Three-stage gateway test

Applying the core principles to determine if a new body is necessary

Flowchart 1 - For considering who is best placed to undertake an activity; text on page explains the flow

The core principles are given practical effect through a three-stage gateway test, which considers whether:

Gateway test 1: Does the Commonwealth have the constitutional power to undertake the activity?

  • Can the activity be linked to an explicit legislative power of the Parliament or an executive power of the Commonwealth contained in the Australian Constitution?
 

If the government does not have constitutional power to perform an activity, it cannot fund the activity or create a structure to undertake the activity, unless the power is referred to the Commonwealth by the states.

Under the Legal Services Directions external link, only the Australian Government Solicitor and the Office of Constitutional Law in the Attorney-General’s Department can provide legal advice to Commonwealth bodies on constitutional matters.

Following the Williams High Court cases, the Australian Government Solicitor has provided legal advice on many existing activities. Entities that are reviewing existing activities may therefore not need to seek new advice.1

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Gateway test 2: Is the government best placed to undertake the activity, in whole or in part, compared to an external body?

  • Is the activity something that needs to be done or coordinated at the national level?
  • Is the Commonwealth under an obligation to perform the activity (e.g. under a treaty, legislative provision or public commitment)?
 

Just because the government can undertake an activity does not mean that it should. For example, alternative approaches may be available that would deliver the intended outcome in a more efficient manner, such as grant arrangements or funding agreements with a non-government body. Similarly, a state or territory government may be better placed to deliver the activity and manage the associated risks.

It may be possible for the government to play a role in supporting an activity, through collaboration with other sectors. Increasingly, the private and not-for-profit sectors are undertaking activities that the government may have previously performed.

The contestability framework provides guidance on when and whether the government should deliver a specific function, programme or service. Fundamentally, the contestability framework seeks to ensure that the organisation best able to undertake an activity does so.

Activities may be undertaken through commercial arrangements (with the government providing funding) by a private organisation, a not-for-profit provider, another tier of government, or other means. Sometimes more efficient providers within government may be able to provide a function or existing governance or organisational structures can be modified to allow a function to be undertaken more efficiently.

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Gateway test 3: Can the activity be conducted by an existing Commonwealth body?

  • How directly or indirectly involved does the government need to be?
  • Can an arm's-length option such as a funding agreement achieve the outcome effectively?
 

A new activity does not require the establishment of a new body. Operational efficiencies and synergies can be optimised by using existing bodies, which are often better able to respond to emerging pressures or policy priorities of the government.

Considerations in determining whether an activity can be undertaken by an existing Commonwealth body should include any:

  • overlap between a proposed activity and the activities of existing bodies; and
  • possible incompatibility of the activity with the role of existing bodies whose functions and powers are stated in legislation.

Consolidating a new activity within an existing body minimises set-up and ongoing administrative costs, which helps reduce the demands placed on public sector resources generally. However, co-locating an activity in an entity that has enabling legislation may require changes to that legislation. Similarly, changes may need to be made to the Administrative Arrangements Order for a Department of State or the company constitution for a Commonwealth company.

Departmental structures may be most appropriate for activities that require close ministerial involvement, direction and oversight. These include core activities of government, such as policy development and instructing on legislative drafting.2

Where an activity can be undertaken by an existing entity or body, separate legal and reporting arrangements can be implemented to meet particular requirements – for example, for a separately branded activity.3

Under special but limited circumstances, it may be most appropriate to establish a separate body even if that may not be the most efficient structure. This may include, for example, instances where:

  • the proposed body would be accountable to a non-executive part of government (reporting either to the Parliament or to the judiciary); the Australian National Audit Office is an example of such a body;
  • autonomy is justified by the conferral of extraordinary powers, because it would strictly quarantine control over the use of intrusive powers and the holding of sensitive information (for example, policing or security); the Australian Federal Police and the Australian Security Intelligence Organisation are examples of such bodies; or
  • autonomy is needed to promote a regulatory body’s independence from government; the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission are examples of such bodies.4

Autonomy would help avoid conflicts of interest in the context of legal claims and settlements (separating the government, in its regulatory capacity, from a government body that is regularly a party to legal disputes); the Australian Prudential Regulation Authority and the Australian Competition and Consumer Commission are examples of such bodies.

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1. In Williams v Commonwealth [2012], HCA 23 (20 June 2012), the High Court considered the executive power of the Commonwealth, in the absence of power being conferred by an Act, to enter into contracts and expend public money. The court found that the executive government needed to involve the Parliament in establishing the legislative basis for entering into contracts or expending money for activities covered by a head of power. In Williams v Commonwealth [2014] HCA 23 (19 June 2014), the court confirmed that, with regard to a chaplaincy programme considered in the first case, its establishment in a regulation was not within the legislative powers of the Parliament in the Constitution.

2. Section 57 of the Public Service Act external link provides that the secretary of the department, under the agency minister, is responsible for managing the department and must advise the minister in matters relating to the department.

3. This approach is used, for example, for functions like those undertaken by COMCAR within Finance. It has the advantages of enabling a function to have a distinct branding while still being within a department.

4. Autonomy for a regulatory body is most appropriate when it has a regulatory enforcement role such as investigation or review of citizen conduct, imposition of penalties and other compliance action. By contrast, there is no presumption in favour of autonomy when a regulatory body lacks enforcement powers. For instance, processing activities under regulation, such as registration activity and automated collection of revenue, do not, by themselves, warrant an agency being given independent status.

Contact for information on this page: GovernancePolicy@finance.gov.au

Last updated: 03 January 2019