David Bushby (Tasmania, Liberal Party) Share this | Hansard source

I rise to contribute to the debate on the Tax Laws Amendment (2010 Measures No. 1) Bill 2010. The bill introduces a number of measures, the majority of which are supported by the coalition. But one measure in particular is not: that part of the bill which seeks to implement the government’s promised superannuation clearing house and does so by clearly breaching a key aspect of the government’s election promise in this regard. That is right: yet another broken promise by a government that is hard pressed to point to any election promises that it has actually delivered in full and as promised. Sure, it said it would put computers in schools and some schools actually have some; but not one for every secondary student as was originally promised—not even access to one by every student as the promise was later changed to. Of course, the government has mismanaged the roll out. The cost of providing computers that students can actually use with software and support has blown out exponentially. Then there are the childcare centres to stop the double drop-off and the GP super clinics, on both of which there has been little action at greatly inflated and blown out cost. None of them will be delivered in the numbers and locations promised. In respect of the GP super clinics, during the MPI yesterday on the government’s failure to deliver on its promises Senator Bilyk gave the big tick to the GP super clinic in Rosny in my home state of Tasmania. I tell you that delivery of that promise constitutes a big hole dug in the ground many months ago and no action since. If, in Labor’s view, that deserves a big tick it says a lot about how they see their obligation to deliver on their promises. Then there is the promise not to change the private health insurance rebate, the promise to introduce an ETS, the promise to take Japan to the International Court of Justice over whaling, and Mr Rudd’s promise not to live in Kirribilli house. The list goes on and is long—broken promise after broken promise. Media outlets have taken to compiling their own lists of broken promises and publishing them. It is almost a sport except for the fact that the target is such an easy one to hit.

This promise of the government is no different. Before the last election the government promised that it would introduce this measure and that it would do so by contracting it out to a private clearing house—that is right, to a private operator to deliver. This was not just some slip of the tongue. It was a clear and concise, written, key part of the overall promise. Yet today we are debating a bill that sees the government trying to give the responsibility to Medicare Australia without implementing any public tender or other process to ensure that Australians will get the best value for money or even that the outcomes of the measure will meet an appropriate standard. And all in the face of a clear promise to the Australian people—another promise this Rudd Labor government has broken. The fact is that the coalition is broadly supportive of the government’s overall aims as set out in this promise. The government’s intentions might even be pure but as so often happens with this government it is in the design and delivery of its program that it has again cocked things up.

The government has rightly recognised that red tape is a concern for small business and we on this side of the chamber will always support well thought out and balanced government measures to make things easier for small business to comply with regulatory burdens. This measure certainly had the potential to do that but, for some inexplicable reason, the government has chosen blatantly to break its promise to the Australian people and is introducing this measure in a way that almost certainly will not deliver the best results or even deliver it at a reasonable cost to the taxpayer. The government has completely failed to explain why it broke its promise to tender the service to the private sector. Neither the government nor Medicare has publicly made a business case for establishing the clearing house in this way. Many operators in the superannuation sector have expressed concerns about the anticompetitive way it has been set up. I am particularly concerned about the anticompetitive nature of this measure and there are a number of other serious issues associated with giving Medicare the task of becoming the government-mandated superannuation clearing house. The support given by those in the industry is cautious at best but damning from most. The legislation requires further consideration and development prior to implementation.

The recommendation of the majority of the Standing Committee on Economics that the legislation be passed unamended is inappropriate and is indicative of the government’s refusal to properly consider feedback and criticism from industry about this and other legislation. The principal concern regarding this bill emanating from the superannuation sector and from clearing houses that are currently operating in the private sector is the anticompetitive nature of the legislation. Private sector superannuation clearing houses have been operating in this space for some time. The sector’s largest clearing house, SuperChoice, told the inquiry into this legislation that this year it will process around 20 million contributions on behalf of 50,000 employers—40,000 of whom are employers with fewer than 20 employees. They account for two-million-odd employees. Overall, it is projected about $7.2 billion will be cleared through the SuperChoice service and SuperChoice estimates that that has around 20 per cent of the entire clearing market.

If the government were to introduce its own clearing house operator and enforce preferential regulations on that operator when compared to currently operating clearing houses, as proposed, this would seriously impact upon the businesses of those privately operating clearing houses. Westpac’s QuickSuper would be forced to compete in a market distorted by the change and no longer uniform or equitable for public and private sector participants. This will have negative consequences for small businesses that choose to continue to use private sector clearing houses. As a result, the legislation should be amended to ensure clearing house standards are the same across both public and private sectors.

Whilst the intentions of the government may be to provide a superannuation clearing house to those employers who currently cannot access a free service, the legislation and regulations will allow absolutely any business with fewer than 20 employees access to the service. For instance, the 40,000 employees who use the SuperChoice clearing house will have overwhelming incentive to switch to the Medicare clearing house for a number of reasons. The government recently said that the way superannuation can be strengthened is to drive efficiencies, reduce administrative costs and thus increase returns. AFSA, the Australian Financial Services Association, submitted to the inquiry and recommended the following:

That the legislation be amended so as to provide a path forward whereby private sector organisations could achieve approved clearing house status. This would achieve a level playing field. The path forward could include the establishment of operating standards combined with regulatory oversight, as envisioned by the government’s original statement. Importantly, this would ensure clearing houses meet certain minimum requirements and provide a wider range of employers with the opportunity to meet their obligations by contributing through a clearing house.

Such a recommendation, if implemented, would encourage the use of clearing houses and provide each clearing house with competitive incentives to create efficiencies and implement best practice. Indeed, the Minister for Financial Services, Superannuation and Corporate Law, Hon. Chris Bowen, in his address to the Self-Managed Super Fund Professional Association of Australia in Melbourne on 18 February this year stated:

... an efficient clearing house system would be available to employers. Such a clearing house system could help drive reform of the superannuation system overall in such areas as how payments are made to funds, what sort of information is required by the fund and interfund transactions.

They are nice words, but they are not reflective of the reality of the clearing house model he has put forward in this bill. Amendments are needed to be made to the bill to protect competition, encourage innovation and improve the access and services available to all businesses.

The government has allocated $16.1 million to this project over four years. Why this amount? It was not based on any sort of public tender process. What guarantee does the government give of what can be delivered for the expenditure of taxpayer money in this way? Given this, what explanation can be made to taxpayers explaining why the Prime Minister failed to meet his election promise to implement the plan through a competitive tender process—a process that would have ensured the government could have delivered best practice clearing house functions at the best possible value?

The government has also failed to demonstrate why Medicare is the most efficient or effective option and whether it can provide services comparable to what the private sector can provide. There is also some doubt as to how far the government got down the path of tendering out of the clearing house before pulling the plug and moving to the in-house Medicare option. Treasury gave evidence in the Senate hearing to the effect that tender documents were not actually drafted. This seems contradictory to evidence given on notice by Treasury to Senate estimates in February 2010 where Treasury responded that no draft tender document suitable for public release was prepared, suggesting the draft tender documents may have been prepared but not released. There is also a suggestion that the government went first to Australia Post as its preferred clearing house provider but that this was rejected as unworkable. Given the evidence provided to the Senate inquiry, I think it should have kept on looking.

Medicare’s evidence to the inquiry hearing demonstrates that the agency has not completed a business plan to a level that would have been required as part of a competitive tender process, meaning that the government has not received any evidence from Medicare to a normal prudent standard that could satisfy the government of its ability to deliver for a reasonable price. Medicare made the following comments to the hearing:

We do not have any targets at this point in terms of the number of businesses which are going to use the system.

           …         …         …

We did not go and cost an alternative provider.

Medicare also commented, ‘We are considering options.’ That is, to accept employer payments. The Superannuation Information Centre submitted that the decision to send a clearing house to Medicare means that there is the serious potential for large-scale economic waste. Given the evidence presented, Medicare and Treasury have not been able to prove that Medicare can handle the scheme within the budget provided and without risk to employee superannuation payments and associated benefits like life insurance coverage. Many in the industry have legitimate concerns about Medicare’s ability to successfully and efficiently operate the scheme, particularly within the time lines provided. The evidence clearly supported the conclusion that Medicare operating the system would disadvantage the existing private industry.

The government must also be held accountable for breaking its promises. When asked about this broken promise in particular, what was the response of the Treasury officials? They stated that the need for the government to break its promise to the Australian people arose from a concern that a private clearing house might have a problem with fraud or solvency and that the consequences of this to Australians and their super is too large to contemplate or to accept. They said that we needed to eliminate that risk and that the only way to do this was through breaking the promise and taking the clearing house within government.

This statement by Treasury is ingenuous and, without wanting to cast any aspersions on the Treasury official involved, sounds more like a government’s spin line dreamt up by the hollow men in the minister’s office to explain a decision already made for less honourable reasons than a real reason justifying the blatant breaking of this election promise. It also demonstrates that the risks of private sector failure or fraud are not well understood by the government. This is in part because existing clearing house providers such as SuperChoice, Westpac and ADP are reputable, well capitalised and have extensive professional indemnity cover, thereby minimising the risk. They segregate duties by outsourcing payment distribution to banks which is a key fraud control.

The Investment and Financial Services Association told the Senate inquiry that private clearing houses are well regulated through prudential reporting requirements and that private clearing houses must hold an Australian financial services licence. IFSA told the inquiry that the risk involved with private clearing houses was very low and that the use of private clearing houses provides certainty. ASIC requires clearing houses to issue product disclosure statements which must detail the terms and conditions of the facility, any fees and charges, how the transactions are made and authorised, and any risks associated with the facility. Medicare, however, will be exempt from this regulation.

If the government is suggesting that companies with this level of regulation are risky, then the minister is suggesting that the current level of regulation is insufficient. And the officials’ protestations about risk and the need to look at likelihood of it occurring and the severity of outcome also do not hold water. The fact is that even if a private clearing house did see superannuation funds disappear through fraud or failure, as unlikely as that is, the consequences for individual taxpayers would at worst be one month’s or perhaps one quarter’s superannuation payments. It could in no way devastate their total super savings, as payments made for each and every other period would have been passed on to their superannuation fund long before the next payment would be sent to the clearing house.

The superannuation clearing house was promised by the government during the Prime Minister’s 2007 budget reply speech when he was opposition leader. The Labor Party in opposition argued that the Howard government’s superannuation choice policies, as introduced in 2005, increased compliance costs for small businesses, which in many cases were then required to make separate superannuation payments for each individual employee. This situation was a by-product of the success of superannuation choice. So many employees chose their own superannuation fund after the policy’s implementation—clearly a popular move by the then government, as proven by the high level of take-up by employees who took an informed look at their options.

Given the level of success, we supported the availability of a superannuation clearing house to small business to reduce compliance costs and could hardly argue against the then intention of the then opposition to implement such a policy through a privately tendered private operator. But, by not even testing the private market, the government decision to go straight to an in-house superannuation clearing house option—one which has the legislative backing to provide real and definitive advantages over private sector operators—can only be seen as a prime example of another blatant broken promise by this Rudd Labor government. The government did put out a consultation paper on its proposal, one that attracted a lot of submissions detailing the challenges of delivering the government’s desired outcomes and the advantages, both in cost and in terms of delivery, of doing this through a private operator.

When I asked at the inquiry if responses from the consultation paper into the clearing house were made available to Medicare for their consideration in terms of building and delivering the system, Ms Hughes from Medicare admitted:

We have not asked for any of those documents.

So here we have the agency tasked with delivering the government’s proposed clearing house option—something that has taken private operators more than 10 years and $50 million to develop, something that is hugely complex and fraught with challenges—and that agency had not even asked for or been provided with the submissions from the government’s own consultation on the measure. I guess this shows yet again the weight that this Rudd Labor government gives to the consultation it undertakes on measures it wants to introduce. We know that the government refused to listen to the experts on home insulation and now it is refusing to listen to the experts in superannuation and payment processing with regard to the clearing house. I ask the government: why do you bother to consult and why do you have so many reviews into superannuation and finance if you refuse to listen to the views of experts? It is all spin and no substance.

How Medicare can possibly understand the concerns of industry if they did not consider their submissions relevant is beyond me. The fact is that existing private clearing houses have systems in place to process transactions that reflect the systems and information requirements for the vast array of super funds that exist in this country and the even longer list of products they offer in this space. They know how much each transaction costs and they could implement the government’s policy in a relatively short time span and present a full business plan demonstrating the outcomes and the value for money. These businesses are being told that they have lost out to a government agency that has not finalised its plan, that has no apparent regard for industry concerns and that does not even know if there will be ‘issues with matching and some requirement for them to do follow-up work’, as was admitted by the general manager at the hearing. Why would the government award the contract to Medicare, which has no experience in superannuation? And this is after the government received overwhelming evidence that the private sector could easily handle the additional transactions at a fraction of the cost proposed.

The legislation provides that employers will be able to discharge their superannuation guarantee obligations by making a bulk payment to the approved clearing house on the 28th day of the month in each quarter when the payment is required. This is different to the current system, where employers need to have the payment arrive at the superannuation fund trustee by the 28th of the month when the payment is due, regardless of whether they use a clearing house or not. Not allowing private operators to be approved in accordance with this bill means they will not be able to compete in terms of timing, which is important to cash flow for many small businesses and will render private operators largely uncompetitive as a result.

Private clearing houses currently operating will still be forced to process their payments by the 28th of the month in which the payments must be made, which requires employers to pay their bulk payments in advance of that date. On the other hand, employers will be able to pay the Medicare clearing house on the 28th, when the payment is required. Under these conditions, why would any employer not choose Medicare as its clearing house? As ASFA have argued, the government’s scheme ‘has the potential to deliver commercial damage to existing providers of clearing house services’. The industry is questioning whether this was a rushed Rudd government decision to give Medicare the contract so that it could announce that it was meeting its clearing house commitment before the next election. Peter Philip, CEO of SuperChoice, puts the issue plainly by saying:

… we certainly feel that what the Government is proposing will create distortions in the market …How could it not when they’re funding with public money a clearing house that will be a significantly advantaged competitor to existing clearing houses?

Private sector clearing houses have worked to meet the needs of the market. They have been operating efficiently without issue. The bill as drafted will damage this market.

This entire clearing house exercise has been another example of waste and mismanagement. The government is showing a reckless disregard for the companies backing Australia’s retirement system. As mentioned, $16.1 million has been allocated to the clearing house over four years and we still do not know if Medicare is able to deliver an effective scheme within the allocated budget. Private sector clearing house operators have delivered efficient and low-risk services to employers for many years. The legislation as drafted will give Medicare a significant competitive advantage over private sector operators, who have found a need in the superannuation market and developed innovative technologies to fulfil that need. It will put the premium services they offer at a reasonable price at risk and potentially replace them with substandard services at a bureaucratically inflated, heavy Rudd Labor Party cost. I have support for some elements of this bill but have major reservations with regard to the impact of the proposed government funded clearing house. It has been a retrograde step by this government to depart from its promise to have a service that is provided on a contestable basis. I will support the amendments that we will be putting forward.