The devil in the detail: the Government’s proposed Indigenous Land Fund legislation

The spirit that I have seen
 May be the devil: and the devil hath power
 To assume a pleasing shape.

Hamlet Act 2, scene 2

On 12 February this year, as part of the Close the Gap statement to Parliament, the Prime Minister announced (link here) a series of changes to legislation relating to the Indigenous Land Corporation and the Aboriginal and Torres Strait Islander Land Account which provides the Indigenous Land Corporation’s annual funding. Prime Minister Turnbull stated:

A new Aboriginal and Torres Strait Islander Land and Sea Future Fund represents a significant reform in the land rights journey of our country, as the $2 billion land acquisition fund set up following the Mabo (No 2) decision has been plagued with poor returns, meaning lost opportunities for the Indigenous Estate. Our reform will see the fund transferred to the Future Fund, delivering a $1.5 billion benefit over 20 years.

These additional funds will also mean that the Indigenous Land Corporation (ILC), the Commonwealth agency that acquires land on behalf of Aboriginal and Torres Strait Islander Australians can now have its remit expanded to include sea country.

The Government has now introduced three Bills into the Parliament to implement the changes previously announced. Minister Scullion announced the introduction with a media release (link here) where he announced further details of the proposed changes: a name change for the Indigenous Land Corporation to the “indigenous Land and Sea Corporation’, accompanied by an extension of its statutory remit to allow it to acquire and provide management assistance to Indigenous owners of sea and freshwater country, including offshore. The second Bill establishes a new Land and Sea Future Fund to replace the Land Account which will be managed by the Future Fund Board of Guardians. Minister Scullion emphasised:

Proposed reforms have been co-designed with communities following significant consultations with Aboriginal and Torres Strait Islander Australians across the country.

A third Bill (link here) deals with consequential amendments and is largely technical.

A summary of the consultation process and final recommendations, which was led by the Indigenous Land Corporation, has been published on the ILC website (link here). This is good practice and the ILC and Government are to be commended for laying this out so clearly.

The latest meeting communique (dated 25-26 October 2017) of the Prime Ministers Advisory Council on Indigenous Affairs (link here) notes the conclusion of the consultations, but does not appear to have offered any substantive advice on the proposals. Their communique states:

Indigenous Land Corporation: welcomed the consultations on possible reforms to the Aboriginal and Torres Strait Islander Act 2005 (ATSI Act) regarding water related activities and the financial sustainability of the Land Account have concluded and the findings and recommendations are now being considered by Government (sic).

In relation to the outcomes of the consultations with respect to the financial sustainability of the Land Account, the ILC consultation report notes, inter alia:

During discussions on the potential for [Future Fund] management, the issue of Indigenous control and oversight of the investment framework was raised across the sessions. This was seen as an important aspect of managing the Land Account into the future, and needing to be included in any legislative changes. ILC representatives were able to discuss the Expert Panel’s recommendations on a proposed strengthening of the current Consultative Forum on the Investment Policy of the Land Account to a Land Account Investment Committee comprised of Indigenous representation and investment expertise.

In what appears to be an addendum to the Report, a section headed ‘Current ILC  Board position in relation to governance of Land Account investments’ states:

The consultation process revealed some complexity in regard to the proposed management and governance arrangements of the Land Account. Feedback from the Department of Finance and The Treasury is that the proposed Land Account Investment Committee is incompatible with the structure and operations of the Future Fund Management Agency, if the FFMA were to be responsible for the Land Account.

After further consideration, the ILC Board’s preferred option is to see the Land Account invested by the FFMA to achieve the desired rates of return on investment while managing risk. It is advocating that the current Land Account Consultative Forum (established by s193G, ATSI Act) be retained in an enhanced form as the conduit for information to the ILC Board on investments of the Land Account. At present the Forum receives six-monthly reports; these would double in frequency as the FFMA provides quarterly updates, giving the Forum more current information. The Forum would maintain a ‘watching brief’ on investments made by the FFMA.

The Proposed Legislative Changes

So what do the Government’s Bills actually do?

The first Bill (link here), dealing with the name and remit of the Indigenous Land Corporation is largely uncontroversial, apart from the fact that the name change will involve numerous changes to documentation, and runs the risk of raising expectations which will not be fulfilled. The same substantive effect could have been achieved with a simple change to the definition of ‘land’ in the ILC’s establishing legislation to include ‘seas and freshwater country’. These substantive changes are uncontroversial and have merit, so I do not propose to spend time analysing this Bill.

The second Bill, the ‘Future Fund Bill’ (link here), is designed to establish a new Fund to provide annual funding to the ILC managed by the Future Fund, and thus accessing a much broader range of financial assets than previously available. The broadening of the potential investment pool for the Land Fund is a desirable change, and the use of the Future Fund to manage those investments is also positive insofar as it utilises a source of investment advice and management of undoubted expertise, and one which operates within the public sector and thus in accordance with established governance principles.

That said, there are serious criticisms to be directed at the approach adopted by the Government to achieve these aims, and in particular, in relation to the governance framework which surrounds the Land Fund. In my view, not only is there devil in the detail, but the issues are so fundamental that they raise questions regarding the desirability of enacting the Bill in its current form.

I don’t propose to address the third Bill (link here) which deals with consequential amendments.

The first major issue with the Future Fund Bill is that it fails to formally acknowledge the underlying purpose of the land fund. While some of the background documentation available (the ILC consultation summary and the ILC media release of 13 February 2018 – link here) do acknowledge this history, it is important that the formal legislative provisions do so. The Second Reading speech delivered by Minister Wyatt missed the opportunity to lay out this background, merely noting that:

The existing Aboriginal and Torres Strait Islander Land Account was established to provide ongoing funding to the Indigenous Land Corporation to assist Indigenous Australians to acquire and manage assets.

While this formulation mirrors the objects of the Fund in the current 2005 legislation, in fact, a persuasive argument might be made for the reverse, namely that the ILC was established to implement and operationalise the objectives of the Land Fund, objectives which over the past 25 years have been progressively erased from the statutory record.

Indeed, the Land Account was canvassed in the Native Title Act, and the Preamble to that Act still includes the following text:

It is also important to recognise that many Aboriginal peoples and Torres Strait Islanders, because they have been dispossessed of their traditional lands, will be unable to assert native title rights and interests and that a special fund needs to be established to assist them to acquire land.

The original ILC was established as a separate Part of the ATSIC legislation which also had a Preamble to contextualise the aims and objectives of establishing the Commission and its ancillary institutions. With the reconstitution of the legislation following ATSIC’s demise, and now the proposed establishment of the Land and Sea Fund in separate legislation, those contextual provisions have disappeared entirely. This is not merely a symbolic matter, but means that any future judicial consideration of the operation of the Fund will be done without the benefit of any contextual framing which can be taken into account by the courts. This needs to be rectified.

The second major issue is that the Bill is replete with provisions which make absolutely clear that the Fund is to be treated as merely another special account under the PGPA Act (link here) and thus within the Government’s standard financial architecture. Thus for example, the Bill provides a range of mechanisms for consultation and provision of advice and information between Ministers, and between the Future Fund and the Minister for Finance, but there is no requirement for information to be provided to the ILC Board, and indeed the current statutory Consultative Forum on the Investment Policy of the Land Account (refer s193G of the Aboriginal and Torres Strait Islander Act 2005) which provided Indigenous interests with a guaranteed mechanism for monitoring the operations of the Fund disappears. In the Explanatory Memorandum (link here), which is admirably clear and useful, the Government makes clear that it considers the Fund to be a creature of the Government’s financial architecture. In the introductory section on ‘Context’, it states:  

The Bill gives effect to the Government’s decision to establish a dedicated financial asset fund – the ATSILSFF – to support the making of annual and discretionary additional payments to the ILC….

…The Government wishes to invest in financial assets with the aim of achieving investment returns to support the ILC financially. (emphasis added).

Or in the section on clause 13, which establishes a mechanism for the crediting of extra amounts to the Fund, the Memorandum notes that the provision is ‘a tool for the Government to manage its financial arrangements’. In other words, it is all about administrative convenience.

This may seem like quibbling, and I suspect it is the product of historical ignorance rather than malevolent intention, but it creates a context in which the Fund which was established with a clear intent of going some small way to addressing the dispossession of Indigenous peoples from their lands is itself being progressively removed from their influence and / or control, thus reinforcing the original physical dispossession with institutional dispossession. The bureaucratic consequence is that anything to do with the Fund is seen as ‘government’ in nature, and design issues (both now and importantly into the future) will be determined on the basis of administrative convenience.

It is important to note that this trend towards separating the Fund from its formal origins is a continuation of a process which first emerged in the 2005 amendments which coincided with the legislative amendments necessitated by the abolition of ATSIC. In particular, in 2005, the Land Fund was renamed the Land Account, reinforcing its status as a special account within the government financial system rather than a ‘fund’ directed to Indigenous purposes. The reversion to the terminology of Land Fund in the current Bill is welcome, but is offset entirely by the substantive provisions which reinforce the Fund’s legal status as a government special account, and with an overarching preoccupation of making the Fund work in total alignment with the prerogatives of government financial priorities and systems rather than Indigenous priorities or concerns.

The third set of concerns relate to the design of the proposed arrangements, and the potential risks which emanate from the design features chosen. The issues involved are technically complex, and I propose to simplify in many respects.

The current relationship between the Land Account (ie the Fund) and the ILC can be summarised as follows. The Land Account, which is managed by the Department of Prime Minister and Cabinet, has a current balance of around $2bn. It is invested primarily in bank term deposits because the constituting legislation from its inception (and now the PGPA Act) provided that the Fund must only invest in bank deposits or government bonds. The ILC Board has consistently over the past ten or so years sought to have these investment parameters broadened.

Originally, investment returns from the Fund were prioritised first to sustaining the Fund, and above a certain threshold were passed on to the ILC, however this led to difficult to manage variations in annual revenue for the ILC. In 2010, the arrangements were amended to provide for the Fund to provide the ILC with a guaranteed amount of $45m (indexed to the CPI) with any surplus returns to go to the ILC. While this effectively resolved the issue of revenue variability of the ILC, it also meant that the Fund would never grow in real terms (as surplus returns went to the ILC) and if in any years returns were negative, then the Fund’s capital would be progressively diminished. This issue needs to be fixed.

The proposed design structure in the Future Fund Bill continues the $45m indexed provision, but adds a provision for an annual discretionary payment to be made by Ministers. The Bill requires the Finance Minister and Treasurer (the ‘responsible ministers’) to issue an investment mandate to the Future Fund so as to provide a ‘mechanism for articulating’ the Government’s expectations and for providing ‘strategic guidance’ (refer para. 95 of the EM). This approach is consistent with the approach adopted with other funds invested by the Future Fund Board, but again provides no input for Indigenous interests. The Bill also requires the Future Fund Board to utilise an investment manager, an approach which is already being utilised by PMC albeit under much narrower investment parameters.

The shift to Future Fund management under wider investment options increases the likelihood that the basic payment to the ILC will be available, and the Bill provides that in deciding whether to make an additional annual payment the Finance and Indigenous Affairs ministers must seek formal advice from the Future Fund Board and have regard to the impact of any payment on the sustainability of the Land and Sea Future Fund. The crucial variable will be the annual returns obtained by the Future Fund from its investments, but it seems clear that over the medium to longer term, the likelihood will be that investment returns will exceed the current bank deposit arrangements.

The Bill establishes a much more complex design architecture of the Fund than at present, which has the unfortunate result of making the operations of the Fund even more opaque to Indigenous interests. Instead of simple payments from the PMC managed Land Account to the ILC, the Bill establishes a series of special accounts. The Future Fund Board owns and manages the Fund’s assets. It transfers funds from its asset/investment fund to the Aboriginal and Torres Strait Islander Land and Sea Future Fund Special Account as required. This account, which the Explanatory Memorandum makes clear is owned by the Government (refer para. 95) is used to pay any internal expenses of operating the fund, but also to transfer funds to ILC Funding Special Account which is controlled by PMC and which in turn is used to make annual payments to the ILC and any discretionary additional payments.

What this complexity disguises is that the proposed legislation not only broadens the investment parameters available in managing the fund, but it also significantly increases the control of ministers in controlling the flow of resources to the ILC. Two implications are worth drawing out.

First, over time, the gap between the guaranteed amount available for the ILC and the potential discretionary funding available which would not threaten the sustainability of the Land and Sea Fund will grow larger. This will likely have the effect of making the annual discretionary payment a routine event, to the point that the financial independence (as opposed to its statutory independence) of the ILC which was a deliberate feature of its original design, will disappear.

The second implication relates to the structural tensions which will inevitably exist between the short term interests of the ILC Board and Ministers and the longer term interests of the wider and more diffuse Indigenous interests who would wish to see a Land Fund exist in perpetuity. While the architects of the current Land Fund/ILC arrangements were aiming at a perpetual fund, the current proposals set up a structure which could allow Ministers to progressively reduce the capital base of the Fund through the use of additional payments to the ILC.

While the Bills do include checks and balances to constrain such behaviour, there is no statutory impediment to a Minister (perhaps in conjunction with an ILC Board which after all he or she appoints) allocating significant sums to the ILC for projects within its statutory remit. And in response to those who might scoff and argue that such behaviour in our system would be unthinkable, I merely point to the actions of a previous ILC Board which purchased (with apparent political support from a government in waiting) a major asset it could not afford (link here), and which has necessitated (without any comprehensive review of the circumstances) a subsequent government bail out to finance the acquisition (link here). Had the proposed Bill been in effect in 2013, the outstanding acquisition liabilities might have been funded by the simple expedient of drawing down the necessary funds from the Land Fund, and justifying the course of action on the basis that it creates Indigenous employment.

The Future Fund Bill includes a number of other minor matters worth commenting on briefly.

Clause 55 provides for a review of the Act to be commissioned by the responsible ministers (ie the Treasure and the Finance Minister) before the tenth anniversary of the Acts commencement. This appears to be a rather cursory nod towards good governance, and provides no assurance of Indigenous involvement in the process nor any assurance that the review will be made public and/or acted upon. The fact that the responsible ministers do not include the Indigenous affairs minister reinforces the technocratic blindness towards potential Indigenous concerns which suffuses this Bill.

The Statement of Compatibility with Human Rights prepared by the Department (appended to the Explanatory Memorandum) is in my view flawed insofar as it merely asserts that because the Bill ‘will enhance the Commonwealth’s ability to make payments to the ILC, and as a consequence will enhance the ILC’s ability to pursue its statutory purposes…the Bill indirectly engages the right to self-determination, rights to equality, and non-discrimination…’.  In my view, the more fundamental issue is whether the Bill will enhance the capacity of the Commonwealth to sustainably address (in an admittedly limited fashion) issues of ongoing dispossession. For the reasons outlined above, the answer to this question is far from straightforward.

Potential Improvements to the Bill

The following suggestions are not meant to be comprehensive, but emerge from the analysis of the Bill outlined above.

The Bill ought to be revised to incorporate an appropriate Preamble and potentially other substantive provisions to reinstitute the primacy of the objective of addressing dispossession which has been progressively stripped out of the legislation.

The Bill ought to be revised to substantially strengthen Indigenous engagement at all levels. This should extend to considering placing the Bill within the current legislation dealing with the ILC and Land Account; giving the Minister for Indigenous Affairs a stronger oversight role; and establishing an independent policy oversight advisory committee which monitors the operations of both the Land Fund and the ILC with a mandate to focus on issues which may place the long term sustainability of both institutions at risk. Such a body would provide statutory acknowledgment that both institutions are part of a single policy initiative to acknowledge and partially address the ongoing impacts of dispossession of Australia’s First Peoples.

The Bill ought to be expanded to include a provision which makes clear that whatever the internal administrative requirements, the Fund is established and operated by the Commonwealth on the basis of a fiduciary obligation to sustain the Land and Sea Fund in perpetuity and thus maximise the impact of the Fund (and ILC) operations in addressing the impact of dispossession on the nation’s First Peoples.

Consideration might also be given to adopting a much simpler approach where the current legislative provisions stipulating narrow investment options are broadened, and allowing the Department of Prime Minister and Cabinet to decide whether to make an arrangement with the Future Fund or continue to utilise a contracted investment manager.

Finally, if we are to take the Prime Minister’s claims seriously that these amendments represent a ‘significant reform in the land rights journey of our country’, shouldn’t we expect to see increased funds allocated by government to accelerate the accretion of the Fund’s capital base? The original Keating Land Fund legislation was based on the statutory appropriation over ten years of $140m per annum, which built the fund to $1.4bn. Investment returns over twenty years have taken it to $2bn today. A persuasive case can be made that the funds allocated were paltry compared to the value of the land that was taken without compensation form Indigenous peoples (let alone the economic, social and cultural losses that also were involved). A further contribution of say $200m per annum over ten years would go some way to acknowledging that fact, and to rectifying the notional losses to the Fund arising from the fact that government has, for the past decade, not been prepared to treat the Land Account in the same way that it treats the superannuation funds of its public servants (to make appoint first made by Noel Pearson). Such a provision would serve to give a modicum of credibility to the Prime Minister’s claims of ‘significant reform’; its absence merely serves to confirm the government is more concerned with rhetoric than substance in this area as in so many others.

Some policy ruminations

It strikes me that the appearance of these Bills says much more about the current state of Indigenous public policy than is covered in the proposed legislation (important as that is).

The Government has stretched beyond breaking point its rhetoric on consultation and co-design, with a close comparison of the consultation outcomes and the final Bill making clear that there is a huge gap between what Indigenous interests said they wanted and what is proposed. Moreover, the Government conveniently fails to mention earlier calls of the previous Dawn Casey led ILC Board for these reforms (among others); matters which were taken up by the Greens in a Bill introduced in the Senate, but which failed to find major party support. The gap between rhetoric on consultation and reality is not a one-off occurrence in the Indigenous policy domain.

The way in which the Prime Ministers Advisory Council appears to have ‘ticked and flicked’ this agenda item raises important issues around what Indigenous interests might expect, and in fact are getting from this peak appointed Indigenous advisory body. The way in which the ILC Board’s position on its proposed investment consultative committee was first overturned, and then ignored, also says something about the respect accorded by the Government to its own appointed statutory officeholders.

The intricate technical complexity of the legislative process, and the ways in which the bureaucracy can slowly over time shift the way key Indigenous demands and principles are interpreted or even applied are under-appreciated dynamic in the Indigenous policy domain. Proposed changes to Indigenous legislation will always benefit from the inclusion of historical perspective within the policy process. Governments increasingly assume that policy development is a-historical and the only context which is important is the current political objectives of the Government. This is ultimately short-sighted and counterproductive to the national interest, and both governments to actively support the retention of staff with deep background knowledge and requires Indigenous interests to step up and strengthen their advocacy capabilities as a counter-weight to the bureaucracy’s structural short-comings.

All legislation is invariably complex. Because it is a primary mechanism for effecting institutional change, its impacts are long lasting. The process of legislative degradation – for that is what it has been – over the past twenty five years in relation to the Land Fund has gone on under the radar. It seems technical, it is not necessarily controversial, the consequences of legislative change can take decades to emerge and have a tangible impact. The Land Fund was provided for in the Native Title Act and yet was progressively transformed from a social justice initiative into one of a myriad ‘special accounts’ within the byzantine Commonwealth financial architecture.

That this occurred, and could well continue to occur, is perhaps one of the strongest reasons for establishing the Indigenous Voice proposed in the Uluru Statement from the Heart.

The devil in legislation is in the detail. But without strong Indigenous oversight of this and other crucial Indigenous institutions, the detail can be used to hide the devil at work.  

Declaration of Interest:

Michael Dillon is a former public servant and currently a Visiting Fellow at the ANU Centre for Aboriginal Economic Policy Research. He worked on the Keating Land Fund legislation in 1995, and is a former Chief Executive Officer of the ILC.