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Sent: 08-11-2013 09:26:02
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ICAC Urges Reduced Role for Ministers

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John Robertson

Corruption would be greatly reduced if parliaments were closed and every policy and administrative decision was handed to large committees of public servants. That seems to summarise the view of the public servants heading up the New South Wales official corruption fighting commission.

Last week, the New South Wales ICAC handed a report to the state parliament outlining ways to prevent further instances of ministers corruptly handing out mineral exploration licences.

The report's 26 recommendations come on the heals of commission findings against former mines minister Ian Macdonald. He is alleged to have behaved corruptly when he enriched fellow members of the ALP by granting coal exploration licences without advice from public servants in his department.

Normally, a finding of corruption would go to the director of public prosecutions for a decision about whether charges should be laid and ICAC would move on to its next case. In this instance, ICAC was asked by the O'Farrell government to say what action, if any, should be taken to change the law and administration arrangements to prevent similar misconduct occurring again. The request was made despite it inviting a foray into policy advice which ICAC was not formed to give.

ICAC concluded that there were some serious systemic lapses in the way licences had been granted. ICAC found clear incentives for individuals or companies to lobby ministers to gain approvals. The guidelines for granting licences in New South Wales were so poorly defined, according to ICAC, that corrupt behaviour by minister Macdonald "did not immediately stand out as unusual to an external observer".

While there is no doubting the importance of ICAC's role in rooting out public sector corruption, its suggested changes to the licensing regime could turn the exploration industry on its head.

ICAC wants companies to be adequately funded before being granted a licence in contrast to current practice where companies often raise capital only after having been granted a licence.

ICAC also wants objections to mining considered at the time an exploration licence is granted and not later after a company has completed its exploration activity and is seeking permission to mine. This will force explorers to deal with future land use debates before a commercial mineral deposit has been demonstrated.

Thirdly, ICAC is proposing an "exponentially escalating lease rent" to make it progressively more expensive for a company to hold an exploration tenement without moving to development.

This would be a particularly tough condition in a weakening market environment. A company could not choose to conserve capital, as many are opting to do now, because the more it delayed activity the greater the costs it would incur. Some might fail financially, as a consequence, adding to market instability.

The New South Wales government may also find tenements are handed back early to avoid the possibility of a rapid rise in payments. This is precisely what ICAC is intending should happen.

Fourthly, if ICAC had its way, exploration permits would be subject to competitive bidding. Depending on the arrangements that are put in place, a geologist with a particular insight into an area of potential mineralisation would have to express an interest publicly and compete for access with others attracted by the expression of interest. The potential loss of intellectual capital value may deter innovation.

However meritorious these changes might be, clear policy objectives should inform the management of exploration permits. Among the questions a government should be considering, for instance, is what priority it should place on encouraging mineral development. Are there land uses it is prepared to put at risk for the sake of mining? How will capital flows react to different licence regimes?

Some exploration is undertaken by very large global companies but some happens because individuals are prepared to put everything on the line to strike it rich. These latter individuals rarely do strike it rich but they play a role akin to speculators in financial markets. They create opportunities. They take positions that others would find too risky. They play an economic role in national development.

These are considerations that go beyond the technical ambit of ICAC. They would include aspects of taxation policy. For example, one policy issue is whether exploration companies should be required to pay for the benefits of any exploration they would receive in the future or whether a company should pay only after profits or revenues begin to flow.

This vexed political question arose at the national level in the debate over whether there should be a mineral resource rent or super profits tax but there is no such ambiguity for the lawyers at ICAC.

In fewer words than it takes to draft a twitter message, ICAC dismisses the future tax idea outright because "companies may minimise their declared profits through a variety of accounting methods to reduce the tax payable". This is the crime fighters' view of the commercial world.

And, whatever the policy, ICAC thinks the whole package should be handed over to public servants. Ministers should take advice without any discretion to act.

For practical reasons, most day to day decisions in government are delegated to public servants. That is the reality of modern public administration. Nonetheless, electors expect politicians to take responsibility for the good things and bad things that happen when they are supposed to be holding the reins of power. They expect ministers to intervene to direct policy outcomes when they lack equity or simply when they run against the grain of community sentiment.

People voting, for good or ill, get to decide what good policy is and what is not acceptable. They also get to decide whether they prefer Tony Abbott or Kevin Rudd or a local circus clown of their choice. And, in the event they do choose Clive Palmer, everyone has to acknowledge his right to participate.

No matter how horrified ICAC might be at the prospect of elected parliamentarians taking decisions, that is how democracy is supposed to work. Stripping them of any contentious power might appear a neat solution to stop ministers like Ian Macdonald or Eddie Obeid from flourishing but replacing them with unelected officials could create another set of incentives for bad behaviour. Anyone who is prepared to bribe a politician is likely to bribe a public servant if there is a prospective benefit.

Enlarging committees to make them too difficult to nobble might go some way to minimising corrupt practices but might also add to the cost of doing business and the time taken for decisions. These are trade-offs that elected parliamentarians should be addressing.

The surest way to undermine the quality of government ministers might be to ask them to simply fill the spaces without being answerable to electors. With party patronage rife, this might be how New South Wales got into the mess in the first place.

(John Robertson is a director of E.I.M. Capital Managers, a Melbourne-based funds management group. He has worked as a policy economist, corporate business strategist and investment market professional for over 30 years after starting his career as a federal treasury economist in Canberra. His daily Market Diary - Brief Thoughts on Current Issues is available at

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