Monday, 3 December 2018

Mingled Yarn: A New Indigenous Land and Sea Future Fund


'The web of our life is of a mingled yarn, good and ill together.'
All's Well That Ends Well, Act 4, Scene 3. 


On 28 November 2018, the Parliament passed three Bills related to the remit of the Indigenous Land Corporation (ILC). In particular, the ILC’s functions were expanded to allow it to purchase interests in and over waters and seas, the funding arrangements for the Aboriginal and Torres Strait Islander Land Account were amended to provide for its funds to be managed and invested by the Future Fund Guardians under expanded investment parameters, and the names of the ILC and the Land Account were amended to reflect these changes.

The ILC Chair’s media release (link here) states, inter alia:
Mr Fry said the corporation would be renamed the Indigenous Land and Sea Corporation (ILSC), that will come into effect mid 2019…

…“Our expanded operations will now enable us to invest in water-based projects in partnership with Indigenous groups, which could include purchase of commercial fishing licences or allocations in water markets…

Mr Fry said the three Bills passed today would also broaden the ILC’s main source of income through the establishment of the Aboriginal and Torres Strait Islander Land and Sea Future Fund, replacing the Land Account.

“In recent years returns from Land Account investments, restricted by legislation, had been insufficient to maintain its capital base while providing a fixed annual allocation to support the ILC’s land acquisition and land management functions,” Mr Fry said.

“This reform will enable the new Aboriginal and Torres Strait Islander Land and Sea Future Fund to be invested by the Future Fund Board of Guardians, increasing its returns and allowing funds held in perpetuity for Indigenous Australians to grow in line with mainstream long-term investments managed by the Future Fund.

Minister Scullion’s media release states, inter alia:
The ILC, and the Land Account which funds the ILC, hold an important place in Australia’s land rights movement. Established following the High Court’s Mabo decision, these institutions serve to enable Indigenous Australians who are unable to assert native title to regain control of their land.

Despite this, the Land Account has been plagued with low rates of return, jeopardising the financial security of the ILC and meaning lost opportunities for the Indigenous estate.
The Aboriginal and Torres Strait Islander Land and Sea Future Fund Bill 2018 replaces the Land Account with a new Land and Sea Future Fund to better support the ILC to grow the Indigenous estate over the long-term. Land Account assets will be transferred to the new Fund.

The changes are incorporated into amendments to the Aboriginal and Torres Strait Islander Act 2005, and in a new Aboriginal and Torres Strait Islander Future Fund Act 2018. The relevant Explanatory memorandums for the two substantive Bills are available on the APH website (link here and link here).

The core rationale for the changes was the narrow investment parameters included in the original 1995 legislation at the Department of Finance’s insistence. There is no doubt that Indigenous interests have been severely disadvantaged by that short-sighted and excessively risk averse policy decision. While it is commendable that the Government has agreed broaden the investment parameters, it is arguable five years too as the era of high interest rates has long gone, and the Government refused to consider a 2014 Greens Bill which addressed both these issues, and was based on a Bill prepared by the then ILC Board. Contrary to the (different) rationales provided by the Minister and the Chair, the reason there is a need to fix the funding formula is that the ILC receives all real returns above inflation, which means that the Land Account could never grow in real terms. The ILC was never in jeopardy from the formula, although it did receive less than optimal returns due to the narrow Land Fund investment parameters.

There are however a number of more fundamental criticisms which arise from the legislative changes enacted. Most fundamentally, and as I pointed out in an earlier post (link here), the changes reinforce the trend of substantially increased ministerial control over the land fund, and thus weaken its independence as a capital fund dedicated to indigenous purposes. While the legislation ostensibly provides for this, its formal status as a special account within the Commonwealth and the explicit control of ministers in approving and determining drawdowns weaken Indigenous control, and thus self-determination. As an aside, this analysis is entirely missed by the pro-forma analysis of compliance with human rights obligations included within the Explanatory Memorandums.

Secondly, despite all the rhetoric, there is no attempt to assess the adequacy of the funds in the Land Account, and consequently no effort to add to the capital base. The two arguments for doing so are first, that the Commonwealth had a fiduciary obligation to ensure that the funds invested in the Land Account earned a reasonable return, and patently failed to meet this obligation. Second, it is now much more apparent that the extent of extinguishment is much more extensive than might have been imagined in 1995 when the Native Title Act was passed, and in particular, the 1998 Wik amendments further constrained the extent of native title.

Over and above these technicalities, there is a social justice argument for adequate compensation for the extensive dispossession of indigenous people since colonisation. The adequacy of the initial allocation of $1.2bn to the Land Account has never been revised or reconsidered, and it is time that governments turned their focus to this issue. The rhetorical suggestion of the Government originally floated by then Prime Minister Turnbull and repeated more recently by the Australian Financial Review (link here) that the changed investment parameters will leave Indigenous interests $1.5bn better off over 20 years are political spin pure and simple. The Government has provided no calculations to back this claim up, and the flexibility in the legislation which allows Ministers to draw down funds means that there is no absolute guarantee that the fund will even retain its current value over the next twenty years.

While the changes legislated apparently with unanimous support of the Opposition and the Greens include some very positive elements, they also contain elements which could severely disadvantage Indigenous interests into the future. These are not ‘landmark reforms’, and nor is it a ‘new era’ and a ‘historic day for Aboriginal and Torres Strait Islander Australians’. Instead of fundamental reform, we have patchwork upon patchwork, creating a very mingled yarn indeed.

While it is important that the Aboriginal and Torres Strait Islander Land and Sea Future Fund continues to grow over the medium and long term, the crucial element in the structure is the effectiveness of the ILC in utilising and investing the funds which are drawn down. This requires high levels of governance, administrative competence and efficiency and each of these characteristics will be more likely to emerge and be sustained if there is a robust regulatory oversight framework. Under current arrangements, it is the Minister who is responsible for maintaining that framework.

At present, there are a range of issues which suggest that the ILC is operating sub-optimally in terms of its governance and administrative competence, and this raises serious questions regarding the quality of the outcomes being delivered to Indigenous Australians. This however is an issue for another day.