Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Hansard source

I will talk about a particular subset of the Fair Work Amendment Bill that is before us, which relates to default superannuation funds. One of the very bad aspects of the Fair Work Act as it was introduced by the now Prime Minister, Ms Gillard, and passed by the parliament is the way that default funds are selected under modern awards. It was so bad that even the Labor Party in the lead-up to the last election were shamed into promising that they would fix it. Even the Labor Party were ashamed of the process that they had put in place to select default funds under modern awards.

Just let me make very clear what we are dealing with: if workers across Australia do not make active choices in relation to the superannuation fund to which they want their superannuation contributions to be transferred by their employers, those funds are transferred into a default fund. One of the changes that the current government made when introducing the Fair Work Act was to make default funds and the selection of default funds an 'allowable matter under modern awards', which is the way it is technically described. Essentially that means that Fair Work Australia decides which superannuation funds are allowed to be listed as default funds under various modern awards. Mr Acting Deputy President, it will not surprise you that the process that this government designed was specifically with a view to providing a competitive advantage—we would argue an inappropriate competitive advantage—to union dominated industry funds.

Union dominated industry funds provide an important service to many Australians, and there is nothing wrong with industry funds being eligible and being part of the options that people have available to them when it comes to default superannuation arrangements. But they should not be available to them as part of a locked-up, closed shop anti-competitive arrangement organised through a non-transparent, secretive process through Fair Work Australia, which is littered with inherent conflicts.

That is exactly the process that we currently have. We have an anti-competitive, closed shop arrangement whereby Fair Work Australia, inside of a black box, makes decisions on which superannuation fund should be listed in a particular award as the default fund for workers under that award. Whoever is listed in any such award does get a significant advantage from that in the marketplace. It is quite valuable for those funds that are selected to be selected in that way, and you would want to know that the criteria by which those funds are selected as default funds under modern awards are objective, transparent and evidence based and that there is competitive tension in the way that that selection occurs. But the current government was not interested in getting the best deal for employers and employees. The current government was only interested in providing a competitive advantage for one segment of the financial services market, which just happens to be close to its friends in the union movement.

As I said, even the Labor Party were embarrassed by what they had done, which is why in the lead-up to the last election in August 2010 they made a promise that they would fix it. They made a promise that they would ensure that there is an open, transparent and competitive process to select default funds under modern awards. That came after an unsuccessful attempt by former senator Nick Sherry, the then Assistant Treasurer and Minister for Superannuation and Corporate Law, to try to get Fair Work Australia to do the right thing. He wrote to Fair Work Australia some time back in 2008 and said, 'You really should select default funds under modern awards through a more open, transparent and competitive process.' Fair Work Australia told him, 'You've got absolutely no authority to give us directions in this area.' Those were not the words they used but that was the effect of the letter that went back from Fair Work Australia to the minister. So, in the end, the Labor government in the lead-up to the 2010 election said: 'If we are re-elected to government at the 2010 federal election we will fix this. We will get the Productivity Commission to do a review into the way that default funds are selected under modern awards and other industrial instruments.'

Minister Shorten was very unenthusiastic about that commitment. That was very clear right up-front. It took him forever to get around to calling the actual review. He eventually got around to it, early this year, more than two years after he became the minister. He commissioned the Productivity Commission to conduct a review into the selection of default funds under modern awards. The initial draft report from the Productivity Commission was a very good report which made very good and very sensible recommendations. They recommended that the default fund market be opened up to competition. Competition is the only way that ultimately you maximise value across all aspects of the superannuation value proposition for people with superannuation, making sure that net returns are maximised, which means making sure that your returns are maximised, your fees are minimised and that you have good quality service.

A number of the industry funds who come to see me from time to time say: 'We perform so much better. We are the best in the market, so we should be chosen to be default funds under modern awards. It shouldn't even be a question.' But the truth of the matter is that if you are the best in the market, you have nothing to fear from competition. You have nothing to fear from an open transparent process which makes merit based decisions. But just because you are the best today does not mean you are going to be the best tomorrow, and even if you are the best today, if there is a risk that somebody else is going to be more innovative or come up with a cheaper, better way to provide the service that you are providing, that will keep you on the toes, which means that ultimately people in superannuation will have the value of their retirement savings maximised.

The closed shop, anti-competitive arrangement that has been in place for the best part of five years now, introduced by this government, has been a national disgrace. It was shamelessly and deliberately put in place to give a competitive advantage to the union movement in Australia at the expense of the public interest. And this government was deliberately slow to act even when in the lead-up to the last election they had been shamed into fixing it. And now here we are. The Productivity Commission were finally asked to conduct this review, and they came out with their interim report making very sensible recommendations to open up this process to genuine competition. What does Minister Shorten do? He attaches his name and the status of his office to a joint submission by his two departments—the Treasury and the Department of Education, Employment and Workplace Relations. By attaching his name to the submission, by endorsing it, by publicly supporting it, he gives it the authority of government. He effectively responded to the Productivity Commission review before they had finally reported, putting a complete stop to any attempt to ensure genuine competition in the default fund market.

It is very important for the Senate to note that while all of this is happening, the government is progressing legislation to enshrine in law the consumer protection mechanisms the government judges are necessary to protect people in default super by legislating the conditions for MySuper default products. As of 1 July 2013 Australia will have, if the legislation passes through the parliament, legislated default MySuper products with the conditions of registration ensuring that all of the consumer protection requirements and all of the accountability requirements that are necessary for default products are complied with before particular products can qualify for registration of such a product.

If any provider is able to register a product which complies with all of the conditions of registration to be a MySuper default product as prescribed by this government, why shouldn't any such product be able to compete freely in the default fund market? Why should there be another level of government intervention based on a process that is inherently conflicted?