There are 4 guiding principles when considering a fit-for-purpose governance structure for a new or existing government activity.
These guiding principles apply to all types of Australian Governance bodies.
- Clarity of purpose - designing an effective governance structure starts with a clear purpose and alignment with government priorities.
- Minimise the role of government - the Australian Government should only undertake activities where there is a need for government involvement.
- Maximise efficiency by using existing structures - activities should be undertaken as efficiently as possible, including using non-government service providers or existing Australian Government bodies.
- Accountability to the Parliament and public - appropriate levels of information should be available to the Parliament and public to enable a clear line of sight between resource decisions and the resulting level of performance.
Preliminary three-stage test
The preliminary three-stage test helps decide whether the Australian Government can or should undertake an activity. The test forms part of a governance assessment.
All new activities must take the preliminary three-stage test.
Stage 1: Does the Australian Government have the constitutional power to undertake the activity?
- The Australian Government (Commonwealth) can only undertake activities within its powers, as described in the Australian Constitution.
- Entities must consider whether there is sufficient legislative power in the Constitution to undertake or fund an activity.
Stage 2: Is the Australian Government best placed to undertake the activity, in whole or in part, compared to an external provider?
- Activities should be undertaken as efficiently as possible, including using non-government service providers.
- The Australian Government could retain a regulatory or standard setting role, while the delivery of the activity is undertaken by the private sector.
Stage 3: If the answers to stages 1 and 2 are yes, then can the activity be undertaken by an existing Australian Government body?
- Not all new activities require a new Australian Government body.
- Existing government bodies are often better able to respond to emerging pressures or policy priorities as a result of operational efficiencies and synergies.
Consideration of governance factors is a part of the governance assessment which helps determine the appropriate governance structure for undertaking an activity.
Assessment of new government activities and review of existing activities must consider the following governance factors.
What is the activity and its purpose?
- A clear and unambiguous purpose is fundamental to designing an effective governance structure. A lack of clarity about an activity’s purpose can inhibit the efficiency and performance of the body tasked with undertaking the activity. Form follows function.
Will the activity require enabling legislation?
- The need for enabling legislation will depend on the level of independence, accountability and transparency required to undertake the activity.
- Governance structures created through enabling legislation (e.g. a primary or a secondary statutory body) have clearly defined purposes authorised by Parliament.
Will the activity involve exercising regulatory or coercive powers?
- Regulatory powers are generally applied to activities that involve monitoring a specific field or industry, often with the ability to charge fees or impose penalties.
- Coercive (enforcement) powers can be applied together with regulatory powers for activities that require investigating matters or compelling others to provide information.
Will the activity be a core policy (and/or non-commercial) government function?
- Non-commercial and/or core policy functions of the Australian Government are normally undertaken by a non-corporate Commonwealth entity or a secondary governance structure within a non-corporate Commonwealth entity.
Will the activity have a commercial focus?
- Commercial activities are normally undertaken by a corporate Commonwealth entity or, in limited circumstances, a Commonwealth company.
- A governance relationship (e.g. a subsidiary of a corporate Commonwealth entity or a Commonwealth company) may also be appropriate.
Will the activity need to hold money outside the Commonwealth?
- A body corporate, which is legally separate from the Commonwealth, may be appropriate for an activity that needs to operate commercially and does not receive a substantial proportion of funding through budget appropriations. A commercial focus may include the need to hold, borrow or invest money on its own account, or have the power to engage staff outside the Public Service Act 1999.
Governance structure options analysis
This final part of governance assessment must be completed only if:
- a new primary body or secondary statutory body is required to undertake the new activity; or
- changes are required to an existing primary body or secondary statutory body.
This is an analysis of the risks, costs and benefits of at least 3 viable governance structures that could support the activity, with a preferred option clearly identified.
The level of analysis should be proportionate to the materiality and risk profile of the proposed governance structure.
The completed governance assessment (preliminary three-stage test, consideration of governance factors, and options analysis) must be included with the proposal when seeking approval from the Cabinet or the Prime Minister to:
- create a new primary body or a secondary statutory body (e.g. a statutory office-holder) or
- change an existing governance structure of a primary body or a secondary statutory body.
Governance assessment templates are available under Tools and templates to help complete governance assessments.
Location of government bodies
The Australian Government accepted Recommendation 5 of the House of Representatives Select Committee on Regional Development and Decentralisation Report 'Regions at the Ready – Investing in Australia’s Future', which read in part “that every Federal Government agency should assess the possibility for relocation whenever appropriate, but always when one of the following occurs:
- a new unit, agency or organisation is created;
- an organisation is merged or reorganised…”
The Decentralisation Agenda is part of a government policy for regional development, administered by the Department of Infrastructure, Transport, Cities and Regional Development.
Primary body or secondary statutory body
- A proposal to create a new (or change the governance structure of an existing) primary body or secondary statutory body must be approved by the Cabinet or the Prime Minister.
Secondary non-statutory body
- A proposal to create a new (or change the governance structure of an existing) secondary non-statutory body may be approved by the responsible minister, or the accountable authority, or a governing board of a primary government body.
- A proposal to form or participate in a governance relationship may be approved in accordance with the framework or process that govern the establishment of these relationships.
- Cabinet or the Prime Minister approval must be obtained before publicly announcing the creation of a new primary body or a secondary statutory body.
- In urgent or exceptional circumstances, the relevant minister may seek written approval from the Treasurer, copied to the Prime Minister and the Minister for Finance, prior to making a public announcement.
Commonwealth entities and companies must, through their portfolio departments, report information on new bodies and changes to existing bodies to the Department of Finance for inclusion on the Australian Government Organisations Register (AGOR).
AGOR, a subset of data held in the Organisations and Appointments Register provides information on the function, composition, origins and other details of all Australian Government bodies.
New governance bodies
- Proposals to establish a new government body must include a sunset or review date for the body of no greater than 10 years. This would allow to review whether the body is still required and remains fit-for-purpose.
- Where the task of a new body has a clear finishing point, like implementation of a new policy, sunsetting processes for the body must be included in the proposal.
- Where a new body seeks to address short to medium term policy problems, a sunset or review date for the body of no greater than 5 years must be included in the proposal.
Existing government bodies
- Existing government bodies that are not subject to sunsetting must be periodically reviewed to assess whether they are achieving their original purpose and whether that purpose remains valid.
- Review dates outside legislation are set as a matter of policy. The frequency of reviews should be proportionate with the size of a government body.
- For example, bodies that employ more than 500 people and do not have a sunset or review date should be reviewed at least every 10 years, and other bodies should be reviewed at least every 5 years.
- Departments of state do not require review or sunset dates as their ongoing existence is determined as part of the Administrative Arrangements Order process.
- Other governance relationships should be reviewed in accordance with their relevant framework. For example, the governance structures created by the Council of Australian Governments are reviewed in accordance with the Department of the Prime Minister and Cabinet guidance.
Who conducts periodic reviews?
- Portfolio departments are responsible for reviewing or coordinating reviews of governance structures in their portfolios. The resources used should be proportionate with the type of governance structure.
- Although stand-alone reviews may be conducted, existing review processes (such as functional reviews) may also provide an appropriate opportunity to review governance structures against the Governance Policy requirements.