Bernie Ripoll (Oxley, Australian Labor Party, Shadow Minister Assisting the Leader for Small Business) Share this | Hansard source

It is a pleasure to speak on the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2014 because it does some good things. The bill seeks to reduce the regulatory burden of companies offering relatively simple, or vanilla, corporate bonds to retail investors. This bill contains three major elements. Currently, the issuance of corporate bonds to retail investors requires the provision of a full prospectus. Under the changes in this bill, the issuance of certain corporate bonds to retail investors will require the provision of a simpler two-part corporate bond prospectus instead. Currently, simple retail corporate bonds like other bonds can be traded directly, but are not able to be traded as depository interests. Under this bill, simple corporate bonds will be able to be traded using simple retail corporate bonds depository interests. Finally, currently, directors and proposed directors of a body making an offer have liability for any misstatement in or omission from the disclosure document, whether or not that director was involved in a contravention of subsection 728(1). This bill makes changes so that directors and proposed directors of a body making an offer have liability for any misstatement in or omission from the disclosure document only where they are involved in a contravention of subsection 728(1). The former Labor government had introduced these changes in schedule 1 of the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013, which lapsed. There is one minor change between schedule 1 of the 2013 bill and this new bill, to proposed section 713A of this bill, particularly in subclause (22). The old bill specified that securities must be for a fixed term of not more than 10 years, whereas the changes being proposed in the new bill fix a term of not more than 15 years.

It is obvious from my comments that Labor supports the establishment of a retail corporate bond market in Australia, and we are long on the record in having that view. The establishment of a deep and liquid retail corporate bond market in Australia was a key priority for the former Labor government. In December 2010, as part of its competitive and sustainable banking system inquiry, the former Labor government signalled it would introduce changes to facilitate the development of a deeper and more liquid corporate bond market in Australia. These changes included launching the trading of Commonwealth government securities, CGSs, on financial markets accessible to retail investors and reducing the regulatory burden associated with issuing corporate bonds to retail investors, including streamlining disclosure requirements and prospectus liability regulations. They were good measures by the former Labor government to reduce red tape and the regulatory burden. Labor introduced the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013 which lapsed and which is now being revisited by this government. Schedule 1 of that bill is virtually identical to the one we are debating today.

Corporate bonds are a way for companies to obtain funding and an alternative to raising capital in equity markets, borrowing domestically from authorised deposit-taking institutions or borrowing overseas. In 2012, a Reserve Bank of Australia discussion paper estimated that the face value of the stock of bonds outstanding is around $825 billion—roughly two-thirds of the market capitalisation of the equities listed on the Australian Stock Exchange and equivalent to 62 per cent of gross domestic product. Australian corporate bonds are typically issued in the wholesale market, targeting professional institutional investors, and are traded in markets not directly accessible to retail investors. Indeed, the retail segment of the Australian corporate bond market is considered to be quite small. In the 2012 RBA discussion paper it was stated that while Australian households had accounted for between one-quarter and one-half of the investor base for corporate bonds up until about the 1980s in recent times their direct participation in the bond market is less than one per cent of bonds on issue. Their participation is quite small.

A well-performing and efficient retail corporate bond market will provide an alternative source of funding for Australian companies and increase competitive pressure on lending rates to business as well. That will help with a deep and liquid corporate bond market, access to funding and capital, assisting business in a range of forms, reducing red tape and reducing the regulatory burden—all good initiatives and programs of Labor when it was in government. This bond market is a significant source of funds for many Australian financial and non-financial corporations. Correspondingly, this financing activity provides investment opportunities for Australians and non-residents alike. The Johnson report, which was commissioned under Labor and is entitled Australia as a Financial Centre: Building on our Strength, examined the lack of liquidity and diversity in Australia's corporate bond market. It also discussed why this lack of liquidity was a significant weakness in the overall assessment of Australia's financial system. At the retail level, it was considered that one action the government could take to overcome this weakness was to introduce regulatory changes that could assist with developing that market.

The bill that is before the House today seeks to reduce those regulatory burdens on the issue of corporate bonds while at the same time ensuring that appropriate standards of consumer protection are maintained. This is where balance comes in: while you want better functioning and more efficient markets, you must have in the front of your mind good consumer protections. That is something that was in place with Labor's Future of Financial Advice laws that have been significantly weakened by the Liberal government.

This bill follows the passage of Labor's legislation to facilitate retail trading in Commonwealth government securities that we passed in 2012. Having an active CGS market is an important step in establishing a wider retail corporate bonds market by providing a visible pricing benchmark for retail investors in corporate bonds. This bill will deliver on the former Labor government's commitment to reduce the regulatory burdens and barriers for offers of corporate bonds to retail investors. As I mentioned, this bill contains three major parts; I will not go through them again other than to say that reducing red tape, burdens and barriers and facilitating deeper and more liquid markets continue to be priorities for Labor, not only in government but also in opposition.

There is nothing more important that this parliament can do than provide really good safety measures for consumers, especially in these complex and difficult-to-understand markets, which confound even retail investors. I would not have to remind too many people in this place or consumers about the tens of thousands of people who either lost their life savings or could not rebuild their savings through the collapse of Storm Financial. It had something like 14,000 clients—often elderly people who had entrusted their life savings and lost them. They were placed in this position through weak protections and people who did the wrong thing by them. We also saw Australia's largest superannuation fraud with Trio, where people were defrauded of their retirement savings, which for the most part could not be restored. For those in regulated funds there are some special and unique mechanisms in place that can in part help them be compensated, but for those who manage their own funds there are no such protections, because you cannot protect against yourself. Ultimately you are the trustee of your own fund, you make your own decisions and you take your own risks.

The important thing for governments to do is to understand the painful lessons learnt from the global financial crisis, where people's superannuation was absolutely hammered by markets and unscrupulous people. It would be derelict of a government not to respond—having done the reviews, having looked at the tragic stories, having spoken to the victims and having seen their tears because they lost their life savings. For most there is nothing they can do; if they are elderly they cannot rebuild their life savings; too often they did not understand what had happened to them. It is the responsibility of government to assist and to ensure that consumers are properly protected. Over five years of consultation with the financial services sector, we achieved that, as well as growing that sector. After a lot of work that took the form of the FOFA legislation, which was squarely pointed at providing balance between consumer protection and a profitable sector. We wanted to protect consumers against both defrauders and those who imposed too many fees—which in itself is not fraud but which can significantly reduce retirement savings. We did that by banning commissions and through proper disclosure measures. If you are paying for something, you should get something in return. People should not milk your account simply because they can through fees and commissions that are built in or remain undisclosed. Those offering good advice should be rewarded, and most advisers in the financial industry are good people—

Mrs Wicks interjecting—

That is right; not all of them are good. That is what we have to deal with: some people in financial services will do the wrong thing. Our response should be to provide the framework, the system and the protections to make it really hard for them to do the wrong thing. Self-interest is a key part of that; and we need to provide best-interest obligations.

A last-minute deal was done in the Senate yesterday. This is something that none of us knew about. Certainly the financial services sector did not know that there was going to be a last-minute deal between the Palmer United Party and the government. And we saw that embarrassing shambles of the minister being forced to read into Hansard the letter of agreement while Clive Palmer turned up to make sure it was being done to his bidding—the ringmaster cracking the whip and making sure the government does his bidding.

But the government were pretty happy in the end, no matter how much they had to dance like bears, because they got to weaken FoFA regulations, they got to weaken the consumer protection laws. And now we have seen the response back from consumers. I know that ordinary people will not be happy, because they know that their protections are being weakened. I know that the Council on the Ageing are not happy, because for their 200,000 members, who will be the target of unscrupulous shysters out there who would do the wrong thing, the door for people who want to do the wrong things has been re-opened. We had closed the door, and it had been closed successfully, and we had started to see some significant improvements in the culture and behaviour—the difficult things to change. We saw that happening, with the majority of the sector really taking on not just the black letter of the law but the spirit of the law.

But now that the door has been opened wide we are going to see—particularly for the banks, who get an enormous advantage out of this—the up-selling of products. Every time you go to the bank now you get, 'Would you like fries with that?' We are going to have this ridiculous circumstance where people will be up-sold complex, difficult, expensive products that may not be in their best interests. But the banks are being given a wide carve-out, a wide exemption from best interests and from a whole range of things that were banned under the original Labor consumer protection FoFA laws.

My fear is that ordinary consumers are going to end up with products that (a) they do not need and (b) they will pay much too much for. And over a lifetime of having products that they do not understand or have been up-sold on or oversold on, they will pay an exorbitant amount of fees and will whittle away their savings, particularly by banks making record profits. It is inconceivable for me how banks can talk about their business models being hampered at the same time that we see the actual results: record profits. Banks are making billions of dollars—and good on them. Yesterday we saw David Murray deliver his interim report on the financial system inquiry, where he gives a big tick to the banks and says they are in good condition. Well, they are. And we all agree that we should have good, strong Australian banks and maintain our four-pillars policy. We should have all those things in place. But David Murray went further, saying that we also need good consumer protection laws; we need to balance that out.

So, while we want a good, strong banking system, and we do not object to the banks making profit, we should at the same time stand up for ordinary people, stand up for the mums and dads who otherwise have no other voice. And if it is not through this parliament and through good, strong consumer protection laws, then where will it be? It certainly will not be through civil action or the courts. Those are paths that are not within the realm of ordinary people, who just cannot afford the sort of court action they might have to take. And often the professional indemnity insurance schemes that are in place are not satisfactory; they are not enough when something really goes wrong. This is not about just trying to deal with the ordinary process of day-to-day advice. It is about when something goes wrong—because, when it does, it is catastrophic for those people who cannot rebuild their lifetime of saving to make sure that they are independent in retirement.

And that is what we want: more and more people who, as they get to retirement age, are more independent, are self-reliant, are less of a burden on the tax system and feel more able to look after themselves. And the more that we have the right incentives, the right programs and the right protections in place, the more that can be the case. You cannot in the same breath talk about an ageing population, talk about the cost of the age pension, access to the age pension, wanting people to save more for their retirement and strengthening our superannuation system—which is what Labor has done—and then weaken consumer protection at the same time. It is unfortunately going to affect those who are the most vulnerable—and usually in later years, because that is when they actually have a superannuation account balance that some people will target—when they are in a better financial position in later years or as they retire. So, there is more of a need to do the right thing for people at that particular point in time.

While we have heard lots of complaints from the Liberal government about Clive Palmer—we have heard them complaining incessantly about the crossbenchers and Clive Palmer and a range of other people in there—in the end they are happy to just cut any deal, as we saw yesterday. I do not know who else saw it coming, but I can tell you that the Council on the Ageing did not see it coming. Industry Super Australia did not see it coming. National Seniors Australia did not see it coming. Choice did not see it coming. It just goes on and on. I can assure you that the financial services sector did not see it coming. And the Australian people did not see it coming, but now they have, and they have seen what the government will do: basically, it will do anything. The government will just do a deal with anyone on anything. It does not really care in the end, as long as it gets something through.

We had a government that was so determined that it would not deal with the crossbenchers, would not make dirty deals and all the rest of it. But in the end, no matter how much they are made to dance by PUP or anybody else in the Senate, they will just cut a deal. And unfortunately regarding FoFA that deal involves consumers losing. Banks win, consumers lose. And this will not be the end of it. We are going to see this in other areas, and it is a tragedy. I am going to be really concerned every single day from now, now that the laws have been weakened, now that the doors have been opened, that we are going to see a creeping back. And I do not think it will take long. Unfortunately, those who want to do the wrong thing do it pretty quickly when they are given the opportunity. We are going to see, again, advice that is not in the best interests of consumers. We are going to see banned commissions back in. We are going to see new business models, particularly by the banks.

And not everyone in the financial services sector is happy. In fact, very few people are happy with the changes. I cannot find too many other than the banks or those who speak for the banks who are happy with these changes. They get what it means, and they get what it means for independent advisers, for quality advice, for best-interest obligations. They understand what it means in terms of what the sector will look like. It certainly does nothing for consumers, and I think that is the real tragedy here.

We have seen this pattern now for a little while, certainly since the Senate changed. We have seen an unfair budget that unfairly targets the most vulnerable in the community. It directly attacks families. We have seen the broken promises, whether on Medicare, on pensions, or on new taxes—a great big new tax on everything through a GP tax and a fuel tax. Everything that Tony Abbott said he would not do before the election he is now doing. Do anything, say anything, as long as you are in power—that is not the right way to go. It is not what the Australian parliament is about. What we are seeing in this budget are some very mean-spirited cuts and new taxes, extra costs for low- and middle income families.

We have also seen a nearly three-year delay in shifting the superannuation guarantee to 12 per cent. How can the government talk about an ageing population and the need for people to be more independent in retirement but then delay the increase in the super guarantee from nine per cent to 12 per cent? How can the government look ordinary people in the face? There are nearly three million people who earn less than $37,000 a year, but who are the first people the government targets to try and save some money? Who do they take the money from? Whose pockets is that money to come from? The lowest income earners in the country—those earning less than $37,000 a year. The low-income superannuation contribution is only up to $500 a year. That is a very small amount of money, but it is a significant amount for people on low incomes—yet the government takes it out of their pockets. These are people who are trying to save for their retirement.

Labor understood that there was an anomaly in the taxation of the superannuation contributions of low-income earners. They were effectively paying more tax. If you were a low-income earner, earning less than $37,000 a year, you were effectively paying more tax on your superannuation contributions than somebody earning hundreds of thousands of dollars a year. Labor understood this. We acknowledged it—and then we did something about it. We felt that people who earn that sort of money really need some assistance and that we should do the right thing and fix up the tax system. This government will be attempting to take that away from those people.

I have heard all sorts of comments coming out of the Senate about the government's intention—whether it is about superannuation, the schoolkids bonus or other things like that—to try to take away assistance from people who need it. The Palmer United Party and others have said they will not be supporting some of those measures, but the proof will be in the eating. We will see, when the votes are actually cast, whose side they are on. We will see whether they are on the side of consumers, low-income families and low-income earners—doing the right thing by them—or whether they will be on the side of big business and the banks. We know whose side the government are on. They have made the wrong choices right throughout the budget and right throughout superannuation.

This has been a cruel budget, yet in the midst of it I am no longer hearing anything about the 'budget emergency' that was supposed to be happening. What budget emergency is the government talking about? They are not serious about it. Take the new GP tax, for example—the $7 tax every time you go to the doctor. It will particularly hurt the elderly and it will particularly hurt, obviously, people who are sick. The sicker you are, the more you pay. This is the wrong choice. This is the wrong way for governments to be raising revenue. You do not raise it from the sick. You do not raise it from the elderly. There are other, better ways to raise revenue. Yet that is exactly what we have seen.

You might possibly begin to understand this cruel approach to revenue raising, however, if the government were actually going to use the revenue from this unfair tax to address the so-called budget emergency. But they are not. They are squirrelling it away into some other fund, an endowment fund for medical research—all very noble. But what about the budget emergency? They are going to slug sick people today for something in the future. It is great that the government want to do something more on medical research—although this country already does a lot in that area; there is already good funding of medical research. But we should not make the sick of today pay for that research in the future.

I do welcome the bill before us. I do welcome the reduction in red tape and regulatory burdens. It is a good bill. It is, after all, in essence exactly the bill that Labor had in place late in 2013. It is aimed at making sure that we have better, more efficient, stronger, deeper and more liquid markets and it puts in place the right mechanisms to help that happen. I commend the bill to the House.

Debate adjourned.

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