Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Hansard source

I will respond to the Democrat amendment, and in so doing I will pick up a couple of points made by Senator Sherry. I note his reflections upon Singapore. I will not go down that path for fear, as he said, of offending anybody, but I can assure the Senate that while we, of course, did undertake a study of the Singapore fund, it is not the model upon which this fund is based. New Zealand provides a much better model and the one that ours would be more closely aligned to. I visited New Zealand late last year and had a number of useful meetings with New Zealand officials, including the very capable New Zealand finance minister, to discuss the operation of the New Zealand fund. Without wanting to detract from the initiative taken by Mr Costello, the name ‘guardian’ is in fact the name used by the New Zealand fund. We are very impressed with the way the New Zealand fund operates and its structure, and we thought therefore that that terminology was more than appropriate for our fund. I will obtain a response to Senator Sherry’s question on the possibility of the fund ending up with more funds than are required to meet its obligations with respect to the superannuation liability.

Senator Sherry seemed to be suggesting that the independence of the board is the vital thing and that it is wrong for us to even have the legislative authority to provide, through the executive, for an investment mandate. On the other hand, he supports the Murray amendment, which is a somewhat interventionist amendment directing by legislation the government to direct the fund as to what it should do in relation to shares that it holds. I find that, at least on the face of it, a somewhat contradictory position.

We have tried to approach this issue quite genuinely and objectively. On the one hand, we very much want this board to be and to be seen to be independent of the government of the day. I therefore take to heart what Senator Sherry has said on this matter. That is critical, and I think we share that objective. On the other hand, we must reflect on the fact that the board will have responsibility for a large amount of taxpayers’ funds. They are not trustees in the traditional sense of the word because it is not, strictly speaking, a superannuation fund; it is an investment fund. It so happens that the government itself will use the fund to meet its obligations with respect to public sector superannuation. But the fund itself is an investment fund, not a superannuation fund.

Given the very significant responsibility which we are entrusting to this board, we believe that it is appropriate to have this obligation on the ministers—the Treasurer and the finance minister—to set the investment mandate. That is something which, by law, we are required to consult with the board on. If there is any change to the investment mandate, that requires consultation with the board. Something that Mr David Murray—whom we have appointed as chairman and whose appointment has been widely praised—felt strongly about was that the board must be able to publicly state its position with respect to any proposed change to the mandate, that it must be free to publicly express its view and that it should be free to say so if it believes that the government of the day is requiring it to act contrary to its obligations to maximise returns and minimise risk.

We are genuinely attempting to get the balance right. I certainly hope that we will never face the day when a future government seeks to improperly use what we believe is an appropriate authority with regard to the mandate. We have provided in the legislation for the board to be able to have a very public position on that matter, and I believe the court of public opinion would restrain appropriately any government abusing that investment mandate authority. I make the point that we have already said what we propose to be the initial mandate. I think the flavour of our announcement reflects the very broad approach that we are taking to this question. In no way do we seek to interfere with the day-to-day operation of the fund or to direct it unduly.

The four points that comprise the proposed mandate for the initial operation of this board are: that it should seek a long-term benchmark for real rates of return of between 4½ per cent and 5½ per cent, so setting a target return; that the government for its part accepts that there will obviously be some short-term volatility in achieving those longer-term returns; that, subject to those targeted terms, the board should obviously seek to minimise the probability of losses; and, quite properly, that the board should have regard to the impact of its activities on the reputation of the government of Australia in domestic and international markets. That is clearly a broad but appropriate mandate. The board needs that sort of guidance from the government as to how it should operate but, within that broad framework, it has total independence.

Coming to the specifics of the Murray amendment, by way of introduction to my remarks I say that we are cognisant of the goodwill that Senator Murray brings to this debate with his proper and legitimate concern for good corporate governance. He makes a very constructive contribution to this parliament in his concern for that matter. But we think that in the case of the fund, and reflecting upon the appropriate degree of independence that this board must have and must be seen to have, this amendment just goes too far. It proposes that, by legislation, the parliament should force the government to force this board to vote its shares on all corporate governance issues that come up at AGMs of companies in which this fund is an investor. We do not think that is appropriate.

It is, of course, true—as Senator Sherry noted—that a future government could seek to amend the mandate in the way I have described, by a very public process, to provide that within the mandate from the Treasurer and the finance minister that these matters should be taken account of. But we do not believe it is appropriate to have this as a legislative fiat to force governments to direct the board in this way. I must say—and I do not mean these remarks to in any sense amount to guidance to the board and simply say this objectively—that it would not surprise me if the board did indeed exercise its rights and its authority with regard to shares it held in various companies to vote on these matters. That would not surprise me at all.

In terms of our proper regard for the independence of the board and our respect for the board—which I think I can safely assure the Senate will be a very high-quality board—it is inappropriate for the parliament, via this amendment, to force the government to force the board to act in this way. I think it much better that the board be seen to reach its own views on these matters, by virtue of its own cognisance of the importance of corporate governance in its operations, and to come to those decisions of its own accord without having absolutely no choice in the matter as a matter of legislative fiat. Therefore, the government, while respectful of Senator Murray’s intent, does not believe it appropriate that the bill be amended in this fashion.