Alannah Mactiernan (Perth, Australian Labor Party) Share this | Hansard source

I obviously rise to support this legislation, the Governance of Australian Government Superannuation Schemes Legislation Amendment Bill 2015. We need, of course, to do all that we can to make our superannuation scheme sustainable, including our Commonwealth government superannuation schemes. Reducing the cost structures for those superannuation schemes is an important part of that. I note that I believe that the government is now agreeing to support the amendments that Labor has flagged it will move in the Senate. Those amendments are important provisions that will ensure that those employees made redundant as a result of the merger of the operations have the opportunity to be treated as if they were still APS employees for the purpose of seeking transfer or seeking promotion within the Australian Public Service. I think that is a very reasonable provision. We have obviously got to rationalise our delivery of these services from time to time. That also gives us, however, the obligation to ensure that the workforces affected by those decisions have an opportunity to ensure that they still have a career pathway before them.

I want to use this opportunity to make a few reflections about superannuation and the sustainability of superannuation more generally. Around the globe we obviously have lots of very cheap money. Indeed, people like Paul Keating argue that this actual surfeit of money that has been washing round the system was the very thing, together with the lack of regulatory oversight, that led to the GFC. This, of course, is creating a problem for superannuation funds. We have to think very deeply about this. Superannuation is now so much part of our planning for the future. For us to be able to manage that as we inevitably become an older population, we really have to be doing some deep thinking about superannuation: how we make it more sustainable and how we ensure that the superannuation savings are able to generate sufficient income into the future for those people that are seeking to rely on them.

There is some cause for concern today when you look at the profile that we have for our superannuation funds. We have almost $3 trillion in superannuation funds in Australia. That has been projected to increase to something like $7 trillion by 2030. But today we have a very heavy weighting of those funds towards equities. This, of course, creates a very real risk. I want to quote the former Treasury Secretary, Ken Henry. He said:

The heavy weighting to equities by superannuation funds is exposing the nation to a dangerous financial instability and the public to excessive risk.

We need to look at the profile that we have of investment in infrastructure compared to the investment that we have in equities. Obviously, the driver for this move into the more risky area of equities is clearly the high level of returns. Those returns range from around 13.7 per cent, in positive territory in 2013, to a negative of 11.5 per cent in 2009, with an average return of around six per cent. So there have been many positives but many negatives—and a lot of risk. And that is a major problem.

On the other hand, we do see that the superannuation funds that invested in unlisted infrastructure had a relatively stable return and it is cited that this was, on average, around 12 per cent. Whether or not these sorts of returns are now available in this world of very cheap money is questionable, but it is very clear that in Australia we have very low investment by the superannuation funds in infrastructure. In fact, less than five per cent of that nearly $3 trillion is invested in infrastructure within Australia. However, we are seeing a trend of these super funds actually investing offshore. We have to ask ourselves: why is it that we cannot get our infrastructure funds diverted, to be utilised within Australia? I think there are a number of issues, probably many more than I can touch on here. I think that our bid models are flawed and not designed to attract superannuation funds. The bid models that we have, which are usually packages involving the putting together of the funds, the financing and the construction, as well as the ownership and management, are usually led by consortia which are project sponsors, which take their money in the first couple of years and which have very high fees. They are in the project for the very short term and they move on. However, the front-end loading of that cost is very unattractive to a lot of superannuation funds. Indeed, given the risk that is involved in that tender process, they are very often not prepared to participate in that sort of project because of the high cost involved. This has been reflected on in many places and, widely, this is not a new idea. We certainly saw the Productivity Commission come out and say that we have to reconsider the way in which we are putting these projects out for private sector participation. We have also had many within the super industry make a similar comment and, indeed, one of the findings of the House of Representatives Standing Committee on Infrastructure and Communications was along the lines that we should start looking at things such as the inverted bid model.

There is also a particular unattractiveness, in my view, of putting the finance packaging together with the design, construction and management contract. I think that that stops us getting the best engineering and construction response that we can get because it depends on the random grouping of construction and engineering outfits with financiers. I certainly always prefer to have, where we can, the DCM portion of these projects separately tendered and the finance being dealt with quite separately. That way, particularly when we have very big projects and where there are only a very relatively small number of unrelated parties that can be involved in tendering for the actual construction and management of the piece of infrastructure itself, I believe we allow ourselves to get the most creative engineering response. It also starts helping reduce that up-front risk for superannuation funds because you have more certainty when you are going into a project. You have more certainty about what the actual cost of the construction and the physical maintenance will be over the life of the project.

These are complex issues for us to deal with. But what is quite clear is that, currently, superannuation funds are simply not sustainable. It is not sustainable for us to have such a heavy weighting towards equities, with less than five per cent of funds invested in infrastructure. In particular, when we look at our needs for long-term infrastructure in Perth—for example, we need a new container facility—we see that it will not be within the capacity of the state government to build. It is the sort of project that would be an ideal project for a private-public partnership involving superannuation funds.

As I say, super is incredibly important to us, but just providing the framework for the accumulation of the funds will not be sufficient for us to ensure that those funds will bring home the retirement bacon for our citizens.

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