Paul Fletcher (Bradfield, Liberal Party) Share this | Hansard source

I think we should focus very carefully on what the minister has just said, because it reveals the fundamental flaw in logic which underpins proposed section 29VN, which the opposition's amendment proposes to remove from the bill. What the minister said to the House just now is that this provision sends a clear signal to small poor-performing funds. Note very carefully the way he put together two different concepts: small and poor performing. If you listen to the minister, you hear that 'small' and 'poor performing' are effectively the same thing. But of course they are not. The difficulty with what the minister proposes and the difficulty with the bill, which the minister has brought into the House, is that this provision will not just send a signal to small poor-performing funds; it will send a signal to all small funds—well-performing small funds and poor-performing small funds. The policy problem with that is that a consequence of this provision is that funds which are small and which perform well may end up finding themselves pushed into a course of action which, arguably, is not in the interests of fund members. It is hard to avoid noting the kind of language which is used in the explanatory memorandum, in paragraph 1.27, where the author refers to the obligation on trustees:

… to rectify the insufficiency so they continue to meet their general obligation to promote the financial interests of beneficiaries.

If you are putting a provision into legislation, if you are making it part of the black-letter law of this country and if you are imposing formal legal obligations on trustees with all the consequences that go with that, you need to be sure that the policy basis for imposing that obligation is a good one. We have heard no argument from the minister as to why the policy basis for imposing this obligation is a good one. We heard from the minister that the scale test is a good idea because the Cooper review says it is a good idea. There is much in the Cooper review which contains merit, but it is surely not appropriate for this House of Representatives—the people's house—to abdicate its function of bringing to bear an independent judgment, an independent exercise of weighing up the merits and the disadvantages of pieces of legislation which are brought to the House. That, in effect, is what the minister is asking us to do this morning, because he is arguing: 'The scale test is a good idea because the Cooper review says it's a good idea.'

I do not find that argument persuasive. I believe that our obligation in the House of Representatives is to consider the merits of the idea. Let us just remind ourselves of the idea which is embodied in this provision, which the opposition's amendment seeks to remove. The idea is that bigger is better. The idea is that scale in superannuation funds is a good thing. If that were not the underpinning idea, this provision would not be here. The reason the opposition object to baking this in to black-letter law is that that idea is deeply contentious.

There are advantages to scale but there are also advantages to being small and nimble. Smaller investment funds can take advantage of investment opportunities which are not available to very large funds. Smaller funds have the capacity to invest, for example, in small companies which may produce better returns. However, it is a well-known problem in investment management that very big funds are, in practical terms, precluded from investing in small companies because the minimum size of investment they need to make for it to make a difference to their members is so big that it is impractical for them to take a stake of that size in a small company. So there are good arguments in economic theory and policy as to why scale is not an unmitigated advantage, and that is why we say the idea underpinning this provision is a bad one.

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