Investment by Commonwealth entities (RMG 301)

Under sections 58 and 59 and supporting rules made at sections 22 and 22A of the PGPA Rule 2014, an investment is an arrangement that involves the purchase of an asset by a Commonwealth entity for the primary purpose of earning income or a profitable return.

The investment powers under sections 58 and 59 are not intended to provide primary legislative support to programs or policies carried out by Commonwealth entities. Instead, a specific legislative framework is more appropriate and often legally required in these cases. 

NCEs primary purposes are to carry out Commonwealth objectives, which are not profit-oriented.

Unless specifically authorised by, for example, enabling legislation non-corporate Commonwealth entities (NCEs) do not invest relevant money, as cash and debt management is generally conducted at the whole-of-government level by the Australian Office of Financial Management. 

Section 58 of the PGPA Act permits the Finance Minister and the Treasurer to invest relevant money, on behalf of the Commonwealth, in any authorised investment.

Section 58 of the PGPA Act limits the Finance Minister and the Treasurer to the authorised investments listed in subsection 58(8)(a) of the PGPA Act (Note: the additional power for the Treasurer, below). The authorised investments are:

• securities of, or securities guaranteed by, the Commonwealth, a State or a Territory
• a deposit with a bank, including a deposit evidenced by a certificate of deposit (noting that ‘a deposit with a bank’ does not include medium-term notes and fixed or floating rate notes, money market trusts or cash management trusts, and bills of exchange that do not comply with the rules) or
• any other form of investment prescribed by the PGPA Rule 2014
• the forms of investment prescribed by section 22 of the PGPA Rule 2014, are:
  • a bill of exchange that is accepted or endorsed only by a bank
  • a professionally managed money market trust (if the Finance Minister or Treasurer is satisfied of certain conditions)
  • a dematerialised security that is the equivalent of an investment referred as the bill of exchange, referred to above, or the securities or a deposit with a bank, referred to above. 

The authorised investments that the Finance Minister can approve are conservative and low-risk in nature. This reflects the policy intent that investment under section 58 of the PGPA Act relates to the relevant money held by non-corporate Commonwealth entities that is primarily to deliver functions and programs on behalf of the Government and people of Australia, rather than for investment for profitable return. 

The Finance Minister will only delegate investment powers to accountable authorities of NCEs where the investment activity is an appropriate ancillary to the NCEs functions. The policy intent is to provide NCEs with a better rate of return on invested money than would be achievable with money held in a day-to-day transactional bank account. The policy intent is not to provide authority to NCEs for more complex, higher-risk type of investments which could result in losses of money which NCEs require to deliver their functions.

The Finance Minister has, to-date, delegated the power to invest under section 58 of the PGPA Act to certain accountable authorities of NCEs through the Finance Minister’s delegation of PGPA Act powers, here: Public Governance, Performance and Accountability (Finance Minister to Accountable Authorities of Non-Corporate Commonwealth Entities) Delegation 2022.

When the Finance Minister decides to approve authorised investment on behalf of the Commonwealth, the Finance Minister will generally do this by delegating investment power to the relevant accountable authority of an NCE.

The Finance Minister’s delegation of power to invest is made to specified accountable authorities listed in the Finance Minister’s delegation. The relevant money used for investment will usually be held in a special account administered by the specified accountable authority. The accountable authority may then invest in authorised investments only from relevant money identified for the purpose. 

Accountable authorities when investing must also comply with the Directions that accompany the Finance Minister’s delegation. Accountable authorities must also be cognisant of relevant requirements contained within section 58 of the PGPA Act, and their duties under the PGPA Act, especially at sections 15 and 16.

An accountable authority that is delegated the power to invest under section 58 may subdelegate the Finance Minister’s delegation of power to invest to an official of a non-corporate Commonwealth entity under section 110 of the PGPA Act.

Accountable authorities of non-corporate Commonwealth entities must seek the Finance Minister’s approval to invest in authorised investments under section 58 of the PGPA Act. Approval should be sought through correspondence between the relevant responsible minister (for the entity that wishes to invest) and the Finance Minister. 

Correspondence from the responsible minister should set out: 

• that the relevant entity seeks the Finance Minister’s approval to invest and the delegation of investment power under section 58,
• why the delegation of investment power by the Finance Minister is necessary, or appropriate,
• the name of the special account involved (where relevant), and
• that the special account involved will require exemption from Directions (those dealing with the consolidation of Commonwealth cash and interest) under the Finance Minister’s Banking Delegation for section 53 of the PGPA Act.

If an accountable authority is considering seeking the Finance Minister’s delegation to invest, officials from the relevant entity should discuss the issue with Finance officials first.

When accountable authorities invest under section 58 of the PGPA Act they must ensure that they maintain sufficient records to monitor and manage any investment and comply with obligations under the PGPA Act, including reporting obligations such as those in the Public Governance, Performance and Accountability (Financial Reporting) Rule. 

For further information, see RMG-125 Commonwealth Entities Financial Statements Guide. Monitoring of investment performance is also a useful tool to support decision-making about the treatment of current investments and the focus of future investment. Performance information may include a combination of qualitative and quantitative data. 

For further information, see the information on the Commonwealth Performance Framework.

While corporate Commonwealth entities generally do not have core functions involving investment (noting there are some exceptions), some corporate Commonwealth entities (such as the Reserve Bank of Australia and the Coal Mining Industry (Long Service Leave Funding) Corporation) are not subject to section 59 or, have investment powers under their enabling legislation, as part of their suite of powers related to their functions. 

Some entities (such as the National Gallery of Australia) have investment powers under their enabling legislation in addition to section 59. Therefore, before considering investment under section 59 of the PGPA Act, a corporate Commonwealth entity should review its enabling legislation for any investment provisions, and any interactions with section 59 of the PGPA Act.

Section 59 of the PGPA Act states that a corporate Commonwealth entity must not invest relevant money for which it is responsible, unless the money is not immediately required for the purposes of the entity.

The PGPA Act does not define ‘money that is not immediately required for the purposes of the entity’. Officials should consider this phrase in its ordinary understanding. For example, money that is not immediately required for the purposes of the entity is money that is not immediately required to perform the entity’s functions including meeting the costs of salaries and the daily costs of operating the entity.

Section 59 restricts investments to the forms of investments listed in the section (supplemented by the additional form of investment in section 22A of the PGPA Rule 2014). The forms of investment are conservative and therefore low risk in nature. This reflects the policy intent that investment under section 59 of the PGPA Act relates to the relevant money held by corporate Commonwealth entities that is held primarily to deliver on the functions and purposes of the entity, rather than investing for profitable return. 

The policy intent is to provide CCEs with a better rate of return on invested money, that is not immediately required for the purposes of the entity, than would be achievable with money held in a day-to-day transactional bank account. The policy intent is not to provide authority to CCEs for more complex, higher-risk type of investments which could result in losses of money which CCEs require to deliver their functions.

For corporate Commonwealth entities that are prescribed as a government business enterprise, under section 5 of the PGPA Rule 2014, subparagraph 59(1)(b)(v) of the PGPA Act provides a direct power for investment subject to the requirement that the money is invested in a manner consistent with sound commercial practice. Sound commercial practice is not defined in the PGPA Act and has its ordinarily understood meaning in the context of the entity’s operations and purpose. This form of investment is limited to those corporate Commonwealth entities that are prescribed as a government business enterprise.

Whenever the accountable authority of a corporate Commonwealth entity invests under section 59 of the PGPA Act they are also subject to their duties under sections 15 to 19 of the PGPA Act in respect of the investment. When an accountable authority of a CCE invests under an authorisation to invest made by the Finance Minister under section 59 of the PGPA Act, the accountable authority must also comply with any conditions relating to the investment the Finance Minister includes in their authorisation.

Under subparagraph 59(1)(b)(iii) of the PGPA Act the Finance Minister may authorise, in writing, investment of relevant money for which the entity is responsible, that is not immediately required for the purposes of the entity, in any form of investment. 

Although the Finance Minister is not restricted by section 59 in the forms of investment that may be authorised it has not been the practice for the Finance Minister to authorise types of investment that are of a form, or character, substantially different from that available under the PGPA Act. That is, the forms of investment authorised by the Finance Minister are characterised by their conservative, low-risk nature. This is inline with the policy intent underlying section 59.

The Finance Minister has provided written authorisation for investment through the Public Governance, Performance and Accountability (Investment) Authorisation 2024. This instrument prescribes the forms of investment that the Finance Minister has authorised for the entities prescribed in the instrument. The prescribed entities may only invest as authorised by the instrument and in accordance with any conditions and definitions set out in the instrument applicable to the authorised investments.

If a corporate Commonwealth entity decides to seek the Finance Minister’s authorisation to invest under subparagraph 59(1)(b)(iii) then the entity’s responsible minister should write to the Finance Minister. The correspondence from the responsible minister should identify:

• that the relevant entity seeks the Finance Minister’s authorisation to invest under subparagraph 59(1)(b)(iii);
• an explanation of why investing is appropriate and supports the entity in its operations;
• the specific forms of investment that the relevant entity proposes that the Finance Minister should authorise it to make;
• how the relevant entity will manage the authorised investments, this could include:
• a documented investment strategy;
• whether the relevant entity has access to a skilled investment adviser;
• a risk analysis and management plan for the authorised investments; and
• an analysis of the expected returns on the investments and how the entity will monitor the performance of the investments.

The Finance Minister will respond by correspondence to the responsible minister. If the Finance Minister decides to authorise the form(s) of investment sought the Finance Minister will do so in writing through an amendment to the Public Governance, Performance and Accountability (Investment) Authorisation 2024.

Before the responsible minister of the relevant entity writes to the Finance Minister, officials of the relevant entity should discuss the proposal to invest with officials of the Department of Finance. 

When accountable authorities invest under section 59 of the PGPA Act they must ensure that they maintain sufficient records to monitor and manage any investment and comply with obligations under the PGPA Act, including reporting obligations such as those in the Public Governance, Performance and Accountability (Financial Reporting) Rule. 

For further information, see RMG-125 Commonwealth Entities Financial Statements Guide.  Monitoring of investment performance is also a useful tool to support decision-making about the treatment of current investments and the focus of future investment. Performance information may include a combination of qualitative and quantitative data.