LATE PAYMENT OF GOVERNMENT DEBTS (INTEREST) BILL

Second Reading

Second reading.

The Hon. G.E. GAGO (Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for the Status of Women, Minister for State/Local Government Relations) (17:55): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted in Hansard without my reading it.

Leave granted.

The public sector has recently been criticised for not paying invoices in a timely manner. While overall payment performance, outside of SA Health, is in an acceptable range and showing progressive improvement, there is still an ongoing opportunity to do even better. Particularly for small business, late payment can cause cash flow problems and negatively impact on the capacity of these businesses to meet their financial commitments.

In June 2013, a report was delivered to the Government by Mr Warren McCann, Independent Consultant making a range of recommendations to improve invoice payment performance across government. Development of late payment legislation was one of the key recommendations.

The purpose of introducing this Bill is to demonstrate the Government's commitment to ensure that small business suppliers are paid within the Government's standard 30 day payment terms. Where this does not occur, the Bill provides suppliers with the opportunity to be paid penalty interest to help offset any costs associated with not being paid on time.

Legislative schemes regarding the payment of interest on overdue invoices are commonplace in many parts of the world, including other Australian Government jurisdictions. Adoption of this legislation will send a clear message to the small business sector that the Government takes its invoice payment obligations seriously.

The untimely payment of invoices, where it occurs, is as much a cultural issue as it is a systems issue. Therefore, enacting late payment legislation will also send a strong message to agencies throughout the public sector that the prompt payment of accounts is an important objective of the Government. Establishing a financial penalty will clearly reinforce this message and act to change behaviours over time.

The key elements of the proposed legislation are as follows:

The scheme will apply in relation to public authorities designated by the Treasurer.

Only small business suppliers (defined as non-government Australian vendors with revenue of less than $5 million per annum) will be able to claim late payment interest.

Interest will start to accrue from the 31st day after the date an invoice was received by a public authority.

Until a date to be fixed by the Treasurer, small business vendors will need to invoice the applicable public authority of any late payment interest entitlement. After that date, public authorities will be expected to pay any interest at the time that payment is made for the provision of the relevant goods or services. It is the Government's intention to move to the 'automatic' payment of interest under the Act within the next 2 years. In order to ensure that there is a smooth transition to the 'automatic' payment of interest, a review is to be undertaken within 18 months after the commencement of the legislation.

To avoid excessive administrative costs, interest will only be payable to small business vendors when the total amount of interest owed is greater than $20.

The Small Business Commissioner will have a dispute resolution function under the Bill.

I commend the Bill to Members.

Explanation of Clauses

1—Short title

This clause is formal.

2—Commencement

This clause is formal.

3—Preliminary

Subclause (1) defines terms used in the measure. Subclause (2) provides that the Treasurer may publish principles for determining the annual turnover of a business for the purpose of the Act by Treasurer's instruction. Subclause (3) details the invoices or claims to which the Act applies.

4—Change in identity of parties

The clause provides that the operation of the Act is not affected by a change in the identity of a party to the contract creating the debt, or the passing of the right to be paid the debt, or the duty to pay it (in whole or in part) to a person other than a party to the contract creating the debt.

5—Occurrence of default event

The clause sets out that for the purposes of the Act, a default event occurs if—

goods or services are provided to a public authority under a qualifying contract, being a contract where the purchaser is a public authority and the supplier is a qualifying person or body (being a person whose principal place of residence is Australia, or a corporation incorporated under Commonwealth law); and

an invoice is sent or a claim is made by the supplier under the qualifying contract for the payment of a qualifying debt (being a debt created by the qualifying contract); and

the invoice or claim is rendered in accordance with any relevant Treasurer's instruction; and

the invoice or claim complies with GST requirements; and

payment by or on behalf of the public authority is made to the supplier more than 30 days after the relevant day, being the day on which the invoice or claim is received by the public authority; and

the public authority did not dispute a relevant matter within the designated payment period (being the period of 30 days that applies under clause 5(1)(e)).

Relevant matter is defined in subclause (3) as:

whether goods or services have been provided in accordance with the qualifying contract; or

some other matter relating to the terms of the qualifying contract; or

whether the invoice has been properly rendered; or

any other prescribed matter.

6—Interest payable if default event occurs

This clause outlines the amount and circumstances in which a supplier is entitled to interest (subject to the outcome of any dispute under clause 7) as follows:

subclause (1) provides that if a default event occurs (as prescribed in clause 5) and the qualifying contract in relation to which the default event occurs relates to the supply of goods or services as part of a small business carried on by a supplier on the qualifying day (being the day following the end of the 30 day designated payment period), the supplier is entitled to interest calculated in accordance with the formula outlined in the subclause. Small business is defined in the measure as a business carried on by a qualifying person or body whose principal place of residence is situated in Australia, where the annual turnover of the business does not exceed $5 million (or a greater sum prescribed by the regulations) in the financial year immediately preceding the financial year in which the relevant qualifying day occurs;

subclause (2) defines the default period for the purposes of the formula, being the period beginning on the day immediately following the end of the designated payment period and ending on the day immediately preceding the day on which payment is made by the public authority;

subclause (3) defines the day on which payment is made by the public authority as the day on which payment is made either by electronic funds transfer, payment or credit card, or the day on which a cheque is posted to the relevant supplier;

subclause (4) provides that a supplier is not entitled to interest if the interest calculated is less than $20;

subclause (5) provides that the interest payable will be a liability to be satisfied by the public authority that is in default, payable out of money held or made available for the purposes of the public authority;

subclause (6) sets out the scheme for the payment of interest;

subclause (7) makes it clear that interest is not payable on interest;

subclause (8) makes it clear that the clause is subject to the outcome of any dispute under the Act;

subclause (9) is a relevant definition.

7—Disputes

The clause provides for disputes on matters outlined in the clause to be referred to the Small Business Commissioner. The clause further provides for the manner in which the Commissioner may resolve a dispute, including exercising any of the powers of the Commissioner under the Small Business Commissioner Act 2011.

8—Reporting

This clause outlines the reporting requirements for an interest payment made under the Act in any month. In the case of a government department, the Chief Executive must furnish the Minister responsible with a report within 21 days after the end of the month in which the interest payment is made. In the case of a statutory authority that has a governing body, the report is to be made to the governing body of the authority at the next regular meeting occurring after the end of the month in which the interest payment is made. The report must contain any information required under a Treasurer's instruction.

9—Regulations

This clause allows the Governor to make regulations in respect of the measure.

10—Review

The Treasurer is to prepare a report on the arrangements that are to be put in place to ensure that the scheme envisaged by clause 6(6)(b) of the Act will operate in an appropriate and effective manner. The report must be completed within 18 months after the legislation comes into operation and be tabled before both Houses of Parliament.

Schedule 1—Related amendments

Part 1—Preliminary

1—Amendment provisions

This clause is formal.

Part 2—Amendment of Public Finance and Audit Act 1987

2—Amendment of section 41—Treasurer's instructions

The clause amends section 41(1) to allow the Treasurer to issue instructions setting out the procedures and processes for rendering invoices and claims with respect to public authorities.

Debate adjourned on motion of Hon. D.W. Ridgway.