Bowen & Chalmers: Response to the FSI

20 October 2015


SUBJECT/S: Financial Systems Inquiry report; Abbott-Turnbull Government’s poor record on superannuation; financial advice; borrowing by self-managed super funds; credit card surcharging; crowd-sourced equity funding

CHRIS BOWEN, SHADOW TREASURER: Well thanks for coming everybody. It’s a pleasure to be here with our Shadow Minister for Financial Services and Superannuation, Jim Chalmers to comment on the Government’s response to the Financial System Inquiry. I said on behalf of the Labor Party when the Murray inquiry was released that it was a substantial, a considered report and it deserved a substantial and considered response. That's been the approach the Opposition has taken since November last year.

I've already outlined our response to a number of the recommendations in various speeches and comments over the course of the last year and today Dr Chalmers and I are providing commentary on the Government's response this morning. The Government says they've accepted all but one recommendation, but of course, a number of the recommendations they have adapted or amended as well.

Firstly, in relation to the Government's decision to legislate for a superannuation objective, of course we welcome that. Again I said several months ago that the Labor Party supported a legislated objective for our superannuation system. I make this point; the Murray inquiry recommended broad political agreement around the superannuation objective and we have consistently made it clear that we are interested in engaging with the Government to try and find a bipartisan objective for superannuation and the Government simply says they will seek to legislate it. I say this to Treasurer Morrison and to the Government; we've consistently said this would be best done in a bipartisan basis. If the Government seeks to play wedge politics on an objective for our superannuation system that would be a most unfortunate approach. If the Government chooses to seek bipartisan agreement around a superannuation objective, we would engage in that process and see if it is possible.

Last year, I outlined Labor's suggestions for an objective for our superannuation system to provide a dignified retirement for as many Australians as possible without recourse to the full age pension. We wait to see what the Government actually proposes and we would encourage the Government to enter into discussions with the Labor Party and if they choose other parties to see if broad political agreement can be reached.

Also the Government has said that they will lift standards of financial advisers with educational and ethics standards. Again we welcome this. I make the point one of this Government's first actions was to try and unwind our Future of Financial Advice reforms which did just that. They weren't successful in doing that. We welcome their change of heart if they are fair dinkum about ensuring proper standards for financial advisers. Again we'll look at the detail and we’ll work constructively with them if the proposals stack up.

I note that the Government has rejected the recommendation of the Murray Inquiry to limit the ability for loan borrowing arrangements in superannuation. Now on first blush it appears odd that the Government's chosen to reject a recommendation which was designed to ensure that the system is less risky. The Murray Inquiry noted that limited recourse borrowing arrangements for superannuation funds had increased by a factor of 18 times between 2009 and 2014. And the Murray Inquiry found and I quote “direct borrowing by superannuation funds could impose risks if it is allowed to grow at high rates", and others have pointed out there are implications for housing affordability.

So again we'll consider our response to the Government's announcement today, but it appears odd that the Government would choose to reject what is a very very clear recommendation, not to amend the recommendation or to try and go about it in a different way, but to simply reject a recommendation which goes to the very heart of risk in our financial system.

We also note the Government has indicated action in relation to surcharging on credit cards. We very much welcome this and again we would facilitate the passage of appropriate legislation to ensure that consumers get a fair go when it comes to credit card surcharges. We'll wait to see the detail, but very clearly the Murray Inquiry responded to community concerns. Those community concerns are well founded. Of course we've been very active in the credit card space through our Senate processes and we'll continue to do so, but in relation to surcharging this is a real issue which needs to be addressed and again we're happy to work with the Government to ensure that's the case.

Finally just before I hand over to Jim to deal with some superannuation matters specifically before answering your questions, I note that the Government again today re-announced their intention to legislate for crowd source equity funding. This is just the reheating of a continual process of words without action from the Abbott-Turnbull Government when it comes to this very important area. We've been very active in this; when we were in office we commissioned the CAMAC report into crowd sourced equity funding. We've made very clear that we would facilitate very urgently the passage of legislation. The Government's talked the talk about innovation but they’ve done absolutely nothing and now we just see more talk from Prime Minister Turnbull and Minister O’Dwyer, more talk. Now it's time for some action. We've made very very clear that we would work with them to ensure that action could occur urgently.

My Parliamentary Secretary and now the parliamentary secretary to the leader Ed Husic has been very active in making policy proposals around this space. It is just wrong that crowd source equity funding is in effect illegal in Australia, if we're going to create the jobs of the future we need to have the access to the capital to do so and crowd source equity funding is a very very good way of doing it. It should be regulated, but it should be legal. Now obviously we're not responding to all of the Government's recommendations, a response to all, the more than 40 recommendations today. Some of them can go without comment, but we're dealing with the major ones and I'm going to invite Jim to deal with some of the specific recommendations around superannuation and then we'll take your questions.

JIM CHALMERS, SHADOW MINISTER FOR FINANCIAL SERVICES: Thanks very much Chris. We do welcome the release of the Government's response to the Financial Systems Inquiry today. It's such a crucial part of the economy; the finance sector. It employs so many Australians. Every Australian's life is touched in one way or another by the financial system and we want to make sure that it works for people and not against them, out in the community. We want to take what is a strong and successful part of our economy and make it even more so, so it's creating jobs, so it’s delivering the right products and benefits and services to the broader Australian community.

It's also an industry which is at the pointy end of the technological and other changes that are going on in our society as we move from an economy that's been relying on very high commodity prices into one that relies more on innovation and human capital.

This report has been a long time coming. There is lots of common ground as Chris was saying in his introduction, but there are a couple of areas where there is not yet unanimous agreement as well and I think superannuation is one of those areas where the Government's approach is not the same as the Opposition's approach.

Again, the superannuation sector is crucial to the health of our economy, to the future of our economy. There's more than $2 trillion under management, that's almost 10 percent bigger this year than the year before. So there's a lot at stake when it comes to superannuation.

Super is the hope on the side when it comes to boosting living standards in this country, taking pressure off the pension and creating those deeper pools of capital in our economy as well. It is pleasing to see, as Chris said, that they're up for a conversation about enshrining the purpose of superannuation in our economic arrangements, because from that then flows a series of other decisions about adequacy and tax concessions and all kinds of important issues in the superannuation system.

Beyond that agreement over enshrining the objective of super, there are some areas of disagreement, not just in this report but more broadly. The Government of course is abolishing the low income superannuation contribution. They froze the increase to the superannuation guarantee that was put in place by Chris and others in the former Government, they have unsustainable tax concessions that are still in place, there's a gender gap in superannuation; all kinds of challenges in the super system.

We think that the Government's priorities are wrong as they look to attack a representative model of board representation in super, they look to attack a model that is working with this ideological and unwarranted and unnecessary attack on funds which are creating lots of wealth for people and delivering very good outcomes for people.

So we do think they've got the wrong priorities when it comes to aspects of superannuation policy. We see they have now announced a Productivity Commission process to look at alternative ways to manage default contributions. We are a bit wary of their motives in this area given their form when it comes to superannuation boards and the treatment of trustees, their failure to give different kinds of boards the capacity and the flexibility to deal with their membership of their boards in a way that benefits members.

Our job in the Labor Party is to protect the interests of members in the superannuation system. That's our overriding guiding principle as we look at all the various proposals that the Government puts forward when it comes to superannuation. We think when it comes to default funds the Fair Work Australia process is designed to provide those protections to members to ensure that it's their interests that prevail over the interests of their employers. We don't want to see other incentives come into the mix and we'll have more to say about that particular aspect of the response to the financial system inquiry as it evolves.

BOWEN: Okay folks, over to you. Phil?  

JOURNALIST: On the legislated definition of ‘fit for purpose’, would you like to see something in that definition addressing the issue of wealth creation as well as providing a dignified retirement, avoidance of the pension?

BOWEN: Well, let's have that conversation with the Government if they're willing to enter into that conversation. Clearly, we don't see superannuation as an estate planning tool. We see superannuation as a tool to give Australian’s a dignified retirement. As many Australians as possible and to give as many Australians as possible that dignified retirement without recourse to the full age pension. Now, if there are other suggestions we're not saying that's the be-all and end-all of the conversation, but it is about obviously national wealth as well as individual wealth, but let's remember, superannuation is for the many and it should be designed for the many and the purposes as Jim very eloquently put it, it's important to enshrine that so that all suggestions to change superannuation can be assessed against that very important goal of lifting the many to a dignified retirement.

JOURNALIST: Mr Morrison made points about the embedding choice especially in enterprise agreements and workplace agreements. What is wrong with varying or allowing people the choice of their default super?

BOWEN: Well as I understand it that is, it's the case that has been dealt with over the years in increasing factors and it is now obviously very much the minority situation. Now of course, in principle, more choice is a good thing, we're happy to have a look at the Government's detailed proposals and talk to the superannuation sector. Of course that would be the case, that’s the principles, think let's see the detail.

JOURNALIST: Do you think it's legitimate for default super to be mandated through a broader enterprise agreement?

BOWEN: Well as Jim said, we want to ensure there's a proper filter to ensure the best interests of the members. We don't want to see a situation where the members' retirement income is being traded away in a way which does not reflect their own best interests. That's the principle we want to see. Now, there's going to be a Productivity Commission process, obviously we'll see what that comes up with and we’ll respond accordingly in due course. What we won't do is stand by and see any watering down of the important principle that there's got to be a filter of a third party, without a conflict of interest, to say this is how the members' best interest, the employee's best interest is represented without any conflict of interests coming into it.

Okay, thanks very much.