation under Division 1 o f the ASIC Act.

Submitters' concerns with the provision

3.10 Several groups have expressed concern with the bill's search warrant

provision. M r Stephen Blanks, Secretary o f the New South W ales Council for Civil Liberties, contrasted the bill's provision on search warrant powers with the process that ASIC uses to apply for a search warrant under the Crimes Act 1914. He noted that

4 Mr Geoff Miller, Treasury, P roof Committee Hansard, 3 November 2010, p. 3.

5 Rule o f Law Institute, Subtnission 7, p. 5.

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the primary way that ASIC is able to obtain search warrants is through the Crimes Act. Through this avenue, there must be a suspected criminal offence for which the search warrant is necessary. M r Blanks reasoned:

To the extent that the power in the ASIC Act is additional to and separate from the power in the Crimes Act, one assumes that the power in the ASIC Act is going to be used in situations where there is not an investigation of a criminal offence underway...To have a search warrant as the first port of

call in a non-criminal investigation is inconsistent with the principles applying to coercive powers that have been floating around for at least the last 10 years.6

3.11 M r Malcolm Stewart, Vice President of the Rule o f Law Institute, elaborated on this issue. He explained to the committee that currently, ASIC must have a reasonable suspicion that an offence has been committed. Under the provisions o f the bill, however:

There no longer has to be any reasonable suspicion of anything. There does not have to be the commission of any offence or reasonable suspicion of that offence—there does not even need to be a reasonable suspicion of a

contravention in a civil sense of any of the acts that ASIC oversees either.7

3.12 The Institute fears that the bill's provision 'confers on a regulator even more coercive powers than it already has' and that this power is operationally unnecessary.8 Mr Stewart told the committee that as insider trading and market manipulation are criminal offences, ASIC already has adequate powers to gain a search warrant under

section 3 of the Crimes Act. He argued that ASIC does not need this additional power to gain a document on a premises.9

3.13 The Senate Standing Committee for the Scrutiny o f Bills also criticised the bill's provisions on ASIC's search warrant powers. It expressed concern that the Explanatory M emorandum does not explain the reasons for the bill's search warrant power provisions and in particular:

...whether the proposed power is too broad, what safeguards are in place to ensure that their use would be for a proper purpose and proportionate to the circ*mstances, and whether they are consistent with other similar powers.10

6 Mr Stephen Blanks, New South Wales Council for Civil Liberties, Proof Committee Hansard, 3 November 2010, p. 21.

7 Mr Malcolm Stewart, Rule of Law Institute, Proof Committee Hansard, 3 November 2010, ’ p. 22.

8 Rule of Law Institute, Submission 7, p. 3.

9 Mr Malcolm Stewart, Rule o f Law Institute, Proof Committee Hansard, 3 November 2010, p. 23.

10 Senate Standing Committee for the Scrutiny of Bills, Alert Digest 8/10, 27 October 2010, p. 19.

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ASIC's view (and a response)

3.14 In evidence to the committee, ASIC's Deputy Chairman Ms Belinda Gibson, emphasised that the Commission does not currently have power to obtain a search warrant under civil and administrative actions. She argued that ASIC needs the new powers to ban a financial participant pending a criminal determination, and thereby protect the public from a person who has breached the A ct.11

3.15 Ms Gibson gave the following example to illustrate ASIC's need for search warrant powers in addition to the current Crimes Act option:

If you take an instance where we suspect a Ponzi scheme by which we think a financial adviser is taking investors’ money, that would be a criminal act. To prepare and take a case to trial can take many years. It may be that we could use the evidence in an administrative banning and so protect the public by stopping that person giving financial advice and then work up a case. In the Crimes Act, we could not use evidence we might get from a telephone intercept about the operations of that scheme in a banning proposition; we could only use it in a criminal prosecution.1 1 12

3.16 Nonetheless, Ms Gibson told the committee that ASIC does not envisage using its new search warrant powers frequently. She noted that the Australian Federal Police has m any other responsibilities and that executing the search warrant is 'very resource intensive'. She added: Î envisage that we would generally only use a search warrant power where we think there might be destruction' (of evidence).13

Section 28

3.17 ASIC told the committee that in its view, section 28 o f the Act does constrain the use of section 35. Ms Gibson added there 'could be some legislative tweak to make that clearer, but the words o f section 35 invoke section 28'.14 1 5

3.18 However, the Rule o f Law Institute has criticised the bill for removing the two step process currently required under section 35. It argued that the effect of the proposed amendment is that ASIC's power to issue a search warrant is no longer limited by the parameters contained in section 2 8 .1:1 The Institute argued that ASIC's power to apply for a search warrant should be subject to specified safeguards which ensure that it is for a proper purpose in connection with its statutory functions. However, even this safeguard would allow ASIC to obtain a search warrant in circ*mstances where there may be no breach o f the Corporations Act or any other law

11 Ms Belinda Gibson, ASIC, Proof Committee Hansard, 3 November 2010, p. 32.

12 Ms Belinda Gibson, ASIC, Proof Committee Hansard, 3 November 2010, p. 34.

13 Ms Belinda Gibson, ASIC, Proof Committee Hansard, 3 November 2010, p. 35.

14 Ms Belinda Gibson, ASIC, Proof Committee Hansard, 3 November 2010, p. 33.

15 Rule of Law Institute, Submission 7, p. 5.

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or provision. The Institute thereby recommended that ASIC's power to apply for a search warrant be subject to the safeguards contained in section 28 of the ASIC Act.

3.19 Treasury's interpretation is that these safeguards are already in place in the bill:

The section quite clearly states that the search warrant may seek the production of books that could be required to be produced—and we listed a whole range of sections in our introductory speech. Those sections are tied to section 28 of the ASIC Act. Section 28 lists a whole range of purposes

for which books can be sought, and none of those powers can be exercised unless it is for one of those purposes. For the search warrant power, although it does not explicitly refer to the section 28 purpose, it says it can only seek books for which you could actually seek under the other

sections—and you can only seek books under those other sections.16

Calls to review the search warrant provision

3.20 The committee is aware o f proposals to review the bill's search warrant powers. The Rule o f Law Institute recommended in its submission that the Senate Economics Legislation Committee:

...should seek advice from ASIC which reassures the Senate that ASIC has in place central records, procedures and safeguards to ensure that it does not act in an arbitrary manner.17

3.21 The Senate Standing Committee for the Scrutiny of Bills has sought the Treasurer's advice about the scope of ASIC's proposed search warrant powers and the safeguards against the abuse o f these powers. Pending this advice, the committee has noted that these provisions may be considered 'to trespass unduly on personal rights

and liberties, in breach o f principle l(a)(i) o f the Committee's terms o f reference'.18

Telecommunications interception powers

3.22 The bill also includes the insider trading and market misconduct provisions in Part 7.10 of the Corporations Act in the list o f serious offences in section 5D of the Telecommunications Interception Act 1979. Accordingly, an interception agency will be able to apply for telecommunications interception warrants in the course of

investigations into insider trading and market manipulation offences.19

16 Mr Daniel McAuliffe, Treasury, Proof Committee Hansard, 3 November 2010, p. 9.

17 Rule of Law Institute, Submission 7, p. 3.

18 Senate Standing Committee for the Scrutiny of Bills, Alert Digest 8/10,27 October 2010, p. 18.

19 Explanatory Memorandum, p. 18.

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3.23 ASIC itself will not be a telecommunications intercept (TI) agency. The main TI agency will be the Australian Federal Police (AFP). ASIC will have a role assisting the AFP in its prosecution o f offences using the information that the AFP obtains.20

3.24 The Parliamentary Secretary's Second Reading Speech explained the need for enhanced telecommunications interception powers to detect insider trading and other market manipulation offences. M r Bradbury told parliament that:

...these offences by their very nature involve complex networks of people, technological sophistication and avoidance of paper and traceable communications. In addition, the transactions often occur in real time, meaning that telephone conversations are often the only evidence of the offence.21

3.25 The Senate Standing Committee for the Scrutiny o f Bills also expressed concern that the provisions relating to telecommunications interception warrants may trespass unduly on personal rights and liberties, in breach of principle 1 (a)(i) o f the committee's terms of reference.

3.26 The New South W ales Council for Civil Liberties commented in its

submission that:

It is alarming to observe the extent of function creep of powers, originally justified in relation to terrorist offences and those that threaten life or serious bodily harm, to lesser crimes. The proposed change would permit the full range of warrants to be issued to interception agencies, for offences

concerning insider trading and market manipulation. It is paradoxical for a bill which seeks to protect the privacy of shareholders in one respect to then allow such intrusions. CCL shares the concern raised in their submission by the Rule of Law Institute on this matter.22

3.27 Others supported the bill's provision on TI powers. Chartered Secretaries Australia, for example, told the committee that:

...we are supportive of the provision of telephone interception warrants in relation to insider trading and market manipulation. Our reason for that is that we think that those particular issues are extremely difficult to prove without those powers and we think that the same public policy rationale should apply to their use for insider trading and market manipulation—that is, telephone interception warrants—as currently applies to their use in the investigation of money laundering and cybercrime. They are very difficult

20 Ms Belinda Gibson, ASIC, Proof Committee Hansard, 3 November 2010, p. 32.

21 The Hon. Mr David Bradbury MP, Second Reading Speech, House o f Representatives Hansard, 29 September 2010.

22 New South Wales Council for Civil Liberties, Submission 8, p. 2.

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to crimes to prove and we think without those powers they remain very difficult crimes to prove. That is why we support them.23

ASIC's view of the bill's telecommunications interception powers

3.28 ASIC told the committee in its evidence that it does not expect the new telecommunications intercept powers to be frequently used. Ms Gibson noted that the magistrate would have to be satisfied that it would assist the investigation. The

investigator—the AFP— would need evidence o f 'a pattern o f successful trading across a succession o f stocks by a potential trader and would then be able to see a person building a position in a stock'. Ms Gibson recalled only 'three or four instances' in her three years working at ASIC where there was a suspected ring o f insider traders.24

3.29 Treasury also outlined the process for telecommunications interception:

In the normal course of events we would expect ASIC to conduct its normal investigations, using its normal powers, to come across a circ*mstance where it believes a TI warrant is justified. Because it cannot apply itself, it would have to go to an intercept agency and convince that agency to apply resources to the investigation. So it would actually have to convince that TI agency, just on the information that it has already gathered, that there is sufficient evidence to justify that step and also that the offences that are allegedly occurring are sufficiently serious enough for it to prioritise its own work and to actually start an investigation. Of course, that agency, once it was convinced, would then have to go to court and would have to convince the court that there was sufficient evidence and it was sufficiently serious to justify the issue of a warrant.25

ASIC's coercive powers

3.30 This inquiry has also elicited broader comment critical o f the extent and secrecy o f ASIC's coercive powers. The Rule o f Law Institute highlighted in its submission that there is no published information on how ASIC executes its current powers. It argued that ASIC should make publicly available:

â¢ the basis upon which ASIC initiates a coercive order;

â¢ whether it does so based on a reasonable suspicion that there has been a

breach o f the law;

â¢ how it ensures that the approving officer is a different person and in a

different division from the initiating or recommending officer; and

23 Ms Judith Fox, Chartered Secretaries Australia, Proof Committee Hansard, 3 November 2010, p. 11.

24 Ms Belinda Gibson, ASIC, Proof Committee Hansard, 3 November 2010, p. 32.

25 Mr Daniel McAuliffe, Treasury, Proof Committee Hansard, 3 November 2010, p. 6.

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â¢ how often it conducts an internal review o f its extensive set o f coercive

powers and what these reviews have concluded.26

3.31 To this end, the Institute recommended that the proposed amendments to the ASIC Act be excised from the bill and referred to the Australian Law Reform Commission as part o f a review o f the use o f coercive powers by regulators. It also recommended that ASIC publish on its web site a set o f procedures which

demonstrate that it has appropriate checks and balances to ensure that it uses its coercive powers 'sparingly and with appropriate discretion'.27

3.32 The New South W ales Council for Civil Liberties noted that law enforcement agencies are required to report to the relevant Attorney General and to Parliament the numbers of interception warrants applied for and executed each year, and on the

success o f those cases in obtaining evidence. It argued that similar reporting requirements should be placed on ASIC's search powers before the bill's amendment comes into force.28

3.33 The committee asked ASIC to comment on the criticism that it does not report enough on its use of coercive powers. Ms Gibson responded:

...we were looking into our reporting of the use of our coercive powers and we were reviewing that benchmark with other regulatory agencies. Our preliminary view is that there is not extensive reporting of the exercise of a ‘notice to produce’ document or so on, but we are looking at whether there

should be some better reporting of those coercive powers. We do not use telephone intercepts now so I cannot report that we would be using any. On the question of accessing search warrants, I have some data on that. In all cases we have to keep search warrants with the federal police. That is required by the legislation and that will not change. We have had some 20

investigations over the last three years for which the police would have executed some 82 warrants overall.29

Committee view

3.34 The committee recognises that the issue o f ASIC's coercive powers, and the need for a better system o f public disclosure o f the use o f these powers, is an issue that is broader than this inquiry. These issues are nonetheless relevant to several witnesses' concerns that any new coercive powers that ASIC acquires through this legislation are adequately safeguarded and properly disclosed.

26 Rule of Law Institute, Submission 7, p. 4.

27 Rule of Law Institute, Submission 7, p. 7.

28 New South Wales Council for Civil Liberties, Submission 8, pp. 2-3.

29 Ms Belinda Gibson, ASIC, P roof Committee Hansard, 3 November 2010, p, 3.

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Recommendation 1

3.35 The committee recommends that if ASIC does acquire new search warrant and telecommunications interception powers to investigate insider trading and market misconduct offences, it is required to state in its Annual Report:

â¢ the number of times it has used each of these powers;

â¢ the number of times that ASIC referred an insider trading or market misconduct matter to the AFP for investigation for the possible use of the phone interception power; and

â¢ the nature of the use of these powers in each circ*mstance.

3.36 The committee notes that law enforcement agencies are required to report to the relevant Attorney General and to Parliament the numbers o f interception warrants applied for and executed each year.30 ASIC, and the interception agencies that investigate insider trading and corporate misconduct offences, should be subject to

similar disclosure requirements.

Recommendation 2

3.37 The committee recommends that the bill be passed.

Senator Annette Hurley Chair

30 See Office of the Australian Building and Construction Commissioner, 'Compliance powers reports', http://www.abcc.gov.au/abcc/PerformanceReports/ComnlianceDowersreports/ (accessed 10 November 2010).

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A dditional com m ents from Coalition Senators

Coalition Senators generally agree with the substance o f the Chair's report.

The Bill's proposed changes to the Corporations Act are designed to make it more difficult for persons to acquire companies' share registries for 'improper purposes'. These changes are intended to limit the occurrence o f 'predatory' or unsolicited off- market share offers, which can damage the financial position of vulnerable shareholders.

The proposed changes appear to strike a sensible balance between the rights of shareholders to privacy and the rights of the public to acquire information about the owners o f publicly traded companies. Scope remains for judicial review in cases where share registries are in fact withheld. As noted in the Chair's report, some stakeholders raised as a concern the potential for delays in accessing the register for proper purposes where the company, acting as the 'gatekeeper', chose not to act

immediately in assessing whether the purpose is proper and then supplying access to the register. This concern acknowledges the fact that not all purposes whereby a party seeks to obtain access to the register, that are legal and proper, are welcome by the company concerned. A close examination o f practices employed if the Bill becomes law would be warranted in this regard.

The Bill will also establish higher penalties for insider trading and market misconduct offences. It will appropriately expand the list of serious offences in the

Telecommunications Interception Act. These measures are designed to mitigate illegal activity and aid ASIC in its prosecution.

Nevertheless, Coalition Senators remain concerned about the additional search warrant powers the bill proposes to give to ASIC. The Chair's recommendation that if ASIC gains new search warrant and telecommunications interception powers that it publish the number o f times it uses them is a welcome addition, but even so, might not be a sufficient safeguard.

Coalition Senators concede that cases might arise where ASIC's existing powers are insufficient to deter or detect corporate malfeasance. But it is not clear that the proposed powers will be subject to appropriate scrutiny or oversight.

Evidence was provided that the terms under which this power is granted under the bill do not require an appropriate judicial officer to consider the full range of issues normally considered as part o f a determination whether to grant such a warrant. Indeed, it was suggested that all a judicial officer needed to be satisfied of is that the

subject premises contains documents and that the officer would then be obliged to issue the warrant. Contrary evidence was received which suggested this not to be the case. Coalition Senators are not satisfied that this issue was resolved and consider that steps should be taken to ensure that any new search warrant power as proposed in this

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bill, is subject to the normal checks and balances that would be applied to the issuance o f search warrants in Australia.

Further, the issue o f whether ASIC's new powers would be subject to the constraints in section 28 o f the ASIC Act was subject to contrary evidence and this needs to be clarified.

At a minimum, the existing bill needs to be better and more clearly drafted. The Coalition reserves the right to amend this bill in the Senate.

Senator David Bushby Senator John Williams

Deputy Chair, Tasmania, LP New South Wales, NATS

Senator Mathias Cormann Western Australia, LP

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APPENDIX 1 Submissions Received

Submission Number Submitter

1 Chartered Secretaries Australia Ltd 2 Australian Financial Markets Association 3 Computershare Investor Services Pty Ltd 4 Insurance Australia Group

5 Telstra Corporation Pty Ltd

6 Law Council of Australia

7 Rule of Law Institute Australia

â¢ Supplementary submission 8 NSW Council for Civil Liberties 9 Australian Institute of Company Directors 10 Australasian Investor Relations Association (AIRA)

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APPENDIX 2

Public Hearing and Witnesses

SYDNEY, 3 NOVEMBER 2010

BIBBY, Dr Martin, Committee Member, NSW Council for Civil Liberties

BLANKS, Mr Stephen, Secretary, NSW Council for Civil Liberties

FOX, Ms Judith, Director, Policy, Chartered Secretaries Australia

GIBSON, Ms Belinda, Deputy Secretary, Australian Securities and Investments Commission

GOLDING, Dr Greg, Partner, Law Council o f Australia

McAULIFFE, M r Daniel, Acting Manager, Governance and Insolvency Unit, Treasury

MILLER, Mr Geoff, General Manager, Corporations and Financial Services Division, Treasury

SHEEHY, Mr Tim, C hief Executive, Chartered Secretaries Australia

STEWART, Mr M alcolm, Vice President, Rule o f Law Institute

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The Senate

Economics

Legislation Committee

Tax Laws Amendment (Public Benefit Test)

Bill 2010

S eptem ber 2010

187

ISBN 978-1-74229-314-1

Printed by the Senate Printing Unit, Parliament House, Canberra.

188

Senate Economics Legislation Committee

Members

Senator Annette Hurley, Chair Senator Alan Eggleston, Deputy Chair Senator David Bushby Senator Doug Cameron Senator Louise Pratt Senator Nick Xenophon

South Australia, ALP W estern Australia, LP Tasmania, LP New South Wales, ALP W estern Australia, ALP

South Australia, IND

Participating Members participating in this inquiry Senator Mary Jo Fisher South Australia, LP

Senator the Hon Ursula Stephens New South Wales, ALP

Secretariat

Mr John Hawkins, Secretary Ms Sandra Kennedy, Principal Research Officer M r Joshua See, Executive Assistant/Research Officer Ms Hanako Jones, Executive Assistant

PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3540 Fax: 02 6277 5719 E-mail: economics.sen@aph.gov.au Internet: http://www.aph.gov.au/senate/committee/economics ctte/index.htm

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TABLE OF CONTENTS

Membership of C om m ittee.....................................................................................iii

Glossary......................................................................................................................vii

Summary and recommendations............................................................................ 1

Chapter 1...................................................................................................................... 5

Inquiry into Tax Laws Amendment (Public Benefit Test) Bill 2010...................5

The referral........................................................................................................................ 5

Background........................................................................................................................ 5

Conduct o f the inquiry................................................................................................... 10

Structure o f the report.................................................................................................... 10

Chapter 2.................................................................................................................... 11

Australia's not-for-profit sector and recent reviews........................................... 11

The estimated size o f the sector and the value o f tax concessions..........................11

Recent reviews.................................................................................................................13

Committee view .............................................................................................................. 15

Chapter 3.................................................................................................................... 17

Charities and tax treatment................................................................................... 17

Definitions o f a charitable organisation..................................................................... 17

Legal definition o f religion...........................................................................................21

Competitive neutrality...................................................................................................22

Income tax exem ption...................................................................................................23

The Commissioner o f Taxation and current administration.................................... 25

- Cults..................................................................................................................................29

Chapter 4....................................................................................................................31

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An alternative to the bill - a national commission.............................................. 31

Need for broader refo n n ................................................................................................31

Committee view ................................................. .............................................................35

The experience overseas................................................................................................ 35

Committee view ...............................................................................................................40

Additional Comments by Senator Xenophon..................................................... 45

Introduction..................................................................................................................... 45

The need for reform ........................................................................................................45

The need for a Public Benefit T est.............................................................................. 47

Conclusion....................................................................................................................... 49

APPENDIX 1 ............................................................................................................. 51

Submissions Received..............................................................................................51

Additional Information Received...........................................................................54

APPENDIX 2 ............................................................................................................. 55

Public Hearings and Witnesses..............................................................................55

APPENDIX 3 - Recommendations of the 2001 inquiry into the definition of charities and related organisations.......................................................................57

APPENDIX 4 - Recommendations of the 2008 inquiry into disclosure regimes for charities and not-for-profit organisations..................................... 63

APPENDIX 5 - Productivity Commission's terms of reference for its inquiry' into the contribution of the not-for-profit sector................................67

APPENDIX 6 - Extract of ITAA1997 - Division 50 ....................................... 71

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Glossary

j ABN

Ja b s

ATO

jCOAG

| Competitive Neutrality

| Cult

I i

DGR

FBT

GDP

J GST

ITAA

National C om pact

NFP

Ordinary incom e I I

Public benevolent

Australian Business Num ber

Australian Bureau o f Statistics

Australian Taxation Office

Council o f Australian Governments

The principle that promotes the equal treatment by government o f competing organisations to achieve a level playing field by removing artificial advantages.

A religious or pseudo-religious movement,

characterised by the extreme devotion o f its members, who usually form a relatively small, tightly controlled group under an authoritarian and charismatic leader. (Source: Macquarie Dictionary)

Deductible gift recipient

Fringe benefits tax

Gross domestic product — an estimate of the total value o f goods and services produced in a country in a specified time, usually a year.

Goods and services tax

Income Tax Assessm ent Act

An agreement between Government and the Third Sector to provide a framework for working together. The Compact includes principles for action and

identifies area requiring reform.

Not-for-Profit

Ordinary income is income earned according to ordinary concepts directly or indirectly from all sources in or out o f Australia during a financial year.

A public benevolent institution is a non-profit

institution organised for the direct relief of such

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institutions

RoLIA

Statutory income

Third sector

poverty, sickness, suffering, distress, misfortune, disability, destitution, or helplessness as arouses compassion in the community.

Rule o f Law Institute o f Australia

Statutory income is income that is not ordinary income but is included in your assessable income by legislative provisions.

Third Sector organisations include charities, churches and religious organisations; sporting organisations and clubs; advocacy groups; community organisations; cooperatives; trade unions; trade and professional associations; chambers o f commerce; welfare

organisations; and service providers. These

organisations sit alongside the government and private sectors. They may receive government funding to provide public services, but are not part o f government. Similarly, they may charge for business services, but

are not part o f the business sector.

Source: Senate Economics Committee, Disclosure regimes fo r charities and not-for-profit organisations, December 2008, p. 11.

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Summary and recommendations Religions and charities, and other not-for-profit organisations in the 'third sector',1 play an important role in the community and in the economy. They receive significant tax concessions. It is therefore important that they are transparent and appropriately accountable. The bill before the Committee goes some way to address this requirement and promote confidence that religious and charitable organisations receiving tax concessions generate a net benefit to the public, not just to their own members. The Committee views the bill, however, as too narrow to respond to the broad range o f issues identified by the Committee.

The Committee regards 'charities' as altruistic bodies which seek to help members o f the community in need. The role o f charities is to mobilise their members and supporters to help others, not to just act in their members' private interests. Their motives mean that all true charities are not-for-profit organisations (but not all

not-for-profit organisations are charities). Charities provide some social and community services that governments cannot provide at all or cannot provide as effectively. The Committee agrees with the view that the work o f charities therefore reduces the burden on taxpayers o f providing social services.

A national commission

The Committee notes the previous inquiries conducted by parliamentary committees, the Productivity Commission and the recent Henry Review. Notwithstanding their work, there remains a serious lack o f information in relation to the not-for-profit sector; for example, estimates o f the value o f tax concessions range from $1 billion to

$8 billion.

The earlier inquiries all recommended various changes to the regulatory oversight of the not-for-profit sector. The Committee believes the incoming government should increase transparency and accountability in the sector. A national commission, which

incorporates a public benefit test in the broader regulatory framework, should be established, consistent with international best practice.

The commission should not be regarded as an additional bureaucratic impost; it would rather replace a complex array o f state and territory regulatory bodies, streamlining processes for charities and reducing their compliance costs. It would increase public confidence in charities by improving their transparency as well as being a source o f

advice and assistance to charities.

The Committee agrees with the view expressed to it that there comes a time when a government has to make a decision either to do something or to stop saying that it is 1

1 The 'third sector' refers to organisations that are neither part of the private sector nor the government sector.

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going to do something, because the m atter has been on the agenda for many years. It is now time for action.

Recommendation

The Committee recommends that the incoming government work through COAG to establish a single independent national commission for not-for-profit organisations. The incoming government should establish a working group, or use the COAG Business Regulation and Competition Working Group. The working group should consult extensively with the sector in a timely manner to address issues arising from the establishment of a commission which applies a public benefit test. The Australian model should draw on the Charity Commissions in the United Kingdom and New Zealand.

Recommendation

The Committee recommends that the working group consider the functions and role of an Australian commission which should include, but not be limited to, the following:

â¢ promote public trust and confidence in the charitable sector;

â¢ encourage and promote the effective use of charitable resources;

â¢ develop and maintain a register of all not-for-profit organisations in Australia using a unique identifying number (for example an ABN) as the identifier;

â¢ develop and maintain an accessible, searchable public interface;

â¢ undertake either an annual descriptive analysis of the organisations that it regulates or provide the required information annually to the ABS for collation and analysis;

â¢ educate and assist charities in relation to matters of good governance and management;

â¢ facilitate, consider and process applications for registration as charitable entities;

â¢ process annual returns submitted by charitable entities;

â¢ supply information and documents in appropriate circ*mstances for the purposes of the Tax Acts;

â¢ monitor charitable entities and their activities to ensure that registered entities continue to be qualified;

â¢ inquire into charitable entities and persons engaging in serious wrongdoing in connection with a charitable entity;

â¢ monitor and promote compliance with legislation;

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. consider, report and make recommendations in relation to any matter relating to charities; and

â¢ stimulate and promote research into any matter relating to charities.

The Committee would expect a commission to adopt a tiered reporting system to ensure that small not-for-profit organisations are not overburdened by the costs of compliance.

The Committee would expect legislation establishing a commission to be referred to it in due course.

A public benefit test

The Committee supports the application o f a public benefit test in the context of broader reform.

The Committee agrees, however, with the preference expressed by the Scrutiny of Bills Committee that it would be better for a public benefit test to be in legislation, where it would be subject to more parliamentary scrutiny, than be set by a minister through regulations, as proposed by the bill.

Recommendation

The Committee recommends that the incoming government should follow the emerging international best practice and work with the Council of Australian Governments to amend legislation governing not-for-profit entities to include a definition and test of 'public benefit'.

Cults

In relation to the activities of cult like organisations and the consequences for individuals and society o f failing to take steps to protect the community from unacceptable behaviour by cult like organisations, the Committee believes that sufficient evidence was put before it to suggest that the behaviour of cults should be

reviewed with a view to developing and implementing a policy on this issue that goes beyond taxation law. The Committee notes the evidence in relation to the response of the French government and the establishment o f Miviludes.

Recommendation

The Committee recommends that the Attorney-General's Department provide a report to the Committee on the operation of Miviludes and other law enforcement agencies overseas tasked with monitoring and controlling the unacceptable and/or illegal activities of cult-like organisations who use psychological pressure and breaches of general and industrial law to maintain control over individuals. The report should advise on the effectiveness of

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Miviludes and other similar organisations, given issues that need to be addressed to develop an international best practice approach for dealing with cult-like behaviour.

19S

Chapter 1

Inquiry into Tax Laws Amendment (Public Benefit Test) Bill 2010

The referral

1.1 On 13 M ay 2010, the Tax Laws Amendment (Public Benefit Test) Bill 2010 was introduced into the Senate as a private member's bill. Following its second reading, debate was adjourned. On the advice of the Selection o f Bills Committee, the Senate later resolved that the bill be referred to the Senate Economics Legislation Committee for immediate inquiry and report by 31 August 2010. The announcement of the federal election led the Committee to present an interim report requesting an extension in the reporting date to 7 September 2010.

Background

The bill

1.2 On introducing the bill, Senator Xenophon stated:

This bill seeks to introduce a public benefit test for religious and charitable organisations seeking tax exempt status. W hat this bill proposes is nothing new. In the United Kingdom a public benefit test exists to make sure that organisations receiving support from the public through tax exem ptions do more good than harm .1

1.3 The bill seeks to make these changes by amending the existing provisions that relate to income tax exempt entities to introduce a public benefit test against which the aims and activities of an entity seeking tax exempt status would be assessed."

1.4 The bill proposes that the test would be set out in regulations and would be required to include the following key principles:

â¢ there must be an identifiable benefit arising from the aims and activities o f an entity;

â¢ the benefit must be balanced against any detriment or harm; and

â¢ the benefit must be to the public or a significant section of the public and not merely to individuals with a material connection to the entity.1 2 3

1 Senator Nick Xenophon, Second Reading Speech, Senate Hansard, 13 May 2010, p. 3.

2 Tax Laws Amendment (Public Benefit Test) Bill 2010, proposed subsection 50-51(1), lines Î’ ÎÎ, p. 3.

3 Tax Laws Amendment (Public Benefit Test) Bill 2010, proposed subsection 50-51(2), lines 11-17, p. 3.

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1.5 The bill also provides that the test, to be set out in regulations, m ay also

contain provisions that relate to the manner in which it is applied, to the aims and activities o f an entity, as well as ancillary and incidental provisions.4 5

1.6 If passed, the bill will commence on the day after it receives Royal Assent and will apply in relation to income years that commence on or after 1 July 2010.

Scrutiny of Bills Report

1.7 The Senate Standing Committee for the Scrutiny o f Bills provided comment on the bill in their Alert Digest No. 7 o f 2010 published on 23 June 2010.

1.8 The Scrutiny o f Bills Committee noted that the proposed application o f a test did not raise concerns under their terms o f reference nor conflict with the limits imposed on the Commonwealth in respect o f religion by section 1167

Constitutional issues

1.9 Some constitutional objections were raised to the bill, and to the Committee's consideration o f it. Specifically it was suggested that the bill;

â¢ imposes taxation and is therefore contrary to sections 53 and 55 o f the

Constitution;

â¢ when read with the Explanatory M emorandum is in breach o f section 116 o f the Constitution and amounts to group libel and should be referred to the Senate Privileges Committee; and

â¢ is in breach o f the rule o f law and is an undesirable use o f Parliament's powers to delegate in the form o f regulations.6

Section 537

1.10 The Committee notes Ms McBride's assertion that:

...the Bill is a bill that imposes taxation and is therefore subject to the limits imposed by s53 and 55.8

4 Tax Laws Amendment (Public Benefit Test) Bill 2010, proposed subsection 50-51(3), lines 18-23, p. 3.

5 Scrutiny of Bills Committee, Alert Digest, No. 7 of 2010, 23 June 2010, p. 12.

6 Ms Louise McBride, Submission 66, Attachment 1; Proof Committee Hansard, 28 June 2010. Similar objections were raised by Mr James Graham, Submission 78, and the Western Australian branch of the International Commission of Jurists, Submission 85, and Rev. Mary Anderson, Submission 49.

7 Section 53 of the Constitution states: 'Proposed laws appropriating revenue or moneys, or imposing taxation, shall not originate in the Senate...' 8 Ms Louise McBride, Submission 66, Attachment 1, p. 1.

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1.11 The Committee obtained advice from the Clerk o f the Senate, Dr Rosemary Laing, who drew the Committee's attention to the understanding that the operation o f section 53 is for the Parliament to determine. It does not deal with matters that can be adjudicated by a court because it refers explicitly to proposed laws.9 Section 53 is an administrative provision.

1.12 Further, the notion o f 'imposing taxation' in section 53 while not justiciable has been subject to discussion by the High Court. In Re Dymond Taylor J asserted that:

...to me it seems clear that a law may deal with the imposition of taxation and yet not, itself directly impose taxation.10 1 1

1.13 The Clerk suggested strongly that an exemption is a privilege, not a right. The bill proposes a test that must be passed in order to qualify for an exemption from taxation. Imposition of the tax is located elsewhere in the Income Tax Assessment Act 1997. The liability to pay tax already exists. This bill affects the administration of exemptions, without removing the exemption o f a class o f taxpayers.11

Section 5512

1.14 The Committee notes Ms McBride's reference to section 55 o f the

Constitution at the public hearing, her questioning o f whether the legislature had consulted the executive regarding the inquiry process, and her broad reference to a non-existent 'constitutional bills comm ittee'.13

1.15 The bill was reviewed by the Selection o f Bills Committee and referred accordingly in line with standard Senate procedure. It was also reviewed by the Scrutiny of Bills Committee. No concerns were raised regarding possible violations of section 55 (or 53) o f the Constitution.

Section 11614

1.16 The Committee received both written and verbal evidence from witnesses broadly accusing the bill o f violating section 116 of the Constitution and suggesting

9 Permanent Trustee Australia v Commissioner o f State Revenue (Victoria), 2004, 220 CLR 388, pp 408-410.

10 Re Dymond, 1983, 101 CLR 23.

11 Laing, R, Advice: Tax Laws Amendment (Public Benefit Test) Bill 2010, p.4.

12 Section 55 o f the Constitution states 'Laws imposing taxation shall deal only with the imposition of taxation, and any provision therein dealing with any other matter shall be of no effect...'

13 Ms Louise McBride, Committee Hansard, 28 June 2010, p. 49.

14 Section 116 of the Constitution states The Commonwealth shall not make any law for establishing any religion... or prohibiting the free exercise of any religion...'.

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that it introduces discrimination contrary to the High Court's decision in the 1983 case o f Church o f the New Faith v Commissioner o f Pay-Roll Tax (Vic)}5

1.17 The contrary view was put to the Committee, particularly by witnesses such as M r Andrew Lind:

Does freedom of religion mean freedom from tax? Do the words in section 116 of the Constitution, free exercise of any religion, mean freedom from income and other taxes? It is strongly arguable, in my view, that freedom of religion does not mean freedom from tax.1 5 16

1.18 This view was also held by Dr Stephen Mutch who suggested that definitions of religions and charities aside, the state should be able to determine which activities o f charities or religions it subsidises.17

Inappropriate delegation o f legislative power

1.19 Although the bill amends the tax law to introduce a public benefit test, the bill itself does not define the test; it provides that the M inister determine the test and that it then be set out in regulations. This aspect o f the bill was criticised throughout the inquiry.18

1.20 The Rule o f Law Institute o f Australia (RoLIA) suggested that delegating the test to regulations is an over-delegation o f powers and brought the following concerns to the attention of the Committee.

The separation of powers principle requires the Parliament, not the Executive, to determine the laws...the Bill allows the Executive to determine the substantive test with no effective guidance from the Parliament. RoLIA believes that any test must be comprehensively and substantively enunciated in clear and unambiguous terms...It must be determined by parliament and subject to the same scrutiny and debate as any other law.19

1.21 It was suggested that if the bill were to pass it would be preferable that the test be set out in the text o f the legislation.20

15 Ms Louise McBride, Submission 66, Attachment 1, p. 2.

16 Mr Andrew Lind, Partner, Comey & Lind, Committee Hansard, 28 June 2010, p. 35.

17 Dr Stephen Mutch, Committee Hansard, 28 June 2010, p. 7.

18 Examples include Anglican Church Diocese of Sydney, Submission 10; Mr Tom Grimshaw, Submission 52; and DF Mortimer and Associates, Submission 73.

19 Rule of Law Institute of Australia, Submission 75, p. 3.

20 This point was made in a number of submissions including those received from Comey & Lind, Submission 2, p. 2, Mr Paul Paxton-Hall, Submission 62, p. 2, and Family Voice, Submission 22, p. 4.

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1.22 The bill's delegation o f the test making power to regulations also caught the attention of the Scrutiny o f Bills Committee21 which, in Alert Digest No. 7 o f 2010, noted their preference that important matters are set out in primary legislation to increase the level of parliamentary scrutiny.22 They also advised that, if the bill proceeds to further stages o f debate, they would like Senator Xenophon to explain whether the test could be described in the primary legislation or why it is not possible to do so noting that as the provisions currently stand, they may be considered to

delegate legislative powers inappropriately.23

Committee view

1.23 The Committee is satisfied that there are no constitutional problems with the bill. The Committee is comfortable that the concerns raised throughout the inquiry have no basis.

The National Compact

1.24 During 2008 and 2009 the Government undertook widespread consultation with the not-for-profit sector to develop a National Compact between itself and the Third Sector. The Compact that was developed provides a framework for the Government and not-for-profit sector to work together to address the many issues

facing Australian society.24 2 5

1.25 In identifying guiding principles for action and the areas requiring attention, the Consultation Report highlighted the role that tax treatment plays in the sector:

Another important area identified for ensuring Sector sustainability was the recognition o f donations and tax arrangements for Sector organisations.-3

21 The role of this committee is to scrutinise the clauses of bills introduced into the Senate and advise whether a bill, among other things, inappropriately delegates legislative power.

22 Senate Standing Committee for the Scrutiny of Bills, Alert Digest No. 7 of 2010, 23 June 2010, p. 11.

23 Senate Standing Committee for the Scrutiny of Bills, Alert Digest No. 7 of 2010, 23 June 2010, p. 12.

24 Department of Families, Housing, Community Services and Indigenous Affairs, A new relationship between the Australian Government and the Third Sector—National Compact between the Australian Government and the Third Sector, February 2010.

25 Department of Families, Housing, Community Services and Indigenous Affairs, A new relationship between the Australian Government and the Third Sector—National Compact between the Australian Government and the Third Sector, February 2010, p. 8.

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Conduct of the inquiry

1.26 The Committee advertised the inquiry in the national press and invited written submissions by 18 June 2010. Details o f the inquiry were published on the

Committee's website. The Committee also wrote to a number of organisations and stakeholders inviting submissions.

1.27 The Committee accepted 89 of the submissions (including a 'form letter' from 24 parties) it received. Submissions were received from a range o f church groups, other charitable organisations, interest groups, and interested individuals. O f the submissions received, 11 were treated as confidential, and 17 were made by submitters who requested that their names be withheld. A lot o f interest was also received from overseas parties but most o f those were treated as correspondence as they did not address the terms o f reference. A list of the submissions accepted appears in Appendix 1.

1.28 The Committee held two public hearings in Canberra on 28 and 29 June 2010. The witnesses who appeared before the Committee are listed in Appendix 2.

1.29 The Committee wishes to thank all those who submitted to and participated in the inquiry.

Structure of the report

1.30 This report comprises four chapters:

â¢ Chapter 2 provides an overview o f the not-for-profit sector in Australia and examines the reviews that have taken place over the last 10 years.

â¢ Chapter 3 discusses the nature o f charities and the meaning o f 'public benefit'. It also examines the taxation arrangements that currently apply to not-for-profit organisations.

â¢ Drawing on the evidence presented in earlier chapters, Chapter 4

identifies and discusses advancing reform through the establishment o f an independent commission for the sector.

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Chapter 2

Australia's not-for-profit sector and recent reviews

2.1 This chapter presents an overview of the not-for-profit sector in Australia and recent reviews o f it. While these reviews have provided useful insights, quantifying the sector remains difficult.

The estimated size of the sector and the value of tax concessions

2.2 Little is known about the size o f the not-for-profit sector in Australia. A

survey o f not-for-profit organisations published by the Australian Bureau o f Statistics (ABS) in 2009 was the first time it had surveyed this sector o f the economy

(Table 2.1).

Table 2.1: Statistics on selected not-for-profit organisations: June 2007

Number of Employees Volunteers Income of which: Expenses

organisations (thousands) (thousands) (thousands) (billions) donations etc8

(billions)

Religion 8.8 41 470 4 1.4 3

Philanthropic etcb 7.3 110 361 11 3.2 10

Culture & recreation 8.3 103 576 13 1.2 12

Education & research

5.7 218 204 16 d 15

Hospitals 0.1 56 7 5 d 5

Health 0.8 100 62 6 d 5

Social services 5.8 222 255 12 d 10

Unions & associations0

2.0 22 56 4 d 4

Other 2.2 18 193 6 d 6

T o t a l 4 1 .0 8 9 0 2 1 8 2 7 6 7 .2 7 0

a. Donations, sponsorship and fundraising, b. Environment, development, housing, employment, law, philanthropic, international, c. Business and professional associations and unions, d. N ot separately identified.

Source: Secretariat, based on data from ABS, N ot-fo r-p ro fit O rganisations, A ustralia, 2 0 0 6 -0 7 , Cat. No. 8106.0, 12 June 2009.

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2.3 The ABS collected data from almost 60,000 not-for-profit entities in a

national accounting exercise which found that the sector had income o f $77 billion and added more than $40 billion (over 4 per cent) to annual 'value' or GDP in 2006-07. Within this, religions were identified as having income o f over $3 billion, but 'charities' were not separately identified.1

2.4 In the 2009 Tax Expenditures Statement, the value o f the revenue forgone through the income tax exemption for religious, scientific, charitable or public educational institutions and funds (expenditure item B23) was stated as

'unquantifiable'.1 2 Treasury put the order of magnitude as over $1 billion a year,3 one of the largest o f the unquantifiable expenditures.4

2.5 The Productivity Commission commented:

...the value of tax concessions given to the NFP sector and donors of deductible gifts is estimated to be at least $4 billion in 2008-09 for those concessions which have been quantified. However, there are a number of significant concessions in all jurisdictions that have not been quantified which, if included, could feasibly double the $4 billion estimate.5

Committee view

2.6 The Committee considers that where a public policy decision has been made to direct public funding to a particular sector o f the community, in all cases, the government should periodically review those decisions to ensure that the policy aims being supported are in fact being realised through ongoing and considered debate of

issues including what is taxed and what is not and the broader question o f how government should support different sectors o f the economy:

â¢ through grants and one-off payments that require parliamentary

consideration; or

â¢ through the tax system which although not enabling the Government to control the amount o f funding received allows the community to have a more direct involvement in the decision making process by choosing to whom they will lend their financial support.

2.7 The Committee is o f the view that government should be able to clearly

identify where funds are being directed and the quantity o f those funds in the not-for-profit sector.

1 ABS, Australian National Accounts: Non-profit Institutions Satellite Account, Cat. No. 5256.0, 18 September 2009.

2 Treasury, 2009 Tax Expenditures Statement, January 2010, p. 74.

3 Treasury, 2009 Tax Expenditures Statement, January 2010, p. 29.

4 Treasury, 2009 Tax Expenditures Statement, January 2010, p. 6.

5 Productivity Commission, Cont/ibution o f the Not-for-Profit Sector, January 2010, p. E7.

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Recent reviews

2.8 The not-for-profit sector, particularly religious and charitable institutions, has been the subject o f four inquiries over the past decade.

2.9 Each inquiry sought to provide government with a better understanding o f the sector and its operation but although the need for change was consistently identified, and in particular, the establishment o f a commission specific to the industry was suggested, consultation with the sector has slowed change and lack o f information has impeded progress.

(1) Inquiry into the definition o f charities and related organisations

2.10 This inquiry, established to consider whether the common law approach to defining a charity could be improved to serve the interests o f charities, government and the public better,6 made 27 recommendations and noted that although the environment in which charities and related entities operate was changing, the continuing reliance on the common law meaning of charity was affecting the ability of the entities to respond to the changes.7 The Committee recommended:

â¢ the introduction o f a statutory definition o f charitable purpose;

â¢ that 'religion' be defined, requiring it to be based on the principles established by the High Court in its 1983 decision involving The Church o f the New Faith v The Commissioner o f Pay-Roll Tax (Vic)', and

â¢ that the Government, with the agreement of all o f the states and territories, establish an independent administrative body for charities and related entities.8 (An extract of that Report's recommendations is attached at Appendix 3.)

2.11 In response to the inquiry the then Government announced that it would enact legislation which set out a definition o f charity incorporating a majority o f the Inquiry's recommendations for the definition.9 After public consultation the Government abandoned the bill.10 1 1 The law was however amended to give effect to one of the report's recommendations: that the common law meaning o f charitable purpose be extended to include not-for-profit child care providers, certain self-help groups and certain closed and contemplative religious orders.11

6 Treasury, Inquiry into the Definition o f Charities and Related Organisations, 2001, pp 21-22.

7 Treasury, Inquiry into the Definition o f Charities and Related Organisations, 2001, p. 4.

8 Treasury, Inquiry into the Definition o f Charities and Related Organisations, 2001, pp 15-18.

9 The Hon Peter Costello, Commonwealth Treasurer, Government Response to Charities Definition Inquiry, 29 August 2001, Press Release No. 49, p. 1.

10 The Board of Taxation, Consultation on the Definition o f Charity—A Report to the Treasurer, 2003, Chapter 2, pp 10-11. www.taxboard.gov.au viewed 15 July 2010.

11 Treasury, Inquiry into the Definition o f Charities and Related Organisations, 2001, p. 14.

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(2) Senate Economics Committee—Disclosure regimes for charities and not-for-profit organisations

2.12 The Senate requested that the Committee undertake an examination o f the not-for-profit sector in Australia with reference to:

â¢ the relevance and appropriateness o f the sector's disclosure regimes;

â¢ models o f regulation and legal forms that would improve governance and management o f these entities; and

â¢ other measures that would assist the sector to improve governance, standards, accountability and transparency in its use o f public and government funds.12

2.13 Like the 2001 inquiry, the report tabled identified the need for broad-reaching reform to improve transparency and accountability and simplify the tax laws relevant to the sector.

2.14 Like the earlier inquiry, it again called for the implementation o f a single independent national regulator for the sector. (An extract o f the recommendations of the Committee in that report are detailed in Appendix 4.)

(3) Productivity Commission - The Contribution o f the Not-for-Profit Sector

2.15 In March 2009, the Government requested that the Productivity Commission study the not-for-profit sector to assess its contribution to the wider economy and impediments to the sector's continued developm ent.13 The very broad terms of

reference are in Appendix 5.

2.16 In its report, published in January 2010, the Productivity Commission identified that wide ranging reform was needed and made 38 recommendations, many consistent with the recommendations o f the preceding reviews and aimed at achieving the desired regulatory reform.

2.17 The Productivity Commission also again called for the establishment o f a new independent national regulator.14 1 5 In addition, it also suggested:

â¢ a new legal form for not-for-profit entities; and

â¢ the introduction o f a statutory definition o f charitable purpose.13

12 Senate Standing Committee on Economics, Disclosure regimes fo r charities and not-for-profit organisations, December 2008, p. 5.

13 Productivity Commission, Contribution o f the Not-for-Profit Sector, January 2010, p. iii.

14 Productivity Commission, Contribution o f the Not-for-Profit Sector, January 2010, pp 113, 117, 119, 144, 148-152 and 156.

15 Productivity Commission, Contribution o f the Not-for-Profit Sector, January 2010, pp 113, 117, 119, 144, 148-152 and 156.

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(4) Australia's Future Tax System (The Henry review)

2.18 In its 2008-09 Federal Budget the Government announced that it would initiate a comprehensive review o f Australia's tax system .16

2.19 In December 2009, the Secretary to the Treasury, and Chair o f the review panel Dr Ken Henry, delivered the Australia's Future Tax System — Report to the Treasurer (the Henry Review). Among the comprehensive analysis and

recommendations o f the report the review group considered the taxation arrangements specific to the not-for-profit sector.

2.20 In noting the sector's contribution to the comm unity and identifying that much

of the support it receives occurs indirectly though tax concessions, the report noted the complexity o f the existing tax system .17 The report also commented on the inconsistent regulatory regimes faced by these organisations at the state, territory and local government levels.

2.21 The review panel recommended the establishment of a national charities commission to monitor, regulate and provide advice to the sector, suggesting that such a body would address the issues that prove problematic to the sector.18

Committee view

2.22 The Committee notes the consistent recommendations o f the four previous inquiries, particularly the call to establish a national independent commission to oversee all aspects of the not-for-profit sector. The Committee believes that the absence of a national commission has led to insufficient information being available on the sector, difficulty in consultation and consequently delays in reform.

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16 Australia's Future Tax System—Report to the Treasurer, Part One—Overview, December 2009, pp v-vii.

17 Australia's Future Tax System—Report to the Treasurer, Part Two—Detailed Analysis, December 2009, p. 205.

18 Australia's Future Tax System—Report to the Treasurer, Part Two—Detailed Analysis, December 2009, p. 212.

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Chapter 3

Charities and tax treatment

Definitions of a charitable organisation

3.1 The Committee regards 'charities' as altruistic bodies which seek to help members of the community in need. They work for those who lack the resources to provide a comfortable existence for themselves, be they Australians, people overseas

or animals. As well as providing physical assistance, they counsel and empathise with those in distress. The role of charities is to mobilise their members and supporters to help others, not to just act in their members' private interests. Their motives mean that all true charities are not-for-profit organisations (but not all not-for-profit

organisations are charities).

3.2 This view accords with the definitions o f 'charity' in the Shorter Oxford Dictionaiy and the Macquarie Dictionary.

Beneficence, liberality to or provision for those in need or distress; alms-giving.

Almsgiving; the private or public relief of unfortunate or needy persons; benevolence.

3.3 The Committee regards this conception o f 'charities' as being widely shared within the community and it was reflected in some submissions:

...the primary purpose of any charitable institution is to provide assistance to a section of society that is in some way disadvantaged and/or experiencing hardship.1

3.4 It became apparent, however, that there was some disjuncture between such popular understandings o f 'charity' and legal and other technical understandings of the term. In particular, there seemed to be a difference o f view as to whether a charity's

focus is on the disadvantaged, or just on anyone outside its membership. Father Lucas put to the Committee:

Caring for rich people is as charitable as caring for poor people.* 2

3.5 It may help in clarifying this difference to distinguish between the provision o f tangible goods and services that are also available in private markets (such as food and accommodation) on the one hand, and less tangible forms o f support such as counselling and sympathy that cannot be purchased. The Committee would expect that

Ms Tanya Smith, Submission 32, p. 1.

Father Brian Lucas, General Secretary, Australian Catholic Bishops Conference, Committee Hansard, 29 June 2010, p. 18, repeated p. 20.

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a charity would provide the latter to all but provide physical goods only to those who otherwise cannot afford them.

3.6 This difference o f interpretation m ay be a legacy o f the legal meaning o f charity deriving from a 400-year-old statute passed in the final years o f the reign of Elizabeth I and associated case law (UK and Australian).

3.7 In Australia, as in many other jurisdictions, the operation o f the not-for-profit sector relies on the application o f common law, which since 1891 has categorised 'charity' and 'charitable purpose' under four heads:

â¢ the relief o f poverty;

â¢ the advancement o f education;

â¢ the advancement o f religion; and

â¢ other purposes beneficial to the community.3

3.8 The common law includes a presum ption that charities operating under the first three heads o f charity provide a public benefit and only those that carry out activities for other purposes beneficial to the community have to demonstrate public benefit when seeking to qualify as a charitable organisation.4

3.9 Treasury explains that the presum ption o f public benefit has arisen:

...because o f the difficulties faced by the courts in deciding w hether or not particular activities are providing a public benefit.5

3.10 The bill before the Senate, by introducing a 'public benefit test' would reverse this presumption. This would bring the situation in Australia closer to that in New Zealand where the Charities Commission makes an assessment:

...all charities m ust have public benefit. W hen we look at that, w e look at, firstly, whether there is a benefit, w hich means that we will also look at whether there are harms that are caused; and, secondly, w e look at the extent to which the charity is accessible to the public.6

3 Department of the Treasury, Submission 82, June 2010, pp 4-5. The four heads were set out by Lord Macnaughton in Commissioners fo r Special Pwposes o f Income Tax v Pemsel [1891] AC 531.

4 Department of the Treasury, Submission 82, pp 4-5.

5 Department of the Treasury, Submission 82, p. 3.

6 Mr Trevor Garrett, Chief Executive, Charities Commission New Zealand, Committee Hansard, 28 June 2010, p. 25.

Defining public benefit

3.11 Some confusion is evident around the use o f the adjective 'public' in 'public benefit'; while members o f an organisation are also members of the 'public', if the organisation only provides a benefit to these members, the organisation is only providing a 'private benefit' not a 'public benefit'. One suggestion is to replace 'public benefit' with 'community benefit' but this m ay suffer from the same potential

ambiguity.7 Also, a 'public benefit' does not have to benefit every member o f the public.

3.12 The bill explicitly seeks to ensure that an assessment of public benefit also takes account o f 'any detriment or harm'. In this it borrows from the practice o f the Charity Commission for England and Wales. They explained to the Committee:

Yes, the detriment and harm question is part of our public benefit test and one of our key principles of public benefit is that any benefits that might arise to the public must not be outweighed by any significant detriment or harm. That is a fundamental part of the public benefit test...8

.. .we give some examples of what might constitute detriment or hann. We look at a lot of those sorts of issues about whether there is any evidence about coercive tactics or any encouragement of violence or hatred, for example, towards individuals or anything like that...9

3.13 Consideration of detriment or harm raises the issue of how to deal with the behaviour of individual miscreants within large organisations. Recent cases o f child abuse by clergy were raised during the inquiry in the context o f how widespread such behaviour must be before it is taken as indicative of a culture that condones such behaviour within an organisation.10 One indicator m ay be how the hierarchy o f the

organisation responds: do they investigate matters promptly and refer them to the police, or seek to cover up the allegations and press members not to go public with information?

3.14 The Charity Commission o f England and Wales explained their approach:

It is really a question of how the organisation itself manages those sorts of issues. Obviously, in any organisation things can arise and it is all about whether the trustees who deal with those situations had policies and procedures in place to mitigate risk of detriment or harm... If it was endemic throughout the organisation and affected its ability to operate for the public benefit...that is when it would become an issue...it could affect

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7 Mr David Graham, Submission 7, p. 1.

8 Ms Joanne Edwardes, Head, Status and Public Benefit Policy, Charity Commission for England and Wales, Committee Hansard, 28 June 2010, p. 68.

9 Ms Joanne Edwardes, Charity Commission for England and Wales, Committee Hansard, 28 June 2010,p. 68.

10 Name withheld, Submission 13, p. 1.

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the organisation’s ability to demonstrate that it satisfies the public benefit requirement.11

3.15 Some submissions propose a very narrow test o f public benefit:

If a test is to be applied to religious groups it should be limited to questions of Law, i.e., "Are the activities of this group within the Law". In cases where it is proven that certain religious groups are conducting illegal activities their tax exemption status could be suspended...1 1 12

3.16 It seems an odd argument to make that anything which is not illegal deserves a subsidy.

Charity versus commercial enterprise

3.17 An important consideration in distinguishing between a charity and a commercial enterprise is whether goods and services are provided free or at a market price. This principle has been applied by the Charity Commission for England and

Wales in the context of applying its public benefit test, and they concede:

...one of the greatest areas of discussion and debate around the public benefit requirements in England and Wales has been around the question of the effect of fees and charities charging fees for their services.13

3.18 Similarly, in New Zealand the extent of charging for services affects

charitable status:

One of the things we would say, as part of a public benefit, is that the public should have a reasonable opportunity to get a benefit from the charity and the charging of fees may hinder that ability. For example, we register sports organisations. There is a difference between golf where at some places it is $500—we would probably say that is reasonable—but if someone charged $20,000—we would say that the public does not have a reasonable opportunity to participate, so we would not register them.14

3.19 The Committee notes a number o f submissions emphasise this distinction between commercial enterprises and charities:

Any organisation that doesn't provide the bulk its services freely and openly to those who do not donate to it is not a charity...15

11 Ms Edwardes, Charity Commission of England and Wales, Committee Hansard, 28 June 2010, pp 63-64.

12 Southland Vineyeard Church, Submission 12, p. 2.

13 Ms Joanne Edwardes, Head, Status and Public Benefit Policy, Charity Commission for England and Wales, Committee Hansard, 28 June 2010, p. 65.

14 Mr Trevor Garrett, Chief Executive, Charities Commission New Zealand, Committee Hansard, 28 June 2010, p. 28.

15 Mr Alan Low, Submission 18, p. 1. A very similar view was put in Submission 3, p. 1.

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If an organisation “charged” for services and restricted who could access their services by ways of monetary obligations, I would suggest this organisation was acting in a commercial capacity and not in the interest of the public.16

Any church claiming that they have a philosophy of “exchange" requiring payment be made for services may be a church or a religion but not one that warrants charity status because such a philosophy is the anti-thesis of

charity.17

3.20 Some submitters were wary of bans or excessive restrictions on commercial activity but emphasised that:

...any such commercial enterprise should be incidental to the main purpose of the organisation...18

3.21 There can be cases o f initially charitable organisations that over time mutate into commercial operations, such as:

...hospitals which began as genuinely charitable institutions run by orders of nuns whose work was voluntary and ‘seen as part of their vocation’. They relied entirely on donations for their survival. Today, they are essentially business operations. Ministering to the sick and destitute is a substantially different thing from providing high quality health care for those able to afford it.19

Legal definition of religion

3.22 As the term 'religion' is not defined in Australia's tax legislation, its meaning is determined by the common law definition.

3.23 In Australia, the High Court gave its interpretation o f religion in the 1983 case o f Church o f the New Faith v Commissioner o f Pay-Roll Tax (Vic):20

...for the purposes of the law, the criteria of religion are twofold: first, belief in a supernatural Being, Thing or Principle; and second, the

16 Mrs Cassandra Kelsey, Submission 38, p. 1.

17 Name withheld, Submission 3, p. 1.

18 Vision Australia, Submission 51, p. 5.

19 Anglicare Australia, Submission 69, citing former Senator Andrew Murray and Mary O’Donovan, One Regulator, One System, One Law: the case fo r introducing a new regulatory system fo r the not-for-profit sector, Canberra, July 2006.

‘ 20 154 CLR 120. Department of the Treasury, Submission 82, p. 5. The High Court was hearing an appeal against a decision by the Supreme Court of Victoria about whether an organisation was a genuinely religious organisation; Dr Stephen Mutch, Submission 16, Attachment 1, pp 61-65; Confidential Submission 23. One submitter went so far as to call the High Court's ruling 'the definitive legal decision on freedom of religion in the world'; Confidential Submission 74, p. 2.

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acceptance of canons of conduct in order to give effect to that belief, though canons of conduct which offend against the ordinary laws are outside the area of any immunity, privilege or right conferred on the grounds of religion.21

3.24 This ruling by the Court is sometimes put forward as implying that any organisation claiming a belief in a supernatural being, thing or principle should unquestionably receive a tax benefit.22 But while there is probably a consensus that a broad definition of religion is perfectly appropriate in determining the right to express religious views, it does not follow that there are always sound public policy grounds

for other taxpayers to subsidise such an organisation.

3.25 This difference between a right to believe in a religion and a justification for taxpayer subsidy for it is particularly important given that Justices M ason and Brennan commented in their judgement:

...charlatanism is a necessary price of religious freedom, and if a self-proclaimed teacher persuades others to believe in a religion which he propounds, lack of sincerity or integrity on his part is not incompatible with the religious character of the beliefs, practices and observances accepted by his followers.23

Competitive neutrality24

3.26 As identified in Chapter 2, the existing tax concessions probably reduce tax revenues by between $1 billion and $8 billion, or possibly more. A recent court case may increase the cost of these concessions and also raises concerns about competitive neutrality.

3.27 The Committee agrees with the Henry Review's statement o f principle that:

Tax concessions for NFP organisations...should not undermine competitive neutrality where NFP organisations operate in commercial markets.25

3.28 The High Court decision in the Word Investments Case26 significantly broadened the ability o f charitable institutions to carry on commercial activities on an income tax exempt basis:

21 Dr Matthew Tumour, Submission 1, Attachment 1, p. 7.

22 Ms Louise McBride, Submission 66, Attachment 1, pp 8-10.

23 This comment was highlighted by Dr Stephen Mutch, Submission 16, Attachment 1, pp 74-75.

24 Competitive neutrality is the principle that promotes the equal treatment by government of competing organisations to achieve a level playing field by removing artificial advantages. It is a key aspect of promoting strong competition.

25 Australia's Future Tax System-Report to the Treasurer-Part Two, Detailed Analysis, December 2009, p. 206.

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Under that case an organisation—say, an aged care home for wealthy retired merchant bankers—could be set up on a fee-paying commercial basis. They could be considered charitable if they are giving all of their profits, say, to a charity. This entity could be considered under the Word Investments case a charitable entity, even though it itself does not have charitable activities...as long as its money is going to a charitable purpose—that is, it is being given to a separate entity or it itself is undertaking a separate charitable purpose.2 6 27

3.29 Recent reports o f both the Productivity Commission and Henry Review have been relaxed about the implications for competitive neutrality of the case:

...on balance, income tax exemptions are not significantly distortionary as not-for-profit [entities] have an incentive to maximise returns on their commercial activities that they then put towards achieving their community purpose.28

The NFP income tax concessions do not generally violate the principle of competitive neutrality where NFP organisations operate in commercial markets.29

Income tax exemption

3.30 In recognition o f the long held view that the services provided by the

not-for-profit sector are worthy o f public funding and that the sector can often provide those services at a lesser cost than government, not-for-profit entities, including charities and religions, qualify for a range of tax and other exemptions at both the state and federal level.

As was noted in the Productivity Commission's report there is a general understanding that tax concessions are granted to NFPs because they serve the community and their activities provide positive public benefits and the greater the benefit, the larger the range of exemptions.30

Who is relieved from the tax burden that the rest of us have to bear? ...tax relief is granted to activity that delivers such common good outcomes that it may otherwise have to be paid for by the government directly.31

26 2008 HCA55, 3 December 2008. Word Investments operated a commercial funeral business to fund its translations of the Bible.

27 Ms Sandra Roussel, Manager, Philanthropy and Exemptions Unit, Department of the Treasury, Committee Hansard, 29 June 2010, p. 49.

28 Productivity Commission, Contribution o f the Not-for-Profit Sector, January 2010 p. 197.

29 Australia's Future Tax System-Report to the Treasurer-Part Two, Detailed Analysis, December 2009, p. 209.

30 Anglicare Sydney, Submission 46, p. 2.

31 Mr Andrew Lind, Partner, Comey and Lind Lawyers, Committee Hansard, 28 June 2010, p. 35.

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3.31 At a national level the income tax legislation provides that the income of charities and religious institutions is exempt from income tax. Section 11-5 of the Income Tax Assessment Act 1997 (ITAA 1997) lists those entities that are exempt from income tax and identifies the provisions o f the legislation under which the

exemption is granted. In the case of religious and charitable institutions, exemption is granted pursuant to Division 50 o f the ITAA 1997.

3.32 Section 50-5 specifically lists charitable and religious institutions as being income tax exempt at items 1.1 (charitable institutions) and 1.2 (religious institutions). Section 50-50 explains the special conditions that attach to the tax exempt status o f charities and religious institutions. It provides that:

50-50 Special conditions for items 1.1 and 1.2

An entity covered by item 1.1 or 1.2 is not exempt from income tax unless the entity:

(a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or

(b) is an institution that meets the description and requirements in item 1 of the table in section 30-15 [ie a Deductible Gift Recipient]; or

(c) is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident; or

(d) is a prescribed institution that has a physical presence in Australia but which incurs its expenditure and pursues its objectives principally outside Australia.

3.33 Section 50-52 goes on to specify that unless a charitable institution has been endorsed,32 it will not be income tax exempt and further specifies that an entity seeking endorsem*nt must apply in accordance with the requirements of Division 426 o f the Taxation Administration Act 1953 (TAA 195 3).33 Subsequently, provided a charitable institution meets the definition o f charity, satisfies one o f the tests set out in

section 50-50 and is endorsed by the Commissioner, it will be income tax exempt and not required to lodge income tax returns unless otherwise specified.34

3.34 By way of contrast, although the application o f the common law treats the advancement o f religion as a charitable purpose, the entitlement o f a religious institution to income tax exemption does not hinge on it carrying out charitable pursuits. Rather, a religious organisation's eligibility to income tax exemption is put beyond doubt by item 1.2 o f section 50-5 o f the ITAA 1997, and therefore excludes

32 The responsibility for endorsem*nt of charities rests with the Commissioner of Taxation.

33 Division 426 of the TAA 1953 sets out the procedural rules relating to endorsem*nt of charities and other entities. These rules cover matters such as the application for and revocation of endorsem*nt, and the entry of the details of endorsem*nt on the Australian Business Register.

34 Australian Taxation Office, Income tax guide fo r non-profit organisations, NAT 7967-03.2007, 2007, p. 63.

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those organisations from having to seek endorsem*nt as charities. As a result, where an institution self assesses that it is a religious institution and it also meets one of the tests o f section 50-50 it will be exempt from income tax and not required to lodge income tax returns.35

3.35 Although the tax laws specifically provide that charities and religious institutions are eligible for these tax exemptions, the income tax laws do not define the terms 'charity' or 'religion' leaving the common law to determine eligibility. In addition to the common law, the Commissioner issues interpretive aids to assist

self-assessing entities to apply the common law.

The Commissioner o f Taxation and current administration

3.36 To assist self-assessment and inform entities as to how he will in fact

administer the law, the Commissioner of Taxation has issued guidance in an extensive Taxation Ruling, TR 2005/21—Income tax and fringe benefits tax: charities.

3.37 The ruling sets out that:

â¢ charities are not-for-profit;36

â¢ 'charitable purpose' has an intention o f benefit or value— and notes that the benefit that the entity provides is required to be real or substantial, it must not be negligible but must be o f overall benefit and on balance cannot be harmful;37

â¢ the entity's activities must benefit the community (although it need not benefit the whole community provided it is for an 'appreciable section' of the public);38 and

â¢ the sole purpose o f a charity must be charitable although it may have purposes which in isolation would not be charitable (but may be commercial or business-like) provided they are not more than incidental or ancillary to the charitable purpose.39

3.38 The published guide which complements the ruling further explains that whether or not an institution seeking charitable status is a charity is to be determined by looking at the purpose o f the entity and identifies that evidence supporting the

35 Australian Taxation Office, Income tax guide fo r non-profit organisations, NAT 7967-03.2007, 2007, p. 21.

36 ATO, Income tax guide fo r non-profit organisations, 2007, p. 33.

37 Australian Taxation Office, Taxation Ruling TR 2005/21—Income tax and fringe benefits tax: charities, para 43 and pp 8-11.

38 Taxation Ruling TR 2005/21, para 50 and 58, pp 13-14.

39 Taxation Ruling TR 2005/21, paras 128-131, pp 34-36.

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purpose would be sought by reference to the governing documents of the entity (for example, trust deeds or constitutions), annual reports, financial statements, minutes of meetings, or the activities it is undertaking.40

3.39 In advising that TR 2005/21 does not apply to religious institutions that do not conduct charitable activities, the ATO confirmed that the Commissioner has not released any public ruling concerning the income tax exemption and how it applies to religious institutions.

Mr Hardy—On just the question of religious organisations, there is no particular ruling on that question. It is a particular category in the taxation legislation as to whether a religious organisation, if it is one, can be exempt

from tax. That is a self-assessment option as opposed to approaching the tax office to also be granted charitable tax concession.

Senator XENOPHON—Has the tax office considered giving a ruling in terms of religious organisations, giving guidance?

Mr Hardy—No. We tend to provide public rulings where there is a large public demand or uncertainty. We have not been approached by entities that have found it concerning enough to seek public guidance.41

3.40 It is noted that the Commissioner's Income tax guide fo r non-profit

organisations draws on the High Court ruling in identifying that:

An institution will be a religious institution if:

— its objects and activities reflect its character as a body instituted for the promotion of some religious object; and

-the beliefs and practice of the members constitute a religion.

[and].. .to be a religion there must be:

-belief in a supernatural being, thing or principle, and

-acceptance of canons of conduct that give effect to that belief, but that do not offend against the ordinary laws.42

3.41 Religious organisations therefore self-assess their status thereby gaining an exemption from income tax without having to engage with the Commissioner of Taxation:

If the nature of their activities in relation to goods and services tax, for example, were below the thresholds for registration, they would not be registered for goods and services tax purposes. If they did not have

40 Australian Taxation Office, Income tax guide fo r non-profit organisations, NAT 7967-03.2007, 2007, p. 33.

41 Mr Michael Hardy, Assistant Commissioner, Australian Taxation Office, Committee Hansard, 29 June 2010, p. 41.

42 Australian Taxation Office, Income tax guide fo r non-profit organisations, NAT 7967-03.2007, 2007, p. 20.

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employees they would have no requirement to engage with the tax office in the fringe benefits tax space, and so they may in fact be technically invisible to the tax office in any formal sense.43

3.42 At present, organisations claiming exemptions self-assess eligibility and are only audited if a concern is raised with the ATO. Given the right to privacy o f information is the foundation o f taxation law in Australia, unless the ATO makes a ruling in a particular case, the wider public has no idea as to whether or not there has been impropriety.

3.43 The Tax Office did state however that self-assessment does not mean that religious institutions will never come to the attention o f the Commissioner o f Taxation as the Commissioner does have powers o f inquiry that can be invoked if there is reason to believe that a self-assessing organisation were making an incorrect assessment.44 The Treasury pointed out that:

...the Commissioner of Taxation can and does revoke endorsem*nt of organisations where there is factual evidence available that the organisation does not provide a public benefit.45

3.44 Although the ATO currently has the power to revoke charitable status, it has neither the mandate nor the resources to act beyond its functions as a revenue collection service.46

3.45 As many religious institutions carry out charitable activities and therefore seek tax exemption pursuant to item 1.1 o f section 50-5 as a charity rather than a religious organisation under item 1.2 o f section 50-5, it was suggested by submitters to the inquiry that reform is perhaps more necessary in respect of item 1.2 rather than

1.1 o f section 50-5:

The bill...seeks to amend items 1.1 and 1.2 of section 50-5...Within 1.1 of course, we have the four heads of charity...in which religious institutions can be included. Item 1.2 does not have a similar charitable test. It allows the endorsem*nt as tax-exempt...religious institutions that do not have [a] charitable purpose.. .perhaps reform is needed more in relation to 1.2 than it is to 1.1 because in 1.1 charitable institutions are already subject to a test of having to be charitable...Religious institutions under 1.2 currently are not required to be charitable.47

43 Mr Michael Hardy, Assistant Commissioner, Australian Taxation Office, Committee Hansard, 29 June 2010, p. 40.

,44 Mr Michael Hardy, Australian Taxation Office, Committee Hansard, 29 June 2010, p. 40.

45 Department of the Treasury, Submission 82, p. 5.

46 Dr Stephen Mutch, Committee Hansard, 28 June 2010, p. 2.

47 Mr Andrew Lind, Partner, Comey and Lind Lawyers, Committee Hansard, 28 June 2010, p. 36.

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It now appears the religious institutions category may be an inoperative category, or is currently only accessed by a limited number of organisations that are not able to be endorsed as charitable institutions.48

Committee view

3.46 The Committee acknowledges the limitations on the Commissioner in administering the myriad o f tax laws which necessarily requires that his limited resources be spread across the whole o f the tax system. This makes it impractical to look in detail at every religious or charitable institution claiming income tax exemption but requires that he apply resources:

...where we perceive the most risk and advantage, consistent with the parliamentary intention of various tax laws the commissioner administers.49

3.47 The Committee also notes the evidence provided by the Treasury and Tax Office representatives that, in terms o f requiring information and ensuring compliance with Division 50 o f the ITAA 1997:

...in the end it probably comes down to policy choices by different governments— indeed, by different parliaments—from time to time about where the appropriate place to strike the balance might be at any particular time...There are policy choices involved in deciding when it is appropriate to allow an entity to self-assess as the basis for accessing a particular concession...and when it is appropriate instead for particular processes to be set in place which require more active steps by the relevant entity to seek

access to the concession by approaching the ATO and seeking some form of endorsem*nt.50

3.48 Administering any public benefit test may not always be a case o f merely applying precedent. Policy decisions m ay also need to be made. While the ATO is well-placed to make decisions relating to revenue matters, issues beyond that need to be dealt with elsewhere.

3.49 Australia’s federal system o f government further complicates reform in this sector as charitable and religious organisations are also subject to state and territory laws that affect their operations. For example, much o f the behaviour alleged o f cults actually falls within the ambit o f state and territory laws.

3.50 The Committee takes the view that as this sector is relied on to deliver vital services to the community often in the place o f government service delivery, and is funded by public money to do so these entities should be subject to a higher level of

48 Department of the Treasury, Submission 82, p. 6.

49 Mr Michael Hardy, Assistant Commissioner, Australian Taxation Office, Committee Hansard, 29 June 2010, p. 40.

50 Mr Michael Willco*ck, General Manager, Personal and Retirement Income Division, Department of the Treasury, Committee Hansard, 29 June 2010, p. 36.

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transparency. Requiring a higher level of accountability is not viewed by the Committee as an unjust impost given:

There is a kind of covenant that charities have with society: charities bring public benefit and, in their turn, are accorded high levels of trust and confidence and the benefits of charitable status. These mutual benefits are

considerable: charities receive significant tax advantages; they can access funds which others - even other voluntary organisations - cannot; volunteers and donors give, respectively, time and money.51

3.51 The Committee does not consider that the ATO is in a position to administer a public benefit test with the aim of regulating inappropriate behaviour and

guaranteeing accountability and transparency.

Recommendation 1

3.52 The Committee recommends that the incoming government should follow the emerging international best practice and work with the Council of Australian Governments to amend legislation governing not-for-profit entities to include a definition and test of 'public benefit'.

Cults

3.53 In the discussion of whether detriment should be taken into account when considering whether an organisation would pass a 'public benefit' test for tax concessions, there was discussion of the behaviour of cults.

3.54 It is a matter o f concern that allegations of grossly inappropriate behaviour continue to be made, and arouse concern, yet there is no systematic means o f dealing with these allegations, especially where no specific criminal offence has been committed.

3.55 The Cult Information and Family Support Group told the Committee that:

CIFS can confidently estimate that there are many hundreds—if not more; perhaps thousands—of groups operating within Australia that claim tax exemption simply because they claim a religious status. Yet these groups would show on examination that basic human rights and the freedoms that

we take for granted here in Australia are not afforded to their members and indeed would contravene all that freedom and democracy are about...We have also heard of the horrendous long-lasting harm caused to individuals and to families by authoritarian, elitist, exclusive groups of all shapes and sizes. They use psychological manipulation, insidious and coercive techniques and the dynamics known as thought reform or mind control to indoctrinate and keep members obedient and compliant.52

51 Charity Commission for England and Wales, Submission 41, p. 2.

52 Mrs Roslyn Hodgkins, President, Cult Information and Family Support, Committee Hansard, 28 June 2010, p. 19. See also their Submission 14.

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3.56 There has been no inquiry into this issue, although the Standing Committee o f Attomeys-General contemplated in 1988 creating an offence o f recklessly or intentionally causing harm to a person's mental health.53

3.57 In France there is an agency Miviludes (Mission Interministerielle de Vigilance et de Lutte centre les Derives Sectaires) charged with monitoring the activities o f cults.54

Committee view

3.58 The Committee believes that sufficient evidence was put before it to suggest that the behaviour o f cults should be reviewed with a view to developing and implementing a policy on this issue that goes beyond taxation law.

Recommendation 2

3.59 The Committee recommends that the Attorney-General's Department provide a report to the Committee on the operation of Miviludes and other law enforcement agencies overseas tasked with monitoring and controlling the unacceptable and/or illegal activities of cult like organisations who use psychological pressure and breaches of general and industrial law to maintain control over individuals. The report should advise on the effectiveness of the operation of Miviludes and other similar organisations, given issues that need to be addressed to develop an international best practice approach for dealing with cult-like behaviour.

53 Dr Stephen Mutch, Submission 16, p. 6.

54 Interministerial Mission of Vigilance and Combat Against Sectarian Aberrations. The organisation is referred to by Dr Stephen Mutch, Submission 16, p. 6.

An English translation o f their 2006 annual report is available at

http://www.miviludes.gouv.fr/IMG/pdf/ReDort Miviludes 2006.pdf.

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Chapter 4

An alternative to the bill - a national commission

Need for broader reform

4.1 M uch o f the evidence gathered by the present inquiry reiterated that the previously identified issues o f transparency, accountability, complexity and inconsistency remain problematic:

... people who are doing public good...should receive tax concessions. We are very strong about that. But we also say they should be accountable.1

...transparency is both needed and wanted. So the imperative for reform there must be to ensure that transparency is achieved but not in a way that imposes undue burdens compliance wise.1 2

...charities should demonstrate levels of transparency, accountability and governance which are beyond reproach, particularly when they are dealing with the most vulnerable in our communities and utilising funds from the public to deliver their services.3

4.2 M any submitters took the view that reform should only be pursued on a broad basis, rather than 'piecemeal', and raised the establishment of an independent national commission as an alternative means o f achieving reform:

The Henry Review and the Productivity Commission Research Report ‘Contribution of the not-for-profit Sector’ both raise issues regarding the tax concessions extended to the not-for-profit sector. The issues raised in this Bill are best addressed in the context of that broader inquiry. Any

changes to the status requirements for religious organisations and charities should be a part of overall package of taxation law reform that improves the enabling and regulatory environment of the sector.4

Redefining what constitutes charity, and how this definition fits with the overall not-for-profit sector, is a complex issue which over the past decade has been the subject of much debate and two lengthy and complex Government inquiries...This is proof that the redefinition of charity is an

issue which needs to be addressed as a whole, rather than piecemeal.5

1 Mr David Nicholls, President, Atheist Foundation of Australia Incorporated, Committee Hansard, 28 June 2010, p. 58.

2 Dr Matthew Harding, Senior Lecturer, Not-for-Profit Project, Melbourne Law School, University o f Melbourne, Committee Hansard, 29 June 2010, p. 30.

3 Uniting Care Australia, Submission 60, p. 1.

4 Dr Matthew Tumour, Submission 1, p. 3.

5 Philanthropy Australia, Submission 42, p. 1.

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A public benefit test should never be legislated in isolation, particularly in a Bill that contains little detail o f how, and by whom, it would be

administered. The objects o f the proposed public benefit test, if determined to be valid, should be examined within the broader context o f reform to the not-for-profit sector, as raised in the Productivity Com m ission report and the Henry Tax Review .6

Limitations o f the bill

4.3 Although the consensus is that greater transparency and accountability is needed and the proposed bill is a possible avenue for achieving such reform, not all submitters are in favour o f it being progressed given its narrow focus.

4.4 The bill proposes the introduction o f a new section, section 50-51, to Division 50 o f the ITAA 1997. This section introduces a new requirement that would result in an entity seeking income tax exemption under either item 1.1 or 1.2 o f the ITAA 1997, needing to meet a public benefit test. Therefore, in addition to satisfying the special condition requirements o f section 50-50 and section 50-52, charitable and religious institutions would also need to satisfy this public benefit test before qualifying for income tax exemption.

4.5 The bill is however very limited in its coverage. No other entities identified in section 50-5 or the remaining sections o f Division 50 will be affected. An extract o f Division 50 is attached as Appendix 6.

4.6 The Committee noted that individual submitters to the inquiry tended to favour the bill and its introduction o f a public benefit test on the basis that it would improve the status quo.7

I write to you in support o f the Tax Laws Amendm ent (Public Benefit Test) Bill 2010. I w ould like to see this Bill passed unchanged...In these

turbulent economic times, proper tax collection without waste is paramount. This bill is needed so honest charitable organisations can claim tax

exemption and at the same time deny that benefit to groups who would abuse it.8

I am seeking to lend m y support to there being a public benefit test (PBT) for an organisation to gain tax-free status. An organisation that operates tax- free is effectively subsidised by the taxpayer, since vital taxes must be levied against other things, or at higher levels to m ake up the shortfall. It is therefore right that the taxpayer should be assured that there is genuine

6 Australian Christian Lobby, Submission 48, p. 4.

7 In addition to those quoted here, submissions supportive of the bill included Vision Australia, Submission 51; Australian Skeptics, Submission 31; Ms Natascha Fareed, Submission 57; Mr Chris Lavery, Submission 64; Mr Nevin Cartwright, Submission 45; and Submissions 13, 17, 29,30, 34, 54, 70, 71 and 72 from persons who requested their names be withheld.

8 Mr Dane Weber, Submission 15, p. 1.

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public benefit from each such organisation---- particularly at a time when money is tight for many families.9

I write this in wholehearted support of the Tax Laws Amendment (Public Benefit Test) Bill 2010, proposed by Independent Senator Nick Xenophon. I recommend that this Bill be passed unchanged. As it stands, the amendment will benefit the public by ensuring a greater deal of scrutiny on organizations that apply for tax free/exempt status.10 1 1

4.7 Organisational and academic submitters however tended to criticise the bill suggesting that it may not be the best way to achieve the necessary reform,

particularly in light of the recent reports by both the Productivity Commission and the Henry Review.

4.8 In giving evidence to the Committee at its public hearing, Dr Matthew

Harding from the University o f Melbourne Law School's Not-for-Profit Project stated:

...our point is that that reform has already been the subject of detailed scrutiny and recommendation from numerous bodies over the years but that reform is a larger reform that what this bill is directed at. The danger of the bill is, in our view, that it will enact part of the reform in isolation from the whole and then there will be distortions and effects that were not

intended.11

4.9 This view was consistent among organisational submitters who although supportive o f reform are concerned that passage of the bill may undermine the work of the previous inquiries. The predominant view is that reform should be informed by the finding o f these recently completed reviews:

The proposed Bill follows a wide ranging inquiry into the Not-for-Profit sector by the Productivity Commission and of taxation matters by the Australia’s Future Tax System Review Panel. It is noteworthy that neither of these inquiries has recommended a public benefits test as part of

proposed reforms. It is concerning that the proposed Bill represents a fundamental shift in the way that the tax status of charities would be assessed without clarification as to how it fits within the broader approaches already recommended by these inquiries.12

PilchConnect has made detailed submissions to the multiple inquiries that have considered the issue of what organisations should receive concessional taxation treatment, and what the appropriate body is to determine status for this and other purposes... We assume that the Committee will be fully

appraised of the seminal 2001 Charity Definition Inquiry Report where these issues were considered in a holistic way, with considerable input from

,9 Mr Julian Moller, Submission 27, p. 2.

10 Mr Hudson Carrad, Submission 65, p. 1.

11 Dr Matthew Harding, Committee Hansard, 29 June 2010, p. 32.

12 Anglicare Diocese of Sydney, Submission 46, p. 3.

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the NFP sector and consideration of overseas models. In short, PilchConnect again recommends that:

- any taxation reform should be underpinned by a rational policy basis for charity and NFP taxation exemptions and other incentives;

- this underpinning was carefully considered in the 2001 Charity Definition Inquiry and we endorse the recommendations arising from that Inquiry’s report;

- the current Senate Inquiry, in line with the 2008 Senate

Disclosure Regimes for Charities and Not-for-Profit Organisations, endorses the recommendations of 2001 Charity Definition Inquiry; and

- implementation of these reforms to legislative treatment of charities occurs after, or in conjunction with the establishment of a new, independent, specialist NFP regulator.

... It is our view that the draft Bill would serve as yet more piecemeal reform that would do more harm than good to an already complex and unfit regulatory framework for Australia’s economically and social significant NFP sector.13

The present bill...does not address any of the wider regulatory issues which have been raised by charities in the recent review of the sector by the Productivity Commission, or in the Henry Review.14 1 5

[The Asia-Pacific Centre for Social Investment and Philanthropy] is concerned however that the introduction, in isolation, of the provisions of the proposed Bill could have considerable unintended consequences.

...it is considered that the appropriate process to review the relevance of any 'public benefit test' for charitable organisations is in the context of the Federal Government's detailed response (as yet not released) to the reports provided by the Australian Government Productivity Commission into the

contribution of the not-for-profit sector and the Australia's Future Tax System Review...These reviews contained a number of recommendations that could possibly affect the charitable and not-for-profit sector and in this light it is prudent not to introduce new legislation that has not been considered in conjunction with any recommendations or debates relating to these reviews.16

4.10 When advocating that change be informed by the previous inquiries,

submitters supported the recommendations made by those inquiries which, if adopted,

13 PilchConnect, Submission 81, pp 2-3.

14 Not-for-Profit Project, University of Melbourne Law School, Submission 47, p. 2.

15 Asia-Pacific Centre for Social Investment and Philanthropy, Submission 53, p. 2.

16 The Salvation Army (Eastern Territory), Submission 61, p. 1.

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would see Australia's not-for-profit sector embark on reform consistent with the emerging practice in international jurisdictions.

4.11 The examples o f the approach taken in foreign jurisdictions received much attention throughout the inquiry, many organisations complimentary o f the reform that has been achieved, particularly in England and Wales and in New Zealand.

Committee view

4.12 The Committee is o f the view that the taxation and regulatory arrangements of the not-for-profit sector, including, but not limited to, charitable and religious institutions, is in need o f urgent reform.

4.13 The Committee shares the view of many submitters that the scope of the bill before the Senate is too narrow and that the bill inappropriately delegates legislative power.

4.14 The Committee takes the view that this inquiry has only served to highlight the urgent need for broader reforms within the sector. This has been a recurring theme in all previous inquiries dealing with possible regulation o f not-for-profit

organisations. The Committee considers it appropriate that any incoming government initiate broader sector-wide reform, following an extensive consultation process. The Committee believes that reform of the sector can no longer be ignored as reform

would provide much needed support, transparency and accountability within the not-for-profit and charitable sector.

There comes a point where a government...has to make a decision either to do something or to stop saying that it is going to intend to do something, because this matter has been on the agenda for many, many years.17

The experience overseas

4.15 Throughout the inquiry the practices that apply to the not-for-profit sectors in foreign jurisdictions were consistently cited by submitters as examples o f reform achieved in other countries. These examples were cited as being both relevant to the consideration o f a public benefit test and suggestive o f the need for broader reform as the framework which governs Australia's not-for-profit sector is derived from the English tradition.

4.16 The Committee notes that its previous report Disclosure regimes fo r charities and not-for-profit organisations (December 2008) extensively considered the regulatory frameworks governing the not-for-profit sectors in foreign jurisdictions, specifically those of England and Wales, and New Zealand. The Committee does not

see another detailed analysis as necessary and would rather examine how the .experiences o f those jurisdictions apply to the continued development o f the sector

17 Father Brian Lucas, General Secretary, Australian Bishops Conference, Committee Hansard, 29 June 2010, p. 25.

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within Australia. The Committee has attached the relevant chapter o f its 2008 report as Appendix 8.

England and Wales—Charities Act 2006

4.17 The United Kingdom has a strong history o f legal reform of the charitable sector that includes a complicated mix o f case law, common law and legislation. In the UK the pinnacle o f this reform was the Charities Act 2006 (UK) ('The English Act'). The Act followed previous legal reforms that had been undertaken since the evolution o f case law beyond the original four heads o f charity.

4.18 The UK previously legislated with respect to charities in 1958, 1992 and 1993. A review o f the entire charities sector commissioned by then British Prime M inister Tony Blair in July 2001 recommended the modernisation o f charity law, with an emphasis on enhancing accountability and transparency.18 At that time in the UK, charities and religions were operating in a similar framework to that which applies in Australia today.

4.19 The review recommended several reforms including the establishment in legislation o f a definition o f 'charitable purpose', enhanced accountability and transparency, improved powers o f the regulator (the Charity Commission for England and Wales) and the establishment o f a Charity Tribunal within the British court

hierarchy.

Joint Committee Report 2004

4.20 The British Government published the draft bill in M ay 2004. A Joint

Committee comprised o f members o f both Houses examined the draft legislation, publishing their report after extensive consultation with stakeholders across the UK in September 2004.19

4.21 That report included over 50 recommendations, finding that law reform in this area was 'well overdue'20 and recognising that the establishment o f a Charity Tribunal would encourage transparency and accountability and ultimately assist the charity sector's growth.21

18 The Charities Bill, [HL] Research Paper, 06/18, p.9; Religions Working Together (UK), Submission 86, p. 1.

19 The Charities Bill, [HL] Research Paper, 06/18, p.l 1.

20 The Charities Bill, [HL] Research Paper, 06/18, p.l 1.

21 The Charities Bill, [HL] Research Paper, 06/18, p. 12.

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Charities Act 2006 (UK)

4.22 The Committee notes with interest that the Charity Commission for England and Wales existed prior to the Charities Act 2006 (UK).22 The 2006 Act played an important role in harmonising the powers o f the Charity Commission as the sole regulator of the sector, allowing higher levels of scrutiny and accountability with public monies.

4.23 The English Act did not override the Statute o f Elizabeth as suggested, but further developed the heads o f charities23 and removed the presumption o f public benefit,24 through the introduction o f section 3 o f the Act:

Section 3 The 'public benefit' test

(1) This section applies in connection with the requirements in section 2(1 )(b) that a purpose falling within section 2(2) m ust be for the public benefit if it is to be a charitable purpose.

(2) In determining whether that requirem ent is satisfied in relation to any such purpose, it is not presum ed that a purpose o f a particular

description is for the public benefit. ,.25

Charities and Trustee Investment (Scotland) Act 2005

4.24 In Scotland, the Charities and Trustee Investment (Scotland) Act 2005 ('the Scottish Act') provides for the establishment o f the Office o f the Scottish Charity Regulator (OSCR) as well as the implementation of similar provisions to those found in the English Act. As previously mentioned, the Scottish and English Acts operate complementarily of each other, which allows for greater consistency both across and within the UK.

4.25 The Scottish Act however does not override the common law with respect to charities. Section 7 defines a charity test and charitable purpose.26 It also includes provisions which enable the Judiciary to interpret charitable purpose as required.27

4.26 The Scottish Act, like the English Act, explicitly removes the common law presumption o f public benefit, contained in Section 8(1):

No particular purpose is, for the purposes o f establishing whether the charity test has been met, to be presum ed to be for the public benefit.28

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22 Dr Stephen Mutch, Cults, Religion and Public Policy, PhD thesis, University of New South Wales, March 2004, pp 365-366. Indeed, it traces its origins back to the 19th century.

23 As found in the Charities Act 2006 (UK), ss 2(2)-(4).

24 Ms Joanne Edwardes, Head, Status and Public Benefit Policy, Charity Commission for England . and Wales, Committee Hansard, 28 June 2010, p. 62.

25 The Charities Act 2006 (UK), s 3(l)-(4).

26 Charities and Trustee Investment (Scotland) Act 2005, s7(l)-(2).

27 Charities and Trustee Investment (Scotland) Act 2005, s7(2)(p).

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4.27 Similarly, the Scottish Act provides legal redress for decisions of the OSCR to be examined by the Scottish Judiciary.2 8 29 Section 34 provides explicit avenues for the OSCR to legally address concerns about compliance within Scottish charity and not

for profit law. This process is commenced in the Scottish Court o f Session,

significantly departing from the English model, which was the establishment o f a sector specific Charity Tribunal.

Charities Act 2005 (New Zealand)

4.28 Prior to the passage o f the Charities Act 2005 (New Zealand) the Inland Revenue Service assisted charities in a similar manner to the ATO's dual regulator/tax collector role in Australia.30

4.29 The New Zealand legislation also includes a definition o f serious wrongdoing, which may be useful for Australian drafters wanting to include a 'detriment' provision:

(a) an unlawful or a corrupt use o f the funds or resources o f the entity; or

(b) an act, omission, or course o f conduct that constitutes a serious risk to the public interest in the orderly and appropriate conduct o f the affairs o f the entity; or

(d) an act, omission, or course o f conduct by a person that is oppressive, im properly discriminatory, or grossly negligent, or that constitutes gross m ism anagem ent.31

4.30 Legislation establishing a Charities Commission was introduced in New Zealand with the passage o f the Charities Act 2005 (New Zealand). This Act, introduced by the former Clark Government, was sent to the House o f Representatives (NZ) Social Services Committee for inquiry and report. The inquiry received a total o f 753 submissions, and held public hearings in Auckland over two days.32

4.31 The Social Services Committee report recommended substantial changes to the bill, broadly supporting the establishment o f the Charities Commission as a Crown entity but changing the Commission's focus to include one o f guidance and education

so as to increase flexibility o f registration.33 Flexibility was a specific concern raised and noted in the report, as organisations raised concerns about financial costs associated with compliance mechanisms.34 The bill itself was highly contentious, both

28 Charities and Trustee Investment (Scotland) Act 2005, s8( 1).

29 Charities and Trustee Investment (Scotland) Act 2005, s34.

30 Hon Judith Tizard, House o f Representatives Hansard (NZ), 12 April 2005, p. 19940.

31 Charities Act 2005 (NZ), section 2(1).

32 Ms Georgina Beyer, House o f Representatives Hansard (NZ), 12 April 2005, p. 19944.

33 Hon Judith Tizard, House o f Representatives Hansard (NZ), 12 April 2005, p. 19940.

34 Ms Judith Collins, House o f Representatives Hansard (NZ), 12 April 2005, p. 19943.

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before and after the Social Services Committee's report and the subsequent passage through the House of Representatives on 12 April 2005.35 The bill was amended to reflect some changes originally proposed by the Social Services Committee, to ensure its passage through the Parliament.

Charities Act 2009 (Ireland)

4.32 The Irish parliament has also recently revised its legislation relating to charities. One provision in this seeks to prevent support going to dangerous cults. Section 3(10) reads as follows:

For the purposes of this section, a purpose or a gift is not a purpose or a gift for the advancement of religion if it is made to or for the benefit of an organisation or cult—

(a) the principal object of which is the making of profit, or

(b) that employs oppressive psychological manipulation—-(i) of its followers, or

(ii) for the purpose of gaining new followers.

International best practice

4.33 Informed by the above jurisdictional comparisons, the Committee notes with interest that these recent reforms were preceded by much debate and public consultation. Reform, however, in all cases has largely been consistent. This supports the concept o f an emerging best practice for the not-for-profit sector.

4.34 M r Trevor Garrett, the Chief Executive of the New Zealand Charities Commission, in response to the question o f an emerging international best practice, cited the United Kingdom (England, Wales, Scotland) and Ireland, each o f which has moved to implement a 'charity commission-type system'.36 The United Kingdom has

in fact had some form o f charity commission since the 19th century.3'

4.35 Evidence provided by M r David Locke of the Charity Commission o f England and Wales further suggests that it is these jurisdictions which are leading reform in this sector of the economy.

We do have some links with the Charities Commission of New Zealand. There is an international regulators forum which has now met on three occasions... We also have an international program at the charity commission. It has been in operation since 2003-04 and in that context we

‘35 Hon Judith Tizard, House o f Representatives Hansard (NZ), 12 April 2005, p. 19973.

36 Mr Trevor Garrett, New Zealand Charities Commission, Committee Hansard, 28 June, p. 27.

37 Ms Joanne Edwardes, Charity Commission of England and Wales, Committee Hansard, 28 June 2010, p. 60.

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work with a number of different governments and regulatory authorities across the world.38 3 9

Committee view

4.36 The Committee considers that reform in the Australian not-for-profit sector should be guided by international best practice and notes the success o f England and W ales in setting a precedent and taking a leading role in international reform o f the sector.

4.37 The Committee considers that the UK model informed New Zealand in the design o f its commission.

4.38 The Committee also notes the approach taken in Scotland where in addition to introducing statutory definitions o f 'charity' and 'charitable purpose' the ability o f an entity to seek guidance from the courts was preserved in the Act. The Committee considers that if Australia should introduce statutory definitions of 'charity' and 'charitable purpose', the inclusion o f such a clause could help allay the concerns o f organisations currently receiving the benefits o f charitable status, but which were not expressly covered by the definitions contained in a statute.

4.39 The Committee considers that the establishment o f a Charity Tribunal is preferable to the automatic referral o f compliance issues to a court within the Australian judiciary. Due to the risk o f compliance burdens being imposed, the Committee finds it preferable that adjudication by the judiciary occur in a separate Charity Tribunal in the first instance, with appellate jurisdiction to a higher court available if necessary. The Committee is o f the view that the Administrative Appeals Tribunal would be an ideal model to either adopt separately or have a Charity Tribunal incorporated into, to ease costs o f regulator establishment.

4.40 The introduction of section 20 o f the Scottish Act tends to confirm the

concerns raised with the Committee by Treasury officials that the Commonwealth may not have sufficient authority under section 51 of the Constitution to enact legislation introducing a Charities Commission in Australia:

...my understanding is that there is not sufficient constitutional power for the Commonwealth to seek to cover that whole field and that it would therefore be necessary for the Commonwealth to act in concert with the states and territories through either a COAG process or some other

process.

4.41 The Committee takes the view that legislation for the not-for-profit sector needs to apply across all charities and religious groups evenly and operate across state and territory jurisdictions. As a result, given the experience o f Scotland, the

38 Mr David Locke, Charity Commission of England and Wales, Committee Hansard, 28 June, p. 66.

39 Mr Michael Willco*ck, Treasury, Committee Hansard, 29 June 2010, p. 35.

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Committee sees value in referring to the experiences o f other countries when enacting legislation of this type, especially a country like the United Kingdom where, like Australia, devolved powers require cross jurisdictional arrangements. The Committee suggests that, should moves to enact a national commission in Australia be taken, negotiation through COAG would be required.

4.42 'Charity Commission' may be too narrow a name for a regulator whose role encompasses other not-for-profit organisations. The Committee also considers that the term 'Not-for-ProfIt Commission' is negative as it defines organisations by what they are not and is somewhat ambiguous given that government departments and entities

such as the Reserve Bank o f Australia are not-for-profit entities but would not be covered. Other possible names for the independent commission include 'Third Sector Commission'40, 'Tax Exempt Entities Commission', 'Community Organisations Commission' or 'Social Enterprise Commission'.

4.43 The introduction o f a national commission should not be regarded as an additional bureaucratic impost; it would rather replace a complex array o f state and territory regulatory bodies, streamlining processes for charities and reducing their compliance costs. It would increase public confidence in charities by improving their transparency as well as being a source o f advice and assistance to charities.

4.44 The Committee would expect a commission to adopt a tiered reporting system to ensure that small not-for-profit organisations are not overburdened by the costs of compliance.

4.45 The Committee sympathises with the frustrations of some witnesses that a commission has been recommended by a number of reports, but not implemented.

There comes a point where a government, probably not before the next election but whoever might be the government after the next election, has to make a decision either to do something or to stop saying that it is going to intend to do something, because this matter has been on the agenda for

many, many years: should we have a charities commission or not? What structure should we have in place? We had an Industry Commission [report] in 1995. We have had extensive consultation with the sector

40 As detailed in the 2008 Report scholarly literature often divides society into four sectors: Business (First Sector); Government (Second Sector); Not-For-Profit, non-government, voluntary, intermediary (Third Sector); and Family (Fourth Sector). The Third Sector in Australia sits alongside the government and private sectors. Third Sector organisations may receive government funding to provide public services, but they are not part of government.

Similarly, Third Sector organisations may charge for business services, but are not part of the business sector because their primary aim is not to generate profits for their owners. Broadly, Third Sector organisations comprise charities, churches and religious organisations; sporting organisations and clubs; advocacy groups; community organisations; cooperatives; trade unions; trade and professional associations; chambers of commerce; welfare organisations; and

service providers, which can be divided into three clear classes of organisations (i) Mutuals, (ii) Social Enterprises and (iii) Not-For-Profits. Source: Senate Economics Committee, Disclosure regimes fo r charities and not-for-profit organisations, 2008, p. 11.

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leading to the charities definition bill. It is a goldmine for the lawyers because they like to entice you into using them to make submissions. We then had the Productivity Commission. Most recently, we had the Henry tax review. All of the major charitable organisations in this country, the major churches, have made submissions to all of those. It is not my place to give direction to government, but it would be good to either say, ‘Here is a model that we can consult about, that we can actually get into the detail of

and see whether it is workable or not and how we finetune it,’ or leave the status quo but not continue this process of creating uncertainty.41

4.46 The Committee believes it is time for action. It expects legislation establishing a commission to be referred to it in due course.

Recommendation 3

Commissions in the United Kingdom and New Zealand.

Recommendation 4

The Committee recommends that the working group consider the functions and role of an Australian commission which should include, but not be limited to, the following:

â¢ promote public trust and confidence in the charitable sector;

â¢ encourage and promote the effective use of charitable resources;

â¢ develop and maintain a register of all not-for-profit organisations in Australia using a unique identifying number (for example an ABN) as the identifier;

â¢ develop and maintain an accessible, searchable public interface;

â¢ undertake either an annual descriptive analysis of the organisations that it regulates or provide the required information annually to the ABS for collation and analysis;

â¢ educate and assist charities in relation to matters of good governance and management;

41 Father Brian Lucas, General Secretary, Australian Catholic Bishops Conference, Committee Hansard, 29 June 2010, p. 25.

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â¢ facilitate, consider and process applications for registration as charitable entities;

â¢ process annual returns submitted by charitable entities;

. supply information and documents in appropriate circ*mstances for the purposes of the Tax Acts;

â¢ monitor charitable entities and their activities to ensure that registered entities continue to be qualified;

â¢ inquire into charitable entities and persons engaging in serious wrongdoing in connection with a charitable entity;

â¢ monitor and promote compliance with legislation;

â¢ consider, report and make recommendations in relation to any matter relating to charities; and

â¢ stimulate and promote research into any matter relating to charities.

Senate Annette Hurley Chair

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Additional Comments by Senator Xenophon

Introduction

1.1 There have been numerous inquiries into the not-for-profit sector over the past decade, all consistently calling for reform o f regulation o f the not-for-profit sector in order to ensure greater transparency and accountability.

1.2 This Senate inquiry was a beneficial and successful opportunity to continue this discussion and heard from a range of experts, charities and religions and members o f the public through the submissions and public hearings process.

1.3 The Committee's recommendations for the establishment o f a single

independent national commission for not-for-profit organisations, similar to the Charity Commission for England and Wales; and for the Government to inquire into the operation o f MILVILUDES in France to learn how it monitors the activities of cults, with a view to establish a similar agency in Australia, should both be initiated as

soon as possible.

The need for reform

1.4 Not-for-profit organisations, including charities and religions, are currently afforded tax exempt status due to the presumption that they provide the community with services and assistance that is of benefit. Subsequently, these entities are not required to lodge income tax returns unless otherwise specified.

1.5 According to the M r Michael Hardy, Assistant Commissioner o f Taxation with the Australian Tax Office,

"There are about 55,000 organisations that have some sort o f charitable tax concession endorsem*nt. W e receive around 6,000 applications per year, which are reviewed."

1.6 O f those, however, M r Hardy acknowledged that, given resource limitations, not all of these applications are closely scrutinised.

"There is certainly a fast tracked assessment process. Realistically, with the staff available and to work through the num ber o f applications per year, perhaps in the order o f 70 percent o f applications work through the risk assessment as being relatively fast processed through the system. Some o f

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those are tagged for subsequent, after-the-event review. The remaining ones would be subject to more careful scrutiny upon application."1

1.7 Perhaps more concerning, however, is that charities and religions are also able to self-assess their income tax status and m ay therefore be income tax exempt and operate completely unknown to the Tax Office.

Mr Hardy—If they make that self-assessment, which also then allows for them to be exempt from income tax, they would not make themselves known to the tax office. They would not be required to make themselves known to the tax office. If the nature of their activities in relation to goods and services tax, for example, were below the thresholds for registration, they would not be registered for goods and services tax purposes. If they did not have employees or they did not have any fringe benefits tax arrangements in relation to employees, they would have no requirement to engage with the tax office in the fringe benefits tax space, and so they may in fact be technically invisible to the tax office in any formal sense.

ACTING CHAIR—That in a way answers the question which I was going to ask, and that is: since groups can self-assess as a religion, what quantum, what number, of religions would you say are out there whereby, unless they become visible to you from some of their activity, you would not know they existed as such? For a group to claim tax exemption there must be a point where they put in a tax return or an exemption is claimed, and therefore it must be possible to make some sort of assessment of the numbers.

Mr Hardy—The only tax concession that could be accessed without an approach to the tax office by a religious organisation would be to self- assess that they were a religious organisation, which makes them exempt from income tax. The practical consequence of that is that they do not have to lodge an income tax return. If they have no reason to have a dealing with the tax office in any other capacity then they have no dealing with the tax office.

ACTING CHAIR—Do they have to advise you of their self-assessment?

Mr Hardy—No. Self-assessment is that. They self-assess.

ACTING CHAIR—In other words, they are left alone. They have self- assessed and you do not have any reason to monitor them whatsoever.

Mr Hardy—No. The legislation does not provide for that. They are potentially invisible to us as a taxation entity or an entity that has an interaction with the tax system.

Senator XENOPHON—Mr Hardy, further to Senator Eggleston’s line of questioning, that means that once an organisation has a tax free status as a religion, for instance, and they self-assess, there is no scope to look into the books of that organisation?

1 Mr Michael Hardy - Australian Taxation Office, Proof Committee Hansard - Tuesday 29 June 2010, p. 37.

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Mr Hardy—There could be for an organisation, and not just in the charity sphere, because the tax system is premised along self-assessment. If the tax office became aware of an organisation that was self-assessing as a religious organisation and we had reason to believe that they may have made an incorrect assessment, we certainly do have powers of inquiry to make contact with them and to gather information. We might be able to

advise them that they were incorrect in their assessment and that perhaps they were not a religious organisation, in which case they may be part of the tax system in some other fashion.

Senator XENOPHON—But if they are classified as a religious organisation, they are invisible—you used the word ‘invisible’ earlier—for the purpose of being subject to pay tax; therefore, you cannot look. Once they have got the status of religion you cannot really look behind that.

Mr Hardy—Once they are a religious organisation and they self assess, they are exempt from income tax and therefore have no obligation to lodge an income tax return.2

1.8 There is a clear need, therefore, for greater scrutiny and accountability o f organisations which receive income tax exemption.

1.9 The establishment o f a national independent commission for not-for-profit organisations as recommended by the Committee will address this issue, as well as broader concerns facing the sector.

The need for a Public Benefit Test

1.10 The Senate inquiry heard from a number o f former members o f the Church of Scientology, an organisation which is provided with charitable status in Australia and is thereby income tax exempt.

1.11 These individuals recounted their experiences while they were members of the organisation, and explained why, based on their experiences, they do not believe the organisation should be tax exempt.

Some examples of the evidence provided include:

Mr Anderson—One should be able to clearly identify groups who do good works, because they see the results. If one cannot see those results, that particular group should be deemed to be highly suspect and should be treated as such. I guarantee if you asked the same taxpayer what good works Scientology do and what they are known for, they would actually struggle to give you an answer. I know I do. That was one of the things I found very difficult to reconcile in my association with Scientology over 25

2 Mr Michael Hardy - Australian T axation Office, Proof Committee Hansard - Tuesday 29 June 2010, p. 40.

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years. I in fact found them to be quite self-serving and not really directed at the external environment.3

Mrs Underwood— ... as a former Scientologist I believe that the Church of Scientology is a prime example of why this tax amendment is required. As I outlined in detail in the attachment to my submission, the Church of Scientology is a tax-exempt organisation which, one, enjoys tax-exempt status while it only serves itself at the detriment of others. It does not even serve its members. Its members actually serve it. Two, it is fraudulent. It

deceives and heavily coerces its people in order to obtain so-called donations. It often does not deliver what is promised, and in some cases it uses those funds for purposes other than what is stated. This is fraud and it is a crime. Three, it is an organisation which threatens its people with ‘pay up or else’. This is extortion.4

Ms Vonthehoff—The experiences include bullying and harassment; two coerced abortions; Scientology justice procedures, including court hearings resulting in removal of freedoms; forced financial donations; severe financial stress; working a minimum of 40 hours and up to 70 hours a week for no pay; removal of my Australian passport while studying for Scientology in the US, so I was unable to leave; working under duress all night on many occasions while my young children were forced to stay at the office and sleep on the lounge; threats of loss of my family if I tried to leave; psychological abuse; being forced to sign a suicide waiver, freeing Scientology of all responsibility if I caused myself any harm, when I made it clear how much I wanted to leave; and interrogation regarding my personal life and sex life.5

1.12 The Committee's recommendation that a Public Benefit Test, such as the one proposed in the Tax Laws Amendment (Public Benefit Test) Bill 2010, will therefore ensure that an organisation's aims and activities are for the 'public good' and is weighed against any harm caused, such as the test in effect in the United Kingdom.

1.13 Furthermore, the recommendation that the Government provide a report into the operation o f France's MILVILUDES agency (which monitors the operation of cult like organisations), and similar international bodies, with a view to establishing a similar agency in Australia, will ensure that cult-like activities are closely monitored and appropriate laws are introduced to combat these groups who use psychological pressure and breaches o f general and industrial law to maintain control over individuals.

3 Mr James Anderson, Proof Committee Hansard - Monday 28 June 2010, p. 11.

4 Mrs Carmel Underwood, Proof Committee Hansard - Monday 28 June 2010, p. 12.

5 Ms Jannette Vonthehoff, Proof Committee Hansard - Monday 28 June 2010, p. 13.

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Conclusion

1.14 The Committee's recommendations go further than the scope of the Tax Laws Amendment (Public Benefit Test) Bill 2010, by recommending a Charities Commission using a Public Benefit Test to provide appropriate and fair scrutiny of not-for-profit organisations and, with this, much greater protection for individuals.

1.15 Given some of the horrific stories heard within the Inquiry, it is important that any legislation to establish a Charities Commission and/or a MILVILUDES equivalent in Australia be introduced as soon as possible and by no later than 30 June 2011.

Nick Xenophon Independent Senator for South Australia

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APPENDIX 1 Submissions Received

Submission Number

,26

Submitter

Dr Matthew Tumour

Comey & Lind

Name Withheld â¢ Supplementary Submission

Name Withheld

Confidential

Mr Stewart Payne

Mr David Graham â¢ Supplementary Submission (Confidential)

Name Withheld

Apostolic Church Australia

Anglican Church Diocese of Sydney

Name Withheld

Southland Vineyard Church Inc.

Name Withheld

Cult Information and Family Support (NSW)

Mr Dane Weber

Dr Stephen Mutch

Confidential

Mr Alan Low

Mr Adrian Kelsey â¢ Supplementary Submission (Confidential)

Mr Lachlan McKenzie

Confidential

Family Voice Australia

Confidential

Atheist Foundation of Australia Inc

Mr Brett Richardson

Mr Julian Moller

Name Withheld

245

Name Withheld

Australian Skeptics Inc

Ms Tanya Smith

Mr David Westaway

Name Withheld

Mrs Michelle Sterling

Confidential

Anglican Diocese of Armidale

Mrs Cassandra Kelsey

Mr Graeme Webber

Name Withheld

Charity Commission (UK)

Philanthropy Australia

Ms Linda Vij â¢ Supplementary Submission

Mr John Gillespie

Mr Nevin Cartwright

ANGLICARE Sydney

Not-for-Profit Project, Melbourne Law School

Australian Christian Lobby

Reverend Mary Anderson

Name Withheld

Vision Australia

Mr Tom Grimshaw

Asia-Pacific Centre for Social Investment and Philanthropy

Name Withheld

Confidential

Name Withheld

Ms Natascha Fareed

Australian Evangelical Alliance

Name Withheld

UnitingCare Australia

The Salvation Army (Eastern Territory)

Mr Paul Paxton-Hall

Australian Catholic Bishops Conference

Mr Chris Lavery

Mr Hudson Carrad

Church of Scientology

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67 Ms Peggy Daroesman (reloaded)

68 Secular Party of Australia

69 Anglicare Australia

70 Confidential

71 Name Withheld

72 Name Withheld

73 DF Mortimer and Associates Pty Ltd

74 Confidential

75 Rule of Law Institute of Australia

76 Mrs Dorothy Soffe

77 Confidential

78 Mr James Graham

79 Association of Neighbourhood Houses and Learning Centres

80 Name Withheld

81 Public Interest Law Clearing House (PILCH)

82 Treasury

83 Rationalist Society of Australia

84 Mr Ron Steele

85 International Commission of Jurists (Western Australian branch)

86 Religions Working Together

87 Mr R Burrell

88 Confidential

247

Additional Information Received

TABLED DOCUMENTS

Canberra, Monday 28 June 2010

â¢ Document tabled by the Charities Commission of New Zealand: 'Guidance on the Public Benefit Test'.

â¢ Documents tabled by Ms Louise McBride: opening statement and curriculum vitae.

â¢ Document tabled by the Church of Scientology: statement regarding Today Tonight story about the Church of Scientology.

â¢ Document tabled by the Church of Scientology: Virginia Stewart's opening statement.

â¢ Document tabled by the Cult Information and Family Support (CIFS): list of groups that CIFS has had enquiries about from individuals that have concerns.

â¢ Document tabled by the Cult Information and Family Support (CIFS): 'The After Effects of Cult Involvement as Experienced by Former Members: An Investigation' [2006], â¢ Document tabled by the Cult Information and Family Support (CIFS): 'Destructive

Manipulative Groups Using Mind Control' (brochure).

â¢ Document tabled by Dr Stephen Mutch: 'World Religious Movements: Religion, Secularism and the State'.

â¢ CD tabled by Dr Stephen Mutch containing 500 page book 'Cults, Religion and Public Policy: a comparison of official responses to Scientology in Australia and the UK'.

Canberra, Tuesday 29 June â¢ Correspondence tabled by Senator Xenophon sent by Senator Xenophon to the Commissioner of Taxation and Commissioner for Consumer Affairs.

ANSWERS TO QUESTIONS ON NOTICE â¢ Received from Cult Information and Family Support on 5 July 2010; answers to Questions on Notice taken at a public hearing on 28 June 2010 in Canberra.

â¢ Received from Dr Matthew Tumour on 7 July 2010; answers to Questions on Notice taken at a public hearing on 29 July 2010 in Canberra.

â¢ Received from the Australian Christian Lobby on 9 July 2010; answers to Questions on Notice taken at a public hearing on 29 June 2010 in Canberra.

â¢ Received from Ms Louise McBride on 21 July 2010; answers to Questions on Notice taken at a public hearing on 29 June 2010 in Canberra.

â¢ Received from James Anderson on 7 July 2010; answers to Questions on Notice taken at a public hearing on 28 June 2010 in Canberra.

â¢ Received from the Church of Scientology on 14 July 2010; answers to Questions on Notice taken at a public hearing on 28 June 2010 in Canberra.

â¢ Received from the Treasury on 12 August 2010; answers to Question on Notice taken at a public hearing on 29 June 2010 in Canberra.

Page 54______________________________________________________________________

248

APPENDIX 2

Public Hearings and Witnesses

CANBERRA, 28 June 2010

ANDERSON, M r James Alexander, Private capacity

EDWARDES, Ms Joanne, Head, Status and Public Benefit Policy, Charity Commission for England and Wales

FERRISS, M r Michael Victor, Church o f Scientology, Secretary, Church o f Scientology New Zealand, Church o f Scientology

GARRETT, M r Trevor David, Chief Executive, Charities Commission New Zealand

GORDON, Reverend Michael, Legal Director, Church of Scientology

HODGKINS, Mrs Roslyn Ann, President, Cult Information and Family Support Inc.

LIND, Mr Andrew John, Partner, Comey and Lind Lawyers

LOCKE, M r David, Executive Director, Charity Services, Charity Commission for England and Wales

MACKEY, Mr Kevin, Private capacity

McBRIDE, Ms Louise, Private capacity

MUTCH, Dr Stephen Bruce, Private capacity

NICHOLLS, David, President, Atheist Foundation of Australia Inc.

SCHOFIELD, M r Paul, Private capacity

SMITH, M r Anthony, Member, Cult Information and Family Support Inc

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SMITH, M r Peter, Member, Cult Information and Family Support Inc

STEWART, Ms Virginia, Social Reform Division, Church of Scientology

UNDERWOOD, Ms Carmel Delia, Private capacity

VONTHENTHOFF, Ms Janette, Private capacity

CANBERRA, 29 June 2010

BRENNAN, M r Lawrence Harold, Private capacity.

CHIA, Dr Joyce, Research Fellow, Not-for-Profit Project, Melbourne Law School, The University of Melbourne

HARDING, Dr Matthew, Senior Lecturer, Not-for-Profit Project, M elbourne Law School, The University o f Melbourne

HARDY, M r Michael, Assistant Commissioner o f Taxation, Australian Taxation Office

LUCAS, Father Brian Joseph, General Secretary, Australian Catholic Bishops Conference

McGREGOR-LOW NDES, Professor Myles, Private capacity

ROUSSEL, Ms Sandra, Manager, Philanthropy and Exemptions Unit, Department of the Treasury

SHELTON, M r Lyle, Chief o f Staff, Australian Christian Lobby

TURNOUR, Dr Matthew Dwight, Managing Director, Neumann and Tumour Lawyers, and Senior Research Fellow, Australian Centre for Philanthropy and Nonprofit Studies

WILLco*ck, M r Michael Thomas, General Manager, Personal and Retirement Income Division, Department o f the Treasury

WILLIAMS, M r Benjamin, Research Officer, Australian Christian Lobby

250

APPENDIX 3

Recommendations of the 2001 inquiry into the definition of charities and related organisations

Summary of Recommendations

Principles to define a charity Recom m endation 1 (Chapter 11)

That the term ‘not-for-profit’ be adopted in place o f the term ‘non-profit’ for the purposes o f defining a charity.

R ecom m endation 2 (Chapter 11)

That the term ‘entity’ be adopted to describe charities, and that the definition o f ‘entity’ include: a body corporate; a corporation sole; any association or body o f persons whether incorporated or not; and a trust;

and exclude: an individual; a political party; a partnership; a superannuation fund; and the Commonwealth, a State, or a body controlled by the Commonwealth or a State.

R ecom m endation 3 (Chapter 12)

That a charity must have a dominant purpose or purposes that are charitable, altruistic and for the public benefit. If the entity has other purposes, those purposes must further, or be in aid of, the dominant purpose or purposes, or be ancillary or incidental to the dominant purpose or purposes.

R ecom m endation 4 (Chapter 12)

That an entity be denied charitable status if it has purposes that are illegal, are contrary to public policy, or promote a political party or a candidate for political office.

R ecom m endation 5 (Chapter 12)

That the activities of a charity must further, or be in aid of, its charitable purpose or purposes. Activities must not be illegal, contrary to public policy, or promote a political party or a candidate for political office.

R ecom m endation 6 (Chapter 13)

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That the public benefit test, as currently applied under the common law, continue to be applied; that is, to be o f public benefit a purpose must:

â¢ be aim ed at achieving a universal or com m on good;

â¢ have practical utility; and

â¢ be directed to the benefit of the general com m unity or a 'sufficient section of the

com m unity'.

Recom m endation 7 (Chapter 13)

That the public benefit test be strengthened by requiring that the dominant purpose of a charitable entity must be altruistic.

Recom m endation 8 (Chapter 13)

That self-help groups which have open and non-discriminatory membership be regarded as having met the public benefit test.

R ecom m endation 9 (Chapter 13)

That where closed or contemplative religious orders regularly undertake prayerful intervention at the request o f the public, their purposes be held to have met the public benefit test.

Recom m endation 10 (Chapter 13)

That public benefit does not exist where there is a relationship between the

beneficiaries and the donor (including a family or employment relationship); and that this principle extend to purposes for the relief of poverty, which the common law currently regards as being exempt from the need to demonstrate public benefit.

Defining charitable purpose Recom m endation 11 (Chapter 14)

That there be no requirement that charitable purposes fall either within the ‘spirit and intendment’ of the Preamble to the Statute o f Elizabeth or be analogous to one or more o f its purposes.

Recom m endation 12 (Chapter 16)

That the principles enabling charitable purposes to be identified be set out in legislation.

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Recom m endation 13 (Chapter 16)

The Committee has considered five options for defining charitable purpose as set out in Chapter 16. It concludes that three options are viable, but recommends the following preferred option ( Option 5):

Charitable purposes shall be:

â¢ the advancem ent* of health, w hich w ithout lim itation includes:

- the prevention and relief of sickness, disease or of h u m an suffering;

â¢ the advancem ent* of education;

â¢ the advancem ent* of social and com m unity w elfare, w hich w ithout lim itation includes:

- the prevention and relief of poverty, distress or disadvantage of individuals or

families;

- the care, su p p o rt and protection of the aged and people w ith a disability;

- the care, su p p o rt and protection of children and young people;

- the prom otion of com m unity developm ent to enhance social and economic

participation; and

- the care and support of m em bers or form er m em bers of the arm ed forces and the civil defence forces and their families;

â¢ the advancement* of religion;

â¢ the advancem ent* of culture, which w ithout lim itation includes:

- the prom otion and fostering of culture; and

- the care, preservation and protection of the A ustralian heritage;

â¢ the advancement* of the natural environm ent; and

â¢ other purposes beneficial to the com m unity, w hich w ithout lim itation include:

- the prom otion and protection of civil and h u m an rights; and

- the prevention and relief of suffering of anim als.

(* Advancement is taken to include protection, maintenance, support, research, improvement or enhancement.)

R ecom m endation 14 (Chapter 20)

That the definition of religion be based on the principles established in the Scientology case, namely:

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â¢ belief in a supernatural Being, Thing or Principle; and

â¢ acceptance and observance of canons of conduct in order to give effect to that belief.

Application of the principles

Recom m endation 15 (Chapter 24)

That the encouragement of sport and recreation for purposes o f amusem*nt or competition not be a charitable purpose, it being noted that the advancement o f health, education, social and community welfare, religion, culture or the natural environment through the encouragement of sport and recreation would be considered a charitable purpose.

Recom m endation 16 (Chapter 25)

That the care, support and protection o f children and young people, including the provision o f child care services, be considered a charitable purpose.

Recom m endation 17 (Chapter 26)

That charities be permitted neither to have purposes that promote a political party or a candidate for political office, nor to undertake activities that promote a political party or a candidate for political office.

R ecom m endation 18 (Chapter 27)

That commercial purposes should not deny charitable status where such purposes further, or are in aid of, the dominant charitable purposes or where they are incidental or ancillary to the dominant charitable purposes.

Recom m endation 19 (Chapter 28)

That the current approach o f denying charitable status to government bodies be maintained. The Committee agrees with the principles set out in the Fire Brigades case and the Mines Rescue case for determining whether an entity is a government body, namely that the entity is constituted, funded and controlled by government.

Other categories in the framework

Recom m endation 20 (Chapter 29)

That there be a definitional framework to distinguish altruistic entities from other not- for-profit entities.

Recom m endation 21 (Chapter 29)

That in the recommended definitional framework, the category o f public benevolent institution be replaced by a subset of charity to be known as Benevolent Charity, that

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is a charity whose dominant purpose is to benefit, directly or indirectly, those whose disadvantage prevents them from meeting their needs.

Recom m endation 22 (Chapter 30)

That the framework recommended in this Report should not include the terms ‘religious institution’, ‘scientific institution’ and ‘public educational institution’, as altruistic entities with religious, scientific or public educational purposes and that are for the public benefit are covered by the categories in the recommended framework.

Recom m endation 23 (Chapter 31)

That there be a category, known as ‘Altruistic Community Organisations’, that are entities that are not-for-profit and have a main purpose that is altruistic. That is, they can have secondary purposes that are not altruistic, and that do not further, or are not in aid of, or are not incidental or ancillary to, their main altruistic purpose.

Administering the definitions Recom m endation 24 (Chapter 32)

That the Government seek the agreement o f all State and Territory Governments to the adoption nationally of the definitional framework for charities and related entities recommended in this Report.

Recom m endation 25 (Chapter 32)

That the Government seek the agreement o f all State and Territory Governments to establish an independent administrative body for charities and related entities, and to the legislative changes necessary for its establishment.

Recom m endation 26 (Chapter 32)

If an independent administrative body is not established:

â¢ th at the G overnm ent set u p a perm anent advisory panel, including m em bers from the charitable and related sector, to advise the A ustralian Taxation Office on the

adm inistration of the definitions relating to charities and related entities, and to advise the G overnm ent on the definitions of charity and related term s; and

â¢ th at the endorsem ent processes currently undertak en by the A ustralian Taxation Office be extended to include the endorsem ent of charities and related entities in order to access all the taxation concessions to w hich they are variously entitled.

Recom m endation 27 (Chapter 32)

That the Government commit to a comprehensive public information and education campaign to inform the charitable and related sector o f any changes arising from its consideration o f this Report.

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APPENDIX 4

Recommendations of the 2008 inquiry into disclosure regimes for charities and not-for-profit organisations

Summary of Recommendations Recommendation 1

The committee recommends that all Australian Governments agree on common terminology for referring to organisations within the Sector. Governments should also develop a common meaning for terms referring to the size of these organisations, including 'micro', 'small', 'medium' and 'large'. This standard terminology should be adopted by all government departments.

Recommendation 2

The committee recommends that the Government establish a unit within the Department of Prime Minister and Cabinet specifically to manage issues arising for Not-For-Profit Organisations. The unit should report to a Minister for the Third Sector.

Recommendation 3

The committee recommends that there be a single independent national regulator for Not-For-Profit Organisations.

Recommendation 4

The committee recommends that the Australian National Regulator for Not-For- Profit Organisations should have similar functions to regulators overseas, and particularly in the UK, including a Register for Not-For-Profit Organisations with a compulsory sign-up requirement. The committee recommends

consultation with the Sector to formulate the duties of the National Regulator.

As a minimum, the Regulator should:

a) Develop and maintain a Register of all Not-For-Profit Organisations in Australia. Once registered, the Commission should issue each organisation with a unique identifying number or allow organisations with an ABN to use that number as their Not-For-Profit identifier. This could be enabled using existing ASIC website resources.

, b) Develop and maintain an accessible, searchable public interface.

c) Undertake either an annual descriptive analysis of the organisations that it regulates or provide the required information annually to the ABS for collation and analysis.

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d) Secure compliance with the relevant legislation.

e) Develop best practice standards for the operation of Not-For-Profit Organisations.

f) Educate / Advise Not-For-Profit Organisations on best practice standards.

g) Investigate complaints relating to the operations of the organisations.

h) Educate the public about the role of Not-For-Profit Organisations.

The voluntary codes of conduct developed by ACFID and FIA respectively should be considered by the Regulator when implementing its own code of conduct.

Recommendation 5

The committee recommends that the Commonwealth Government develop the legislation that will be required in order to establish a national regulator for Australia.

Recommendation 6

The committee recommends that, once a Register is established and populated, this information should be provided to the ABS, who should prepare and publish a comprehensive study to provide government with a clearer picture of the size and composition of the Third Sector.

Recommendation 7

The committee recommends that a single, mandatory, specialist legal structure be adopted for Not-For-Profit Organisations through a referral of state and territory powers. Given the degree of change such a legal structure would mean for some not-for-profit organisations, the legal structure must be developed in full consultation with these organisations.

Recommendation 8

The committee recommends that the Henry Review include an examination of taxation measures affecting Not-For-Profit Organisations with a view to simplifying these arrangements and reducing confusion and cost of compliance for these organisations.

Recommendation 9

The committee recommends that a National Fundraising Act be developed following a referral of powers from states and territories to the Commonwealth.

This Act should include the following minimum features:

â¢ It should apply nationally.

â¢ It should apply to all organisations.

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â¢ It should require accounts or records to be submitted following the fundraising period with the level of reporting commensurate with the size of the organisation or amount raised.

â¢ It should include a provision for the granting of a license.

â¢ It should clearly regulate contemporary fundraising activities such as internet fundraising.

Recommendation 10

The committee recommends that a tiered reporting system be established under the legislation for a specialist legal structure.

Recommendation 11

The committee recommends that the tiers be assigned to organisations based on total annual revenue.

Recommendation 12

The committee recommends that the Commonwealth Government work with the Sector to implement a standard chart of accounts for use by all departments and Not-For-Profit Organisations as a priority.

Recommendation 13

The committee recommends that a new disclosure regime contain elements of narrative and numeric reporting as well as financial, in acknowledgement that the stakeholders of the Sector want different information to that of shareholders in the Business Sector. The financial reporting should be transparent and facilitate comparison across charities.

Recommendation 14

The committee recommends that the national regulator investigate the cost vs benefit of a GuideStar-type system (a website portal that publishes information on the aims and activities of Not-For-Profit Organisations) in Australia to encompass all Not-For-Profit Organisations.

Recommendation 15

The committee recommends that a Taskforce be established for the purposes of implementing the recommendations of this report. The Taskforce should report to COAG. Its membership should include:

â¢ a government representative from the Commonwealth;

â¢ a COAG-elected representative to speak for states and territories;

â¢ one or more qualified legal experts with expertise with the major pieces of legislation affecting Not-For-Profit organisations;

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â¢ a representative from an organisation which manages private charitable foundations;

â¢ an accountant with not-for-profit expertise; and

â¢ a number of representatives from the peak bodies of Not-For-Profit Organisations, including a representative from a peak body for social enterprises.

The Taskforce should actively seek to ensure that the measures of reform that it implements do not impose an unreasonable reporting burden on small and micro Not-For-Profit Organisations.

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APPENDIX 5

Productivity Commission’s terms of reference for its inquiry into the contribution of the not-for-profit sector

Australian Government

P ro d u ctiv ity C o m m issio n

C o n trib u tio n of th e Productivity C om m ission N ot'£ o r-P ro tit S ecto r Research R eport

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Terms of reference

Review of the Contribution of the Not-for-Profit Sector

Background

The Australian Government is committed to an active policy of social inclusion oriented to ensuring the economic and social participation of all Australians iirrespective of their circ*mstances. Community (not for profit) organisations play an important role in combating social exclusion and enhancing the economic, social, cultural and environmental wellbeing of society.

The Government is committed to finding the best solutions to problems o f social exclusion by ensuring the not for profit, private and government sectors work together effectively, and by using evidence-based programs and policies. In this context, measurement of the contributions of community organisations, and

identification o f ways to enhance those contributions, are important.

Further, the Government acknowledges the changing relationships between government, business and community organisations and wants to explore their impacts and future opportunities for optimising such relationships to further the well-being o f society.

The not for profit sector has evolved considerably since past examinations, including the Report o f the former Industry Commission in 1995 on Charitable Organisations in Australia and the ABS's work m 2002 within the national accounting framework, Non-Profit Institutions Satellite Account

Scope of the review

The Productivity Commission is requested to undertake a research study on the contributions o f the nor for profit sector with a focus on improving the measurement of its contributions and on removing obstacles to maximising its contributions to society. In undertaking the study, the Commission is to:

. assess the extent to which the not for profit sector's contributions to Australian society are currently measured, the utility of such measurements and the possible uses of such measurements in helping shape government policy and programs:

* consider alternatives for. or improvements in, such measurements or further quantitative and or qualitative means o f capturing the not for profit sector's full contribution to society;

W TERMS Ol·' REFERENCE

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. identify unnecessary burdens or impediments to die efficient and effective operation o f community organisations generally, including unnecessary or ineffective regulator)· requirements and governance arrangements, while having regard to the need to maintain transparency and accountability:

. consider options for improving the efficient and effective deliver)· o f government ftmded services by community organisations, including improved funding, contractual and reporting arrangements with government, while having regard to the need for transparency and accountability:

. examine the changing nature of relationships between government, business and community organisations in recent times, their general impacts, and opportumnes to enhance such relationships to optimise outcomes by the sector and its contribution to society:

. examine the extent to which tax deductibility influences both decisions to donate and the overall pool o f philanthropic funds, and

. examine the extent to which tax exemptions accessed by the commercial operations o f not-for-profit organisations may affect the competitive neutrality of the market.

In conducting the study, the Commission is to:

. adopt m its considerations a broad definition of the not for prom sector to encompass most categories o f not for profit orgamsanoas. including Australian based international aid and development agencies:

. seek public submissions and consult widely with State and Territory Governments, government agencies, the community sector, business, and other interested parties:

â¢ have regard to the Government's Taxation Review headed by Dr Ken Henry and the Inquiry into the Definition o f Chanties and orher organisations commissioned m 2002. but. other than as explicitly required by these terms o f reference, not to examine m detail matters covered by those reviews: and

. have regard to any other relevant current or recent measurements and reviews conducted m Australia and internationally.

The Commission is to produce and publish a draff report and final report by the end

of 2009.

Chris Bowen

[1 ? March 2009]

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APPENDIX 6

Extract of ITAA1997 - Division 50

Part 2-15—Non-assessable income

Division 50— Exempt entities

Table of Subdivisions

50-A Various exempt entities

50-B Endorsing charitable entities as exempt from income tax

Subdivision 50-A—Various exempt entities

Table of sections

50-1 Entities whose ordinary income and statutory income is exempt 50-5 Charity, education, science and religion 50-10 Community service 50-15 Employees and employers 50-20 Funds contributing to other funds 50-25 Government 50-30 Health 50-35 Mining 50-40 Primary and secondary resources, and tourism 50-45 Sports, culture, film and recreation

50-50 Special conditions for items 1.1 and 1.2 50-52 Special condition for items 1.1,1.5, 1.5 A, 1.5B and 4.1 50-55 Special conditions for items 1.3,1.4, 6.1 and 6.2

50-57 Special condition for item 1.5 50-60 Special conditions for items 1.5 A and 1.5B 50-65 Special conditions for item 1.6 50-70 Special conditions for items 1.7,2.1, 9.1 and 9.2 50-72 Special condition for item 4.1 50-75 Certain distributions may be made overseas 50-80 Testamentary trusts may be treated as 2 trusts

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50-1 Entities whose ordinary income and statutory income is exempt

The total ‘ordinary income and ‘statutory income of the entities covered by the following tables is exempt from income tax. In some cases, the exemption is subject to special conditions.

N o te 1: O rd in a ry a n d s ta tu to ry in c o m e th a t is e x e m p t fro m in c o m e ta x is

c a lle d e x e m p t in c o m e : s e e s e c tio n 6 -2 0 . T h e n o te to su b se c tio n 6 -1 5 (2 ) d e s c rib e s s o m e o f th e o th e r c o n s e q u e n c e s o f it b e in g e x e m p t in c o m e .

N o te 2 : E v e n i f y o u a re a n e x e m p t e n tity , th e C o m m is s io n e r c a n still re q u ire

y o u to lo d g e a n in c o m e ta x re tu rn o r in fo rm a tio n u n d e r s e c tio n 161 o f

th e Incom e Tax A sse ssm en t A c t 1936.

50-5 Charity, education, science and religion

Charity, education, science and religion

Item Exempt entity Special conditions

1.1 charitable institution see sections 50-50 and 50-52

1.2 religious institution see section 50-50

1.3 scientific institution see section 50-55

1.4 public educational institution see section 50-55

1.5 fund established for public charitable

purposes by will before 1 July 1997 see sections 50-52 and 50-57

1.5A trust covered by paragraph 50-80(1 )(c) see sections 50-52 and 50-60

1.5B fund established in Australia for public see sections 50-52 and 50-60 charitable purposes by w ill or instrument o f trust (and not covered by item 1.5 or 1.5A)____________________

1.6 fund established to enable scientific

research to be conducted by or in conjunction with a public university or public hospital

see section 50-65

1.7 society, association or club established

for the encouragem ent o f science see section 50-70

1.8 Global Carbon Capture and Storage

Institute Ltd

only amounts included in assessable income:

(a) on or after 1 July 2009; and

(b) before 1 July 2013

N o te 1: S e c tio n 5 0 -5 2 h a s th e e ffe c t th a t c e rta in c h a rita b le in s titu tio n s , fu n d s

a n d tru s ts a re e x e m p t fro m in c o m e tax o n ly i f th e y a re e n d o rs e d u n d e r

S u b d iv is io n 5 0 -B .

N o te 2 : S e c tio n 5 0 -8 0 m a y a ffe c t w h ic h ite m a tru s t is c o v e re d by.

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50-10 Community service

Community service

Item Exempt entity' Special conditions

2.1 society, association or club

established for comm unity service purposes (except political or lobbying purposes)

50-15 Employees and employers

Employees and employers

see section 50-70

Item Exempt entity Special conditions

3.1 (a) employee association; or

(b) em ployer association

the association:

(a) is registered or recognised under the F a ir W ork (R egistered O rganisations) A c t 2 0 0 9 or an

‘Australian law relating to the settlement o f industrial disputes; and

(b) is located in Australia, and incurs its expenditure and pursues its objectives principally in Australia

3.2 trade union located in Australia and incurring its

expenditure and pursuing its objectives principally in Australia

50-20 Funds contributing to other funds

Funds contributing to other funds

Item Exempt entity Special conditions

4.1 fund established by will or

instrument o f trust solely for a purpose referred to in paragraph (a) or (b) o f the column

headed “Recipient” in item 2 of the table in section 30-15 (and not covered by item 1.5, 1 .5 A o rl.5 B o f the table in section 50-5)

see sections 50-52 and 50-72

50-25 Government

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Government

Item Exempt entity Special conditions

5.1 (a) a municipal corporation; or none

(b) a “local governing body

5.2 a public authority constituted none

under an “Australian law

5.3 a “constitutionally protected fund none

N o te : T h e o rd in a ry a n d s ta tu to ry in c o m e o f a S ta te o r T e rrito ry b o d y is

e x e m p t: s e e D iv is io n 1A B o f P a rt III o f th e Incom e Tax A ssessm ent A c t 1936.

50-30 Health

Health

Item Exempt entity Special conditions

6.1 public hospital see section 50-55

6.2 hospital carried on by a society or not carried on for the profit or gain

association o f its individual m em bers, see also

section 50-55

6.3 private health insurer within the not carried on for the profit or gain

m eaning o f the P riva te H ealth In su ra n ce A ct 2 0 0 7 o f its individual m em bers

50-35 Mining

Mining

Item Exempt entity Special conditions

7.1 the Phosphate M ining Com pany o f

Christm as Island Limited (incorporated in the Australian Capital Territory)

none

7.2 the British Phosphate

Com missioners Banaba Contingency Fund (established on 1 June 1981)

none

50-40 Primary and secondary resources, and tourism

Primary and secondary resources, and tourism

Item Exempt entity Special conditions

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Primary and secondary resources, and tourism

Item Exempt entity Special conditions

8.1 a society or association

established for the purpose of prom oting the developm ent of:

(a) aviation; or

(b) tourism

not carried on for the profit or gain o f its individual members

8.2 a society or association

established for the purpose o f promoting the developm ent o f any o f the following Australian resources:

(a) agricultural resources;

(b) horticultural resources;

(d) m anufacturing resources;

(e) pastoral resources;

(f) viticultural resources;

(g) aquacultural resources;

(h) fishing resources

not carried on for the profit or gain o f its individual members

8.3 a society or association

established for the purpose o f prom oting the developm ent o f Australian information and communications technology

resources

not carried on for the profit or gain o f its individual members

50-45 Sports, culture, film and recreation

Sports, culture, film and recreation

Item Exempt entity Special conditions

9.1 a society, association or club

established for the encouragem ent of:

see section 50-70

(a) animal racing; or

(b) art; or

(d) literature; or

(e) music

9.2 a society, association or club

established for musical purposes see section 50-70

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Sports, culture, film and recreation

Item Exempt entity Special conditions

9.3 the Australian Film Finance

Corporation Pty Lim ited (incorporated un d er the C om panies A c t 1981 on 12 July 1988)

none

9.4 the Com monwealth Gam es

Federation

only income ‘derived on or after 1 January 2000 and before 1 July 2007

50-50 Special conditions for items 1.1 and 1.2

An entity covered by item 1.1 or 1.2 is not exempt from income tax unless the entity:

(a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or (b) is an institution that meets the description and requirements

in item 1 of the table in section 30-15; or (c) is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident; or (d) is a prescribed institution that has a physical presence in

Australia but which incurs its expenditure and pursues its objectives principally outside Australia.

N o te 1: C e r ta in d is trib u tio n s m a y b e d is re g a rd e d : see s e c tio n 5 0 -7 5 .

N o te 2: T h e e n tity m u s t a lso m e e t o th e r c o n d itio n s to b e e x e m p t fro m in c o m e

ta x : s e e s e c tio n 50-52.

50-52 Special condition for items 1.1,1.5,1.5A, 1.5B and 4.1

(1) An entity covered by item 1.1, 1.5, 1.5A, 1.5B or 4.1 is not exempt from income tax unless the entity is endorsed as exempt from income tax under Subdivision 50-B.

N ote: T h e e n tity w ill n o t be e x em p t fr o m in c o m e tax u n le ss it a lso m eets

o th e r c o n d itio n s : see sec tio n 5 0 -5 0 (fo r an e n tity c o v e re d b y ite m 1.1), 5 0 -5 7 ( f o r a n e n tity c o v ered b y ite m 1.5), 5 0 -6 0 (fo r a n e n tity c o v e re d

b y ite m 1 .5 A o r 1.5B) o r s e c tio n 5 0 -7 2 (fo r a n e n tity c o v e re d b y

ite m 4 .1 ).

(3) This section has effect despite all the other sections of this Subdivision.

N ote: T h is m e a n s th a t a n en tity c o v e re d b o th b y a n ite m o th e r th a n 1.1, 1.5,

1,5 A , 1.5B o r 4.1 and b y o n e o f th o s e ite m s is n o t e x e m p t fro m

in c o m e ta x u n le ss the e n tity is e n d o rs e d u n d e r S u b d iv isio n 50-B as

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e x e m p t fro m in c o m e ta x a n d th e e n tity m e e ts th e re q u ire m e n ts o f w h ic h e v e r o f s e c tio n s 5 0 -5 0 , 5 0 -5 7 , 5 0 -6 0 a n d 5 0 -7 2 is re le v a n t.

50-55 Special conditions for items 1.3,1.4, 6.1 and 6.2

An entity covered by item 1.3, 1.4, 6.1 or 6.2 is not exempt from income tax unless the entity:

in item 1 of the table in section 30-15; or (c) is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident.

N o te : C e rta in d is trib u tio n s m a y b e d is re g a rd e d : s e e s e c tio n 50-7 5 .

50-57 Special condition for item 1.5

A fund covered by item 1.5 is not exempt from income tax unless the fund is applied for the purpose for which it was established.

N o te : T h e fu n d m u s t a lso m e e t a n o th e r c o n d itio n to b e e x e m p t fro m in c o m e

tax: s e e s e c tio n 50-52.

50-60 Special conditions for items 1.5A and 1.5B

A fund covered by item 1.5A or 1.5B is not exempt from income tax unless the fund is applied for the purposes for which it was established and:

(a) incurs, and has at all times since 1 July 1997 incurred, its expenditure principally in Australia and pursues, and has at all times since 1 July 1997 pursued, its charitable purposes solely in Australia; or (b) is a fund which is referred to in a table in Subdivision 30-B

or in item 2 of the table in section 30-15; or (c) distributes solely, and has at all times since 1 July 1997 distributed solely, to either or both of the following:

(i) a charitable fund, foundation or institution which, to the best of the trustee’s knowledge, is located in Australia and incurs its expenditure principally in Australia and pursues its charitable purposes solely in Australia; (ii) a charitable fund, foundation or institution that, to the

best of the trustee's knowledge, meets the description and requirements in item 1 or 2 of the table in section 30-15.

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Note 1: Certain distributions may be disregarded: see section 50-75.

Note 2: The fund must also meet other conditions to be exempt from income tax: see section 50-52.

50-65 Special conditions for item 1.6

A fund covered by item 1.6 is not exempt from tax unless the fund is applied for the purposes for which it was established and is:

(a) a fund that is located in, and which incurs its expenditure principally in, Australia and that is established for the purpose of enabling scientific research to be conducted principally in Australia by or in conjunction with a public university or public hospital; or (b) a scientific research fund that meets the description and

requirements in item 1 or 2 of the table in section 30-15.

Note: Certain distributions may be disregarded: see section 50-75.

50-70 Special conditions for items 1.7, 2.1, 9.1 and 9.2

An entity covered by item 1.7, 2.1, 9.1 or 9.2 is not exempt from tax unless the entity is a society, association or club that is not carried on for the purpose of profit or gain of its individual members and that:

(a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or (b) is a society, association or club that meets the description and

requirements in item 1 of the table in section 30-15; or (c) is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the

country in which it is resident.

Note: Certain distributions may be disregarded: see section 50-75.

50-72 Special condition for item 4.1

(1) A fund covered by item 4.1 is not exempt from income tax unless the fund:

(a) is applied for the purposes for which it is established; and (b) distributes solely, and has at all times since the time mentioned in subsection (2) distributed solely, to a fund, authority or institution that:

(i) meets the description and requirements in item 1 of the table in section 30-15; and (ii) is an ‘exempt entity.

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(2) The time is the start of the income year after the income year in which the Tax Laws Amendment (2005 Measures No. 3) Act 2005 receives the Royal Assent.

50-75 Certain distributions may be made overseas

(1) In determining for the purposes of this Subdivision whether an institution, fund or other body incurs its expenditure or pursues its objectives principally in Australia, distributions of any amount received by the institution, fund or other body as a gift (whether of

money or other property) or by way of government grant are to be disregarded.

(2) In determining for the purposes of this Subdivision whether an institution, fund or other body incurs its expenditure or pursues its objectives principally in Australia, distributions of any amount from a fund that is referred to in a table in Subdivision 30-B and operated by the institution, fund or other body are to be

disregarded.

(3) In determining for the purposes of section 50-60 whether a fund:

(a) incurs, and has at all times since 1 July 1997 incurred, its expenditure principally in Australia and pursues, and has at all times since 1 July 1997, pursued its charitable purposes solely in Australia; or (b) distributes solely, and has at all times since 1 July 1997

distributed solely, to a charitable fund, foundation or institution described in subparagraph 50-60(c)(i) or (ii); distributions of any amount received by the fund as a gift (whether of money or property) or by way of government grant are to be disregarded.

50-80 Testamentary trusts may be treated as 2 trusts

(1) If:

(a) a trust (the existing trust) covered by item 1.5 was in existence immediately before 1 July 1997; and (b) on or after 1 July 1997 one or more assets are given to the existing trust (other than in return for valuable consideration)

or become part of the trust property under a will; then, for the purposes of this Subdivision and Subdivision 50-B, the existing trust is taken to be 2 separate trusts (the new trust and the old trust) as follows:

(c) the new trust is taken to be a trust created after the start of 1 July 1997 that consists of so much of the trust property as

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P age 80

consists of those assets together with any income ‘derived from those assets; and (d) the old trust is taken to be a trust created before 1 July 1997 that consists of the remainder of the trust property.

(2) Where an asset is received in substitution for another asset, subsection (1) applies as if the substituted asset were the other asset.

Subdivision 50-B—Endorsing charitable entities as exempt from income tax

Guide to Subdivision 50-B

50-100 What this Subdivision is about

This Subdivision sets out rules about endorsem*nt of charitable institutions and trust funds for charitable purposes as exempt from income tax. Such entities are only exempt from income tax if they are endorsed.

Table of sections

Endorsing charitable entities as exempt from income tax

5 0 -1 0 5 E n d o rs e m e n t b y C o m m is s io n e r

5 0 -1 1 0 E n title m e n t to e n d o rs e m e n t

Endorsing charitable entities as exempt from income tax

50-105 Endorsem*nt by Commissioner

The Commissioner must endorse an entity as exempt from income tax if the entity:

(a) is entitled to be endorsed as exempt from income tax; and (b) has applied for that endorsem*nt in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953.

N o te : F o r p ro c e d u ra l ru le s re la tin g to e n d o rs e m e n t, s e e D iv is io n 4 2 6 in

S c h e d u le 1 to th e Taxation A dm inistration A ct 1953.

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P age 81

50-110 Entitlement to endorsem*nt

General rule

(1) An entity is entitled to be endorsed as exempt from income tax if the entity meets all the relevant requirements of this section.

Which entities are entitled to be endorsed?

(2) To be entitled, the entity must be an entity covered by item 1.1, 1.5, 1.5 A or 1.5B of the table in section 50-5 or item 4.1 of the table in section 50-20.

Requirement fo r ABN

(3) To be entitled, the entity must have an *ABN.

(4) However, for a trust:

(a) covered by item 1.5 of the table in section 50-5 because the trust is covered by paragraph 50-80(l)(d); or (b) covered by item 1.5A of the table in section 50-5 (because the trust is covered by paragraph 50-80(1 )(c)); to be entitled, the existing trust mentioned in paragraph 50-80(1 )(a) must have an *ABN.

Requirement to meet special conditions

(5) To be entitled:

(a) the entity must meet the relevant conditions referred to in the column headed '‘Special conditions” of whichever of items 1.1, 1.5, 1.5A and 1.5B of the table in section 50-5 and item 4.1 of the table in section 50-20 covers the entity; or (b) both of the following conditions must be met:

(i) the entity must not have carried on any activities as a charitable institution (if the entity is covered by item 1.1 of the table in section 50-5) or for public charitable purposes (if the entity is covered by item 1.5, 1.5A or

1.5B of that table); (ii) there must be reasonable grounds for believing that the entity will meet the relevant conditions referred to in the column headed “Special conditions” of whichever of

items 1.1, 1.5, 1.5 A or 1.5B of the table in section 50-5 covers the entity; or (c) if the entity is covered by item 4.1 of the table in section 50-20 and has not made any distributions—there

must be reasonable grounds for believing that the entity will satisfy section 50-72.

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Page 82

(6) To avoid doubt, the condition set out in section 50-52 (requiring the entity to be endorsed under this Subdivision) is not a relevant condition for the purposes of subsection (5

276

The Senate

Education, Employment and Workplace Relations Legislation Committee

Education Services for Overseas Students Legislation Amendment Bill 2010

N ovem ber 2010

ISBN 978-1-74229-396-7

Printed by the Senate Printing Unit, Parliament House, Canberra.

2 7 8

Senate Legislation Committee on Education, Employment & Workplace Relations

M em bers

Senator Gavin Marshall, Chair Senator Chris Back, Deputy Chair Senator Michaelia Cash Senator Catryna Bilyk

Senator Sarah Hanson-Young Senator Dana Wortley

Victoria, ALP W estern Australia, LP W estern Australia, LP Tasmania, ALP

South Australia, AG South Australia, ALP

S ecretariat

Dr Shona Batge, Secretary Ms Lyn Beverley, Principal Research Officer Ms Danielle Oldfield, Administration Officer

PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3521 Fax: 02 6277 5706

E-mail: eewr.sen@aph.gov.au Internet: http://www.aph.gov.au/senate/committee/eet ctte/index.htm

iii 279

iv 280

TABLE OF CONTENTS

Recommendations vii

Education Services for Overseas Students Legislation Amendment Bill 2010..............................................................................................

Introduction..................................................................................

Conduct o f the inquiry................................................................

Background...................................................................................

Purpose o f the b ill........................................................................

Key issues.....................................................................................

Conclusion....................................................................................

Additional Comments by Senator Sarah Hanson-Young

..1

..4

APPENDIX 1 17

282

Recommendations

Recommendation 1

1.66 The committee recommends that the Senate pass the bill.

vii

283

viii

2 8 4

Education Services for Overseas Students Legislation Amendment Bill 2010 Introduction

1.1 On 23 June 2010, the Hon. Jason Clare MP, the then Parliamentary Secretary for Employment, introduced the Education Services for Overseas Students Legislation Amendment Bill 2010 (the bill) in the House o f Representatives. O n 24 June 2010, on the motion o f Senator Parry, the Senate referred the provisions of the bill to the Senate

Standing Legislation Committee on Education, Employment and Workplace Relations. The committee was to report by 24 August 2010.1

1.2 Due to the prorogation o f the 42nd Parliament the committee was unable to conclude its inquiry in this timeframe. In the 43rd Parliament the bill was introduced in the Senate on 27 October 20101 2 and on 28 October 2010 was again referred to the committee, for report by 22 November 2010.3

Conduct of the inquiry

1.3 At the time the bill was first introduced, notice o f the inquiry was posted on the committee's website and advertised in The Australian newspaper, calling for submissions by 30 July 2010. The committee also directly contacted a number o f interested parties, organisations and individuals to notify them o f the inquiry and to

invite submissions.

1.4 In the 43rd Parliament submitters who had already provided submissions during July and August 2010 were contacted and asked to review and resubmit their submissions. Additional submissions were invited online by 8 November 2010. A total o f 12 submissions were received, as listed in Appendix 1.

1.5 The committee decided to prepare its report on the basis o f the submissions received and thanks those who assisted by providing submissions to the inquiry.

Background

1.6 This bill is familiar ground for this committee as there have been a number of previous inquiries into the Education Services for Overseas Students (ESOS)

1 Journals o f the Senate, 24 June 2010, p. 3774.

2 Journals o f the Senate, 27 October 2010, p. 1.

3 Journals o f the Senate, 28 October 2010, p. 253.

285

Act. This committee has reported on the ESOS Act ten times since 1991,4 5 most recently in 2009. In 2009, the closure o f several private education providers and allegations o f corruption and substandard education services revealed weaknesses in the regulation o f providers in the sector. The Education Services for Overseas

Students Amendment (Re-registration of Providers and Other Measures) Bill 2009 was an interim measure intended to address immediate matters o f concern regarding regulation of the industry, pending a review o f the ESOS Act by former Liberal MP, the Hon. Bruce Baird.

1.7 On 8 August 2009, the then M inister for Education, the Hon. Julia

Gillard MP, announced that M r Baird would review and consider the need for improvements to the ESOS legal framework in four key areas:

â¢ supporting the interests o f students;

â¢ quality;

â¢ effective regulation; and

â¢ sustainability o f the international education sector.

1.8 M r Baird's final report was released on 9 M arch 20103 and made

19 recommendations to strengthen and simplify the ESOS A ct.6 The report's key

4 The reports were by the Senate Standing Committee on Employment, Education and Training, or the Senate Employment, Education and Training Legislation Committee: Education Services (Export Regulation) Bill 1990 (tabled 7 May 1991); Operation o f the Education Services fo r Overseas Students (Registration o f Providers and Financial Regulation) Act 1991 (ESOS Act) (tabled 1 December 1992); The Efficacy o f the Education Services fo r Overseas Students (Registration o f Providers and Financial Regulation) Act 1991 in the Light o f the Collapse o f the Australian Business College in Perth in January 1993 (tabled 19 August 1993); Overseas Students Tuition Assurance Levy Bill 1993 and Education Services fo r Overseas Students

(Registration o f Providers and Financial Regulation) Amendment Bill 1993 (tabled 9 December 1993); The Nature, Implementation and Effects o f the Statutory Rules 1994 Nos 146 and 154 - Being Regulations Pertaining to the Education Services fo r Overseas Students (Registration o f Providers and Financial Regulation) Act 1991 (tabled 28 June 1994); Consideration o f the Provisions o f the Education Services fo r Overseas Students (Registration o f Providers and Financial Regulation) Amendment Bill 1998 (tabled August 1998); Senate Employment, Workplace Relations, Small Business and Education Legislation Committee: Consideration o f

the Provisions o f the Education Services fo r Overseas Students Bill 2000, Education Services fo r Overseas Students (Assurance Fund Contributions) Bill 2000, Education Services fo r Overseas Students (Registration Charges) Amendment Bill 2000, Education Services fo r

Overseas Students (Consequential and Transitional) Bill 2000 and the Migration Legislation Amendment (Overseas Students) Bill 2000, (tabled November 2000); Bills relating to the establishment o f Carnegie Mellon University 2005, (tabled November 2005), which included the Education Services fo r Overseas Students Amendment Bill 2005; Senate Education, Employment and Workplace Relations Legislation Committee: Education Services fo r

Overseas Students Amendments (Re-registration o f Providers and Other Measures) Bill 2009, October 2009.

5 The Hon. Julia Gillard MP, 'Baird Review into International Students Final Report', Media release, 9 March 2010.

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themes included the need to focus on the interests o f students and acknowledge that the diversity o f the sector means a one-size-fits-all approach to regulation is not adequate.6 7

1.9 In response to the Baird Review, the then Deputy Prime Minister, the

Hon. Julia Gillard MP, indicated there would be a staged approach to the

implementation o f its recommendations. In-principle support was given to the following recommendations, either as changes to the ESOS Act (marked with an asterisk) or, following further consultation with key stakeholders, as changes to associated legislative instruments such as the National Code or the ESOS Regulations:

â¢ require providers to demonstrate appropriate course delivery arrangements which support student visa integrity and quality, and that English language entry levels and support are appropriate for the course (recommendation 1);

â¢ strengthen registration criteria to ensure a focus on financial viability and sustainability o f management and business practices* (recommendation 2);

â¢ take a risk management approach to registration and ongoing

monitoring*(recommendation 3);

â¢ apply financial penalties to a broader range o f non-compliance

behaviour*(recommendation 5a);

â¢ ensure standards are objective and enforceable (recommendation 5b);

â¢ publish targets and regular reporting on regulatory activity*(recommendation 5d);

â¢ improve complaints and appeals processes for students*(recommendation 8); and

â¢ strengthen obligations on providers to ensure ethical recruitment practices, including by the education agents they use (recommendations 12a,c and e).8

1.10 This bill proposes amendments to the Education Services fo r Overseas Students Act 2000 (ESOS Act) as well as to the Ombudsman Act 1976 and the Privacy Act 1988 to give effect to the above measures indicated with an asterix.9

1.11 The Department o f Education, Employment and W orkplace Relations (DEEWR) advised that the government has consulted with the sector on proposed

6 The Hon. Bruce Baird, Stronger, simpler, smarter ESOS: supporting international students, Final report, 26 February 2010.

7' The Hon. Jason Clare MP, Parliamentary Secretary for Employment, second reading speech, House o f Representatives Hansard, 23 June 2010, p. 8.

8 DEEWR, Submission 11, p. 2.

9 DEEWR, Submission 11, p. 2.

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regulatory changes related to provider obligations for education agents, and this will inform the government’s next response to the Baird Review in 2011.10 1 1

Purpose of the bill

1.12 The bill is the first stage o f the government's response to the Baird Review. It comprises two schedules o f amendments:

â¢ Schedule 1 - Amendment o f the ESOS Act; and

â¢ Schedule 2 - Amendment of the Ombudsman Act 1976 and the Privacy Act 1988.

1.13 The bill extends the risk management approach introduced in the 2009 bill and also focuses on more effective enforcement. Changes include:

â¢ strengthening the provider registration criteria to certify the viability o f

businesses;

â¢ risk-based monitoring which shifts the regulatory burden to those providers that present the greatest risk to the integrity o f the sector;

â¢ the ability to put conditions on providers' registration if required;

â¢ publishing o f industry targets and reporting o f regulatory activities; and

â¢ expanding the role o f the Commonwealth Ombudsman for external

complaints relating to private providers.11

1.14 The bill makes consequential amendments to the Ombudsman Act 1976 to extend the jurisdiction of the Commonwealth Ombudsman to include overseas students o f private registered providers currently without access to a statutorily independent complaints body. It also makes consequential amendments to the Privacy Act 1988 to enable any complaints made initially to the Privacy Commissioner to be

transferred to the Commonwealth Om budsman.12

Key issues

1.15 This section will briefly describe the main provisions in the bill and the key issues raised in submissions.

Risk management approach to the regulatory framework

1.16 The 2009 bill introduced a risk management approach to the re-registration process. This bill will extend the approach to all registrations and throughout the

10 DEEWR, Submission 11, p. 2.

11 The Hon. Julia Gillard MP, Minister for Education, 'Changes to International Education Sector to provide added Security for International Students', Media release, 23 June 2010.

12 DEEWR, Submission 11, p. 3.

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registration period. The risk management approach will also be used to target regulatory activity.13

1.17 The risk management approach was supported by submissions. For example, Universities Australia told the committee:

Universities Australia has been pleased with the risk management process used in the CRICOS [Commonwealth Register of Institutions and Courses for Overseas Students] re-registration process and endorses similar approaches in these subsequent ESOS amendments.14

1.18 English Australia (EA) also endorsed a risk management approach. It advocated that the criteria used to determine risk should be transparent and consistently applied across jurisdictions, with the aim o f minimising the workload for providers that operate across jurisdictions.15

1.19 The risk management approach was also welcomed by the Independent Schools Council of Australia (ISCA), which anticipated that the majority of independent schools would be assessed as 'low risk' providers. It explained this was because independent schools already comply with 'an exhaustive range o f reporting

and accountability requirements; compliance costs and administrative burden for providers is already high'.16 1 7 ISCA advised that each independent school is separately registered on CRICOS and responsible for compliance with the ESOS Act and the National Code 2007 regardless o f the number of overseas students enrolled. It

contrasted this with the state departments o f education, which hold a single provider registration covering any number o f state schools.1'

1.20 The National Tertiary Education Union (NTEU) agreed with the risk management approach where providers assessed as high risk are subjected to the greatest scrutiny. However, it advocated for a review of the criteria used to determine levels of risk 'to determine whether the criteria are sufficiently rigorous and whether the risk profile matrix achieves its objective of identifying the appropriate level of risk'.18

1.21 While supporting the introduction of a risk management approach to

regulation, the Australian Council for Private Education and Training (ACPET) expressed concern with the capacity o f regulatory agencies to develop a 'robust and meaningful risk framework for the sector'. It recommended that the development of a risk management approach be informed by appropriate independent risk assessment

13 Explanatory Memorandum (EM), p. 2.

14 Universities Australia, Submission 1, p. 2.

15 English Australia, Submission 4, p. 4.

16 ISCA, Submission 3, pp 4-5.

17 ISCA, Submission 3, p. 2.

18 NTEU, Submission 9, pp 1-2.

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expertise. It also recommended that the proposed framework be tested and validated in consultation with the sector.19

1.22 DEEWR indicated that details o f the risk management approach will be developed in consultation with stakeholders, including state and territory regulatory bodies to ensure a nationally consistent approach to risk management.20

1.23 The committee notes that the purpose o f the risk management approach is to better tailor regulation to risk which should result in reduced regulatory burden for low risk providers. It also notes advice from DEEWR that there will be further consultation with the sector to address concerns about increased regulatory burden.21

Strengthening registration requirements

1.24 Building on the amendments in the 2009 bill introducing two new registration criteria, this bill introduces provisions to further strengthen the registration process. Providers will have to demonstrate access to the financial resources to meet the objectives of the ESOS Act; have a sustainable business model; and have the capability, governance structures and management ability to deliver education o f an appropriate standard.22

Assessing access to adequate financial resources

1.25 Proposed subparagraph 9(2)(c)(iii) specifies the additional matters to be addressed by a designated authority when considering whether a provider has evidenced the criteria o f 'demonstrated capacity'. These include but are not limited to, having an appropriate business model and access to adequate financial resources.23

1.26 EA endorsed the proposal to assess a provider's access to the financial resources to meet the objectives o f the ESOS Act and the sustainability o f their business model 'particularly in light o f recent college closures for business failure reasons'. However, EA questioned whether regulatory bodies have the expertise to undertake this assessment and suggested that they be given access to appropriate

expertise. EA also urged transparency in the application of this provision.24

1.27 ISCA expressed concern that the assessment o f adequate financial resources would be in addition to 'existing financial viability requirements for non-government school accreditation and on-going obligations under the Schools Assistance Act 2008,

19 ACPET, Submission 10, p. 2.

20 DEEWR, Submission 11, p. 3.

21 DEEWR, Submission 11, p. 7.

22 EM, p. 2.

23 EM, p. 23.

24 English Australia, Submission 4, p. 4.

2 9 0

specifically the Financial Health Assessment Framework'. ISC A argued that this appears to contradict the aim o f streamlining the existing regulatory framework.23

1.28 The Australian Federation o f International Students (AFIS) agreed with providers being required to demonstrate that they have access to appropriate financial resources and recommended that students be able to access the risk level o f colleges 'in order to make informed choices'.2 5 26

1.29 Regarding student access to the risk level o f colleges, DEEW R advised that risk information is potentially commercially sensitive when used out of context.27

1.30 The committee again notes the advice from DEEWR that the details o f the risk management approach will be further developed in consultation with students and the sector.28 This consultation will also address concerns about increased regulatory burden.29

Registration timeframe

1.31 Currently the Commonwealth does not have the ability to limit the period o f a provider's CRICOS registration and providers are registered for an unlimited period. Item 5 inserts proposed subsections 9(10) and (11) to limit a provider's registration period to five years.30 Proposed item 27 is a transitional provision to ensure that all registered providers are re-registered with an end date no later than five years after limited registrations are introduced.31

1.32 DEEW R advised that these amendments would:

...introduce consistency into the registration regime to allow ESOS to form ally recognise and align with limited periods o f registration for each provider set by the states and territories under state/territory legislation and domestic quality assurance fram ew orks.32

Conditions may be placed on registration

1.33 Currently the Commonwealth can only recognise conditions imposed on a provider by a state/territory or impose new conditions as a sanction against non-compliance. The proposed amendment allows conditions related to risk to be

25 ISCA, Submission 3, p. 8.

26 AFIS, Submission 8, p. 1.

27 DEEWR, Submission 11, p. 9.

28 DEEWR, Submission 77, p. 9.

29 DEEWR, Submission 77, p. 7.

30 EM, p. 24.

31 EM, p. 29.

32 DEEWR, Submission 77, p. 4.

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placed on a provider's registration by the Commonwealth when first registered or at any time throughout the registration period.33

1.34 Conditions m ay be placed on a provider's registration at the initiative o f the Commonwealth/Secretary o f DEEWR. Item 7 amends subsection 14A(2) to include the Secretary as an authorised person also able to impose a condition on a provider's registration. Item 8 inserts proposed section 14B which enables the Secretary to impose a condition on a provider's registration on the Secretary's own initiative. The Secretary may impose a condition when the provider is registered or at any time during the registration period.34

1.35 ACPET supported the proposed changes allowing the Commonwealth Secretary or M inister 'to act on his or her own initiative where they deem conditions are needed on a provider's registration, rather than as is currently the case, only on the recommendation of a designated authority'.35

1.36 While endorsing the application o f conditions, EA urged caution in applying conditions that may affect business levels and provided the following example:

ELICOS [English Language Intensive Courses for Overseas Students] institutions only deliver courses to international students and...any

condition that might apply limits to the numbers o f international students they can enrol would have the potential to impact severely on their business model. EA also notes that in the ELICOS sector course lengths are very short (12.1 weeks on average) and that student flow is therefore essential.36

1.37 EA urged the government to ensure that conditions are appropriate to the level o f risk and will not have an overly adverse effect on business levels.37

Broader range o f financial penalties

1.38 The bill introduces financial penalties for a broader range o f non-compliant behaviour to better address emerging issues in the international education sector such as recruitment activity and maintenance of student records.38

1.39 The changes to penalties for breaches of the Act were supported by ACPET.39 ISCA expressed concern about the potential for 'overzealous application of punitive measures to adversely affect low risk providers' and provided the following example:

33 DEEWR, Submission 11, p. 4.

34 EM, pp 24-25.

35 ACPET, Submission 10, pp 3-4.

36 English Australia, Submission 4, p. 5.

37 English Australia, Submission 4, p. 5.

38 DEEWR, Submission 11, p. 4; EM, p. 3.

39 ACPET, Submission 10, p. 3.

292

...failure to change a course start date in PRISMS [Provider Registration and International Students Management System] within 14 days of a student arriving late at the start of a school year is a relatively minor offence, and could easily be committed unintentionally by a staff member new to the role of international student admissions during this hectic time. Yet this nonetheless has the potential under legislation to attract not only a

financial penalty for each occurrence, but to result in being publicly reported with consequential reputation damage out of all proportion to the offence committed.4

1.40 EA supported the option to apply financial penalties and urged transparency and consistency in the application. It pointed out that appeal mechanisms available to providers are not specified in the bill and requested clarification on the appeal mechanisms that will be available to providers.4 0 41

1.41 The committee notes advice from DEEWR that the amendments will provide the department with more options and flexibility regarding enforcement activity and will enable it to take corrective action for relatively m inor non-compliance issues without restricting a provider's ability to operate.42

Publishing results of enforcement and monitoring

1.42 The ESOS review recommended that targets and regular reporting on all regulatory activities undertaken be published.43 Item 25 inserts proposed section 170A to require the publishing o f targets and the regular reporting o f regulatory activities.44

1.43 ACPET agreed with these proposed changes, noting that they would provide the Commonwealth with powers similar to those held in Victoria by the Victorian Registration and Qualifications Authority. ACPET commented that:

..greater transparency within the sector will be of benefit to students and to the great majority of providers of international education who deliver education and training of the highest quality.45

1.44 ISCA advised that it did not agree with proposed provision 170A for the Secretary to publish results o f enforcement and monitoring before a provider has had the opportunity to appeal a decision to do this. It argued:

Subsequent publishing of results of a review that finds in favour of a provider, is, in ISCA's view, a denial of natural justice, and can not

40 ISCA, Submission 3, p. 9.

41 English Australia, Submission 4, p. 5.

42 DEEWR, Submission 11, p. 4.

43 DEEWR, Submission 11, p. 4; EM , p. 3.

44 EM, p. 28.

45 ACPET, Submission 10, p. 3.

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adequately compensate for possibly unjustified reputation damage suffered by a provider during this process.46

1.45 EA also stressed that 'reputation is critical for providers in ensuring the ongoing trust and confidence o f students, their families and agents'. It argued:

The publishing of enforcement actions that have been undertaken that have not been yet finalised following the potential for appeal seems to have the potential to recklessly endanger a provider's business reputation and thus impact on student flows and the success of the business.47

1.46 EA called for the publication o f enforcement action to follow any and all appeal processes.48

1.47 DEEWR responded that appeals o f providers against enforcement action taken will not stop publication o f the information but that the information will be corrected if the appeal is upheld.49 DEEW R explained that:

...it is intended that only serious non-compliance action would be made public. The ability to use financial penalties for a greater range of non compliance behaviour will give more flexibility for regulators to act without being excessively punitive. It should also be noted that any decisions reversed through an appeals process will be publicly noted.50

The Overseas Student Ombudsman

1.48 To improve access to a statutorily independent external complaints body, the jurisdiction of the Commonwealth Ombudsman will be extended to include overseas students o f private registered providers. DEEW R noted that:

While these providers must provide access to an external complaints body (as required under Standard 8 of the National Code), students of these providers currently do not have recourse to a statutorily independent external body, such as an ombudsman, competent to hear and investigate

their complaints in a consistent and quality assured manner.51

1.49 Item 1 amends the long title o f the Ombudsman Act to include a reference to the Overseas Student Ombudsman (OSO). Item 2 inserts proposed part IIC which establishes the Office o f the OSO and sets out the powers and functions o f the OSO.52

46 ISCA, Submission 3, p. 9.

47 English Australia, Submission 4, p. 6.

48 English Australia, Submission 4, p. 6.

49 DEEWR, Submission 11, p. 4.

50 DEEWR, Submission 11, p. 7.

51 DEEWR, Submission 11, p. 4.

52 EM, p. 30.

294

1.50 Along with investigating complaints, the OSO will provide advice and training to private registered providers to facilitate best practice complaint handling and may report on broader systemic issues across the international sector.53 Proposed section 19ZS(5) makes it clear that annual reports by the OSO may detail any trends

in complaints or any broader issues that arise from investigations. The Commonwealth Ombudsman noted that annual reports may also include details o f recommendations made to private providers and that:

...By sharing such information, the Commonwealth Ombudsman may alert regulators and relevant stakeholders to areas requiring action or review to protect overseas students’ rights and Australia’s reputation as an exporter of international education services.54

1.51 The committee notes the current gap for students of private registered providers wishing to access an external independent complaints body. The Commonwealth Ombudsman explained that:

Overseas students enrolled with public education providers can complain to the relevant state or territory ombudsman, or in the case of the Australian National University, the Commonwealth Ombudsman, as the external, independent complaints body. Overseas students enrolled with private

registered providers can complain to state and territory education departments and state and territory statutory authorities responsible for registering and accrediting education providers. However, South Australia is the only state providing access to a distinct complaints handling body, the Office of the Training Advocate, which is independent of the registration and accreditation authority for private registered providers.55 5 6

1.52 The Commonwealth Ombudsman supported the proposed new role for the OSO and noted:

Amending the Ombudsman Act 1976 to extend the Commonwealth Ombudsman’s jurisdiction to include private registered providers would ensure fair and consistent access to external complaints mechanisms for all overseas students. The system will have the benefit of a complaints handling body which is not only independent of the private registered

provider, but the state and territory designated authority as well. It will strengthen consumer protection for overseas students and ensure they have free access to having their complaint dealt with by the Commonwealth Ombudsman in a consistent and quality-assured manner.36

1.53 The committee notes that under the National Code o f Practice fo r

Registration Authorities and Providers o f Education and Training to Overseas Students 2007, Standard 8, it is a requirement that providers have an internal

53 EM, p. 3. See also Commonwealth Ombudsman, Submission 2, p. 4.

54 Commonwealth Ombudsman, Submission 12, p. 6.

55 Commonwealth Ombudsman, Submission 12, p. 4.

56 Commonwealth Ombudsman, Submission 12, p. 4.

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complaints and appeals process and also have 'arrangements in place for an independent external person or organisation to hear the complaints or appeals where the provider’s internal process has been completed and the student remains dissatisfied'.57

1.54 Universities Australia supported the intention o f the amendments 'to ensure students o f private providers have access to a suitable external complaints body'.58 The establishment o f the OSO was also strongly supported by IS ANA International Education Association. However, ISANA added that it will be important to ensure that

students with a lower level of education and/or English proficiency are able to easily access and understand the service.59

1.55 On the point o f students with poor English proficiency, DEEW R noted that:

...the Commonwealth O m budsm an sees education and com m unication with students and providers as critical to their proposed new role....60

1.56 AFIS welcomed the extension o f the jurisdiction o f the Commonwealth Ombudsman to include students o f private registered providers as '[t]his will provide an independent body to handle student complaints'. AFIS also recommended student awareness sessions to make students aware o f the complaint m echanism .61

1.57 The committee notes that the Commonwealth Ombudsman intends to provide information sessions for students and providers.62

1.58 ISCA noted that the focus o f the function of the OSO is on the investigation o f complaints and that the need 'to have an independent body that can hear and make decisions about student appeals arising from providers exercising their obligations under the National Code o f Practice (National Code) will not be properly recognised

and addressed'. It submitted:

The word "appeal" is not used at all in this context in any o f the

documentation supporting proposed changes. This is surprising given Standards 8 in National Code o f Practice is clearly designated "Complaints and appeals".63

57 Information available from: httD://aei.gov.au/AEI/ESOS/NationalCodeExplanatorvGuide/PartD/Standard 8.htm accessed 2 August 2010.

58 Universities Australia, Submission 1, p. 2.

59 ISANA, Submission 6, pp 2-3.

60 DEEWR, Submission 11, p. 8.

61 AFIS, Submission 8, p. 2.

62 DEEWR, Submission 11, p. 9.

63 ISCA, Submission 3, p. 9.

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1.59 DEEW R advised that the proposed amendments are aligned with Standard 8 of the National Code and changes to the National Code will be made to reflect the changes to the Ombudsman Act when it is passed.64

1.60 ACPET supported the establishment o f the OSO but was concerned that the industry's independent complaints handling mechanism, operating since April 2009, is not recognised. It reported that this mechanism has assisted 199 providers and students and is recognised by designated authorities. It advocated the continued use of

existing arrangements with referral to the OSO only when matters cannot be resolved through existing mechanisms.65

1.61 M r John Blahusiak explained that he supports measures to improve the experience o f overseas students studying in Australia, which includes improving access to complaint mechanisms, but pointed out that the proposed mechanism will cover overseas students only:

Should a domestic student and an overseas student in a private provider have a complaint concerning the same issue — only the overseas

student...would have a right o f com plaint to the Com m onwealth

Ombudsman...A domestic student o f a private provider would presum ably be reliant on any external com plaint processes as are currently available - which, the ESOS Bill Schedule 2 seems to suggest are currently deficient.66

1.62 DEEW R provided the following response to this point:

...given the particular vulnerabilities o f overseas students, the ESOS Legislation A m endm ent Bill is specifically responding to the Baird recom m endation to improve access by overseas students attending non governm ent institutions to a rigorous statutorily independent complaints

and appeals process.67

1.63 M r Blahusiak also questioned whether the Commonwealth Ombudsman already has the capacity to act as student ombudsman or international student ombudsman under the Ombudsman Act as currently drafted.68 DEEWR responded that:

...the capacity for the Om budsm an to act for students under s5(l)(c) o f the Ombudsman Act is unclear. This provision does not apply to domestic students and it is open to interpretation whether, under s5(l)(c), there is any Com m onwealth enactm ent w hich gives rise to a licence or authority in relation to international students. Given this uncertainty the ESOS Legislation Amendm ent Bill aims to expand the jurisdiction o f the

64 DEEWR, Submission 11, p. 7.

65 ACPET, Submission 10, p. 3.

66 Mr John Blahusiak, Submission 5, pp 1-2.

67 DEEWR, Submission 11, p. 8.

68 Mr John Blahusiak, Submission 5, pp 1-2.

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Ombudsman to cover international students who currently do not have access to another statutorily independent body.69

Committee comment

1.64 The committee notes the powers o f the OSO are consistent with the existing powers o f the Commonwealth Ombudsman. It emphasises the intention that the OSO would be the mechanism for students to use when all other avenues have been exhausted. The committee also notes that proposed section 19ZS includes requirements for annual reporting by the OSO so that outcomes are recorded publicly.70

Conclusion

1.65 The committee notes that this is the first set o f amendments to the ESOS Act as a result o f the recommendations o f the Baird Review and that more will follow in 2011.

Recommendation 1

1.66 The committee recommends that the Senate pass the bill.

Senator Gavin Marshall

Chair

69 DEEWR, Submission 11, p. 8.

70 Commonwealth Ombudsman, Submission 12, p. 7.

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Additional Comments by Senator Sarah Hanson-Young 1.1 The Australian Greens welcome the commitment by the Government to expand the role o f the Commonwealth Ombudsman to include students of private registered providers who currently have no access to an independent complaints body.

1.2 Currently when it comes complaint resolution, particularly with regard to international students, the fact that there are so many overlapping obligations with state accreditation bodies and the Commonwealth department, highlights the difficulties about where to go and who to trust.

1.3 In M arch 2010, the Greens introduced the Ombudsman Amendment

(Education Ombudsman) Bill 2010, to create the office o f the Education Ombudsman to cover the domestic and international education sector in Australia. This would act as a one-stop national authority for resolving individual student complaints; provide a

further avenue for academic disputes, monitoring and enforcing compliance o f education institutions, and facilitating communication between state and federal governments and educational organisations.

1.4 While the Greens are indeed supportive o f the measures contained within this Bill, we believe that the proposal contained in this Bill is limited only to the handling of complaints against private providers. In November 2009, the Welfare o f International Students inquiry heard evidence from the Commonwealth Ombudsman who noted the need for an external, as well as an internal, avenue for complaints to be made if internal mechanisms prove unsatisfactory. One o f the advantages o f

establishing a national body is that it would reduce confusion and uncertainty about regulatory roles and responsibilities essentially making it easier for students to access these services.

Recommendation 1

1.5 The Greens recommend that the Ombudsman's role be extended to issues facing both the international and domestic students, providing a further avenue for academic dispute resolution, monitoring and enforcing compliance of education institutions and facilitating communication between state and federal

governments and educational organisations.

Senator Hanson-Young Australian Greens Spokesperson on Education

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â â

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APPENDIX 1

Submissions Received

Submission Number Submitter

1 U niversities A ustralia

2 C om m onw ealth O m budsm an

3 Independent Schools C ouncil o f A ustralia

4 E nglish A ustralia

5 M r John B lahusiak

6 ISA N A : International E ducation A ssociation

7 C ouncil o f P rivate H igher E ducation Inc.

8 A ustralian F ederation o f International Students

9 N ational T ertiary E ducation U nion

10 A C PE T

11 D epartm ent o f E ducation, E m ploym ent and W orkplace R elations

12 C om m onw ealth O m budsm an

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302

The Senate

Environment and Communications Legislation Committee

National Broadcasting Legislation Amendment Bill 2010 [Provisions]

N ovem ber 2010

303

This document was printed by the Senate Printing Unit, Parliament House, Canberra

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Committee membership

Committee members Senator Doug Cameron (ALP, NSW ) (Chair) Senator Mary Jo Fisher (LP, SA) (Deputy Chair) Senator Scott Ludlam (AG, WA) Senator Anne M cEwen (ALP, SA) Senator the Hon. Judith Troeth (LP, VIC)

Senator Dana W ortley (ALP, SA)

Committee secretariat Mr Stephen Palethorpe, Secretary Mr Geoff Dawson, Principal Research Officer Ms Nina Boughey, Senior Research Officer Mrs Dianne Warhurst, Executive Assistant

Committee address PO Box 6100 Parliament House Canberra ACT 2600

Tel·. 02 6277 3526 Fax: 02 6277 5818 Email·, ec.sen@aph.gov.au Internet', www.aph.gov.au/senate/committee/ec_ctte/index.htm

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iv 306

Table of Contents

Committee membership.......................................................................................... iii

Recommendations................................................................................. vii

Chapter 1 - Introduction...........................................................................................1

Conduct o f the inquiry...................................................................................................... 1

Description of the b ill....................................................................................................... 1

Report structure.................................................................................................................4

Chapter 2 - Merit-based appointment of directors............................................5

Independence of public broadcasters............................................................................. 6

Merit-based appointment o f board directors.............................................................. 11

The merit-based process proposed by the b ill............................................................ 12

Chapter 3 - Staff-elected director......................................................................... 23

Conclusion....................................................................................................................... 27

Additional Comments - Australian Greens Senator Scott Ludlam ..............29

Appendix 1 - Submissions and answers to questions taken on n o tice.........33

Appendix 2 - Public hearings.................................................................................35

Appendix 3 - Recommended amendments to National Broadcasting Legislation Amendment Bill 2 0 1 0 ........................................................................37 V

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vi 3 0 8

Recom m endations

Recommendation 1

2.18 The committee recommends that the ABC Board review whether the partnership between ABC Books and HarperColIins maintains the necessary independence of ABC Books and the ABC as a whole.

Recommendation 2

2.27 In order to protect the independence of Australia's public broadcasters, the committee urges the government and the ABC and SBS boards to ensure that the interventionist approach by government, which has resulted in the politicisation of public broadcasters, does not occur again.

Recommendation 3

2.49 The committee recommends that the bill be amended to provide that a former politician or senior political staff member is eligible for appointment to the ABC and SBS boards provided that they meet the following conditions:

â¢ the individual ceased to hold office at least 18 months prior to the appointment; and

â¢ the individual is nominated by the Nomination Panel following an independent, merit-based selection process as set out by the bill.

Recommendation 4

2.63 The committee recommends that the government include the Merit Protection Commissioner as a permanent member of the Nomination Panel for appointments to the ABC and SBS boards.

Recommendation 5

3.19 The committee recommends that the bill be amended to provide that a staff-elected director may hold office for a maximum of one five-year term.

v ii

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Recommendation 6

3.24 The committee recommends that the SBS Act be amended to include a staff-elected director on the SBS Board.

Recommendation 7

3.27 Subject to the amendments contained in recommendations 3-6 of this report, the committee recommends that the Senate pass the National Broadcasting Legislation Amendment Bill 2010.

v iii

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Chapter 1

Introduction

Conduct of the inquiry

1.1 On 30 September 2010 the Senate, on the recommendation o f the Selection o f Bills Committee, referred the provisions o f the National Broadcasting Legislation Amendment Bill 2010 to the Environment and Communications Legislation Committee for inquiry and report by 16 November 2 0 10.1

1.2 The committee advertised the inquiry on its website and in The Australian, and wrote to relevant organisations and associations inviting submissions. The committee received 6 submissions (see Appendix 1) and held one public hearing (see Appendix 2). The committee thanks submitters and witnesses for their contributions.

Description of the bill

1.3 The purpose of the bill is to amend the Australian Broadcasting Corporation Act 1983 (ABC Act) and Special Broadcasting Service Act 1991 (SBS Act) to implement a new merit-based appointment process for non-executive directors to the ABC and SBS boards. The bill will enshrine in legislation a merit-based selection process which the government initiated in October 2008.1 2

1.4 The bill will also re-instate the position of staff-elected director to the ABC Board.

1 Senate Selection of Bills Committee, Report No. 11 of 2010: see Senate Hansard, 30 September 2010, p. 529. The bill was first introduced into the House of Representatives on 29 October 2009, and passed on 4 February 2010. It was introduced into the Senate on 4 February 2010, but lapsed at the end of the 42nd Parliament before being debated. It was reintroduced into the House of Representatives in the new parliament on 30 September 2010.

2 Senator the Hon Stephen Conroy, Minister for Broadband, Communications and the Digital ' Economy, 'Measures to ensure strong and independent national broadcasters', 16 October 2008, www.minister.dbcde.gov.au/media/media releases/2008/076 (accessed 8 November 2010). Information about the existing process is available from the Department of Broadband,

Communications and the Digital Economy website, www.dbcde.gov.au/television/abc and sbs board appointments (accessed 8 November 2010).

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Merit-based selection process

1.5 Schedule 1 to the bill makes provision for a merit-based appointment process for non-executive directors to the ABC and SBS boards. The process has the following features:

â¢ A nomination panel will be established to conduct a competitive selection process and make recommendations to:

â¢ the Prime Minister with respect to the appointment o f a Chairperson o f the ABC Board; and

â¢ the M inister for Broadband, Communications and the Digital Economy with respect to the appointment o f other non-executive directors.3

â¢ The nomination panel will consist o f three or four part-time members

appointed by the Secretary o f the Prime Minister's Department for terms o f up to three years.4 The bill provides that the panel 'is not subject to direction by or on behalf o f the Government o f the Commonwealth'.5

â¢ The selection criteria for ABC and SBS board directors are to be determined by the M inister for Broadcasting, Communications and the Digital Economy by legislative instrument.6 The bill retains the existing requirement that a person shall not be appointed to the ABC Board unless they have relevant

experience in broadcasting, communications, management, financial or technical matters, or cultural or other relevant interests.7

â¢ The nomination panel will be required to:

â¢ publish advertisem*nts inviting written applications for the position o f non-executive director or Chairperson;8

â¢ undertake an assessment o f the comparative suitability o f applicants;9 and

3 National Broadcasting Legislation Amendment Bill 2010, Schedule 1, Item 15, clause 24B (ABC); Item 29, clause 43 (SBS).

4 National Broadcasting Legislation Amendment Bill 2010, Schedule 1, Item 15, clauses 24E and 24F. Note that the proposed amendments to the SBS Act provide that the nomination panel is that established under the ABC Act: Item 18.

5 National Broadcasting Legislation Amendment Bill 2010, Schedule 1, Item 15, clause 24C.

6 National Broadcasting Legislation Amendment Bill 2010, Schedule 1, Item 15, clause 24W (ABC); Item 29, clause 43 A (SBS).

7 The requirement is currently provided in subsection 12(5) of the ABC Act, and the guidelines currently used to select ABC Board directors: Department of Broadband, Communications and the Digital Economy, answer to question on notice, 1 November 2010 (received 8 November 2010). The bill retains this requirement for appointment to the ABC Board in item 12, subclause 12(5).

8 National Broadcasting Legislation Amendment Bill 2010, Schedule 1. Item 15, subclause 24B(3) (ABC); Item 29, subclause 43(3) (SBS).

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â¢ provide a written report to the relevant minister consisting o f at least three candidates who are nominated for appointment.9 10 1 1

â¢ Prior to making a recommendation to the Governor-General with respect to the appointment o f a Chairperson to the ABC Board, the Prime Minister is required to consult with the Leader o f the O pposition.11

â¢ If a person not nominated by the nomination panel is appointed, the Minister or Prime M inister must table reasons for that appointment in each house of the Parliam ent.12

1.6 Schedule 1 also:

â¢ increases the maximum tenure o f non-executive directors from five years to ten years;13 and

â¢ provides that current or former members o f Commonwealth, State and

Territory Parliaments and senior political staff members are ineligible for appointment as a non-executive o f either board.14 1 5 1 6

ABC Staff-elected Director

1.7 Schedule 2 to the bill reinstates the position o f staff-elected director to the ABC Board. The position was abolished in 2006 by the Australian Broadcasting Corporation Amendment Act 2006.]S

1.8 The staff-elected director will be a director of a Commonwealth authority for the purposes o f the Commonwealth Authorities and Companies Act 199716 and have the same duties and obligations as the other ABC Board directors.17

9 National Broadcasting Legislation Amendment Bill 2010, Schedule 1, Item 15, subclause 24B(2) (ABC); Item 29, subclause 43(2) (SBS).

10 National Broadcasting Legislation Amendment Bill 2010, Schedule 1, Item 15, paragraph 24B(l)(d) (ABC); Item 29, paragraph 43(1 )(d) (SBS).

11 National Broadcasting Legislation Amendment Bill 2010, Schedule 1, Item 15, subclause 24X(1).

12 National Broadcasting Legislation Amendment Bill 2010, Schedule 1, Item 15, subclauses 24X(2)-(4) (ABC); Item 29, clause 43B (SBS).

13 National Broadcasting Legislation Amendment Bill 2010, Schedule 1, Item 8 (ABC); Item 26 (SBS).

14 National Broadcasting Legislation Amendment Bill 2010, Schedule 1, Item 12, subclause (5A) (ABC); Item 24, subclause 17(2A) (SBS).

15 See Senate Environment, Communications, Information Technology and the Arts Legislation . Committee, Australian Broadcasting Corporation Amendment Bill 2006, May 2006, at www.aph.gov.au/Senate/committee/ecita ctte/completed inquiries/2004- 07/broadcasting/index.htm (accessed 2 November 2010).

16 National Broadcasting Legislation Amendment Bill 2010, Schedule 2, Item 4, subclause 13A(1).

1.9 There are two differences between the staff-elected director provisions prior to 2006 and the provisions proposed by the bill:

â¢ the bill does not propose to reinstate the position o f deputy staff-elected

director; and

â¢ prior to 2006, there was a requirement that where a matter being considered by the ABC Board relates to the terms and conditions o f employment, the staff-elected Director was not required to declare a pecuniary interest in the m atter.1 7 18 A similar provision is not included in the bill.

Report structure

1.10 Chapters 2 and 3 o f this report discuss evidence presented to the inquiry on the two key aspects o f the bill:

â¢ merit-based selection o f directors; and

â¢ reinstatement o f the ABC staff-elected director.

1.11 The committee did not receive any evidence relating specifically to the position o f the SBS. Accordingly, most o f the discussion in this report focuses on the position o f the ABC and makes the assumption that similar arguments apply to the SBS.

17 Explanatory Memorandum, National Broadcasting Legislation Amendment Bill 2010, p. 20.

18 ABC Act, as at 1 July 2005, ss. 17(1 A).

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Chapter 2

Merit-based appointment of directors

2.1 In his second reading speech on the bill, the M inister for Infrastructure and Transport, the Hon Anthony Albanese MP, explained that the existing process o f appointments being made by the Governor-General on the recommendation of the government:

...has raised concerns about ABC and SBS board appointments being politically motivated. Commentators have also perceived that political appointments may have diminished the level of expertise of particular board members on complex technological and financial issues facing the national broadcasters.1

2.2 The M inister explained that in order to address the lack o f transparency in ABC and SBS board appointments:

...the government has developed a new appointment process whereby an independent panel will conduct a merit-based selection process for non executive directors to the ABC and SBS boards and advise the government on suitable appointments.1 2

2.3 The issue of the politicisation of the ABC board, in particular, has been the subject of a range o f media commentary, books and reports,3 including two previous Senate committee inquiries.4 5 Submitters and witnesses to this inquiry discussed the importance o f ensuring that the ABC and SBS remain independent and free from political influence, and generally agreed that the merit-based selection process proposed by the bill would assist in promoting these aims."

1 The Hon Anthony Albanese MP, Minister for Infrastructure and Transport, House o f Representatives Hansard, 30 September 2010, p. 266.

2 The Hon Anthony Albanese MP, Minister for Infrastructure and Transport, House o f Representatives Hansard, 30 September 2010, p. 266.

3 For example Ken Inglis, This is the ABC, Melbourne, Melbourne University Press, 1983; Rebecca Harrison, 'The Howard Government's record of political appointments', Crikey, 29 November 2007, at: www.crikev.com.au/2007/ll/29/the-howard-govemments-record-of- political-appointments/ (accessed 3 November 2010); Ari Sharp, 'Janet Albrechtsen to step

down as director on ABC board, SMH Online, 11 November 2009, at www.smh.com.au/national/ianet-albrechtsen-to-step-down-as-director-on-abc-board-20091110- i71r.html (accessed 3 November 2010).

4 Senate Select Committee on ABC Management and Operations, Our ABC, March 1995; Senate . Environment, Communications, Information Technology and the Arts Legislation Committee, Australian Broadcasting Corporation Amendment Bill 2006, May 2006.

5 Mr Donald McDonald, former Chair of the ABC Board, was the only witness who was not in favour of the amendments proposed by the bill. The Merit Protection Commissioner did not express a view in her submission: Submission 6.

2.4 This section o f the report draws on the evidence presented to the inquiry to:

â¢ briefly outline the importance o f public broadcasters remaining independent and free from political interference;

â¢ discuss the contribution that a merit-based appointment process will make to ensuring the independence o f the ABC and SBS; and

â¢ critically analyse the merit-based selection process proposed in the bill.

Independence of public broadcasters

2.5 As noted above, there have been a range o f reports and inquiries into public broadcasting in Australia which have discussed the importance o f public broadcasters being independent and free from political interference. The committee does not propose repeating the discussion canvassed in those previous reports regarding the importance o f the independence o f the ABC and SBS. It is sufficient to note that it is widely acknowledged that:

An independent, adequately funded and politically unbiased national broadcaster is one of the most important means by which public debate and discussion can take place in Australia without fear or favour.6

2.6 Concerns about the effect o f political appointments to the boards o f the public broadcasters go back to the m id 1990s,7 and have been well-canvassed in previous reports and discussions.8 Evidence to this inquiry suggested that these concerns have not diminished despite both sides o f politics having been criticised for making politically-motivated appointments:

I think it is pretty outrageous how over the past couple of decades both parties have indulged their patronage with the ABC. I think it is a tribute to the institution that it has survived, and it is probably due to its public

support. It really has, historically, been a political football, and that is what you see.9

2.7 M r Quentin Dempster, former staff-elected director o f the ABC Board, discussed a number of instances in which political appointments to the ABC Board have jeopardised the independence o f the ABC:

6 Senate Environment, Communications, Information Technology and the Arts References Committee, Above Board, Methods o f appointment to the ABC Board, September 2001, p. 13, quoting Council of Australian Postgraduate Associations, submission 592, p. 1.

7 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 22.

8 See for example Senate Select Committee on ABC Management and Operations, Our ABC, March 1995, pp 139-144; Senate Environment, Communications, Information Technology and the Arts References Committee, Above Board, Methods o f appointment to the ABC Board, September 2001 pp 7-13.

9 Mr Matt Peaco*ck, Delegate, Community and Public Sector Union (CPSU), Proof Committee Hansard, 1 November 2010, p. 6.

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As chairman of the ABC, Donald [McDonald] inappropriately introduced [former Prime Minister] John Howard at a Liberal Party fundraiser during one election campaign. His behaviour was roundly attacked by editorial writers at the time, but at no time did he concede that his duties to the ABC and his then custodianship of its editorial policies were of higher

importance than his friendship with John Howard.10 1 1

2.8 M r Dempster discussed the 'intense political contention surrounding the appointment o f Jonathan Shier as Managing Director by the McDonald board in 2000' arguing that this was another example o f politicisation, as Mr Shier was a former Liberal Party official.11 According to M r Dempster, M r Shier made a number of politically-motivated decisions, including:

â¢ asking 'Max Uechtritz, the then director o f ABC news and current affairs, to act to secure [Kerry] O ’Brien’s removal [as presenter o f The 7.30 Report]'; and

â¢ cancelling Media Watch 'in spite o f its record as one of the most influential and watched programs on ABC television'. M r Dempster explained that 'Media Watch had exposed a ‘cash for comm ent’ culture within commercial radio in Australia which enraged those exposed. The then Media Watch presenter, Paul Barry, was contractually term inated'.12

2.9 M r Dempster noted that similar issues arose under the leadership of

Mr David Hill, who was M anaging Director between 1987 and 1995, during the Hawke-Keating years. M r Dempster gave evidence that:

Hill was known as [former NSW Premier, Neville] 'Wran's man' at the ABC...

...underpressure from Bob Hawke and Gulf War I, David Hill was going to sack Geraldine Doogue as the presenter of The 7.30 Report...It was almost that David was going to scapegoat Geraldine because she was seen to be an

impediment to the ABC's then coverage of Gulf War I, which was controversialised at the time.13

2.10 In 2006, the ABC Board, chaired by M r Donald McDonald AC, decided to cancel the publication o f Chris Masters' biography o f high profile broadcaster, Alan Jones, despite the book having been commissioned by ABC Books.

Mr Dempster commented:

If ever there was a test of the ABC’s independence as a publisher, this was it. We had a work by one of our finest investigative journalists about the way power operates in our country and the operation of Alan Jones’s own network of influence, otherwise known as ‘pick and stick’...Another

10 Mr Quentin Dempster, Private Capacity, P roof Committee Hansard, 1 November 2010, p. 22.

11 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 22.

12 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 22.

13 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 22.

publisher took up the manuscript, and the work, Jonestown, was published to critical acclaim, winning a Walkley non-fiction award.14

2.11 In January 2009, ABC Books announced a commercial partnership with HarperCollins Publishers, a subsidiary o f global media company News Corporation. M r Dempster argued that this arrangement means that:

...it remains doubtful whether the ABC will ever publish any penetrating works which go to the core of the power structures in our country— certainly nothing about News Corp and its use of offshore tax havens such as the Netherlands Antilles, Bermuda, the Cayman Islands and what have you in its financial affairs. This will not be published in book form. The board allowed our independence as a publisher to be compromised through this decision alone.15

2.12 M r Dempster added:

When I was on the board we had editorial after editorial attacking the ABC for going into bed with Fairfax and Cox Communications in a pay TV operation—and rightly so, because we are meant to be independent.16

2.13 The committee notes that the ABC and SBS each have special roles in

Australian broadcasting, which are reflected in their respective legislation, charters and values.

2.14 The ABC's Charter, which is entrenched in legislation, specifically states that in providing broadcasting services, the ABC shall take account o f its

'responsibility...as the provider o f an independent national broadcasting service to provide a balance between broadcasting programs o f wide appeal and specialized broadcasting program s'.17 The ABC Act also provides that it is the duty o f the board 'to maintain the independence and integrity o f the A B C'.18

2.15 Similarly, the SBS Board has as its first-listed duty to 'maintain the

independence and integrity o f the SB S',19 and the 'SBS Purpose and Values' specify that that the SBS will achieve its purpose o f being a pioneering broadcaster by being 'independent from external pressures to conform or favour', and acting 'independently, distinctively and courageously'.20

2.16 In his evidence to the committee M r Dempster explained that:

14 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, pp 22 23.

15 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 23.

16 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 23.

17 ABC Act, subpara. 6(2)(a)(iii).

18 ABC Act, para. 8(1 )(b).

19 SBS Act, para. 10(1 )(a).

20 'SBS Purpose' at www.sbs.com.au/web/documents/SBSValuesl208.pdf (accessed 4 November 2010).

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We need an ABC which is fearless, not fearful. We need an ABC board, management and editorial leadership which treat the charter as a duty of intellectually honest and independent effort which does not allow itself to become a part of the adversarial game of Australian politics. The taxpayers

who pay for the ABC do not deserve to be treated as part of so-called culture or political wars of influence peddling between the Labor and Liberal parties or the sectional interests which bankroll them.21

Committee comment

2.17 The committee strongly endorses M r Dempster's comments and considers that they apply equally to the SBS. The committee has particular concerns about the effect of the partnership between ABC Books and HarperCollins and urges the ABC Board to review whether the arrangement maintains the necessary independence o f ABC

Books and the ABC as a whole.

Recommendation 1

2.18 The committee recommends that the ABC Board review whether the partnership between ABC Books and HarperCollins maintains the necessary independence of ABC Books and the ABC as a whole.

2.19 It is clear, from Mr Dempster's evidence as well as that provided by the Friends of the ABC,22 that the past practice o f appointing directors to ABC and SBS boards has contributed to their politicisation.

2.20 Under the existing legislative frameworks, directors of the ABC and SBS Boards are currently appointed by the Governor-General on the recommendation of the government.23 Both acts specify that a person shall not be appointed unless they have specified relevant experience.24 2 5 However there are currently no legislated transparency or accountability mechanisms within the appointment process to ensure that directors do possess the requisite experience, or are the best possible candidates.

2.21 The committee questioned M r Donald M cDonald AC, former Chair of the ABC Board from 1996 until 2006, about the method through which he was appointed. Mr McDonald informed the committee that his appointment:

...probably took place like all the other appointments in that time: somebody rang me up and asked me whether I would do it.’

2.22 M r McDonald went on to say that in his case it was the minister who had phoned him directly and offered the position."6 M r McDonald also confirmed that he and the minister were personally acquainted.27

21 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 23.

22 Ms Glenys Stradijot, Campaign Manager/Executive Officer, Friends of the ABC, Proof Committee Hansard, 1 November 2010, p. 11.

23 ABC Act, sl2(2); SBS Act, sl7 (l).

24 ABC Act, sl2(5); SBS Act, s i 7(2).

25 Mr Donald McDonald AC, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 18.

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2.23 M r Dempster reminded the committee that 'Donald [McDonald] is a close personal friend o f John Howard, the former Prime M inister'.2 6 2 7 28

2.24 Although there can be no doubt that, based on his considerable experience in the administration o f the Sydney Theatre Company, Musica Viva and the Australian Opera Company,29 M r McDonald was suitably qualified for the position, he him self acknowledged that there were no checks and balances involved in appointing him to the position.30

Committee comment

2.25 While the committee does not doubt that M r McDonald was a suitably qualified and effective Chair o f the ABC, the committee is o f the strong opinion that the appointment o f directors to the boards of our public broadcasting organisations by virtue o f their connections with government ministers is completely inappropriate. It undermines the independence of the board and accordingly that of the whole o f the organisation. The committee agrees with the comment o f Ms Glenys Stradijot, Campaign Manager/Executive Officer, Friends o f the ABC, that:

The independence of the ABC board is also important in terms of its job of protecting the ABC. The board needs to be independent of the government so that it can stand up for the interests of the ABC on occasions when governments are seeking to undermine the ABC or to interfere in its

independence. There needs to be a board that can stand up to get the best funding for the ABC for its future. So the independence of the entire ABC depends on the independence of the board.31

2.26 Accordingly, the committee urges government and the ABC and SBS Boards to ensure that the interventionist approach that led to the politicisation o f the boards of those public broadcasters and undermined their independence is not permitted to occur again, in order to maintain the independence of public broadcasters in Australia.

26 Mr Donald McDonald AC, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 18.

27 Mr Donald McDonald AC, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 18.

28 Mr Quentin Dempster AC, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 22.

29 Senator the Hon Richard Alston, Minister for Communications, Information Technology and the Arts, 'Reappointment of Donald McDonald as Chairman of the ABC', Media Release, 5 July 2001 at www.dbcde.gov.au/Article/O.-O 4-2 4008-4 15854.00.html (accessed 4 October 2010).

30 Mr Donald McDonald, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 18.

31 Ms Glenys Stradijot, Campaign Manager/Executive Officer, Friends of the ABC, Proof Committee Hansard, 1 November 2010, p. 11.

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Recommendation 2

Merit-based appointment of board directors

2.28 The majority o f the organisations and individuals who contributed to this inquiry expressed the view that a merit-based appointment process for directors of the ABC and SBS boards would go a long way towards addressing the politicisation o f both organisations that has occurred in the past.32

2.29 For example, in its submission, Friends o f the ABC (NSW) stated:

The more open process envisaged by this Bill will go a long way towards restoring confidence in the ABC Board.33

2.30 Similarly, the Community and Public Sector Union (CPSU) expressed the view that:

Merit based appointments will increase the calibre of boards, widen the scope of the talent pool available to fill the positions and will help build public confidence in the institutions that have been tarnished by the stacking of the boards by both sides of politics. 34

2.31 Mr Dempster further argued that:

Public broadcasters and, I believe, the wider public are looking to the current parliament to stop the practice of board stacking and adversarial and ideological influence peddling which sometimes goes with ABC board appointments. We need a paradigm shift, and the amendment before the parliament facilitates that. We need a new institutional maturity.35

2.32 An administrative merit-based appointment process for appointments to the ABC and SBS boards has been in place since 2008, with appointments having been

32 Friends of the ABC (NSW) (Submission 1); Friends of the ABC (SA) (Submission 2); Mr Quentin Dempster (Submission 3); Friends of the ABC (NSW, Qld, Tas, Vic & WA) (,Submission 4)\ and the CPSU (Submission 5) all supported the merit-based appointment process proposed by the bill. Ms Annwyn Godwin, Merit Protection Commissioner

(Submission 6) did not express a view on the merit-based provisions of the bill, however expressed support of merit-based selection generally. Mr Donald McDonald, who appeared before the committee but did not make a submission was the only witness who did not support . the bill.

33 Friends of the ABC (NSW), Submission 1, p. 1.

34 CPSU, Submission 5, p. 4.

35 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 23.

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made in March 2009 and June 20 1 0.36 The bill proposes to legislate this existing process. M r Dempster made the point that this process has 'been completely noncontroversial', and that as a result:

We have to go back into the record books and remind ourselves of the unpleasantness which has resulted in us coming back to this issue.37

2.33 M r M cDonald was the only person who provided evidence against the proposal, on essentially philosophical grounds as opposed to the practical effect of merit-based selection on the ABC and SBS boards:

I think it is completely unnecessary. It is a whole other layer of bureaucracy when the public have elected politicians, and therefore elected the government to make decisions and run things. Apparently, the government is good enough to decide when we go to war; it is good enough to appoint members of the High Court—it is good enough to do all sorts of things— but apparently it is not good enough to appoint the members of the ABC board. It is ridiculous.38

Committee comment

2.34 The committee agrees with the vast majority o f contributors to this inquiry, and notes that there is overwhelming evidence in support o f merit-based appointments to the boards o f public broadcasters. The committee believes that a transparent merit-based process o f appointing directors has since 2009, and will continue to, increase the independence o f the ABC and SBS boards, which in turn will improve the capacity o f the ABC and SBS to provide high-quality, independent broadcasting services to the Australian public.

2.35 Furthermore, the committee considers that processes to improve the

independence o f the ABC and SBS boards will increase the capacity of both organisations to withstand political attacks, which have frequently occurred in the course o f Senate Estimates processes.39

The merit-based process proposed by the bill

2.36 An influential report by the United Kingdom's Committee on Standards in Public Life, chaired by Lord Nolan, and entitled Standards in Public Life, made a series o f recommendations on how the public appointments process in general might

36 The Hon Anthony Albanese MP, Minister for Infrastructure and Transport, House o f Representatives Hansard, 30 September 2010, p. 266.

37 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 27.

38 Mr Donald McDonald AC, Privacy Capacity, Proof Committee Hansard, 1 November 2010, p. 14.

39 See Dr van Bameveld and Mr Peaco*ck, CPSU, Proof Committee Hansard, 1 November 2010, p. 6.

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be improved.40 Seven principles underpinning the public appointments process in the UK were derived from the report, and are referred to as the 'Nolan rules'. The Nolan rules have become widely regarded as a best-practice approach to public appointments under a W estminster system o f government.41

2.37 The Nolan rules recommend that the following elements underpin a public appointment process:

â¢ ministerial responsibility;

â¢ merit;

â¢ independent scrutiny;

â¢ equal opportunities;

â¢ probity;

â¢ openness and transparency; and

â¢ proportionality.42

2.38 The CPSU, Friends o f the ABC (NSW) and officers from the Department of Broadband, Communications and the Digital Economy each gave evidence about the ways in which the proposed selection process fulfils the Nolan rules.

Ministerial responsibility

2.39 The proposed model retains a level o f discretion for the M inister and Prime M inister in the appointment process by allowing them to recommend the appointment o f a person not nominated by the nomination panel, subject to certain conditions.43 Friends o f the ABC (NSW) submitted:

We note that this process follows the Westminster conventions on ministerial responsibility, with the Minister retaining the power to reject the recommendations of the selection committee and appoint someone else. This is balanced, to some degree, by the fact that the Minister would be obliged to make the reasons for his decision public.44

2.40 Dr Simon Felling, First Assistant Secretary, Broadcasting and Switchover, Department o f Broadband, Communications and the Digital Economy, expanded on this point:

40 Committee on Standards in Public Life, 'Standards in Public Life: First Report', May 1995, www.public-standards.gov.uk/Librarv/OurWork/lstInquirvReport.pdf (accessed 4 November 2010).

41 Dr Kristin van Bameveld, Deputy National Secretary, Community and Public Sector Union, Proof Committee Hansard, 1 November 2010, p. 1.

42 The Commissioner for Public Appointments (UK), 'The Seven Code Principles', ‘ www.publicappointmentscommissioner.org/Code of Practice/ef8446f3551 .html (accessed 4 November 2010).

43 See discussion at paragraph 1.5.

44 Friends of the ABC (NSW), Submission 1, p. 3.

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With regard to ministerial responsibility, ultimate responsibility for appointments is with ministers. That is provided for in our provision. The nomination panel makes recommendations to the minister or, in the case of the ABC chair, the Prime Minister, but there is still capacity for the minister in particular circ*mstances to come up with somebody.45

2.41 This aspect o f the proposed model accords with the view o f the Nolan

committee that:

Accountability to Parliament is an important constitutional principle which we have no wish to weaken. We recommend that ultimate responsibility for appointments should remain with Ministers.46

Merit

2.42 The Nolan report recommended that all public appointments 'should be governed by the overriding principle o f appointment on m erit'.47 Dr Felling advised the committee that merit 'is what the whole process is fundamentally about'.48

2.43 A number o f witnesses and submitters questioned the fact that the bill

specifically precludes former Federal and State politicians and senior political staff members from appointment.49 The Explanatory M emorandum explains the scope o f 'senior political staff members':

It is anticipated that the legislative instrument that specifies classes of senior political staff member would include positions such as a Chief of Staff, Special Adviser, Principal Adviser, Senior Adviser, Media Adviser and Adviser.50

2.44 According to the Explanatory Memorandum, this provision is 'intended to strengthen the independence and impartiality of the ABC (and SBS) board[s]'.51 In support o f the provision, Friends o f the ABC (NSW) submitted:

The proposal to exclude from eligibility for appointment to the ABC Board former parliamentarians or people who have recently been "senior political

45 Dr Simon Felling, First Assistant Secretary, Broadcasting and Switchover, Department of Broadband, Communications and the Digital Economy, Proof Committee Hansard, 1 November 2010, p. 35.

46 Committee on Standards in Public Life, 'Standards in Public Life: First Report', May 1995, p. 72.

47 Committee on Standards in Public Life, 'Standards in Public Life: First Report', May 1995, p. 73.

48 Dr Simon Felling, First Assistant Secretary, Broadcasting and Switchover, Department of Broadband, Communications and the Digital Economy, Proof Committee Hansard, 1 November 2010, p. 35.

49 See National Broadcasting Legislation Amendment Bill 2010, Item 12, subclause 12(5A) (ABC); Item 24, subclause 17(2A) (SBS).

50 Explanatory Memorandum, National Broadcasting Legislation Amendment Bill 2010, p. 3.

51 Explanatory Memorandum, National Broadcasting Legislation Amendment Bill 2010, pp 6 and 15.

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staff members" is also likely to lead to greater public confidence in the ABC Board.52

2.45 However, a number o f witnesses argued that the proposed exclusion o f former politicians and senior political staffers undermines the merit principle and precludes an experienced and qualified class of persons from appointment. For example, Mr McDonald argued that:

I think it is an extraordinary provision, frankly, to suggest that somebody, having served the public as a member of parliament, is, as a result of that, contaminated to the extent that they cannot provide useful service to the public by being on the board of the ABC. I think that is not only extraordinary but profoundly offensive in retrospect to former politicians who have been on the ABC board.53

2.46 The CPSU agreed:

We actually believe that many people drawn to public life from all sides of parliament do want to make a contribution. We think that there is a degree of self-loathing in the proposed legislation, and our concern is not about...whether people are ex-politicians or ex-staffers; our concern is with

the notion of political appointments, and they are different things.54

Committee comment

2.47 The committee is persuaded by the arguments put forward by Mr McDonald and the CPSU, and does not see any reason why, after a suitable period o f time and provided they are found to be the most suitable candidate under a competitive, merit-based process, former politicians and political staff members ought not be eligible for appointment to the boards o f public broadcasters. The committee notes the submission by the Merit Protection Commissioner that 'merit is basically about getting the best available person for the job and doing it a way that is equitable, open and transparent',55 and does not see how excluding an entire category o f people serves the interests of 'getting the best available person for the job'.

2.48 In the committee's view, a waiting period before former politicians and senior staffers become eligible for public appointment would be appropriate. This would be consistent with other Commonwealth government policies and laws, such as the

Lobbying Code of Conduct, which does not preclude former parliamentarians from lobbying activities. Instead, the Code provides that former Ministers and

52 Friends of the ABC (NSW), Submission 1, p. 1.

53 Mr Donald McDonald AC, Private Capacity, Proof Committee Hansard, 1 November 2010, ‘ p. 14.

54 Dr Kristin van Bameveld, Deputy National Secretary, Community and Public Sector Union, Proof Committee Hansard, 1 November 2010, p. 2.

55 Merit Protection Commissioner, Submission 6, p. 2.

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Parliamentary Secretaries may not engage in lobbying activities relating to any matter that they had official dealings within 18 months o f leaving office.36

Recommendation 3

â¢ the individual ceased to hold office at least 18 months prior to the appointment; and

â¢ the individual is nominated by the Nomination Panel following an independent, merit-based selection process as set out by the bill.

Independent scrutiny

2.50 The Nolan report emphasised the importance o f independent scrutiny and advice in public appointments processes, finding that:

Public confidence would be enhanced if such advice [to the minister with respect to public appointments] included independent assurance that any proposed appointees had been scrutinised and found to be suitable for the post.5 6 57

2.51 Dr Felling advised the committee that the proposed process for ABC and SBS board appointments complies with this principle because:

With regard to independent scrutiny in the Nolan rules, no appointment will take place without first being scrutinised by an independent panel or by a group including membership independent of the department filling the post. Essentially the process of our appointment panel, including members who are selected by the secretary of the Prime Minister’s department, provides an independent scrutiny process which is separate from the department and from the minister in terms of identifying expert candidates for the post.58 5 9

2.52 A number o f submitters and witnesses questioned the independence o f the nomination panel which, as described above, the bill provides is to be appointed by the Secretary o f the Department o f the Prime M inister and Cabinet.39

2.53 Friends o f the ABC (NSW, Qld, Tas, Vic & WA) submitted:

56 Lobbying Code of Conduct, 2008, subclause 7.1, at http://lobbvists.pmc.gov.au/docs/code conduct.pdf (accessed 5 November 2010).

57 Committee on Standards in Public Life, 'Standards in Public Life: First Report', May 1995, p. 75.

58 Dr Simon Felling, First Assistant Secretary, Broadcasting and Switchover, Department of Broadband, Communications and the Digital Economy, Proof Committee Hansard, 1 November 2010, p. 35.

59 See discussion at 1.4 above. See also National Broadcasting Legislation Amendment Bill 2010, Item 15, clause 24F.

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With the independence of members of the Nomination Panel being critical to the integrity of the new appointment process and public confidence in it, integrity and transparency in the criteria and process for selection of the Nomination Panel is important. FABC believes that the Bill should specify

criteria for selection of the Nomination Panel and provide further detail on the process for selection.

2.54 Similarly, Dr Kristin van Bameveld, Deputy National Secretary, CPSU, argued:

We think that public confidence would be enhanced by having a more open system that provides guidance on how the selectors are chosen.6 0 61

2.55 Dr van Bam eveld suggested that the Prime M inister and opposition leader should make decisions about the composition o f the nomination panel.62 However, Ms Stradijot, from Friends of the ABC, warned that this approach risks the

appointment o f 'lowest common denominator' appointees.63 Although in making this argument Ms Stradijot was referring to the appointment of board members, the committee considers that the same argument applies to the selection of the nomination panel.

2.56 Dr W endy Southern, Acting Deputy Secretary, Governance, Department of the Prime M inister and Cabinet, assured the committee that over the past two years during which an administrative merit-based appointment process has been in operation, very experienced and qualified individuals have been appointed to the

selection panel.64 In response to a question on notice the Department of Broadband, Communications and the Digital Economy acknowledged that there are no selection criteria prescribed in the Bill to guide the appointment o f members to the Nomination Panel. Instead the department indicated:

In making appointments to the Panel, the Secretary of the Department of the Prime Minister and Cabinet takes account of the ability of potential Panel members to conduct a merit based appointment process. In making appointments to the Nomination Panel, the Secretary has taken the

following into consideration:

â¢ The candidate’s experience on boards and in large organisations;

â¢ The candidate’s understanding of corporate governance; and

â¢ An appropriate representation by gender and States.

60 Friends of the ABC (NSW, Qld, Tas, Vic & WA), Submission 4, p. 2.

61 Dr Kristin van Bameveld, Deputy National Secretary, Community and Public Sector Union, Proof Committee Hansard, 1 November 2010, p. 1.

62 Dr Kristin van Bameveld, Deputy National Secretary, Community and Public Sector Union, Proof Committee Hansard, 1 November 2010, p. 1.

63 Ms Glenys Stradijot, Campaign Manager/Executive Officer, Friends of the ABC, Proof Committee Hansard, 1 November 2010, p. 7.

64 Dr Wendy Southern, Acting Deputy Secretary, Governance, Department of the Prime Minister and Cabinet, Proof Committee Hansard, 1 November 2010, pp 30— 31.

In making appointments, the Secretary sought to select people who had this range of experience, who would be respected by both sides of politics, and together would have the widest possible understanding of aspects of Australian life and culture.65

Committee comment

2.57 While the committee does not question the independence or quality o f the individuals currently on the nomination panel, the committee shares the concerns expressed by the CPSU and Friends o f the ABC regarding the need for assurance that the nomination panel is itself independent and free from political influence.

2.58 However, the committee is also cognisant o f the fact that it is possible to over-bureaucratise a merit-based appointment process in pursuing the aim of independence. For example, it would be ridiculous if members o f the nomination panel themselves needed to appointed through a merit-based selection process, because there would be no logical end to a chain o f merit-based selection processes. In the committee's view, an appropriate method of ensuring the integrity o f the nomination panel would be for the panel to include, or be advised by, the Merit Protection Commissioner.

2.59 The Merit Protection Commissioner currently has an active role in ensuring that selection processes for agency heads and APS statutory office holders is merit-based under the government's merit and transparency policy relating to those positions.66 The role involves the Commissioner, or her representative, being a full member o f the assessment panel for these positions.67 The Merit and Transparency policy states that:

The primary role of the Commissioner [in the selection processes for agency heads and APS statutory office holders] is to ensure that assessment of candidates is based on merit. The Commissioner (or his or her representative) is in all respects a full member of the assessment panel and therefore plays an active role in the process. He or she needs to be involved in all aspects of the selection exercise including shortlisting of applicants...68

2.60 The policy does not apply to the ABC or SBS, however the Merit Protection Commissioner submitted:

Given the level of consistency between the expectations on the SES and Boards in general, the relevance of the APS approaches to merit and

65 Department of Broadband, Communications and the Digital Economy, answer to question on notice from hearing of 1 November 2010 (received 8 November 2010).

66 Merit Protection Commissioner, Submission 6, Attachment 2, p. 6.

67 A list of agencies and positions to which the policy applies is at www.apsc.gov.au/apsurofile/agencvheadselection.htm.

68 Merit Protection Commissioner, Submission 6, Attachment 2, p. 6.

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transparency in engaging and promoting its senior staff appear to be substantiated.69

2.61 The committee considers that, to ensure that assessment o f candidates is based on merit, the Merit Protection Commissioner should be a member o f the nomination panel for the ABC and SBS Boards to m irror his or her involvement in the

appointment o f APS heads and statutory office holders.

2.62 Accordingly, the committee recommends that the Merit Protection

Commissioner have a standing appointment to the ABC and SBS board nomination panel.

Recommendation 4

2.63 The committee recommends that the government include the Merit Protection Commissioner as a permanent member of the Nomination Panel for appointments to the ABC and SBS boards.

Equal opportunities 2.64 The Nolan report recommended that 'the boards of public bodies should contain a balance of relevant skills, interests and backgrounds'.70 In this regard Dr Felling informed the committee that:

The principles of equal opportunity are taken into account in the selection process. Indeed, you would be aware that the SBS board is part of this process and quite specifically the selection panel looks at particular skills needed for people on the SBS board, given the statutory role of SBS.71

Probity 2.65 The Nolan report emphasised the importance of public boards observing the 'highest standards of impartiality, integrity and objectivity' and displaying a 'sense of the values and behaviour appropriate to the public sector'.72

2.66 Dr Felling advised that:

With regard to probity, board members of public bodies must be committed to the principles and values of public service. That kind of thing is taken into account in our criteria but our particular criteria do not specifically deal with that. Essentially, members of the ABC and SBS boards are, where

there is some guidance in their legislation, subject to the standard principles

69 Merit Protection Commissioner, Submission 6, p. 4.

70 Committee on Standards in Public Life, ’Standards in Public Life: First Report', May 1995, p. 75.

71. Dr Simon Felling, First Assistant Secretary, Broadcasting and Switchover, Department of Broadband, Communications and the Digital Economy, Proof Committee Hansard, 1 November 2010, p. 35.

72 Committee on Standards in Public Life, 'Standards in Public Life: First Report', May 1995, p. 82.

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2 0

applying to directors in the Commonwealth Authorities and Companies Act. Those set out a basic set of rules about integrity of their service.73

Openness and transparency

2.67 The Nolan report made a number o f recommendations relating to the

importance o f openness and transparency in the appointment process for directors of public boards. The proposed process takes these principles into account by the requirements that:

â¢ positions be advertised;74 and

â¢ the M inister or Prime M inister table reasons for appointing a person not

nominated by the Nomination Panel.75

2.68 Dr Felling explained:

With regard to openness and transparency, the process is a public process. Anyone can apply. The independent panel assesses the applications and makes recommendations to the minister.76

Proportion ality 2.69 The final Nolan rule o f proportionality means that appointment procedures ought to be appropriate 'for the nature o f the post and the size and weight o f its

responsibilities'.77

2.70 Dr Felling explained:

I think the reference to proportionality is basically saying that you should not spend huge amounts of effort for relatively minor appointments and hardly any effort on relatively large appointments. Basically our process is about the heads of two substantial broadcasting organisations, and the process is proportionate to the requirements of those boards and has been

successful in achieving its objectives to date.78

73 Dr Simon Felling, First Assistant Secretary, Broadcasting and Switchover, Department of Broadband, Communications and the Digital Economy, Proof Committee Hansard, 1 November 2010, p. 35.

74 National Broadcasting Legislation Amendment Bill 2010, Item 15, subclause 24B(3) (ABC); Item 29, subclause 43(3).

75 National Broadcasting Legislation Amendment Bill 2010, Schedule 1, Item 15, subclause 24X(2) and (4) (ABC); Item 29, clause 43B (SBS).

76 Dr Simon Felling, First Assistant Secretary, Broadcasting and Switchover, Department of Broadband, Communications and the Digital Economy, Proof Committee Hansard, 1 November 2010, p. 35.

77 The Commissioner for Public Appointments (UK), 'The Seven Code Principles', at www.publicappointmentscommissioner.org/Code of Practice/ef8446f3551.html (accessed 4 November 2010).

78 Dr Simon Felling, First Assistant Secretary, Broadcasting and Switchover, Department of Broadband, Communications and the Digital Economy, Proof Committee Hansard, 1 November 2010, p. 35.

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2.71 Dr Felling elaborated on the most recent appointment processes:

If you look at the last two appointment processes, we have had two separate processes, in 2008-2009 and in 2009-2010. The first appointment process cost $207,992 and the second appointment process cost $112,115...

If there were four appointments in the first and two appointments in the second, that suggests that the cost per appointment is of the order of $50,000 to $60,000...79

Committee comment 2.72 Based on the evidence provided by the Department of Broadcasting,

Communications and the Digital Economy, the CPSU and Friends of the ABC, the committee is satisfied that, subject to Recommendations 3 and 4, the appointment process proposed by the bill complies with the principles underpinning the Nolan rules and is an appropriate way o f ensuring ABC and SBS board directors are appointed on the basis o f merit.

2.73 Appendix 3 contains suggested amendments to the bill to reflect

recommendations 3 and 4. * 1

79 Dr Simon Felling, First Assistant Secretary, Broadcasting and Switchover, Department of Broadband, Communications and the Digital Economy, Proof Committee Hansard, 1 November 2010, pp 31-32.

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2 2

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Chapter 3

Staff-elected director

3.1 The second component o f the bill, contained in Schedule 2, reinstates the position o f staff-elected director to the ABC Board.

3.2 The position o f staff-elected director was created by a legislative amendment to the ABC Act in 1985. However, the origins o f the position can be traced to the position o f staff-elected commissioner introduced by the Whitlam government in 1975.1

3.3 The position was removed by an amendment to the ABC Act in 2006.1 2 At that time the Australian Labor Party, Australian Greens and Australian Democrats Senators voted against the abolition o f the position of staff-elected director.3

3.4 The CPSU, Friends o f the ABC and M r Quentin Dempster, a former

staff-elected director, were all strongly in favour o f the reinstatement o f the position. Dr Kristin van Bameveld, Deputy National Secretary, CPSU, argued that a staff elected director is:

...able to bring current knowledge and to provide those skills to the board, and being able to m ake sure that decisions that are made at the board level are decisions that, potentially, are the right decisions for the organisation.4

3.5 Similarly, M r Dempster described his experience in the position:

W hat I found in m y time there was that you could have a discussion, a very constructive discussion, and say: ‘How are w e going to handle this because there’s going to be a lot o f hurt. L et’s work out where this can be

communicated to the staff.’ So the staff-elected director can be a very positive force, assisting the ABC... [T]he staff-elected director can be a part o f the governance o f the organisation and to give a sense o f ownership o f the entity and its responsibilities and its reputation.5

3.6 M r Dempster's submission traces the history o f the position and gives a range of examples in which the staff-elected director has protected the best interests o f the ABC, and particularly its independence.6

1 Senate Environment, Communications, Information Technology and the Arts References Committee, Above Board, Methods o f appointment to the ABC Board, September 2001, p. 22.

2 Australian Broadcasting Corporation Amendment Act 2006 (No. 49 of 2006).

3 Senate Hansard, 10 May 2006, p. 10.

4 ' Dr Kristin van Bameveld, Deputy National Secretary, Community and Public Sector Union, Proof Committee Hansard, 1 November 2010, p. 6.

5 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 24.

6 Mr Quentin Dempster, Submission 3, pp 6-9.

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3.7 M r McDonald, former Chair of the ABC Board, argued against the

reinstatement o f the position on the basis that the M anaging Director o f the ABC is already a member o f the Board and is 'capable o f representing the interests o f the sta ff.7

3.8 However, M r Dempster argued that:

The managing director can represent the staff view in terms of saying, ‘They are not going to like this’ or ‘This should be good because we are going to expand these services and there will be more creative opportunities’. In that sense any managing director or chief executive is able to say what the implications for the staff are. What I have been trying to say is that the position has evolved as a very beneficial conduit to the governance and management of the ABC.8

3.9 The reason behind the removal o f the position in 2006 was that the position 'is not consistent with modem principles o f corporate governance' due to the apparent tension between the interests o f staff and the organisation as a whole.9 In his second reading speech to the amending legislation in 2006, the then M inister explained:

This tension is manifested in the potential conflict that exists between the duties of the staff-elected Director under the Commonwealth Authorities and Companies Act 1997 to act in good faith in the best interests of the ABC, and the appointment of that Director as a representative of ABC staff and elected by them. The election method creates a risk that a staff-elected Director will be expected by the constituents who elect him or her to place the interests of staff ahead of the interests of the ABC where they are in conflict...

There is a clear legal requirement on the staff-elected Director that means he or she has the same rights and duties as the other Directors, which includes acting in the interests of the ABC as a whole. The Government is of the view that there should be no question about the constituency to which ABC Directors are accountable.10

3.10 However, both Mr Dempster and the CPSU gave evidence that this tension does not in fact exist. Dr van Bameveld stated:

[T]he staff elected director is a board member like everybody else and is subject to the legislative constraints of a board member like anybody else.

7 Mr Donald McDonald AC, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 16.

8 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 27.

9 Senate Environment, Communications, Information Technology and the Arts Legislation Committee, Australian Broadcasting Corporation Amendment Bill 2006, May 2006, p. 1.

10 Senator the Hon Nick Minchin, Second Reading Speech, Australian Broadcasting Corporation Amendment Bill 2006, 29 March 2006.

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As I said in our submission, they most certainly are not the representative of the staff.11

3.11 The CPSU explained that the role o f representing staff interests is carried out by unions, and not the staff-elected director:

We take offence at any suggestion that the staff-elected director is the representative of staff on the board. That is the role of unions. There are three unions covering employees at the ABC, and we defend our role as being the representatives of staff. No staff-elected director has ever made a claim to be the representative of staff and, in fact, past staff-elected directors have communicated this directly to staff.1 1 12

3.12 M r Dempster agreed with these statements and explained that:

When you are being approached, lobbied or emailed, [the staff-elected director would say] ‘That's not something for me; take it up with your representatives’.13

3.13 The committee notes that the duties o f all ABC Board members include:

â¢ ensuring that the ABC's functions are performed efficiently and with

maximum benefit to the people o f Australia;

â¢ maintaining the ABC's independence and integrity; and

â¢ ensuring that the gathering and presentation o f news and information by the ABC is accurate and im partial.14

3.14 ABC Board directors also have a range of other obligations under Part 3, Division 4 of the Commonwealth Authorities and Companies Act 1997, including obligations to act in good faith, not to improperly use their position or information from it to gain an advantage, and to disclose conflicts o f interest. The staff-elected director will not be, and was not previously, exempt from these obligations and is accordingly bound, like any other director, to act in the best interests o f the ABC as a whole and to maintain its independence and integrity.

3.15 Based on the evidence presented by the CPSU, M r Quentin Dempster and the Friends o f the ABC, the committee believes that the reinstatement of the position of staff elected director is in the best interests o f the ABC.

3.16 However, Mr M cDonald raised two pertinent points in relation to the position of staff-elected director, that the committee considers should be incorporated into the bill. The first relates to the burden on staff-elected directors of campaigning for the

11 Dr Kristin van Bameveld, Deputy National Secretary, Community and Public Sector Union, Proof Committee Hansard, 1 November 2010, pp 4-5.

12‘ Dr Kristin van Bameveld, Deputy National Secretary, Community and Public Sector Union, Proof Committee Hansard, 1 November 2010, p. 2.

13 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 25.

14 ABC Act, subsection 8(1).

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2 6

position, and the pressure that the possibility o f a second term places on staff-elected directors. M r McDonald explained:

I think the most burdensome part of it was that, in the arrangements then— and at least these provisions are an improvement, if they are passed—their term was for two years only and they could stand for another two years. But it meant that if they wanted to do another term they were in a position of campaigning or passively campaigning for a chunk of that time. So they had to deal with all these pressures, all these inquiries and all these bombardments. If this provision for a staff elected director were to go through, I would urge the legislators to think seriously about limiting the term of the staff elected director to one term only. I think the five years is a big improvement on the previous two years and I think it would be an even further improvement if they could never stand again, so that they did not have to ever think about their re-election.15

3.17 The former staff-elected director, M r Dempster supported this proposition put forward by M r M cDonald.16

3.18 The committee accepts the argument by M r McDonald, and supports limiting the period a staff-elected director may serve to one term. Accordingly, the committee recommends that the bill be amended to provide that a staff-elected director may only serve one five-year term, and is not eligible for re-appointment.

Recommendation 5

3.19 The committee recommends that the bill be amended to provide that a staff-elected director may hold office for a maximum of one five-year term.

3.20 The second issue that M r M cDonald raised that the committee feels should be reflected in the bill is why the ABC Board and not the SBS Board is to have a

staff-elected director:

If it is good and necessary for the ABC, why is it not good and necessary for SBS?17

3.21 M r Dempster agreed that this was a good suggestion.18

3.22 The committee did not receive any evidence on the specific situation o f the SBS, but notes that the SBS Act currently provides that in appointing directors:

...the Governor-General must have regard to the need to ensure that the Directors include a person who the Governor-General is satisfied, having regard to consultations between the Minister and representatives of

15 Mr Donald McDonald AC, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 15.

16 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 27.

17 Mr Donald McDonald AC, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 15.

18 Mr Quentin Dempster, Private Capacity, Proof Committee Hansard, 1 November 2010, p. 23.

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2 7

industrial organisations representing employees, has an appropriate understanding of the interests of employees.19

3.23 However, this provision does not require that the director be a current staff member. The committee is convinced o f the benefits o f having a current staff member on the board o f the ABC, and considers that the same principles that justify the position on the ABC Board warrant the extension of the position to the SBS Board.

Recommendation 6

3.24 The committee recommends that the SBS Act be amended to include a staff-elected director on the SBS Board.

Conclusion

3.25 Overall, the committee considers that this bill represents a much needed reform to two aspects o f the governance o f public broadcasters in Australia - a merit-based selection process for ABC and SBS Board appointments and the inclusion

of a staff-elected director. Subject to the amendments contained in recommendations 3-6 o f this report, the committee recommends that the Senate pass the bill.

3.26 Appendix 3 contains suggested amendments to the bill to reflect

recommendations 3-6.

Recommendation 7

3.27 Subject to the amendments contained in Recommendations 3-6 of this report, the committee recommends that the Senate pass the National Broadcasting Legislation Amendment Bill 2010.

Senator Doug Cameron Chair

19 SBS Act, para. 17(2)(c).

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28— '—

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A dditional Comments

Australian Greens Senator Scott Ludlam The Australian Greens substantially agree with the views expressed in the majority report. As a truly independent source o f unbiased journalism and cultural activity, the ABC has a vital role to play in Australian society. A healthy, functional democracy

depends upon access to reliable information and critical analysis, especially in areas that make the Government o f the day and other powerful vested interests

uncomfortable.

Further, it is not only the reality o f independence that is important, but the public perception o f it. If the Australian public are suspicious that the work o f the ABC is being tailored to suit a partisan political agenda, they will be disinclined to trust its

reporting and much o f the value o f the ABC will be lost.

Given this, and the history o f political interference in the work o f the ABC outlined on pages six to nine o f the majority report, the present bill is very welcome and deserving of support. The majority's recommendations are aimed at further strengthening the bill, and I support recommendations one and two unequivocally.

My primary point o f departure from the majority arises with regard to

recommendation three. I accept that m any former politicians and political staffers may be capable of making a valuable contribution to the board o f the ABC,

particularly if they are vetted through a robust merit-based selection process, and I acknowledge the CPSU's argument that 'political appointments' are not necessarily the same thing as 'appointments o f politicians'. However, in my view these arguments are

outweighed by the following considerations:

â¢ There are obvious reasons for suspecting former politicians and staffers of political partisanship, even though they do not have an exclusive claim to that dubious distinction.

â¢ O f the range o f potentially partisan applicants, this cohort is readily identified and excluded.

â¢ There is a significant problem o f public perception with this cohort, especially given that the proposed selection process leaves a certain degree of executive discretion intact. The Communications Minister or Prime Minister would ultimately personally appoint these former parliamentarians, potentially from their own party, all the while attempting to reassure the public that the

appointment is not politically-motivated.

â¢ The group excluded by these provisions of the bill is small enough that there will be no difficulty recruiting appropriately-qualified board members without them.

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Recommendation four is the only other place that I arrive at a slightly different conclusion to the majority. I agree that the laudable aim o f depoliticising ABC board appointments is further advanced by ensuring that the nomination panel is not simply appointed at the open discretion o f the Secretary o f the Department o f Prime M inister and Cabinet (PM&C). The inclusion o f the M erit Protection Commissioner on the panel is a good idea and I endorse it. However, that still leaves the head o f PM&C appointing potentially three o f four panel members.

The CPSU's suggestion (at page 9 o f their submission) provides a more

comprehensive solution to the problem o f establishing a depoliticised nomination panel. I recommend melding their suggestion with majority recommendation four to provide for a three-person nomination panel chaired by the Merit Protection Commissioner, with the other two members being the Secretary o f the Department of Broadband, Communications and the Digital Economy and the chair o f the ABC Board (or another board member nominated by the board if the Chair is unavailable). This has the same advantages as the CPSU's recommendation, in that the panel would be chaired by someone with expertise in merit-based decision-making and a minority

o f members (one) might be vulnerable to public perception of a pre-disposition for selection decisions that advance the political agenda o f the incumbent Government.

I support majority recommendations five and six for the reasons given in the majority report. The perception that the position o f staff-elected director is at odds with the responsibilities o f the board clearly arises from the mistaken belief that the function of this position is to represent the interests o f staff. Evidence to the Committee makes it plain that this is not the case, and the position brings useful operational knowledge

into the boardroom.

My final recommendations pick up on useful suggestions from Friends o f the ABC (FABC) and the CPSU that would serve to further limit the scope for politicised selection decisions. Firstly, FABC suggested limiting the shortlist that will be presented to the Communications M inister or Prime M inister to three, rather than 'at

least three', as a longer list obviously provides greater scope for a more politically- palatable selection to be made. Secondly, the CPSU suggested that if the executive wishes to appoint a candidate from outside the shortlist, that candidate must be

someone who has been assessed by the selection panel. Further, the executive must table the panel's reasons for not shortlisting that person alongside the executive's reasons for selecting him/her. This will help to ensure that the Government only disregards the results o f the independent, merit-based selection process where it can make a persuasive public argument for its decision.

Recommendation 1

That the Government disregards majority recommendation 3 and sustains an absolute ban on former politicians and senior political staffers being appointed to the board of the ABC.

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Recommendation 2

That the Government builds on majority recommendation 4 and amends the bill to provide for a three person nomination panel chaired by the Merit Protection Commissioner, with the other members being the Chair of the ABC Board (or another board member nominated by the board) and the Secretary of the Department of Broadband, Communications and the Digital Economy.

Recommendation 3

That the Government amends the bill to provide that the executive selects board members from a shortlist of three, rather than 'at least three'.

Recommendation 4

That the Government amends the bill to provide that if the executive appoints a board member from outside the shortlist supplied by the selection panel, the appointee must have been assessed by the panel and the executive must table the

panel's reasons for not shortlisting the person alongside the executive's reasons for appointing him/her.

Recommendation 5

That the Government act on majority recommendations 1, 2, 5 and 6 as they are presented in the majority report.

Senator Scott Ludlam

, - â

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A ppendix 1

Submissions and answers to questions taken on notice

Submissions

1 Friends of the ABC (NSW) Inc

2 Friends of the ABC, SA Branch

3 Mr Quentin Dempster

4 Friends of the ABC - NSW, Qld, Tas, Vic and WA

5 Community and Public Sector Union

Answers to questions taken on notice

1 M r Quentin Dempster - Answers to questions taken on notice (from public hearing, 1 November 2010)

2 Department o f Broadband, Communications and the Digital Economy - Answers to questions taken on notice - ministerial discretion (from public hearing, 1 November 2010)

3 Department o f Broadband, Communications and the Digital Economy - Answers to questions taken on notice - selection criteria (from public hearing, 1 November 2010)

4 CPSU - Answers to questions taken on notice (from public hearing, 1 November 2010)

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34.

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A ppendix 2

Public hearings

Monday, 1 November 2010 - Canberra

Community and Public Sector Union

Dr Kristin van Bameveld, Deputy National Secretary

M r Matt Peaco*ck, Delegate

Friends of the ABC - NSW, Qld, Tas, Vic and WA

Ms Glenys Stradijot, Campaign Manager/Executive Officer

Mr Donald McDonald AC (private capacity)

Mr Quentin Dempster (private capacity)

Department of Broadband, Communications and the Digital Economy

Dr Simon Felling, First Assistant Secretary, Broadcasting and Switchover

M r Jason Dickie, Manager, National and Community Broadcasting Section

Department of the Prime Minister and Cabinet

Dr Wendy Southern, Acting Deputy Secretary, Governance

Mr Glen Kierse, Assistant Secretary Infrastructure, Regulation and Competition Policy Branch

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Appendix 3

Recommended amendments to National Broadcasting Legislation Amendment Bill 2010

Recommendation 3

â¢ the individual ceased to hold office at least 18 months prior to the appointment; and

â¢ the individual is nominated by the nomination panel following an independent, merit-based selection process as set out by the bill.

Recommended amendments

(1) Schedule 1, item 12, page 5 (lines 8 to 15), omit subsection 12(5A), substitute:

(5 A) The following persons are not eligible for appointment as a Director referred to in paragraph (l)(b) or (c) while they hold office, or for a period o f 18 months after they cease to hold office:

(a) a member o f the Parliament o f the Commonwealth; (b) a member o f the Parliament o f a State, o f the Legislative Assembly for the Australian Capital Territory or of the Legislative Assembly of the Northern Territory.

(5AA) A person who is employed as a senior political staff member is not eligible for appointment as a Director referred to in paragraph (l)(b) or (c) while they are employed as a senior political staff member.

(SAB) A person who was employed as a senior political staff member is not eligible for appointment as a Director referred to in paragraph (l)(b) or (c) for a period o f 18 months after ceasing to be employed as a senior political staff member.

(SAC) Subsections (SB), (SC) and (5D) do not apply to a person to whom subsection (5A), (5AA) or (SAB) applies.

(SAD) A person to whom subsection (5A), (5AA) or (SAB) applies must not be appointed other than in accordance with a competitive selection procedure set out in section 24B.

Note: A former politician or a former senior political staff member is not eligible to be appointed as a Director unless the person has been nominated by the Nomination Panel.

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(2) Schedule 1, item 24, page 16 (lines 1 to 10), omit subsection 17(2A), substitute:

(2A) The following persons are not eligible for appointment as a Director referred to in paragraph 8(a), (aa) or (b) while they hold office, or for a period o f 18 months after they cease to hold office:

(a) a member of the Parliament o f the Commonwealth; (b) a member o f the Parliament o f a State, o f the Legislative Assembly for the Australian Capital Territory or o f the Legislative Assembly o f the Northern Territory.

(2AA) A person who is employed as a senior political staff member is not eligible for appointment as a Director referred to in paragraph 8(a), (aa) or (b) while they are employed as a senior political staff member.

(2AB) A person who was employed as a senior political staff member is not eligible for appointment as a Director referred to in paragraph 8(a), (aa) or (b) for a period o f 18 months after ceasing to be employed as a senior political staff member.

(2AC) Subsections (2B) and (2C) do not apply to a person to whom subsection (2A), (2AA) or (2AB) applies.

(2AD) A person to whom subsection (2A), (2AA) or (2AB) applies must not be appointed other than in accordance with a competitive selection procedure set out in section 43.

Note: A former politician or a former senior political staff member is not eligible to be appointed as a Director unless the person has been nominated by the Nomination Panel.

Recommendation 4

2.63 The committee recommends that the government include the Merit Protection Commissioner as a permanent member of the Nomination Panel for appointments to the ABC and SBS boards.

Recommended amendment

(3) Schedule 1, item 15, page 8 (lines 28 to 31), omit section 24E, substitute:

24E Membership

The Nomination Panel consists o f the following members:

(a) the Chair o f the Nomination Panel; (b) the Merit Protection Commissioner appointed under Part 6 o f the Public Service Act 1999, or his or her nominee; and (c) at least 1, and not more than 2, other members.

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Recommendation 5

3.19 The committee recommends that the bill be amended to provide that a staff-elected Director may hold office for a maximum of one five-year term.

Recommended amendments

(4) Schedule 2, item 4, page 22 (line 27) to page 28 (line 6), omit subsection 13A(5), substitute:

(5) Subject to sections 16 and 18, the person who is the staff-elected Director holds office on a part-time basis for a period o f 5 years starting:

(a) if, on the day on which the person is declared to be elected, another person holds office as the staff-elected Director because o f a previous election— on the day after the day on which the other person ceases to hold office; or (b) in any other case— on the day on which the person is declared to be

elected.

(5) Schedule 2, item 4, page 23 (lines 7 to 9), omit subsection 13A(6), substitute:

(6) A person who has been elected as the staff-elected Director at one election is not eligible for election at any other election of the staff-elected Director.

Recommendation 6

3.24 The committee recommends that the SBS Act be amended to include a staff-elected Director on the SBS Board.

Recommended amendment

(6) Schedule 2, page 23 (after line 22), at the end o f the Schedule, add:

Special Broadcasting Service A ct 1991

8 Paragraph 8(b)

Repeal the paragraph, substitute:

(ab) the staff-elected Director; and (b) not fewer than 3 nor more than 7 non-executive Directors.

9 Paragraph 17(2)(b)

Omit “; and”.

10 Paragraph 17(2)(c)

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4 0

Repeal the paragraph.

11 At the end of section 17

Add:

(4) In this section, non-executive Director does not include the staff-elected Director.

(5) If there is a defect or irregularity in the appointment o f a person as a staff-elected Director, the performance o f the functions, or the exercise o f the powers, of the Board is not affected by anything done, or omitted to be done, by or in relation to that person while he or she purported to be, or to

act as, the staff-elected Director.

12 At the end of section 18

Add:

(3) In this section, non-executive Director does not include the staff-elected Director.

13 At the end of section 21

Add:

(3) In this section, non-executive Director does not include the staff-elected Director.

14 At the end of section 24

Add:

(7) In this section, non-executive Director does not include the staff-elected Director.

15 At the end of Division 1 of Part 3

Add:

27A Staff-elected Director

(1) Subject to this section, the staff-elected Director must be elected in accordance with the regulations.

Note: As a member of the Board, the staff-elected Director is a director of a Commonwealth authority for the purposes of the Commonwealth Authorities and Companies Act 1997: see the definition of director in section 5 of that Act.

Eligibility fo r election

(2) A person is eligible to be a candidate for election, and to hold office, as the staff-elected Director if:

(a) the person is an employee o f the SBS who, by the terms of his or her employment, is required to devote at least 22 hours per week to the duties o f that employment; or

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(b) the person (the relevant person) performs services for the SBS, under the direction and control o f the Managing Director or an employee of the SBS, under:

(i) a written contract entered into between the SBS and the relevant person; or

(ii) a written contract entered into between the SBS and a person other than the relevant person, being a contract that specified the relevant person as the person who would perform the services under the contract.

Effect o f candidate ceasing to be eligible after nomination

(3) If a person who has been nominated as a candidate for election as the staff-elected Director ceases to be eligible to be such a candidate after having been nom inated and before the day on which the election takes place:

(a) if there are 2 or more other eligible candidates— the election must be held as if the person were not a candidate; or (b) if there is only one other eligible candidate— the other candidate must be declared to be elected; or

Candidate may vote at election

(4) A person who is eligible to be a candidate for election as the staff-elected Director is eligible to vote at the election.

Period o f office

(5) Subject to sections 26 and 27, the person who is the staff-elected Director holds office on a part-time basis for a period o f 5 years starting:

(a) if, on the day on which the person is declared to be elected, another person holds office as the staff-elected Director because o f a pervious election— on the day after the day on which the other person ceases to hold office; or (b) in any other case— on the day on which the person is declared to be

elected.

(6) A person who has been elected as the staff-elected Director at one election is not eligible for election at any other election of the staff-elected Director.

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352

Minority Report by Coalition Senators

On the Senate E nvironm ent and C om m unications Legislation C om m ittee's R eport on its Inquiry into the National Broadcasting L egislation A m endm ent Bill 2 0 1 0

The Coalition strongly supports our national broadcasters. However the Bill has significant shortcomings.

R e c o m m e n d a t i o n 1

2 . 1 8 T h e c o m m i t t e e r e c o m m e n d s t h a t t h e A BC B o a r d r e v i e w w h e t h e r t h e p a r t n e r s h i p

b e t w e e n A B C B o o k s a n d H a r p e r C o l I i n s m a i n t a i n s t h e n e c e s s a r y i n d e p e n d e n c e o f A BC

B o o k s a n d t h e A B C a s a w h o l e .

R e c o m m e n d a t i o n 2

2 . 2 7 In o r d e r t o p r o t e c t t h e i n d e p e n d e n c e o f A u s t r a l i a ' s p u b l i c b r o a d c a s t e r s , t h e

c o m m i t t e e u r g e s t h e g o v e r n m e n t a n d t h e A BC a n d S B S b o a r d s t o e n s u r e t h a t t h e

i n t e r v e n t i o n i s t a p p r o a c h b y g o v e r n m e n t , w h i c h h a s r e s u l t e d i n t h e p o l i t i c i s a t i o n o f

p u b l i c b r o a d c a s t e r s , d o e s n o t o c c u r a g a i n .

R e c o m m e n d a t i o n 3

2 . 4 9 T h e c o m m i t t e e r e c o m m e n d s t h a t t h e b i l l b e a m e n d e d t o p r o v i d e t h a t a f o r m e r

p o l i t i c i a n o r s e n i o r p o l i t i c a l s t a f f m e m b e r i s e l i g i b l e f o r a p p o i n t m e n t t o t h e A B C a n d S B S

b o a r d s p r o v i d e d t h a t t h e y m e e t t h e f o l l o w i n g c o n d i t i o n s :

â¢ t h e i n d i v i d u a l c e a s e d t o h o l d o f f i c e a t l e a s t 1 8 m o n t h s p r i o r t o t h e a p p o i n t m e n t ;

â¢ t h e i n d i v i d u a l i s n o m i n a t e d b y t h e n o m i n a t i o n p a n e l f o l l o w i n g a n i n d e p e n d e n t , m e r i t -

b a s e d s e l e c t i o n p r o c e s s a s s e t o u t b y t h e b il l.

Mr Donald McDonald told the Committee:

My experience is that former politicians are frequently more balanced, more understanding o f a range o f views than people who are party members, and yet they are not going to be excluded from this.'

Former politicians have made a valuable contribution to the Board of the ABC and other Government bodies. For instance, in 1994 Labor appointed form er SA Labor Premier, John Bannon, to the ABC Board. Labor's position on the value of form er politicians on Government

Boards is entirely inconsistent as the current Government has appointed John Kerin to the CSIRO Board, Steve Bracks as an advisor for the car industry and Peter Costello to the Future Fund Board.

It is hypocritical for the Government to claim on the one hand th at former politicians provide valuable skills and experience to assist some boards, but not the boards of the national broadcasters.

The intended definitions of'senior political staff m em ber’ are not clear, and are likely to be fraught with difficulty in practical application. Whilst the Chair's proposed 'qualifying period’ after which an otherwise-excluded individual might become eligible for board membership is not unhelpful, it is ad hoc and (in the case of a senior political staff member) remains fraught with difficulty in practical application . 1

1 M r Donald M cDonald, Com m ittee Hansard, 1/11/10 353

R e c o m m e n d a t i o n 4

2 . 6 3 T h e c o m m i t t e e r e c o m m e n d s t h a t t h e g o v e r n m e n t i n c l u d e t h e M e r i t P r o t e c t i o n

C o m m i s s i o n e r a s a p e r m a n e n t m e m b e r o f t h e n o m i n a t i o n p a n e l f o r a p p o i n t m e n t s t o t h e

A B C a n d S B S b o a r d s .

G e n e r a l c o m m e n t s o n t h e n o m i n a t i o n s p r o c e s s - Senate Estimates confirmed th at the

Government spent approximately $200,000 on the selection process utilised to appoint the four new directors to the boards of the national broadcasters in April 2009. This included payment for the members of the Nominations Panel, engagement of a recruitm ent firm and the advertisem ent of the vacancies.

As mentioned in the Bill, there is no guarantee that the nomination process will produce a successful nomination and it is still within the Government’s power to make an appointm ent that is not a recommendation of the Nomination Panel, provided the selection process has been undertaken.

The Government is effectively creating a new bureaucratic process and now a new bureaucratic position to oversee the process.

G e n e r a l c o m m e n t s o n t h e s t a f f e l e c t e d d i r e c t o r

In 2006, the Coalition am ended the Australian Broadcasting Act 1983 to remove the position of staff-elected director from the legislated composition of the ABC Board to improve corporate governance of the organisation.

The decision to abolish the staff-elected director was announced following the Coalition Government’s Review of Corporate Governance of Statutory Authorities and Office Holders (Uhrig Review), and the removal of the staff elected director was consistent with Uhrig’s recommendations about representative appointm ents.

The position of staff elected director was seen as an anomaly amongst Government Agency Boards. The other national broadcaster, the SBS, does not have a staff elected director.

The Coalition was also concerned about the potential conflict of interest of the staff-elected director who is legally required to act in the best interests of the ABC as director, but is appointed as a representative of staff and elected by them.

The reason was best articulated back in 2006 in the explanatory memorandum to the Australian Broadcasting Corporation Amendment Bill. It stated:

"The Bill addresses an ongoing tension relating to the position o f staff-elected Director. A potential conflict exists between the duties o f the staff-elected Director under paragraph 23(1 )(a) of the Commonwealth Authorities and Companies Act to act in good faith in the best interests o f the ABC, and the appointment o f that Director via election by ABC staff.

The election method creates a risk that a staff elected Director will be expected by the constituents who elect him or her to place the interests o f staff ahead of the interests of the ABC as a whole where they are in conflict."

More generally and critically, this staff-elected position is at odds with standard practice in Australian corporate governance. We made th at position clear at the time and we took action.

Labor announced in June 2007 that their policy was to reinstate the staff elected director to the Board of the ABC. In October 2008, they announced that they would commence a new merit- based selection process and seek to reinstate the staff elected director.

The same concerns th at led to the Coalition decision to remove the staff elected director position from the ABC Board remain, and these have not been addressed by the Government.

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T he U h rig R e v ie w c o n c lu d e d

"The review does not support representational appointments to governing boards as representational appointments can fail to produce independent and objective views. There is the potential for those appointments to be primarily concerned with the interests o f those they represent, rather than the success of the entity they are responsible for governing.

While it is possible to manage conflicts of interest, the preferred position is not to create circ*mstances where they arise."

In the ABC submission to the Senate inquiry into the 2006 legislation, the then Acting Managing Director of the ABC, Murray Green, stated in relation to the conflict of interest for the staff- elected director th at it is: "Inevitable there has been a tension between the expectations placed by others on their role and their established duties as directors of a corporation."

The Minister’s second reading speech merely states that the Government does not believe there is any inherent conflict of interest.

However, in evidence provided to this Committee:

â¢ Mr McDonald indicated his view that whilst in his experience, staff-elected board m em bers did a good job on the Board, they w ere subject to ongoing tension in that role, given expectations of them by staff members; â¢ Mr Dempster indicated his view th at staff mem bers do not need to have a m ember of the

board with a role in representing staff interests; and â¢ Mr Dempster also conceded th at a staff elected board m ember does face conflicts of interest in th at role, but considered that those conflicts could be dealt with by the relevant staff board m ember declaring those conflicts.

The case from a majority of ABC Staff mem bers has not been made. There is no evidence that the ABC's performance has suffered from the absence of a staff-elected director. Nor is there evidence that the community is crying out, ‘We think the ABC is doing well, but it would do so much better if we could get back a staff elected director.1

The Coalition notes some of the good w ork done by the ABC since 2006: â¢ launched two extra television channels (ABC3 Children's channel and ABCNews24); â¢ moved to digital radio; â¢ launched ABCNews24, Australia's first free-to-air 24 hours news channel; â¢ established the num ber one rated online opinion site The Drum; â¢ launched the ABC Open project which produces, curates, and publishes local

contributions from ABC regional audiences; and â¢ is planning to expand the ABC’s international presence by consolidating the ABC's presence in the Asia-Pacific Region and roll out new services in Africa, Latin America and the Middle East.

Also of material interest is the fact that whilst the Director-General of the BBC was formerly appointed by their Board of Governors, he/she is now appointed by the BBC Trust. A Director- General is operationally independent of BBC management and external bodies, and aims to act in the best interests of licence fee payers.

R e c o m m e n d a t i o n 5

3 .1 9 T h e c o m m i t t e e r e c o m m e n d s t h a t t h e b i l l b e a m e n d e d t o p r o v i d e t h a t a s t a f f - e l e c t e d

D ir e c t o r m a y h o l d o f f i c e f o r a m a x i m u m o f o n e f i v e - y e a r t e r m .

The Coalition opposes the reinstatem ent of staff-elected director and therefore opposes this recommendation. 355

R e c o m m e n d a t i o n 6

3 . 2 4 T h e c o m m i t t e e r e c o m m e n d s t h a t t h e S B S A c t b e a m e n d e d t o i n c l u d e a s t a f f - e l e c t e d

D i r e c t o r o n t h e S B S B o a r d .

The Coalition opposes the reinstatem ent of a staff-elected director and therefore opposes this recommendation. The same deficiencies in the arguments for the ABC extend to the SBS.

It is even more problematic to extend the principle of a staff elected director to the SBS, given SBS relies on paid advertising for a considerable part of its revenue stream . This makes an independent board even more critical for the SBS, so that SBS can focus on governance and management.

R e c o m m e n d a t i o n 7

3 . 2 6 S u b j e c t t o t h e a m e n d m e n t s c o n t a i n e d i n r e c o m m e n d a t i o n s 3 - 6 o f t h i s r e p o r t , t h e

c o m m i t t e e r e c o m m e n d s t h a t t h e S e n a t e p a s s t h e N a t i o n a l B r o a d c a s t i n g L e g i s l a t i o n

A m e n d m e n t B il l 2 0 1 0 .

Given th at the Coalition opposes the reinstatem ent of a staff-elected director, we oppose this recommendation.

S e n a t o r M a r y Jo F i s h e r

356

The Senate

Environment and Communications Legislation Committee

Radiocommunications Amendment Bill 2010 [Provisions]

N ovem ber 2010

357

This document was printed by the Senate Printing Unit, Parliament House, Canberra

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Committee membership

Committee members Senator Doug Cameron (ALP, NSW) (Chair) Senator Mary Jo Fisher (LP, SA) (Deputy Chair) Senator Scott Ludlam (AG, WA) Senator Anne M cEwen (ALP, SA) Senator the Hon. Judith Troeth (LP, VIC) Senator Dana Wortley (ALP, SA)

Committee secretariat Mr Stephen Palethorpe, Secretary Mr Geoff Dawson, Principal Research Officer Mrs Dianne Warhurst, Executive Assistant

Committee address PO Box 6100 Parliament House Canberra ACT 2600

Teh 02 6277 3526 Fax'. 02 6277 5818 Email, ec.sen@aph.gov.au Internet, www.aph.gov.au/senate/committee/ec_ctte/index.htm

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Table of Contents

Committee m em bership..........................................................................................iii

Chapter 1 - Introduction.......................................................................................... 1

Conduct o f the inquiry......................................................................................................1

Background to the b ill......................................................................................................1

Chapter 2 - Issues for consideration......................................................................5

Exemptions from disallowance........................................................................................ 5

Coexistence o f class licences and spectrum licences..................................................8

Timing to prepare for reissue o f spectrum licences..................................................10

Committee com m ent..................................................................................................... 11

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Chapter 1

Introduction

Conduct of the inquiry

1.1 On 30 September 2010 the Senate, on the recommendation o f the Selection of Bills Committee, referred the provisions o f the Radiocommunications Amendment Bill 2010 to the Environment and Communications Legislation Committee for inquiry and report by 17 November 2010.1

1.2 The bill makes various changes to the Radiocommunications Act 1992 (the Act) relating to spectrum licences.

1.3 The committee advertised the inquiry on its website and in The Australian, and also wrote to a range o f relevant peak organisations inviting submissions. The committee received no submissions. As a result, the committee decided not to hold public hearings.

1.4 Although this inquiry received no submissions— an indication that the bill is uncontroversial— the committee notes the concerns about aspects o f the proposed policy changes raised in submissions to an April 2009 discussion paper on public interest criteria for reissue o f spectrum licences. The committee also notes the House

of Representatives debate on the bill on 28 October 2010.1 2

Background to the bill3

1.5 In the late 1990s the Australian Government commenced auctioning a number of spectrum licences designed to support a market based approach to licensing the radio frequency spectrum. The licences had 15 year tenure, flexible conditions and were fully tradeable. Australia was amongst the first countries in the world to issue

licences on this basis.

1.6 The first of the key spectrum licences will expire in 2013, with the remainder expiring by 2017. These licences are primarily used to provide 2G and 3G mobile

1 Senate Selection of Bills Committee, Report No. 11 o f 2010: see Senate Hansard, 30 September 2010, p. 529. The bill had been introduced into the House of Representatives on 16 June 2010, but lapsed at the end of the 42nd Parliament before being debated. It was reintroduced into the House of Representatives in the new parliament on 30 September 2010.

2 Department of Broadband, Communications and the Digital Economy, Public Interest Criteria > fo r Re-issue o f Spectrum Licences - Discussion Paper fo r Public Consultation, April 2009, www.archive.dbcde.gov.au/2010/ianuarv/public interest criteria for re issue of spectrum licences (accessed 2 November 2010). House o f Representatives Hansard,

28 October 2010, p. 17ff.

3 This section is based on p. 5 of the explanatory memorandum.

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phone and wireless services to millions o f Australian consumers. Reissue o f the licences is an important and complex issue that will provide ongoing and future spectrum for current and next generation communications services.

1.7 Spectrum licences in Australia can only be issued in specific parts o f the radiofrequency spectrum that have been either designated for spectrum licensing under section 36 o f the Act, or declared for spectrum licensing under section 153B of the Act.

1.8 Under the Act there is a presumption that when a spectrum licence expires it will be reallocated by the Australian Communications and Media Authority (ACMA) via a price based mechanism (e.g. auction) unless it is in the public interest to do otherwise.4

1.9 A licence may be reissued to the incumbent on public interests grounds under either o f two circ*mstances:

â¢ the ACM A is satisfied that special circ*mstances exist so that it is in the

public interest for the licensee to continue to hold the licence;5 or

â¢ the minister has determined a class o f services for which reissue to

incumbents would be in the public interest, and the licence was used to provide a service that falls within that class.6

1.10 The Act gives the ACMA the power to vary the core conditions o f spectrum licences that it reissues, even where the licences are reissued to the incumbent.7

1.11 As to which licences may be renewed under these provisions, the government has indicated that 'renewal will be offered to those telecommunications incumbents who are already using their spectrum licences to provide services to significant numbers o f Australian consumers, or who have in place networks capable o f providing services to significant numbers o f consumers, provided they also meet public interest criteria.'8

1.12 The government has indicated support for the following public interest criteria supported by the majority o f stakeholder responses to an April 2009 discussion paper:

â¢ promoting the highest value use for spectrum;

â¢ investment and innovation;

â¢ competition;

4 Radiocommunications Act 1992, sections 60 and 80.

5 Radiocommunications Act 1992, paragraph 82(1 )(b).

6 Radiocommunications Act 1992, paragraph 82(l)(a) and subsection 82(3).

7 Radiocommunications Act 1992, subsection 82(5).

8 Senator the Hon S. Conroy, Minister for Broadband, Communications and the Digital Economy, Fifteen year spectrum licence pathway, media release, 4 March 2010.

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â¢ consumer convenience; and

â¢ determining an appropriate rate of return to the community.9

1.13 The government has indicated the following approach to renewal:

â¢ any decisions to renew licences will be made considering all the public

interest criteria;

â¢ licences reissued in accordance with the public interest criteria will be subject to an agreement on price;

â¢ the government will seek a fee that reflects the scarcity and value of the

resource;

â¢ renewal is not a certainty simply because a carrier services a significant

customer base; and

â¢ an auction process remains a genuine option where the minister is satisfied that renewal is not in the public interest.10

9 Explanatoiy memorandum, p. 2. Senator the Hon. S. Conroy, Minister for Broadband, Communications and the Digital Economy, address to AMTA Member Networking Forum, - 3 March 2010. Department of Broadband, Communications and the Digital Economy, Public Interest Criteria for Re-issue o f Spectrum Licences - Discussion Paper for Public Consultation,

April 2009.

10 Senator the Hon. S. Conroy, Minister for Broadband, Communications and the Digital Economy, address to AMTA Member Networking Forum, 3 March 2010.

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Chapter 2

Issues for consideration

2.1 The bill's significant provisions, which are expanded below, are:

â¢ exemptions from disallowance for:

â¢ determinations by the minister under subsection 82(3), concerning reissuing licences to the same licensees in the public interest (item 4);

â¢ directions by the minister under subsection 294(2), concerning spectrum access charges (item 10);

â¢ the ACM A will be able to issue class licences in spectrum space allocated or designated for spectrum licences (coexistence) (items 5 and 7);

â¢ the ACM A will be able to start preparations for reissuing spectrum licences earlier than the two year time limit which now applies (items 1 and 2).

Exemptions from disallowance

Minister's determinations concerning reissue of licences (item 4)

2.2 At present the ACM A may reissue a spectrum licence to the previous licensee without an auction or competitive tender process under certain conditions. One of the possible conditions is that the licence was used to provide a service which is the

subject o f a ministerial determination that reissuing spectrum licences to the same licensees would be in the public interest (see paragraph 1.9).1

2.3 A determination by the minister under this provision is currently a

disallowable legislative instrument.1 2

2.4 The bill amends this provision so that the minister's determination, though still a legislative instrument, would not be disallowable.3

2.5 The explanatory memorandum justifies this change as follows:

This instrument is being exem pted from the disallowance regime because any delay stemming from a potential disallowance o f such a ministerial determination w ould severely impact upon the successful conclusion o f licence reissue discussions between the Government and the relevant incumbent licensees. There would also be adverse follow-on impacts on

1 Radiocommunications Act 1992, section 82.

2 Radiocommunications Act 1992, subsection 82(4).

3 Schedule 1, item 4, amendment to subsection 82(4).

36/

commercial and investment certainty for incumbent licensees if reissue discussions are delayed.4

Comment of the Scrutiny of Bills Committee on item 4

2.6 The Senate Scrutiny o f Bills Committee is required to review all bills in

relation to (among other things) whether they inappropriately delegate legislative powers or insufficiently subject the exercise o f legislative pow er to parliamentary scrutiny.5

2.7 In relation to this proposed exemption from disallowance, the Scrutiny of Bills Committee commented:

The Committee’s view is that removing parliamentary oversight is a serious matter and that a comprehensive justification for it should be provided. In this case, the explanatory memorandum at pages 3 and 18 includes a detailed outline of the justification for the approach, including that (at page

18):

'This instrument is being exempted from the disallowance regime because any delay stemming from a potential disallowance of such a ministerial determination would severely impact upon the successful conclusion of licence re-issue discussions between the Government and the relevant incumbent licensees. There would also be adverse follow-on impacts on commercial and investment certainty for incumbent licencees if re-issue discussions are delayed.'

The Committee notes this explanation, the fact that determinations will be published on the Federal Register of Legislative Instruments and also that the disallowance process provides a timeframe of 15 sitting days within which to give a notice of motion to disallow a legislative instrument (section 42 of the [Legislative Instruments Act]).

2.8 The Scrutiny o f Bills Committee concluded that 'in the circ*mstances the Committee l e a v e s t o t h e S e n a t e a s a w h o l e the question o f whether exempting any

instruments made under section 82(3) is appropriate'.6

Minister's directions concerning spectrum access charges (item 10)

2.9 Under section 294 o f the Act, the ACMA may make determinations fixing spectrum access charges. Under subsection 294(2) the minister may give directions to the ACMA about the matters dealt with in determinations. A direction by the minister is currently a disallowable legislative instrument by virtue o f subsection 294(5).

4 Explanatory memorandum, p. 18.

5 Senate Standing Order 24.

6 Senate Standing Committee for the Scrutiny of Bills, Alert Digest, no. 9 of 2010, pp 11-12. Emphasis in original.

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2.10 To avoid doubt, Item 9 of the bill clarifies that a direction by the minister could cover the amount o f the spectrum access charge. The government has signalled that 'the government will seek a fee that reflects the scarcity and value o f this important public resource.'7

2.11 Item 10 o f the bill provides that a ministerial direction on spectmm access charges will no longer be a legislative instrument; thus it will not be made public and will not be disallowable.

2.12 The explanatory memorandum justifies this change as follows:

It is appropriate that sensitive pricing information contained in such directions remain confidential until the discussions with licence holders and licence reissue processes are completed.

If the amendment was not made, it would mean that the direction would, among other things, be published on the Federal Register of Legislative Instruments (making it public, amongst other things) and be subject to

disallowance, which would have an adverse material impact upon the Commonwealth’s position in discussions for the issue and reissue of spectrum licences.

Notwithstanding that the ministerial direction will no longer be published as a result of the amendment at Item 10, it is the expectation of the Government, consistent with current practice, that prices paid for licences would be published by the ACMA after discussions and the ACMA completes its licence reissue processes. Availability of price information is

an important element in facilitation and encouraging a spectmm secondary market.

Furthermore, instmments of this kind (that is ministerial directions to persons, Commonwealth Authorities) need not have been disallowable in the first place, on the basis that they would be a class of instmments that

ordinarily would be exempt under the Legislative Instruments Act 2003.8

2.13 The committee notes that concerns about reducing parliamentary oversight of the minister's determinations and directions through these amendments were expressed during debate on the bill in the House o f Representatives.9

Comment of the Scrutiny o f Bills Committee on item 10

2.14 In relation to this proposed exemption from disallowance, the Scmtiny of Bills Committee commented:

7 Senator the Hon. S. Conroy, Minister for Broadband, Communications and the Digital ‘ Economy, address to AMT A Member Networking Forum, 3 March 2010.

8 Explanatory memorandum, p. 21.

9 For example, the Hon. M. Turnbull MP, House o f Representatives Hansard, 28 October 2010, p. 18.

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The justification for this approach at page 4 of the explanatory memorandum is that:

'The intention of this amendment is to protect commercially sensitive pricing information relating to the reissue of 15 year spectrum licences. By giving a written ministerial direction to the ACMA, under subsection 294(2), which is not a legislative instrument and not subject to disallowance, it will protect this information during licence reissue discussions.'

The explanatory memorandum also states at page 4 that although the direction will not be published the Government intends to continue its current practice of publishing the prices paid for licences once the licence re-issue process is complete.

The Committee’s view is that removing parliamentary oversight is a serious matter and that a comprehensive justification for it should be provided. In this case the Committee notes that instruments of this kind are a class of instruments that ordinarily would be exempt from disallowance under table item 41 of section 44 of the Legislative Instruments Act 2003.

In the circ*mstances, the Committee makes no further comment on this item.10 1 1

Coexistence of class licences and spectrum licences

2.15 'Coexistence' refers to allowing devices and services not owned by the primary licence holder to operate in a spectrum-licensed band under certain conditions.

2.16 Developing technologies may allow devices licensed under class licences to share spectrum using sophisticated methods to avoid interference. This has potential to greatly increase efficient use o f spectrum .11

2.17 At present, the ACM A cannot issue class licences in spectrum designated for spectrum licensing under section 36 o f the A ct.12 The only way of accommodating these new technologies would be under a third party authorisation by the incumbent spectrum licence holder. However, according to the explanatory memorandum, 'there are significant impediments to new operators gaining third party authorisations':

8______________________________________________________________________________________________________

10 Senate Standing Committee for the Scrutiny of Bills, Alert Digest, no. 9 of 2010, pp 11-12.

11 A class licence authorises anyone to operate a radiocommunications device of a specified kind or for a specified purpose. Class licences are often used for low powered wireless devices such as cordless telephones, remote garage door openers and Bluetooth applications. Radiocommunications Act 1992, section 132. Explanatory memorandum, p. 6. Further

information about coexistence is in ACMA, Proposal to amend the Radiocommunications Act 1992 to allow the authorisation o f devices under class licences in spectrum designated fo r spectrum licensing (section 36), 2006.

12 Radiocommunications Act 1992, section 138.

3 7 0

â¢ technical reasons (inconsistent with the technical framework but not an actual interference problem);

â¢ commercial reasons: e.g. incumbents blocking technologies offering

competitive services;

â¢ transaction costs;

â¢ risk aversion by spectrum licensees; and

â¢ in geographic areas or parts o f the spectrum where spectrum licences have not been taken up, the lack o f a licensee to provide a third party authorisation (which leaves the spectrum in question idle).13

2.18 The bill removes the prohibition on issuing class licences in spectrum designated for spectrum licensing on condition that, before issuing a class licence, the ACM A is satisfied that:

â¢ issuing the class licence would not result in unacceptable levels of

interference to devices operated, or likely to be operated, under spectrum licences;14 and

â¢ issuing the class licence is in the public interest.15

2.19 In response to an April 2009 discussion paper which explored this issue, coexistence drew mixed reactions from stakeholders: it was generally opposed by major incumbent licence holders, but supported by some others who anticipated benefiting from it.16 The explanatory memorandum noted that 'the main concern [of opponents] was the erosion o f a primary licence holder's rights as a result of

interference from spectrum sharing technologies.'17

2.20 The government points out that 'the legislative prohibition on coexistence seems unique to Australia':

13 Explanatory memorandum, pp 6-7.

14 The concept of'unacceptable levels o f interference' already exists in section 145 of the Act: the ACMA may refuse to register a transmitter if its operation could cause unacceptable levels of interference to other licences radiocommunications devices.

15 Schedule 1, item 7, proposed amendment of section 138. Items 5 and 6 of the bill are consequential amendments to section 138.

16 See Department of Broadband, Communications and the Digital Economy, Public M erest Criteria fo r Re-issue o f Spectrum Licences - Discussion Paper for Public Consultation, April 2009, www.archive.dbcde.gov.au/2010/ianuary/public interest criteria for re . issue of spectrum licences (accessed 2 November 2010). See for example submissions in

response from Australian Mobile Telecommunications Association, Optus, Qualcomm, Telstra, Unwired Australia with concerns about coexistence; from AeroMobile, Qantas Airways and V Australia supporting it.

17 Explanatory memorandum, p. 13.

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In many other countries, technologies with a low potential for interference are provided with licence exempt access to licensed spectrum. It is expected that there will be widespread adoption o f the new technologies in an extensive range of devices developed overseas, including in consumer goods that will be readily available in Australia, which makes an efficient method of authorisation an important issue. It is important that the Australian framework adapt to changes going forward so that Australia will not be left behind in adopting these important future technologies.18

2.21 The government has undertaken that 'implementation o f coexistence will be subject to the development by the ACM A o f regulatory provisions that ensure that interference concerns are fully addressed. This will be done in consultation with industry.'19

2.22 Statutory safeguards for spectrum licensees would include:

â¢ mandatory consultation o f affected spectrum licensees in relation to a

proposed class licence that uses spectrum licence frequencies;20

â¢ the class licence would be a disallowable legislative instrument (as class

licences are at present).21

2.23 The amendment would not affect current licences. It would only apply to reissued or newly issued spectrum licences.22

Timing to prepare for reissue of spectrum licences

2.24 At present the ACM A may start its preparations to reissue a spectrum licence (for example, releasing information and inviting expressions of interest) no more than two years before the date o f reissue.23

2.25 The bill removes the two year time lim it.24 According to the explanatory memorandum:

18 Explanatory memorandum, p. 7.

19 Senator the Hon. S. Conroy, Minister for Broadband, Communications and the Digital Economy, address to AMTA Member Networking Forum, 3 March 2010.

20 Item 5, proposed paragraph 136(1 A)(b), and item 7, proposed paragraph 138(2)(b).

21 Radiocommunications Act 1992, section 139.

22 Explanatory memorandum, p. 12.

23 Radiocommunications Act 1992, sections 78 and 79. The explanatory memorandum for the Radiocommunications Bill 1992 does not indicate why the time limit was included.

24 Schedule 1, items 2 and 3.

3 7 2

This amendment is intended to maximise the flexibility afforded to the ACMA regarding the commencement of licence reissue processes. In addition, this amendment will help reduce uncertainty for incumbent licensees close to licence expiry and encourage continued investment by

incumbents in existing network services currently provided under these licences.25

Committee comment

Exemptions from disallowance

2.26 As a general proposition the committee does not support provisions that reduce the Parliament's oversight o f ministerial discretions.

2.27 In relation to item 4 (exempting minister's determinations concerning reissue of licences to the same licensees from disallowance), the committee notes the concerns o f the Senate Scrutiny o f Bills Committee. The committee accepts the government's explanation that the changes are necessary to provide more certainty for

licensees, and to protect the Commonwealth's position in commercial negotiations with licensees, but also agrees that it should be left to the Senate as a whole to decide whether this exemption is appropriate.

2.28 The committee further notes the minister's commitment, when considering public interest determinations under subsection 82(3), to have regard to the five public interest criteria which emerged from the 2009 consultation (see paragraphs 1.12, 1.13).* 26 The committee also notes that the Minister, when exercising his discretion

under subsection 82(3), will not necessarily be limited to the five public interest criteria already identified.27

2.29 To provide industry with greater certainty, the committee recommends that the government should publish more detailed advice for industry on these and any other public interest criteria which the m inister expects to consider when using his

power under subsection 82(3).

Recommendation 1

2.30 The committee recommends that government should publish more detailed advice for industry on the public interest criteria noted in the explanatory memorandum of the bill, and any other public interest criteria which the minister may consider when using his power under subsection 82(3).

25" Radiocommunications Amendment Bill 2010, explanatory memorandum, p. 2.

26 Senator the Hon. S. Conroy, Minister for Broadband, Communications and the Digital Economy, address to AMT A Member Networking Forum, 3 March 2010.

27 Explanatory memorandum, p. 2.

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2.31 In relation to item 10 (exempting ministerial directions concerning spectrum access charges from disallowance), the committee notes that the Scrutiny o f Bills Committee has accepted the government's explanations. The committee notes the government's undertaking that pricing information would be published after the ACM A has completed its licence reissue processes. The committee agrees that the 'availability o f price information is an important element in facilitation and encouraging a spectrum secondary m arket'.28 However, the release o f this sensitive information during negotiations could genuinely hamper efforts to achieve an appropriate rate o f return to the community.

Coexistence o f class licences and spectrum licences

2.32 The committee notes the concerns o f some stakeholders in submissions to the government's April 2009 discussion paper, and the government's comments in reply.

2.33 The provision will allow coexistence in future subject to suitable safeguards. It does not imply that the ACM A will allow coexistence in any particular case or by any particular time. If the technologies that allow safe coexistence are immature,29 then the committee expects that the ACM A will take this into account in considering applications or setting conditions. The committee encourages the ACMA to approach coexistence in a technically conservative manner to ensure that the concerns of major

incumbents about possible interference are fully addressed.

Timing to prepare for reissue of spectrum licences

2.34 This part o f the bill has the committee's support.

Recommendation 2

2.35 The committee recommends that the bill be passed.

Senator Doug Cameron Chair

28 Explanatory memorandum, p. 21.

29 This was suggested in some submissions to DBCDE's April 2009 discussion paper on public interest criteria for reissue of spectrum licences - for example, see submissions from Defence and Qualcomm at www.archive.dbcde.gov.au/2010/ianuarv/Dublic interest criteria for re issue of spectrum licences (accessed 2 November 2010).

3 7 4

The Senate

Environment and Communications Legislation Committee

Water (Crisis Powers and Floodwater Diversion)

Bill 2010

N ovem ber 2010

This document was printed by the Senate Printing Unit, Parliament House, Canberra

376

Com m ittee membership

Committee members to 27 September 2010 Senator Anne McEwen (ALP, SA) (Chair) Senator Mary Jo Fisher (LP, SA) (Deputy Chair) Senator Scott Ludlam (AG, WA) Senator Kate Lundy (ALP, ACT) Senator the Hon. Judith Troeth (LP, VIC) Senator Dana W ortley (ALP, SA)

Committee members from 30 September 2010 Senator Doug Cameron (ALP, NSW ) (Chair) Senator Mary Jo Fisher (LP, SA) (Deputy Chair) Senator Scott Ludlam (AG, WA) Senator Anne McEwen (ALP, SA) Senator the Hon. Judith Troeth (LP, VIC) Senator Dana W ortley (ALP, SA)

Substitute members for this inquiry Senator Sarah Hanson-Young (AG, SA) replaced Senator Scott Ludlam (AG, WA) (from 15 June to 27 September 2010)

Participating members for this inquiry Senator Simon Birmingham (LP, SA) Senator Nick Xenophon (IND, SA)

Committee secretariat

Mr Stephen Palethorpe, Secretary Mr Geoff Dawson, Principal Research Officer Mrs Dianne Warhurst, Executive Assistant

Committee address PO Box 6100 Parliament House Canberra ACT 2600

Tel: 02 6277 3526 Fax: 02 6277 5818 Email: ec.sen@aph.gov.au Internet: www.aph.gov.au/senate/committee/ec_ctte/index.htm

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378

Table o f Contents

Committee m em bership..........................................................................................iii

Chapter 1 - Introduction.......................................................................................... 1

Conduct o f the inquiry..................................................................................................... 1

Background to the b ill..................................................................................................... 1

Description o f the b ill...................................................................................................... 2

Chapter 2 - Issues raised in subm issions............................................................. 5

Is the bill constitutionally v a lid ?................................................................................... 5

Detrimental effect on current water reform .................................................................6

Concerns about the M urray-Darling Basin Authority's pow ers............................... 7

Doubts about the MDBA's management ro le.............................................................. 8

Problems with definitions and triggers......................................................................... 8

Claimed bias toward the Lower L ak es......................................................................... 9

Alternative view s............................................................................................................ 11

Committee com m ent..................................................................................................... 12

Dissenting Report by Independent Senator Nick Xenophon and Senator Sarah Hanson-Young (Australian G reens)................................15

Appendix 1 - Subm issions...................................................................................... 17

Appendix 2 - Public hearings................................................................................ 19 V

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vi 380

Chapter 1

Introduction

Conduct of the inquiry

1.1 On 13 M ay 2010 the Senate, on the recommendation o f the Selection o f Bills Committee, referred the W ater (Crisis Power and Floodwater Diversion) Bill 2010 to the Environment, Communications and the Arts Legislation Committee for inquiry and report by 24 August 2010.

1.2 The bill is a private senators' bill introduced by Senator Xenophon and

Senator Hanson-Young.

1.3 The committee advertised the inquiry on its website and in The Australian, and wrote to relevant organisations inviting submissions. The committee received 19 submissions (see Appendix 1), and held a public hearing on 30 June 2010 (see Appendix 2). The committee thanks submitters and witnesses for their contribution.

1.4 The committee was unable to complete the inquiry before the general election called on 17 July 2010 and held on 21 August. On 26 October 2010 the Senate re-referred the inquiry, and authorised the committee to use the submissions and evidence received in the previous parliam ent.1

1.5 In the new parliament the committee's name was changed to Environment and Communications Legislation Committee.

Background to the bill

1.6 The bill should be considered in context o f the current scheme of

Murray-Darling Basin water reform based on the National W ater Initiative, the Water Act 2007, and the Murray-Darling Basin Plan which is now under development."

1.7 A 1995 audit o f water use in the M urray-Darling Basin found that water diversions, mostly for irrigated agriculture, had greatly reduced flow in the Lower Murray and had a significant impact on river health.1 2 3

1.8 In 2003 the M urray-Darling Basin Ministerial Council concluded that additional environmental flows were needed to ensure an environmentally sustainable

1 Journals o f the Senate, No. 5, 26 October 2010, p. 211.

2 ‘ For more detail on these points and their context see Senate Environment and Communications References Committee, Sustainable management by the Commonwealth o f water resources, October 2010, pp. 2ff.

3 Murray-Darling Basin Authority, About the Basin, www.mdba.gov.au/water/about basin (accessed 8 July 2010).

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Murray-Darling river system. Under the Intergovernm ental Agreement on a National W ater Initiative (25 June 2004) the parties com m itted to bring overallocated water systems back to environmentally sustainable levels o f use, with substantial progress by 2010.4 5 6 7

1.9 The Water Act 2007 (W ater Act) established the Murray-Darling Basin Authority (MDBA) as an independent statutory authority reporting to a

Commonwealth minister." It established basin-w ide water planning through a Basin Plan to be prepared by the M DBA and adopted b y the minister. A central element of the Basin Plan is to set sustainable diversion lim its which local water resource plans will have to comply with.

1.10 W ater resource plans for individual catchm ents will have to be consistent with the Basin Plan and accredited by the C om m onw ealth minister on the advice o f the MDBA. It is intended that local water resource plans will continue to be made by state authorities as they are at present, although th ey can also be made directly by the M DBA under certain circ*mstances (the 'step-in' pow er).6,7

1.11 A Guide to the proposed Basin Plan w as released for public comment on 8 October 2010. Following further consultations, a proposed Basin Plan will be sent to the Commonwealth water m inister for consideration and adoption.

1.12 High level mles about sharing o f M urray-D arling water between New South Wales, Victoria and South Australia are in the Murray-Darling Basin Agreement (8 December 2008), which is a schedule o f the W ater Act.8

Description of the bill

1.13 The object of the bill is to give the M D B A overall control of water resources in the Murray-Darling Basin during declared periods o f extreme crisis.9

4 Murray-Darling Basin Authority, The Living M urray First Step: frequently asked questions, www.mdba.gov.au/prograins/tlm/faas (accessed 30 June 2010). COAG communique, 24 June 2004. Intergovernmental Agreement on a National Water Initiative, 25 June 2004.

5 The former Murray-Darling Basin Commission was an executive body reporting to the MDB Ministerial Council as a whole.

6 MDBA, Guide to the proposed Basin Plan, October 2010, p. 10. Water Act 2007, sections 22(1) item 6, 23, 53(4) and 55.

7 The Commonwealth minister may direct the MDBA to make a water resource plan for a water resource plan if the responsible state does not make a plan or if the state makes a plan that is inconsistent with the Basin Plan (Water Act 2007, section 68). There are provisions for negotiation with the state before this happens: section 73.

8 Murray-Darling Basin Agreement (8 December 2008), part Î§Î.

9 Subclauses 3(a) and 15(a).

3 8 2

1.14 This would give the M DBA detailed management o f water resources including, for example, deciding periodic allocations to entitlement holders or the environment having regard to seasonal conditions. At present (and in future under the Basin Plan arrangements described above) this is done according to the rules in local

catchment-based water resource plans made by state authorities.

1.15 If part o f the M urray-Darling Basin was in extreme crisis as defined, but there was significant rainfall in other parts, the M DBA could allocate water for the benefit of the areas which remained in extreme crisis.10 1 1

1.16 The bill is acknowledged by one o f its co-authors (Senator Xenophon) as 'an interim measure as we await the Basin Plan’s release next year [2011] but we cannot wait until next year', however this position does not appear to be reflected in the provisions o f the bill.11

1.17 The m ain provisions o f the bill are described below .

Periods o f extreme crisis

1.18 The bill defines a 'period o f extreme crisis' as either:

â¢ a period starting when the level of Lake Alexandrina is continuously less than +0.0m Australian Height Datum (AH D )12 for m ore than three consecutive months; and ending when the level has been above +0.4m AHD for three consecutive months; or

â¢ a period starting when allocations to high security water entitlement holders in any irrigation district have been below 20 per cent for more than two

consecutive years; and ending when these allocations have returned to above 40 per cent in any y ear.13,14

1.19 The M DBA must advise the minister if it assesses that a period of extreme crisis has begun or ended.13 1 4 1 5

1.20 W hen the M DBA advises that a period o f extreme crisis has begun, the minister must either declare that the basin has entered a period of extreme crisis, or

10 Senator N. Xenophon, second reading speech, Senate Hansard, 18 March 2010, p. 2163.

11 Senator N. Xenophon, second reading speech, Senate Hansard, 18 March 2010, p. 2163.

12 Australian Height Datum: a reference point for measuring altitudes, based on the mean sea level 1966-1968: see www.ga.gov.au/geodesv/datums/ahd.isp (accessed 10 November 2010).

13 1 Clause 9. If a period of extreme crisis exists under both definitions, it does not end until it has ended under both definitions: subclause 9(4).

14 In subclause 9(1), 'subsection (1) or (2)' is presumably a misprint for 'subsection (2) or (3)'.

15 Clause 10.

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publish reasons why the minister does not think it necessary or appropriate to make such a declaration.16

1.21 When the MDBA advises that a period o f extreme crisis has ended, the minister must either declare that the period o f extreme crisis has ended, or publish reasons why the minister does not think it necessary or appropriate to make such a declaration.17

Effects o f a declaration of a period o f extreme crisis

1.22 During a declared period of extreme crisis, the M DBA may make directions dealing with any matter capable o f being dealt with by a 'water plan, arrangement or agreem ent'.18 This would give the M DBA wide-ranging powers over water sharing, water allocation, storage management, water accounting rules, rules for movement or sale o f water, and allocation o f water for system maintenance, conveyance and environmental purposes.19

Constitutional basis o f the bill

1.23 The W ater Act relies on several o f the Commonwealth's head o f powers in section 51 the Constitution (for example the trade and commerce, corporations and external affairs powers), supplemented by the power under section 51 (xxxvii) (matters referred by a state).20 Much o f the operation of the W ater Act depends on the referrals by states.21

1.24 The bill relies on the same heads o f power, but excluding section 51 (xxxvii).22

16 Clauses 11 and 12.

17 Clauses 11 and 13.

18 A 'water plan, arrangement or agreement' is defined as any plan, arrangement or agreement provided for or dealt with by the Water Act, including the Basin Plan; any interstate sharing agreement; any State or local plans; and any arrangement that affects the way that water entitlements and allocations may be traded: subclause 7(1).

19 Clause 17.

20 Water Act 2007, sections 9 and 9A.

21 The intergovernmental Agreement on Murray-Darling Basin Reform - Referral (3 July 2008) details what matters will be referred, and includes various conditions - for example, the Commonwealth will not amend a referred provision in the Water Act without the agreement of the affected state(s). The actual referral of power to the Commonwealth is done by state laws -

for example the Water (Commonwealth Powers) Act 2008 [NSW].

22 Clause 4.

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Chapter 2

Issues raised in submissions

2.1 Most submissions were from irrigators' organisations. Most submissions, and all those from irrigation interest groups, opposed the bill. The main reason given was that it would undesirably upset the longstanding agreed direction o f water reform based on cooperative Commonwealth-State relations, including the National Water

Initiative, the W ater Act, and the Basin Plan now under developm ent.1

2.2 Submitters' concerns about the bill follow. Submissions that supported the bill, or made related comments or suggestions, are mentioned further below.

Is the bill constitutionally valid?

2.3 The Gilbert + Tobin Centre of Public Law argued that the bill is unlikely to be constitutionally valid. Its submissions states that, while the bill relies on the same heads o f power as the W ater Act (other than referral o f powers by the states), 'we are not satisfied that the bill is drafted in a manner that takes advantage of such powers through establishing a clear constitutional connection to them .'1 2

2.4 W hile the Commonwealth has extensive capacity to legislate under section 51 of the Constitution, there must be a sufficient connection between the proposed law and the claimed head o f pow er.3 The Gilbert + Tobin Centre of Public Law argued that in the present case the connection is doubtful:

It is really, apart from anything else, a matter of approach and drafting... You would really need to tailor it very carefully to things like making sure that obligations are just placed upon corporations and entities engaged in interstate trade and commerce. It is the breadth of the legislation here that

takes it beyond even what are quite substantial Commonwealth powers.4

1 Western Murray Irrigation, Submission 2, p. 1; New South Wales Irrigators Council, Submission 3, p. 2; Gilbert + Tobin Centre of Public Law, Submission 4, p. 4; Murrumbidgee Irrigation, Submission 6, p. 2; National Irrigators Council, Submission 7, p. 3; Gwydir Valley Irrigators Association, Submission 8; Ricegrowers Association of Australia, Submission 10; Murray Irrigation Ltd, Submission 11, p. 1; National Farmers' Federation, Submission 14; and Queensland Government, Submission 19.

2 ‘ Gilbert + Tobin Centre of Public Law, Submission 4, p. 2.

3 Grain Pool o f Western Australia v Commonwealth (2000), 202 CLR 479 [16],

4 Prof. G. Williams (Gilbert + Tobin Centre of Public Law), Committee Hansard, 30 June 2010, p. 6.

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Detrimental effect on current water reform

2.5 Most submissions argued that the bill would have a detrimental effect on the longstanding agreed direction o f water reform based on cooperative Commonwealth- State relations including referral o f powers by the states.5

2.6 Submitters argued that this would create uncertainty and insecurity for water users. For example:

Reversing the level of certainty and security that exists within the property right of water through an attack on its fundamental will set the cause of water reform back in excess of a decade.6

It undermines the work being undertaken to develop a properly researched Basin Plan where all areas of the Basin are consulted and appropriate technical expertise has been engaged.7

The bill would completely undermine the market based system of water entitlements.8

2.7 The states' referral o f powers which supports important parts o f the W ater Act is governed by an intergovernmental agreement. The agreement provides that the Commonwealth will not repeal or amend a referred provision except with the agreement o f the affected state(s).9 The Gilbert + Tobin Centre o f Public Law argued that the bill may breach the agreement, since by extending the MDBA's power in the way proposed, 'it would constitute an amendment, albeit, indirect, o f those referred provisions.'10 1 1

2.8 Submitters were particularly concerned at the uncertainty that would be created by the possibility of overriding established water resource plans:

This process would see the replacement of a known and secure allocation system being replaced by an unknown, unverified and untried system based on uncertain rules emanating from an office in Canberra with little or no local knowledge or understanding.11

5 Western Murray Irrigation, Submission 2, p. 1; New South Wales Irrigators Council, Submission 3, p. 2; Gilbert + Tobin Centre of Public Law, Submission 4, p. 4; Murrumbidgee Irrigation, Submission 6, p. 2; National Irrigators Council, Submission 7, p. 3; Gwydir Valley Irrigators Association, Submission 8; Ricegrowers Association of Australia, Submission 10; Murray Irrigation Ltd, Submission 11, p. 1; National Farmers' Federation, Submission 14; and Queensland Government, Submission 19.

6 New South Wales Irrigators Council, Submission 3, p. 2.

7 Western Murray Irrigation, Submission 2, p. 1.

8 Gwydir Valley Irrigators Association, Submission 8, p. 5.

9 Agreement on Murray-Darling Basin Reform - Referral, 3 July 2008, clause 3.5.1(b).

10 Gilbert + Tobin Centre of Public Law, Submission 4, p. 4.

11 NSW Irrigators Council, Submission 3, p. 6.

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The adoption of this bill would remove elements of certainty for irrigated agriculture which we are looking to the Basin Plan to deliver.12

2.9 The Queensland Government opposed the bill because the implications for security o f entitlements, and the prospect of'unilateral changes to state water shares':

The bill as drafted raises concerns that, in crisis situations, water plans might be overridden without consultation, appeal or compensation. This would undermine the security of entitlements and the market principles underlying national water reform. The prospect of unilateral changes to

state water shares is equally concerning to Queensland.13

2.10 Queensland considers that 'the Murray-Darling Basin Plan, together with the agreed reform actions underway, is the proper basis for management of drought and climate change in the B asin.'14

2.11 The Gilbert + Tobin Centre of Public Law argued that for the sake of stability a cooperative approach is needed, given the doubts about the extent of the

Commonwealth's powers under the Constitution:

The cooperative approach has been considered to be in the interests of all parties because it was seen as the most likely to deliver stability and certainty to the management of the Basin. A Commonwealth-initiated scheme of the sort contemplated by this Bill would almost certainly invite a challenge on the grounds of constitutional validity and, in doing so, place that stability and certainty at risk.15

Concerns about the Murray-Darling Basin Authority's powers

2.12 Many submissions were concerned at the extensive powers proposed for the MDBA. For example the Queensland Government submitted that 'the powers conferred on the Authority by the bill are extremely broad and largely undefined':

As a result those powers may - as currently drafted - be able to be exercised in a far reaching manner and to an extent not necessary to achieve the objectives of the bill.16

2.13 Some submitters were particularly concerned that this would be without accountability through a responsible m inister.1' For example the National Irrigators Council submitted:

12 Ricegrowers Association o f Australia, Submission 10, p. 1.

13 > Queensland Government, Submission 19, p. 1.

14 Queensland Government, Submission 19, p. 1.

15 Gilbert + Tobin Centre o f Public Law, Submission 4, p. 4.

16 Snowy Hydro, Submission 9, p. 1.

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Our supposition is that this is a deliberate act by the authors designed to “take the politics out of water”. But at the end of the day a Minister must be accountable for decisions such as this and we believe the Bill would in effect create an all-powerful water bureaucrat with little accountability to the people.1 7 18

2.14 The Queensland Government argued that management o f crisis situations should occur within the framework o f the Basin P lan.19

Doubts about the MDBA's management role

2.15 Some submitters argued that if the M DBA, during periods o f extreme crisis, took over the detailed management o f water resources that is now done by state authorities, it would imply wastefully m aintaining two parallel bureaucracies.20 They doubted whether the MDBA would have the resources and expertise to undertake the detailed management now done by state water managers:

The MDBA does not have the physical resources, skills, knowledge or experience to suddenly start managing water resources across four states.21

We have long argued that transferring control of water from one group of politicians and bureaucrats to another group of politicians and bureaucrats (or in this case a single, unelected bureaucrat) does not create any more water, nor does it guarantee more equitable sharing arrangements.22

Problems with definitions and triggers

2.16 Several submissions argued that key definitions and triggers in the bill are unclear or inappropriate.

2.17 One o f the triggers o f a 'period o f extreme crisis' is, a period starting when allocations to 'high security water entitlement holders' in any irrigation district have been below 20 per cent for more than two consecutive years.23 However, some submitters noted that different entitlements have different names in different states,

17 At present under the Water Act the minister is responsible in that the minister may direct the MDBA in relation to the content of the Basin Plan (with some limitations); the Basin Plan takes effect when the minister adopts it; and the minister may direct the MDBA generally (with some limitations): sections 44 and 175.

18 National Irrigators Council, Submission 7, p. 3. Similarly Western Murray Irrigation, Submission 2,p. 1. Murrumbidgee Irrigation, Submission 6, p. 3.

19 Queensland Government, Submission 19, p. 2.

20 NSW Irrigators Council, Submission 3, p. 5. Murrumbidgee Irrigation, Submission 6, p. 3. Gwydir Valley Irrigators Association, Submission 8, p. 5.

21 Murrumbidgee Irrigation, Submission 6, p. 3. Similarly Western Murray Irrigation, Submission 2, p. 2.

22 National Irrigators Council, Submission 7, p. 3.

23 Paragraph 9(3)(a).

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which may leave it unclear what 'high security' refers to. For example, the National Irrigators Council submitted that:

In NSW, regulated entitlements in the main are either General Security or High Security. In Victoria, entitlements in the main are either High Reliability or Low Reliability. In South Australia, only one form of entitlement is issued for MDB surface water. On strict interpretation, it would appear that the ill-defined trigger point in 9(3) references only water allocation in NSW.24 2 5

2.18 The National Farmers' Federation argued that the reference to high security allocations 'will create confusion as allocations vary significantly during an irrigation season. This will result in the powers switching on and off in quick succession.'23

2.19 Similarly, in the conditions for existence o f a 'period of extreme crisis', the bill does not define 'irrigation district'.26 Irrigator interest groups noted that the 'irrigation district' trigger could apply to irrigation districts that are not within the Murray- Darling Basin;27 or which are not regularly connected to the main system. They regarded this as inappropriate:

Under the proposed trigger in the Bill, a groundwater user in Parilla, South Australia, could potentially have all rules relating to his water use scrapped or suspended because of a dry period affecting high security entitlement holders in the Gwydir system more than 1300km away. Note that the

Gwydir River ends in terminal wetlands and does not connect to the rest of the system except in extreme flood events. Clearly this would be absurd.28

Claimed bias toward the Lower Lakes

2.20 Many submitters argued that the policy behind the bill is biased to ensuring environmental outcomes for the Low er Lakes at the expense of balanced management of the whole system. For example:

It seems very parochial to describe ‘crisis conditions’ in such narrow terms, i.e. a specific location within the Basin. The Basin has been in and out of water crisis due to drought in many locations over the last decade. The definition provided in the Bill is specific to one location/key indicator environmental site, yet the MDBA advise there are 18 sites.29

24 NSW Irrigators Council, Submission 3, p. 4.

25 National Farmers' Federation, Submission 14, p. 1.

26 Paragraph 9(3)(a). Gwydir Valley Irrigators Association, Submission 8, p. 4.

I 27 NSW Irrigators Council, Submission 3, p. 5.

28 National Irrigators Council, Submission 7, p. 5. Similarly NSW Irrigators Council, Submission 3, p. 4, makes the same point in relation to the Lachlan River.

29 Murrumbidgee Irrigation, Submission 6, pp 2— 3. Similarly NSW Irrigators Council, Submission 3, p. 4. National Farmers' Federation, Submission 14, p. 1.

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The last four years’ season-ending irrigation allocations have been dreadful for South Australian irrigators - but the following table [showing end of season irrigation allocations as a percentage of entitlements in sample catchments throughout the Murray-Darling Basin] demonstrates the level of difficulty elsewhere... Similarly, upstream environmental assets have also suffered... No change in management arrangements would have changed the situation for these assets or irrigation districts in the face of the worst drought in 100 years.30

2.21 The Queensland Government argued that 'from a Queensland perspective, [using the height o f Lake Alexandrina as a trigger] would result in unduly long periods o f crisis powers and give the appearance o f a narrowly focussed intent.'31

2.22 Submissions and evidence discussed the floods o f early 2010 which, in the opinion of some, did not deliver enough water to the Lower Lakes. This appears to have been one o f the issues that m otivated the bill.32

2.23 Irrigator interest groups argued that the treatment o f recent floodwater was reasonable in the circ*mstances:

Yes, a significant portion of flood waters that occurred in southern Queensland and northern New South Wales was diverted for economic use. At the same time, a significant portion of those floodwaters flowed down the Darling system, through Menindee, through the lower Darling and into the Murray, feeding a whole range of environmental assets, including the Lower Lakes.33

The severity of the drought however, meant that rainfall inflows of 6700GL in the Northern Rivers, were soaked up in the extremely dry landscapes... The expectation that large volumes would reach the Lower Lakes ignored the extent of the drought in NSW and the behaviour of flood flows, revitalizing parched landscapes.34

2.24 On the other hand, Professor Bell argued that 'after the recent rains and flooding of 2009 and 2010, it is no longer credible to blame the drought alone for the lack o f end of river flows':

30 National Irrigators Council, Submission 7, p. 7.

31 Queensland Government, Submission 19, p. 2.

32 'There have been two occasions in recent months in Queensland, where floods and heavy rain have resulted in overflowing rivers...given the dire situation our Lakes are facing, it only makes sense to send these waters south.’ Senator N. Xenophon, second reading speech, Senate Hansard, 18 March 2010, p. 2162. Similarly Senator N. Xenophon,

Committee Hansard, 30 June 2010, p. 4.

33 Mr A. Gregson (NSW Irrigators Council), Committee Hansard, 30 June 2010, p. 4. Similarly Murray Irrigation, Submission 11, p. 2.

34 Southern Riverina Irrigators, Submission 12, p. 3

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It has become apparent that it is not just rain that is needed, but policies that will ensure that the floodwaters flow through the system.35 3 6 3 7 3 8

2.25 Professor Young noted that 'the predictions about how much water would arrive [at Menindee Lakes] were wrong. They were wrong because the situation which occurred had never occurred before... There were management decisions made on the best available knowledge'.36,37

Alternative views

2.26 A few submissions either supported the bill, or made related comments or suggestions/8

2.27 Professor Bell thought that the bill 'could be an important part of resolving the current crisis but...it needs to be clear how ‘balance’ is to be struck; what criteria are used in declaring a crisis; in whose interests decisions are made and by whom and; whether such decisions are reviewable'.39

2.28 The W ater Action Coalition (WAC) supported the 'the good intentions' of the bill but argued that it does not go far enough. WAC recommended a 'national public inquiry with the powers o f a royal commission' into the management o f the Murray- Darling Basin. WAC argued that South Australia's current right under the Murray-

Darling Basin Agreement to 1850 gigalitres per year is 'a meagre share of the total resource'.40

2.29 The WAC argued that the interstate sharing rules o f the Murray-Darling Basin Agreement do not work well in drought. Professor Young said that 'this nation needs to plan properly for a drier regime, and that needs an inquiry not into the [Menindee]

35 Prof. D. Bell, Submission 13, p. 3.

36 Prof. M. Young, Committee Hansard, 30 June 2010, p. 36.

37 Menindee Lakes water is shared according to rules in clauses 94-95 of the Murray-Darling Basin Agreement which is schedule 1 to the Water Act 2007. NSW has full control when the storage falls below 480 gigalitres. When it next goes above 640 gigalitres the MDBA takes control and the water is shared between NSW and Victoria. South Australia's minimum share of total Murray-Darling Basin water is calculated separately under clause 88 of the agreement. Murray-Darling Basin Authority, Basin Agreement rules applied as Authority assumes control o f Menindee Lakes water, media release, 12 April 2010.

38 Hon. Dr Bob Such MP, Submission 1; Prof. D. Bell, Submission 13; Water Action Coalition, Submission 15; Prof. M. Young, Submission 16; United Party, Submission 18.

39 â Prof. D. Bell, Submission 13, p. 6.

40 Water Action Coalition, Submission 15, pp 4-5. South Australia's share of 1850 gigalitres is stated in clause 88 of the Murray-Darling Basin Agreement which is a schedule to the Water Act 2007. The amount may be reduced during periods of special accounting (clause 128), or when the default rules are suspended during extreme circ*mstances (clauses 133ff).

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lake at the moment, or the structure at the moment, but into the opportunities to manage the entire system more efficiently from top to bottom '.41

2.30 Professor Young likened the proposed powers o f the MDBA during a period o f extreme crisis to a company insolvency, when the board is replaced by an administrator. 'Under such an administrative arrangement, board members have a strong incentive to prevent the corporation from becoming insolvent.'42

2.31 The committee notes that water sharing during severe water shortages is one o f the priority issues being considered in a current review o f the Murray-Darling Basin Agreement which is now being conducted by the Basin Officials Committee.43

Committee comment

2.32 The committee agrees with the weight o f evidence that the bill is flawed. It appears uncertain whether it is constitutionally valid. If passed, it would risk lengthy and expensive legal battles. It would also run counter to the longstanding agreed direction o f water reform based on cooperative Commonwealth-State relations including referral o f powers by the states. The possibility that a local water resource plan might be set aside unilaterally by the MDBA, depending on seasonal variations, would create an undesirable level o f insecurity for entitlement holders.

2.33 The committee acknowledges the concerns that prompted the bill. However, the committee believes that it is important that efforts are focussed on delivering sustainable long term management structures in the M urray-Darling ahead o f short term or emergency measures.

2.34 In relation to the general concern that the interstate sharing rules in the

Murray-Darling Basin Agreement m ay not be adequate to cope with long droughts - any change should be by negotiated change to the agreement.

2.35 In the committee's view water sharing during periods of crisis should be managed within the agreed framework of the Basin Plan.

41 Mr J. Caldecott (Water Action Coalition), Committee Hansard, 30 June 2010, p. 29. Prof. M. Young, Committee Hansard, 30 June 2010, p. 36.

42 Prof. M. Young, Submission 16, p. 1.

43 The review was agreed by the Murray-Darling Basin Ministerial Council on 13 November 2009. Review recommendations are expected to be ready by early 2011. The Basin Officials Committee is a committee representing the Commonwealth and the states, established under clause 17 of the Murray-Darling Basin Agreement.

See www.mdba.gov.au/about/govemance/murrav-darling-basin-agreement and www.mdba.gov.au/media centre/mdbmc communiaues/communiaue02 (accessed 8 November 2010).

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Recommendation

2.36 The committee recommends that the bill should not be passed.

Senator Doug Cameron Chair

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â:

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Dissenting Report by Independent Senator Nick Xenophon and Senator Sarah Hanson-Young (Australian Greens)

1.1 The bold assertion by the majority report that the Water (Crisis Powers and Floodwater Diversion) Bill would not be Constitutional fails to consider the scope of Commonwealth powers relating to water.

1.2 The High Court decision in the Franklin dam case in 1983 indicates how broad those powers can be, as does the decision in WorkChoices in 2006, and further strengthens the case for this Bill to be passed.

1.3 This legislation is about augmenting and strengthening current water reform. It would ensure actions in terms of flood events and override states that have shown to be dragging their feet when it comes to fundamental water reform.

1.4 It has repeatedly been the case that, despite the existence of intergovernmental agreements, individual states make water management decisions in the interests of themselves, not necessarily in the interests of the Murray-Darling Basin as a whole.

1.5 The Murray-Darling Basin Authority acknowledges, on page 113 of its Guide to the proposed Basin Plan, the importance of having a healthy mouth of the river, and says that it is essential to the environmental health of the Basin overall.

1.6 Specifically, the MDBA states in its Guide:

"Without salt export land will salinise and water quality will deteriorate with negative effects on both the environment and consumptive use for all irrigation and human water needs throughout the Basin."

1.7 Therefore, this Bill should not be seen in the context of a bias towards any one part of the river system, but an understanding that you need to have a healthy river system overall for all communities to benefit from the Murray-Darling river system.

R e c o m m e n d a t io n 1

T h a t t h e B ill b e p a s s e d .

R e c o m m e n d a t io n 2

T h a t th e r e b e a n im m e d ia t e f u ll F e d e r a l t a k e o v e r o f t h e M u r r a y - D a r lin g B a s in to e n s u r e th a t

th e r e is a u n if o r m a n d c o n s is t e n t a p p r o a c h t o w a t e r lic e n c e s in t h e B a sin .

N ic k X e n o p h o n S e n a t o r S a r a h H a n s o n - Y o u n g

I n d e p e n d e n t S e n a t o r fo r S o u t h A u s t r a l ia A u s t r a lia n G r e e n s

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A ppendix 1

Submissions

1 The Hon Bob Such MP

2 W estern Murray Irrigation Limited

3 NSW Irrigators' Council

4 Gilbert +Tobin Centre o f Public Law

5 M r Jason Clancy

6 Murrumbidgee Irrigation

7 National Irrigators' Council

8 Gwydir Valley Irrigators Association Inc

9 Snowy Hydro Limited

10 Ricegrowers' Association o f Australia

11 Murray Irrigation Limited

12 Southern Riverina Irrigators

13 Professor Diane Bell

14 National Farmers' Federation

15 W ater Action Coalition

16 Professor Michael Young

17 Australian W ater Network

18 United Party

19 Queensland Government

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A ppendix 2

Public hearings

Wednesday, 30 June 2010 - Canberra

New South Wales Irrigators Council

M r Andrew Gregson, C hief Executive Officer

M r Colin Thomson, Chairman

Gilbert + Tobin Centre of Public Law

Professor George W illiams, Foundation Director

Dr Andrew Lynch, Centre Director

M r Paul Kildea, Director, Federalism Project

National Irrigators Council

Mr Daniel O'Brien, Chief Executive Officer

National Farmers' Federation

Ms Deborah Kerr, Natural Resource Management

Professor Diane Bell (Private capacity)

Water Action Coalition

M r John Caldecott, Foundation Chair, Environmental Standing Committee for Water

Professor Michael Young (Private capacity)

Department of the Environment, Water, Heritage and the Arts

Mr Anthony Slatyer, First Assistant Secretary, W ater Reform Division

Mr Colin Mues, Assistant Secretary, Water Recovery Branch

Ms Suzanne Nethercott-W atson, Assistant Secretary, Irrigation Efficiency , Southern Division

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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

PARLIAMENTARY PAPER No. 395 of 2010 ORDERED TO BE PRINTED

ISSN 0727-4181