Pat Conroy (Charlton, Australian Labor Party) Share this | Hansard source

It is a pleasure to follow the member for Bendigo's passionate contribution to this debate in defence of industry super funds and their ability to pick their own boards. I rise to speak on the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. This bill is important because it is an acknowledgement that the superannuation system needs reform. Both sides of politics agree that the system needs reform and is unsustainable in its current format, but the great issue is: what is that reform? The great issue is that the different approaches of the two sides of politics demonstrate the focus, the values and the real core beliefs of those political parties.

There is a clear choice here about how we reform a system that is clearly unsustainable. It is unsustainable because the cost of superannuation tax concessions in this country exceeds $40 billion a year. In a couple of years time, it will exceed the cost of the pension. Currently, 40 per cent of that massive tax concession goes to the 10 per cent of wealthiest Australians in this country. The system is clearly in need of reform. There are two choices here for reform which I will go to in a minute, but I want to talk about why the system is in need of reform. It is in need of reform because of one of the worst decisions that the Howard-Costello government ever made—a decision that, at the time, was pointed to as something that would haunt future governments. Not only is it haunting future governments; it is haunting future generations. It is the decision to make income from superannuation funds tax free for everyone once they reach the age of 60. It was a decision made at the height of a mining boom that was flushed away by Peter Costello in tax cuts. It was a decision that has built a massive structural imbalance into our budget that now the government are trying to confront. They are failing to confront it properly, but they are trying to confront it. It is a burden that a future Labor government will also need to address. That one decision has completely skewed the budget. It is disproportionately skewed, with benefits going to the wealthiest Australians. The current system is something that I know will no longer be there when I retire, because it is clearly unsustainable. It has set generation against generation. It has set baby boomers and the generation preceding baby boomers against gen X and gen Y and whatever we call the next generation after that.

It needs change, and that is why I am proud of Labor's policies in this area. The choice here is between Labor's policy and the coalition's policy. Labor's policy is that, for those over the age of 60, once you earn more than $75,000 in a year from your superannuation, you pay 15 per cent tax on additional income. This is designed to address the issue that, for example, we have 475 Australians in this country who have over $10 million in superannuation and earn, on average, $1½ million a year tax free. The objection from the coalition government is, 'They've earned that superannuation. That has been built up by them selling a business or earning income. That's their own money and they should be able to spend that freely.' No-one is touching their superannuation—I agree with that premise. The issue is that they do not own those concessions. Concessions are tax expenditures. Concessions are a choice by a federal government to give them a tax break. Effectively, the government are robbing taxpayers of that money to award it to those superannuants. It is an area in need of reform.

Why should a retail worker in my electorate—a checkout operator at Cardiff Woolies—pay 19c tax once they have earned their first $18,000 but someone over the age of 60 not pay a single cent in tax on, for example, $1½ million of superannuation income? I submit that it is unsustainable and, more importantly, inequitable. It is saying that that income is different from other incomes and it repudiates a fundamental value of our taxation system that income should be taxed the same regardless of its source. That is the choice of the Labor Party. That is our plan.

Those on the other side, the coalition government, have chosen to go on another path. They have chosen to terminate the low-income superannuation contribution, effectively cutting a superannuation concession to 3.6 million Australians—increasing the tax on super for 3.6 million of our lowest paid workers. That really shows the choices of the coalition government: giving a tax break to our wealthiest Australians while cutting superannuation concessions for 3.6 million Australians. In the area of superannuation, there is a clear choice between the true social justice, egalitarian values of the Labor Party versus the class warfare being practised by the coalition government.

This bill goes further to that choice. This bill goes to how we govern superannuation and what, effectively, is the model for superannuation in this country. The proponents of this change say it is sector blind—it is not attacking one subsector of the industry; it is sector blind, merely providing that a minimum of one-third of the directors on boards of superannuation funds should be independent. But that is not what is happening. This is a clear ideological attack on industry superannuation funds, for a variety of reasons. One is ideology, in that they have always been suspicious of superannuation funds that are owned by the industry itself and that have an employee-employer representation model. So they attack it from an ideological point of view that they do not want employee representatives to have a true say in these bodies. Secondly, it is an attack on the purported links between trade unions and superannuation funds. Thirdly, it is my heartfelt belief that it also reflects trying to do the bidding of people in the retail finance industry who are threatened by industry super funds that constantly outperform them in any sort of measurement in this area.

Let's go to some of the facts of the performance of retail superannuation funds against industry superannuation funds. On the matter of fees, retail superannuation funds, in the past year of data collection, which is the APRA Annual superannuation bulletin of 2013, collected $449 million in fees. Compare that with industry super funds, which collected $88 million. The share of fees collected by retail super funds compared with total fees collected was 82 per cent, yet the share of assets held in retail super funds was only 26 per cent. So, they have 26 per cent of assets under their administration, but they collect 82 per cent of the fees. That is grossly disproportionate, and that is reflected in the fees per member: $7 fees per member in superannuation and industry super funds versus $31 per member in retail funds.

You just have to ask: is this massive fee difference reflected in performance? Well, it is reflected in performance, but not in the way you would expect. In terms of 10-year average annual returns—the return on investment over a 10-year span at an annualised figure—retail superannuation has performed at 4.9 per cent per annum and industry super funds have averaged 6.7 per cent, an almost two per cent difference in performance of superannuation funds going to the low-fee provider. Retail funds charge much higher fees, they manage far fewer assets and they constantly underperform industry super funds and other not-for-profits.

This is not to say that there are not good retail super funds; there are. And it is not to say that every industry super fund sets the world on fire in terms of performance but merely that retail super funds should not be held up as the paragon of governance and performance in this country. In fact, industry super funds should. Not one of the top 47 individual super funds that are in the top league table in terms of performance are retail funds. If you look at payments to related service providers, which goes to conflict of interest, where you have accusations of directors on one super fund directing payments or purchasing services on behalf of their members with a related entity—whether it is insurance, legal advice, financial advice, broking or asset management—with retail super funds the average payment per member to a related service provider is $485; with not-for-profits, of which industry super funds are a subsector, it is $185.

If you are really worried about governance of superannuation funds in this country, you should be looking at the sector that charges more fees, that underperforms the rest of the sector and that charges triple the amount for related service providers, not the other model. But that is not what this bill is about. This bill is about ideology. This bill is about an attack on a coalition government on a bastion of our superannuation system, a bastion of providing decent retirement incomes to low-paid Australian workers, and that is the industry super funds model.

There is a requirement for all superannuation boards to have the right skills mix. They must satisfy APRA that their board, as constituted, has the appropriate skills mix to act in the best interests of their members. There is already a requirement around skills mix that does not need to look at independent directors. APRA already has a responsibility to make sure the boards have that mix. If the government was truly serious about improving superannuation governance it would be encouraging APRA to make sure that boards have the right skills mix, rather than embarking on this ideological crusade around independent directors.

I should note at this point that having independent directors on the boards is not a bad thing. It is to be encouraged. But ultimately it should be up to the boards to decide. Mandating that at least one third of board members must be independent is a silly way of going to this issue. It should be left up to the boards themselves. Many industry super funds have independent directors, and most super funds—and I think all of them in terms of chairs—have independent board members as well. Hostplus, for example, has a third independent directors. But that does not mean you mandate that model for every board. There are significant benefits to having an equal representation model between employers and employees. They bring wisdom. They bring a deep commitment to their members' interests that goes beyond just simple performance of the super fund. And that attitude has informed choices of investment asset allocations that has rewarded those funds in the long term.

For example, typically with industry super funds the board members are very committed to long-term returns. They are not worried about short-term fluctuations in share markets, because their bonuses are not dependent on it. They are not coming out of the banking industry with that short-term mindset. So they have invested more than average on long-term assets, like infrastructure assets, which provide good, stable, long-term returns and can deal with the fluctuations in the share market. That is one of the reasons—besides low fees—that industry superannuation funds consistently outperform retail super funds that chase the quick buck on the share market.

So, the equal representation model works. It provides stability for boards. It provides stability for investment choices. It reflects the outlook of their members. And I would submit that it is actually a much more sustainable model for guarding the trillions of dollars of retirement savings in Australians' superannuation accounts. This is where we really need to focus: what is in the interests of members, what is in the interests of sustainability of a trillion-dollar industry—a trillion-dollar industry started by visionary Labor governments, led by Hawke and Keating and continued in policy announcements of other Labor governments and Labor oppositions. That is what we should be focused on—not narrow ideological attacks, not attacks on union bogeymen, not attacks on the performance of super funds that are doing a good job.

On superannuation, there is a clear policy choice. The coalition government are intent on rewarding high-wealth individuals who have millions of dollars in their superannuation accounts. As recently as yesterday, the coalition rejected our attempts to get a bipartisan approach on reforming taxation concessions that are not sustainable, taxation concessions that are grossly inequitable because they accrue to the top 10 per cent of the wealthiest Australians, that are grossly inequitable and will soon outweigh the pension in terms of cost, that are grossly inequitable that say to a Cardiff Woolies checkout operator, 'We're going to take your income once you have earned 19 grand but someone can have 1½ million in superannuation and we're not going to tax them at all.'

On the Labor side, we stand up for a sustainable superannuation system that is based on treating everyone equally, that is based on giving a dignified retirement to all Australians, that is based on saying that the wealthiest Australians should pay their fair share and that industry super funds have a clear future in this country. The coalition's approach is class warfare, saying that the wealthiest Australians should get a tax break but the 3.6 million low-paid Australian workers deserve to get their tax concessions cut. I proudly reject this bill. I proudly reject what is yet another attack on industry super funds and another attack on the millions of Australians who depend on industry super funds to deliver their retirement incomes.

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