The Hon. J. J. DELLA BOSCA (Special Minister of State, Assistant Treasurer, Minister Assisting the Premier on Public Sector Management, and Minister Assisting the Premier for the Central Coast), on behalf of the Hon. M. R. Egan [8.28 p.m.]: I move:
I seek leave to have the second reading speech incorporated in Hansard.
That this bill be now read a second time.
The Public Authorities (Financial Arrangements) Act 1987, commonly referred to as the PAFA Act, provides a legislative framework for the regulation of the investment, borrowing and financial risk management functions of public sector agencies in New South Wales. Under the PAFA Act, the Treasurer is given responsibility for exercising a central supervisory role in respect of the investment and liability management activities of agencies to ensure that the New South Wales public sector's financial risks and exposures are properly and prudently managed. During 1999 the Auditor-General conducted a review of agencies' compliance with financial legislation, including the PAFA Act. The results of this review were detailed in the New South Wales Auditor-General's report to Parliament for 1999, Volume 2. The report highlighted a number of issues regarding the existing legislation. This bill addresses these issues.
The main areas for amendment, identified by both Treasury and the Auditor-General, are the Act's requirement for a clearer statement of purpose and a need to apply to all New South Wales public authorities. The definitions within the Act require consistency so that an agency's authority is consistent for all purposes. The Act as amended will provide the sole source of legal power for agencies to enter into arrangements covered by its terms. As well, all types of financial arrangements that agencies may enter into, including joint venture arrangements, will be covered by the amendment.
The PAFA Act will be extended to apply to all general government agencies, public trading enterprises and public financial enterprises, covering all departments and statutory authorities. As well, any controlled entities of such departments or authorities will also be included. It is considered necessary to include government departments within the PAFA Act to properly capture the full range of financial liabilities that can be incurred. In the past, some individual government departments, or divisions thereof, or their Ministers have been included in a schedule for specific purposes. Some departments run commercial operations, while some statutory authorities are effectively run by the department to which they report. However, for effective control, all agencies should be subject to a consistent set of provisions. There is also a need for controlled entities of departments and authorities to be included within the scope of the PAFA Act.
Because a controlled entity may be a company incorporated under the Corporations Law, it could well have legal powers that exceed those of the agency which controls it. To achieve complete coverage of all New South Wales public sector agencies and their controlled entities, it is proposed that the definition of "authority" under the PAFA Act be linked to the bodies defined under the Public Finance and Audit Act 1983. Agencies are subject to audit by the Auditor-General on the basis that their operations have impact on New South Wales State accounts. As a corollary, such agencies should have their ability to incur financial obligations controlled and monitored by the Treasurer, who is ultimately responsible for the financial management of the State.
These amendments will ensure the complete coverage of all New South Wales public sector agencies. This includes all general government agencies, public trading enterprises and public financial enterprises, irrespective of whether the agency is a statutory authority or government department, and applies to all controlled entities of agencies. It is acknowledged that particular agencies, which have not previously been covered by the PAFA Act, may have legitimate reasons for having differing powers than those under the PAFA Act. In seeking to have all agencies covered by the PAFA Act, provisions will be enacted to enable the Treasurer to grant to specific authorities particular amendments and modifications of the provisions to suit individual circumstances.
The Treasurer will be able to determine specific exemptions for particular agencies when considered appropriate. By allowing the Treasurer to grant such modifications, circumstances of individual agencies can be catered for while retaining the control and monitoring functions of the Treasurer in relation to all agencies. A transitional period is provided for agencies currently not within the scope of the PAFA Act to have sufficient time to adapt to the new requirements. The purpose of the PAFA Act is to operate as controlling legislation in respect of agencies' ability to enter into financial accommodation, financial adjustments, and joint financing arrangements, investments and any other form of financial arrangements. By requiring all agencies to effect such arrangements within the parameters of the Act, controls can be put in place to allow the Treasurer to assess and monitor the financial risks being incurred by New South Wales.
The intention of the PAFA Act is to be the sole source of legal authority in respect of authorities covered by it. These amendments will ensure the PAFA Act is the sole source of legal power that allows New South Wales public sector agencies to enter into financial arrangements. The PAFA Act will then take precedence over other Acts to ensure no agencies are omitted from its coverage. A provision is included providing for the PAFA Act only to be overridden when future legislation expressly excludes the operation of the PAFA Act. This will remove interpretative difficulties which could otherwise arise in relation to legislation setting up new agencies. These amendments also provide for consequential amendments to other relevant legislation.
There is also a need for a consistent definition of "authority" for the purposes of the PAFA Act. Each of the four main types of financial management activities, that is, investment, borrowing, derivatives and joint financing, has a separate definition of the authorities covered. Thus, authorities may be covered by certain parts of the PAFA Act and not others. The definition of authority will be standardised. Agencies will be defined as "authorities" for all purposes of the PAFA Act. These amendments will simplify the process for new agencies to be covered by the PAFA Act, as and when they are created.
Another issue with the current coverage of the PAFA Act is the need for interpretative provisions to assist in clarifying the application of particular sections of the PAFA Act. These provisions will be included in an introductory section to the Act. Some authorities have power to enter into joint ventures without the need for approval of the Treasurer, because the particular arrangements do not come within the PAFA Act, or the agencies' own enabling legislation provides for the arrangements. By entering into joint ventures with the private sector, an agency can expose the State to contingent liabilities. It is appropriate that such arrangements only be entered where the Treasurer is satisfied as to the allocation of risks in relation to the transaction. These amendments expand the types of financial arrangements covered by the PAFA Act to provide that all agencies must obtain the Treasurer's approval to enter into joint ventures.
In 1999 the Health Administration Act 1982 was amended to allow advances from the Department of Health to Area Health Services to be excluded from the coverage of the PAFA Act. From a liability management perspective there is no need for approval of cash flows between agencies in the same Ministerial Portfolio. This provision has now been extended to all agencies. The above amendments take effect from the date of proclamation, with provision for a transitional period whereby agencies currently not within the scope of the PAFA Act will have sufficient time to adapt to the new requirements.
In summary, this bill will strengthen the prudential requirements of the New South Wales public sector. It will extend the coverage of the Public Authorities (Financial Arrangements) Act 1987 to all New South Wales State public sector agencies, including any controlled entities of such bodies, and clarify the Act's operation in conjunction with other legislation. This will ensure that all agencies require the Treasurer's and, in appropriate cases, Executive Council approval before they can borrow, deal in derivatives, enter into joint financing arrangements, joint ventures or make investments. I commend the bill to the House.
The Hon. J. F. RYAN [8.29 p.m.]: The Opposition supports the bill, which is relatively simple in its intent. It responds to recommendations in volume 2 of the Auditor-General's Report of last year in which the Auditor-General commented on a series of different rules that seem to apply to government departments with regard to joint ventures and borrowing. I do not remember the exact details of some of the complaints, but I recall that the Auditor-General drew attention to the fact that area health services had entered into arrangements with the Department of Health which were described as loans.
The area health services were incurring increasing levels of debt to fund what appeared to be their normal, everyday services, including the operation of hospitals and health facilities within this State. On many occasions the Opposition has drawn attention to the fact that that is a totally inappropriate way to fund health services. The Department of Health ought to exercise more control over those matters. But, additionally, the legitimate health needs of the community ought not be funded by borrowings. It is not possible to tell patients in many circumstances—for example, during winter—simply to go home. Area health services ought to be given sufficient funds in order to carry out their duties in respect of hospitals.
The Auditor-General believed that legislation should have been introduced to ensure that the rules and guidelines that apply for borrowing ought to be the same right across the public sector. This legislation largely seeks to do that. Honourable members who examine the bill will find that most of its provisions relate to definitions of different types of public authorities. Essentially, the bill provides that any public authority that wishes to enter into a joint venture or borrowing arrangement must first obtain approval from the Treasurer. Normally, borrowings for public authorities are arranged by the organisation within Treasury known as TCorp, and they are organised in an aggregated form because that proves to be the most efficient way to carry out those arrangements.
The Government obviously is able to use its corporate clout to obtain more generous rates of interest and is able to manage a debt portfolio in a more efficient way to ensure that new loans are not inappropriately raised. It is also able to ensure that funds that various government agencies sometimes hold for a period of time without using them are appropriately used, sometimes to fund loans, without necessarily having to go into the marketplace in order to make those borrowings. TCorp, as I recall, is an organisation that was set up originally in the term of the Greiner Government. It is an organisation that has proven to be spectacularly good in funding these sorts of short-term requirements of governments. In many instances TCorp's activities have proven to be profitable. Naturally, the Opposition supports this sort of supervision by the Government over the borrowings of public authorities to ensure that those borrowings and these joint ventures are conducted in the most efficient way.
The only other thing that the Opposition would say generally in regard to the Public Finance and Audit Act is that this is but one small part of a general package, to which the Opposition looks forward, whereby financial arrangements for all government authorities, and the budget itself, are to be reviewed by the Government. This is a process that has been taking a significant length of time. Mr Deputy-President, you chair a committee that currently is overviewing that process to some extent and is likely to report to the Government at some time in the future. Hopefully, that will result in an overall reform of the Public Finance and Audit Act. In the interim, this bill is one step to financial reform with regard to borrowings. The Opposition supports the bill, which is largely a machinery matter that should not involve any particular controversy.
The Hon. J. J. DELLA BOSCA (Special Minister of State, Assistant Treasurer, Minister Assisting the Premier on Public Sector Management, and Minister Assisting the Premier for the Central Coast) [8.34 p.m.], in reply: I thank the Opposition for the positive things it said about Government supervision. Obviously, Opposition members have a great deal of trust in me and the Treasurer. I commend the bill to the House.
Motion agreed to.
Bill read a second time and passed through remaining stages.