Tuesday, 27 May 2025

Financial Management Legislation Amendment Bill 2025

Statement of compatibility

Danny PEARSON (Essendon – Minister for Economic Growth and Jobs, Minister for Finance) (11:42): In accordance with the Charter of Human Rights and Responsibilities Act 2006, I table a statement of compatibility in relation to the Financial Management Legislation Amendment Bill 2025:

In accordance with section 28 of the Charter of Human Rights and Responsibilities Act (Vic) 2006, (the Charter), I make this Statement of Compatibility with respect to the Financial Management Legislation Amendment Bill 2025.

In my opinion, the Financial Management Legislation Amendment Bill 2025 (the Bill), as introduced to the Legislative Assembly, is compatible with the human rights set out in the Charter. I base my opinion on the reasons outlined in this statement.

Overview of the Bill

The purpose of the Bill is to amend the Financial Management Act 1994 (the FMA) to:

a) update financial management principles to better reflect the expectations of government and the public sector

b) embed notification processes when there is a risk that a department or public body’s budget may be exceeded

c) include the power to include or exclude certain agencies from the operation of certain provisions of the FMA

d) remove the requirement for warrants

e) clarify Accountable Officer, Board, and Chief Finance Officer responsibilities

f) adjust requirements relating to the Budget Update in an election year

g) adjust transmission requirements for the September Quarterly

h) strengthen the requirements around the creation or cessation of agencies

i) update the Regulations and direction making powers.

To fully remove the requirement for warrants to access public funds in Victoria, the Bill also amends the Constitution Act 1975.

To adjust the requirements relating to the Budget Update in an election year, the Bill also amends the Local Government Act 1989.

Human Rights Issues

Clauses 17 and 18 of the Bill insert new sections into the FMA that create new reporting requirements for financial information, including where a department or public body is at risk of exceeding its budget.

This financial information is principally expected to include documents like balance sheets and records of expenditures. As such, the information provided under these provisions is unlikely to include any personal information.

Accordingly, no person’s privacy is unlawfully or arbitrarily interfered with because of any of the provisions in the Bill and in my opinion the right to privacy in section 13 of the Charter is not infringed.

As no Charter rights are limited by the Bill, I consider that this Bill is compatible with the Charter.

The Hon. Danny Pearson MP

Minister for Finance

Second reading

Danny PEARSON (Essendon – Minister for Economic Growth and Jobs, Minister for Finance) (11:42): I move:

That this bill be now read a second time.

I ask that my second-reading speech be incorporated into Hansard.

Incorporated speech as follows:

This Bill is another example of this Government’s commitment to sound financial management.

As a Government we have always invested in the services that Victorians need, and the productivity-enhancing infrastructure to keep our economy strong.

And despite the challenges of a once in one hundred year pandemic, disruptions to the supply of key resources driven by international conflict, a spike in inflation, and global uncertainty, our Government has been deliberate in charting a course through this difficult period protecting jobs and growing our economy.

We continue to demonstrate targeted and disciplined financial management through the fiscal strategy we put in place to aid our recovery. This represents a prudent and systematic approach to strengthening the long-term sustainability of the State’s finances.

The first step of our fiscal strategy was creating jobs, reducing unemployment and restoring economic growth. The second was to return to an operating cash surplus. Both these have now been achieved. The budget shows that we remain on track to deliver on the third step – return to an operating surplus – in 2025–26. It also shows that we remain on track over the forward estimates to deliver on the fourth step – stabilising net debt as a percentage of Gross State Product – and the fifth step – beginning to reduce net debt as a percentage of GSP.

This Bill is another important step towards delivering on that fiscal strategy. It will make changes that will improve accountability and transparency across the public sector and its entities, removing outdated aspects of existing legislation and ultimately better reflecting the needs of an increasingly dynamic financial and economic environment.

The Financial Management Act 1994 is the principal legislative instrument underpinning the financial management framework of the Victorian public sector. The Act was written in the wake of the global economic downturn of the early 1990s. But the world has moved on. Our public sector has become more complex and sophisticated in the 30 years since the Act was introduced. And we need our legislative framework to align with contemporary approaches to governance, performance and risk management.

As was committed to as part of the 2024–25 Victorian Budget, the Government has reviewed the Financial Management Act to ensure it remains fit for purpose. The review found that the majority of the Act is fundamentally sound.

But given the Government’s focus on strengthening Victoria’s economy and guarding against future financial challenges, we have identified legislative improvements which will better assist Government to plan for, and deliver, the services that matter most to Victorians.

These amendments are an opportunity to reset expectations and strengthen accountability for every dollar that is given to agencies, supporting us to deliver on our fiscal strategy. It is a signpost for the public sector about the importance of maintaining, and continually improving, sound and sustainable financial management.

The amendments will create the settings for a more risk-based approach to financial management by enabling smaller agencies to be more agile, while holding the larger ones to a higher benchmark. And we will do away with some of the more arcane elements of the Act.

Turning to the specific provisions of the Bill:

The Bill introduces a requirement for agencies to stick to their set budgets and report any financial risks through an ‘early warning system’. This will allow government to better manage financial risks as they are identified, putting in place the interventions needed before risks manifest into more significant challenges.

The Financial Management Act of 1994 did not require departments and agencies to set a budget and to stick to it. We will embed Government’s expectations that sound financial management includes establishing, adhering to and monitoring set budgets put in place at the start of the year.

The legislated accountabilities for Accountable Officers and Chief Finance Officers will be explicitly updated and clarified. For example, the Act only specifies the requirement for there to be an Accountable Officer, but is silent on their responsibilities. While for Chief Finance Officers (CFOs), the Act currently specifies only that CFOs are to receive money, make payments and ensure proper accounting records and systems are maintained. Times have moved on significantly since these were the sole, or even prime duties, of both the Accountable Officer and Chief Finance Officer. These responsibilities will be updated to include, among other things, responsibility for the financial management, financial performance and financial sustainability of the relevant department or agency.

The Bill also strengthens the financial management obligations associated with the creation or cessation of agencies to ensure accountability for these agencies is well defined.

There will be greater clarity on how to correctly establish new entities, and in the right structure, so that consistent and appropriate financial management requirements are applied to those entities.

Finally, the Bill is being modernised by removing the antiquated cash accounting system of warrants. While cash and the cashflow statement are still an important financial measure for Victoria’s finances, warrants originated in the days when public servants would seek to take cash from the vaults below Old Treasury Building to fund the activities of departments. In those days the warrant confirmed departments were legally allowed to take and spend that money, because once it was taken, there was no practical way to track it. Since those days, modern controls and checks have been introduced. We now have modern banking and IT systems, and strong requirements to provide annual reports demonstrating how funds are spent, making warrants redundant in the 21^st Century. The requirement for warrants consumes considerable administrative effort. This reform will bring Victoria into line with most Australian jurisdictions that have abolished the system of warrants.

This Bill delivers on the Government’s commitment to review the Financial Management Act to ensure it remains fit for purpose while allowing us to build on the solid foundations in the Act, and will support the Government’s fiscal strategy to deliver surpluses and support economic growth.

I commend the Bill to the House.

James NEWBURY (Brighton) (11:42): I move:

That the debate be adjourned.

Motion agreed to and debate adjourned.

Ordered that debate be adjourned for two weeks. Debate adjourned until Tuesday 10 June.