Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

I refer the committee to sheet 4838 revised. I will now move R(1) on its own and will later move R(2) and R(3) together. I move:

R(1)   Clause 18, page 12 (after line 26), after subclause (1), insert:

          (1A)   In giving a direction under subsection (1), the responsible Minister must include in the direction a mandatory requirement for the Board or its members when considering a material corporate governance matter in relation to a company to vote on all such matters.

          (1B)   A material corporate governance matter referred to in subsection (1A) includes but is not limited to:

                     (a)   matters relating to the constitution of a company; and

                     (b)   matters relating to the election of directors of a company; and

                     (c)   matters relating to the remuneration of directors of a company.

I motivated during my speech on the second reading the consistent—and, hopefully, it will be persistent—line we have taken with respect to investment funds, which is that they essentially act on trust for others, either investors or beneficiaries or both. Where those investments are made, therefore, in our view their holdings are often subject to the principles that surround escrow. That to us means that investment funds should invariably exercise a determination to vote their shares in the companies and entities in which they have an investment. That is a view that is very widely held, and there are those, including me I might say, who think that such institutions should vote on all issues and all resolutions.

The key difference between those who believe that institutions should vote is often over the question of mandating. Although I believe that institutions should vote on all resolutions, I recognise that not all institutions have invested in or have the capacity of professional analysis. I think that that is to their discredit because on a cost-saving basis they have often got relatively weak analytical departments and tend to run on a particular assessment rather than holistic assessment. Leaving that observation aside, I have argued through the CLERP 9 process and elsewhere that voting should be mandated with respect to a number of key and critical issues simply because those shares are held on trust essentially for others, either beneficiaries or investors.

I have limited a motivation for a mandated activity to the three matters which I think are most germane and most pertinent to those with an interest in the corporation or the entity concerned—that is, any resolution which affects the constitution of a company; secondly, any resolution which affects the election of directors, because they are the people who run the company; and, thirdly, matters relating to the remuneration of directors of the company because that overall package is amongst the most controversial of all. We are moving here to require the responsible minister to include in the direction a mandatory requirement for the board or its members when considering a material corporate governance matter in relation to a company to vote on the matters we have outlined there.

Of course I recognise that it is probably within the broadest interpretation of the bill, soon to become an act, I guess, for the minister to indeed make such a determination. But, firstly, there is no guarantee that the minister will, particularly if they have a laissez-faire approach to the market, and, secondly, even if one minister will, there is no guarantee that a future minister would abide by that view if the board came to a different view. I think you are safer to put this into legislation, and that is what I have attempted to do. I can motivate it further if there are questions, but I think the amendment is plain on its face. It has had to be designed rather rapidly. As you are aware, Minister, the report came down last night. There was not a great deal of time to put this together, so my apologies to the chamber for it only being circulated today. I had no option, given the timing.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

The Labor Party will be supporting the amendment moved by Senator Murray on this occasion. I know Senator Murray has moved similar types of amendments on other occasions, so it should not be taken as an indication of automatic support for the same, or similar, amendments in other pieces of legislation. One of the interesting aspects of this legislation, which I know the Senate Economics Legislation Committee examined fairly extensively during the inquiry, is the governance arrangements of the Future Fund board, the so-called board of guardians.

That was the main focus of the committee inquiry, because the governance arrangements of the proposed Future Fund are not as were announced as policy by the government in the 2004 election. We were assured of a fully and totally independent board, but the legislation provides for a direction of investment mandate by a collection of ministerial directions which can be made to the board regarding the investment of the funds. So ministers, the Treasurer and the finance minister in this case, have the power to direct. Goodness knows what would happen if we ever had a National Party finance minister. I do not think we are ever likely to—Senator McGauran, perhaps. He can live in hope of a promotion to finance one day. But goodness knows what would happen if we had a National Party minister directing.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

It would be interesting times.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

It would be very interesting times indeed with this sort of power. That is clearly not arm’s length and totally independent with a general principled investment mandate enshrined in legislation if ministers—in this case, the finance minister and the Treasurer—are given the power of issuing the investment mandate and varying it from time to time. Critically, it is not disallowable by parliament either, so it is even worse.

I have used the trustee analogy time and time again because I believe it is the relevant analogy of comparison. No government in this country has the power to direct, in any way, shape or form, trustees of superannuation funds in this country. It has no power to do so—and it should not. There is a general principle, a prudent-person principle, which is: diversify investment commensurate with safety, effectively treat it as your own money in the sense of investing it safely and securely and in a well-balanced way. I think having the prudent-person test enshrined in law has been one of the great strengths of the Australian trustee system in respect of superannuation governance. We have avoided—and I think it is very important that we avoid, for a whole range of reasons—the potential of any government dabbling in the investment direction of a superannuation fund. What do we get? The one exception to this rule in Australia is to be the Future Fund, which is intended, according to the government’s claims, to pay accrued superannuation liabilities in defined benefit pension funds for public servants.

Why do we have just this one particular body accruing assets subject to ministerial direction? Labor believes that is inappropriate and that it should not be permitted. It was not what was announced in at the 2004 election. Those directions are not even subject to disallowance, so there can no discussion. That confers enormous power of investment direction on those two ministers. That is not a personal critique of Senator Minchin or even the current Treasurer, Mr Costello. I am not particularly reflecting on them as individuals; I do not want to do that. But it confers enormous power on the holders of that office to directly impact on a range of investment decisions in which those moneys are held.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

Not just power; great temptation.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Yes, and great temptation, Senator Murray. I agree with you. The current government may come to regret that power being conferred at some future date. But that is the provision in the bill. That is what will pass this parliament. In those circumstances it raises a number of quite legitimate governance issues. Ministers directly—they may do this directly—or the Future Fund board may be called upon to make a judgment. In those circumstances, the very special and unique circumstances in relation to the Future Fund, this amendment is appropriate—good governance, good corporate governance, and applying the principles that Senator Murray has outlined. I give him full marks for consistency. He has argued this in a range of other areas. Labor believes that the principles that have been outlined in this amendment by Senator Murray deserve support in respect of this particular arrangement.

Senator Minchin, I have to acknowledge, did respond to my question as to where this name ‘guardians’ came from. Apparently, it was the decision of the Treasurer, Mr Costello. I am not quite sure why we have ended up with ‘guardians’—

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

It’s very appropriate.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

I am not sure. We had an interesting discussion at Senate estimates about the legal common law meaning of a guardian in the Australian context. I think Senator Brandis referred to one commonly understood definition that a guardian holds a legal power or authority over a minor or a person who is mentally impaired. When I heard the term ‘guardian’, it conjured up visions of Doctor Who. There are episodes of Doctor Who with these horrible creatures—I am not sure what sort of biological or mechanical creature they are—called guardians. Not daleks; guardians. We have this new terminology being brought into Australian finance governance. They are effectively trustees. We should call a spade a spade and call them trustees. I think this is an invention by an imaginative Treasurer to give it the imprimatur of something different when it clearly is not. It clearly is not different from the role or responsibility of a trustee, and there should not be this potential for ministerial interference on investment mandate.

I was reading an interesting paper on the Central Provident Fund of Singapore, which has been established with a contribution I think around the 40 per cent level. It is a truly massive fund. It is a bit like the Future Fund, only established a lot earlier and a lot bigger. Obviously, it is forced collection of savings meant for the retirement income purposes of Singapore citizens. I do not have any disagreement with that in principle. I will probably get a wrap over the knuckles from the Singapore ambassador about this, but the Singapore government, through its fund—and there is the potential for this in this Future Fund because of the ministerial direction—de facto controls the Singapore economy through the investment mandate. It directs the economy. It directs investment into a whole range of business enterprises that are owned, either outright or partly, and controlled by investment direction by the Singapore government through the Singapore provident fund.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

It’s called the Maxwell principle.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Perhaps. I understand, though, that Singapore is probably the best example anywhere in the world of a command socialist economy. I am not suggesting that Senator Minchin or the current Treasurer would go that far, but there is potential with these directive powers for future ministers or governments to start exercising the sorts of authority of investment decisions. In Singapore, the government can literally turn off investment and redirect the entire economy, and it has done that on occasions in some sectors of the economy of Singapore. Senator Murray, we support your amendment. It is appropriate on this occasion.

I have one question for the minister. He emphasised in his speech on the second reading that the Future Fund would retain all earnings, and he made some criticisms of Labor in this regard. He might give an assurance to the parliament. Will it retain all the earnings when an actuarial surplus has been identified in the fund, if in fact that occurs? I think it is highly likely. If an actuarial surplus is identified in the fund after the actuarial assessment, whenever that occurs, and it shows that it has accrued assets at a greater rate than otherwise projected, will all of the earnings be retained in the fund? That is a question for the minister. I conclude my comments on amendment R(1).

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to 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.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

I will not add to the debate at any length because, on their face, the views of the various participants are clear. But there was a slightly cute point made by the minister in response to Senator Sherry. That was that he thought it passing strange—that is not the phrase he used but my interpretation of it—that Senator Sherry would be concerned about excessive government interference and intervention in the market and, at the same time, be supporting this amendment.

In fact, the bill already requires—and I think properly so—the government to be specific to the board about what it must do. Item 24(1)(a) to (e) does require the board to produce material, policies and an approach which will result in a specific attitude to market performance and behaviour by the fund. But the key point, of course, is that this amendment does not tell the board how to vote. They can vote for or against. It simply says they must vote in these three material matters.

I would buy the minister’s argument a little more if, in fact, the record of investment funds and investment managers was a good one with respect to participation in voting in company resolutions. But my recall of the data on voting by institutions is that it is the minority and not the majority, and most investment funds and directors have a history of delinquency with respect to exercising their duties in escrow. That is why I have felt obliged to put this amendment forward—because you cannot rely on boards based on their past history and past performance to vote. In my view they should be required to vote because they hold these investments in escrow. However, the minister has made the government’s views clear. I think they are wrong, they think I am wrong and hopefully the board will turn out to be an exemplary board and will always vote in these matters. I do hope that I will have the energy and time—and hopefully Senator Sherry will—to regularly ask the minister questions when they fail to vote in these matters.

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

I would like to point out to Senator Murray that of course we would expect that this will be a publicly accountable board and we would expect that it would appear at Senate estimates hearings. Senator Murray and those who succeed him will have the opportunity to question the board on its decisions with respect to those sort of corporate governance matters.

In relation to Senator Sherry’s question, we have mandated in the sense that all earnings would remain in the fund. We think it is important to make that an unqualified requirement of the fund even if, at any point in building up this fund it would suggest that actuarially the reinvestment may take the fund beyond the target required, it will still be the case that there will be this mandated position that all earnings must remain in the fund.

Question negatived.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

by leave—I move Democrat amendments (2) and (3) on sheet 4838 revised:

(2)    Clause 38, page 25 (line 18), at the end of subclause (2), add “in accordance with subsection (2A)”.

(3)    Clause 38, page 25 (after line 20), after subclause (2), insert:

     (2A)    The Minister must by writing determine a code of practice for selecting and appointing Board members which sets out general principles on which selection and appointment is to be made, including but not limited to:

             (a)    merit;

             (b)    independent scrutiny of appointments;

             (c)    probity;

             (d)    openness and transparency.

      (2B)    After determining a code of practice under subsection (2A), the Minister must publish the code in the Gazette.

      (2C)    Not later than every fifth anniversary after a code of practice has been determined, the Minister must review the code.

     (2D)    In reviewing a code of practice, the Minister must invite the public to comment on the code.

      (2E)    A code of practice determined under subsection (2A) is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

These amendments can be summarised as requiring a code of practice for the appointment of board members. They are in addition to those matters which are already within the bill itself. Item 38 specifies the membership of the board and item 38(3) says:

A person is not eligible for appointment as a Board member unless the responsible Ministers are satisfied that the person has:

(a) substantial experience or expertise; and

(b) professional credibility and significant standing;

in at least one of the following fields:

(c) investing in financial assets;

(d) the management of investments in financial assets;

(e) corporate governance.

That is all very sensible and obviously ministers would not act—well, one would assume that they would not act—entirely on their own.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

You cannot be sure.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

You cannot be sure. One would hope that they would be properly advised and that there would be due diligence in determining these matters. Following the lead of Senator Sherry, without reflecting on the present incumbent, there are other people one can think of who might be less than perfect in the exercise of this duty.

The Democrats and I have persistently and consistently put forward the proposition established on the precedent of the Nolan principles of the United Kingdom, which they abide by, that the minister should determine a code of practice for selecting and appointing board members in terms of merit, independent scrutiny of appointments, probity, openness and transparency set out in the criteria by which the selection and appointment is to be made. In other words, so that it is not a backroom determination which lacks the appropriate accountability and process which we think are required in these matters.

In making these remarks I am fully aware that governments of all persuasions have in the past made some absolutely outstanding appointments to statutory authorities and to various agencies and regulatory bodies in what might be described as a backroom process. But there has also been, in my view, some appalling appointments made which do no credit to the government or the ministers concerned. In making those remarks I make no inference or reflection on anybody who is engaged in this debate. This essentially is an accountability and probity amendment. We have moved it before. No doubt we will have to move it again in the future. We think it is appropriate as a protective prudential mechanism with respect to the proposed appointment of board members to the Future Fund.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

I indicate again that, on this occasion, because of the circumstances of the Future Fund legislation that is before us, Labor will be supporting the amendments moved by Senator Murray. Again, this issue has been fairly significantly canvassed at Senate estimates. The approach of the government is business as usual. Despite the fact that the government claims that the Future Fund will be independent and at arm’s length and despite the fact that this fund will ultimately accrue over $100 billion in assets, it is business as usual as far as the government is concerned when it comes to appointments to this board. That is not good enough. We are not dealing here with an everyday statutory authority; this Future Fund will have truly enormous assets under management. It will become very quickly, if not almost immediately, larger than any superannuation fund in the country. The implications of this are very significant, yet the government comes into the other place and says, ‘As far as the selection of board members goes, it is business as usual.’ That is not appropriate in these circumstances.

For those who are not aware of the process, the Minister for Finance and Administration, Senator Minchin, and the Treasurer, Mr Costello, will gather names and will then appoint whomever they like, subject to their decision being ratified by cabinet. They will just appoint whomever they like. That is the way it works at the present time. I am not saying that that is inappropriate in other circumstances, but Labor argue very strongly that it is very inappropriate in respect of the Future Fund and it is not what the government committed to and promised in the election campaign last year. The closest analogy is superannuation fund practice in this country. At the present time, the prudential regulator, APRA, which this government established, is going through the background of every trustee—the independent guardians, if you like, of superannuation funds in this country—checking them and relicensing superannuation fund trustee boards. Amongst other things, it is applying the fit and proper person test. The government is not even going to apply a fit and proper person test to check the backgrounds of the individuals that it proposes to appoint to the Future Fund board. It will not even go that far.

It seems to me that, if you wanted to look at a model that involves a greater level of both scrutiny and probity in appointment to a body such as this, you would say, ‘All of the applicants will be subject to a background check by APRA, the prudential regulator.’ Let them carry out the check as to whether they are a fit and proper person and the other range of checks that are carried out on trustees. At least ask them to do that, but that is not going to happen. At the end of the day, we are told in estimates that the check will be that as carried out by the Minister for Finance and Administration or the Treasurer and their offices. That is what goes when it comes to the appointment of members to this board. Labor does not believe that that is good enough, given the Future Fund’s massive asset holding and the comparable practice with regard to superannuation trustees, which is the closest comparison and practice in this country.

The minister himself raises the future fund and the guardians in New Zealand. Apparently, New Zealand inspired the Treasurer. It is interesting. In New Zealand, even the New Zealand Labour government recognised that they could not get away with business as usual when it came to board appointments to their future fund over there. It is quite instructive to look at what occurs in New Zealand. I do not necessarily agree with this model, but it is better than business as usual here whereby the minister just ticks the names off in his or her office. Goodness knows what criteria they use. In New Zealand, in appointing members to the future fund board, the minister’s recommendations follow nominations from an independent nominating committee. We have not got that in Australia. On receiving those nominations, the minister must consult with representatives of other political parties in parliament before recommending to the Governor-General who to appoint to the board.

Even New Zealand has departed from the norm when it comes to making appointments to its future fund board, but this government does not. It just wants business as usual. There may be very well qualified people appointed. I will have a look at the names, but we remember Mr Gerard. I do not want to badger the poor fellow, but he had a tax problem with his company apparently in the form of tax havens overseas in a couple of the Caribbean islands. Surprise, surprise! He also donated $1 million to the Liberal Party and ended up on the Reserve Bank board. On that occasion, the Treasurer was responsible. Given the importance of the Future Fund board, the current method of appointment does not pass any reasonable test of any attempt at any level to be independent and at arm’s length and there is no scrutiny of the proposed members of the board.

Senator Minchin can assure us all he likes about how fantastic they will be, and we will look at the names at the time. But even Senator Minchin cannot assure us that there has not been some particular problem in the past. They may not find out about it. The minister’s office just asking through the old boy network of the Liberal Party to do a check on particular individuals is not an effective way to check on their backgrounds.

There are a range of models for appointment that can be looked at. We thought about a number of different models that could be adopted to lift the appointment of board members to the standard which is appropriate. There are a number of different models, but we certainly think the model outlined by Senator Murray and the Democrats in their amendment is a significant improvement on the ‘anything goes’ approach that this government intends to take to the appointment of members to this board.

I think the Treasurer, Mr Costello, is a touch arrogant when it comes to these things. I can remember him when he appointed former senator Senator Short to the Eastern European Bank for Reconstruction and Development very arrogantly rejecting all the names from Treasury and saying, ‘I’ve got the right; I’ll appoint whom I like.’ That was his explanation to the House of Representatives in question time some years ago when asked about that appointment—arrogantly saying, ‘I’ll appoint whom I like.’

Senator Minchin, to give him credit, is a bit smarter than the Treasurer when it comes to this these sorts of appointments. I would have thought Senator Minchin could have convinced the Treasurer of the need for a more prudent, rigorous process of board appointments, just on this one government instrumentality. Of all the instrumentalities and boards we have, you would think that the approach to this area could have been the exception to the normal arrogant approach of the Treasurer, Mr Costello, of: ‘I’ll appoint whom I like. Don’t question me.’ That is his attitude when it comes to appointments. But, no, it is going to be business as usual. The Labor Party believe that is inappropriate in this case and we support the Democrat amendments as a consequence.

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

I cannot let Senator Sherry’s remarks go without saying that I reject out of hand his use of this chamber to reflect on Mr Robert Gerard. I want to say for the record that Mr Robert Gerard is one of the most outstanding citizens of my state of South Australia, a man highly regarded right across the political and community spectrum who has been a generous benefactor of many organisations. I am actively involved in the Adelaide Zoo. Without Robert Gerard the Adelaide Zoo, the only non-government capital city zoo, would be in extraordinary difficulty. Mr Gerard is an outstanding human being who has broken no law but whose name, as a result of the rigour of the political process in this place, has been besmirched—I think quite unfairly. We wanted a leading manufacturer on the Reserve Bank board and one from a minor state, and that is why he was appointed. I hope that issue will not colour this discussion, which I would hope would be a constructive and sensible one.

Again, I obviously respect the integrity with which Senator Murray brings this proposal to the parliament, but on balance we do not believe it an appropriate amendment to this bill and will not be supporting it. I make the point that we have introduced into the Future Fund legislation a specific clause, 38(3), which puts a legal obligation on the ministers concerned to be satisfied that anybody appointed to this board:

... has substantial experience or expertise, and professional credibility and significant standing in at least one of the following fields:

• investing in financial assets

• the management of investment in financial assets, or

• corporate governance.

We have introduced a particular and additional element into the selection process. Obviously Mr Costello and I are, and I think any future ministers would also be, very conscious of the public profile and significant responsibilities which this board will have. I cannot believe any government of any persuasion would do anything other than apply the most significant due diligence to the appointments to this board.

Indeed, to date we have been working very closely with Mr Murray, whose appointment as chairman, as I say, I think has been widely accepted as very good. I can assure you that Mr Murray will not want to serve with anyone on this board other than those of the highest integrity. He has made that clear to us, and we are working closely with him on formulating appropriate appointments to the board—appointments that will not, obviously, be considered until this legislation is signed into law. We are well down the track of considering appointments, and they are people of very high quality. We are doing this in close consultation with Mr Murray—that is, Mr David Murray. No relation, I gather, Senator Murray?

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

No relation.

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

But he shares your concern for ensuring the highest possible standard of people on this board. We do operate in this country on the basis of ministerial accountability for appointments to boards of this kind. We have introduced the legal obligation for ministers to have regard to certain factors when making these appointments. As I say, this will be one of the most high profile boards imaginable. No government is going to wear the political opprobrium of making a silly or unqualified appointment.

I notice also that the sort of course Senator Murray is proposing is no cure-all for the disease which I think he is considering. I notice that his amendment refers to ensuring that there is some sort of independent scrutiny of appointments. My ever watchful office has drawn to my attention that the Scottish parliament actually has such an arrangement. I have here an article from the Scotsman, ‘Watchdog for quangos filled with Labour supporters’. In Scotland, they do have this mechanism for independent scrutiny.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

They all vote Labour in Scotland. It’d be a bit hard to find a non-Labour voter in Scotland.

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

I think this is of interest in this debate. This report says:

Andy Kerr, the finance minister—

of Scotland—

announced yesterday that 12 independent assessors had been selected to provide non-party political analysis of all quango appointments.

But he immediately faced criticism from opposition parties when it became clear that six of these new assessors—chosen to make sure that quango appointments are not politically motivated—are, in fact, active Labour Party members.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Only six? Six out of 12 only?

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

Only six out of 12. Amazing, isn’t it? Can you listen to the defence! He thinks it is okay that only six of them are active Labour Party members. It may be true, as Senator Sherry says, that there is a strong Labour vote but I do not think all the voters in Scotland are active Labour Party members.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Not all but a very high proportion.

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

My point, despite the interjections, is that, even if you were to set up such a mechanism, somebody has to appoint the independent board that is going to scrutinise all these things, and if it is a Scottish Labour government you see the results you get. So we recognise the potential disease to which Senator Murray refers. We think that that is more than adequately catered for, and the sort of path which he would go down is itself fraught with the risks that Scotland highlights. But I think this very debate does highlight for our government and any future government the considerable care that must be taken and must be seen to be taken in the appointment of board members, and I assure this parliament and the people of Australia that due care will be taken.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

Minister, you make a good point, of course. There never has been a net made through which a fish has not been able to swim. I recognise that point, and those who have been watching the British press recently will know that the Prime Minister in waiting, Mr Gordon Brown, is in fact making something of a case for further improvements to the method of appointments, given concern throughout the United Kingdom that it is still not what it should be. But the point is that the British did try to address it. They did create for Westminster a Commissioner for Public Appointments, which was independent. But, coming back to the real nub of the issue: whether you accept this amendment or not—and you choose not to—the next point you made was a really important one; that is, the onus on you in your capacity as Minister for Finance and Administration, or whoever succeeds you, and the Treasurer to ensure that your advisers carefully check the candidates for the board is a vital one.

It is very difficult in any walk of life—as anyone who has ever employed large numbers of people, as I have, would know—to be sure in every instance that those who claim a degree have that degree, that those who claim a particular background have that background or that people have not got an improper connection with tax havens, are not secret inside traders or are not people who have problems with the tax office. If the lessons of politics, life and business are ever to be noted, they are: to take care. The more important the appointment, the more care that must be taken. So although, Minister, you choose to reject this mechanism, which I think is an advance on our existing system, nevertheless I would urge you to check even those who on the face of it might be seen to be absolutely honourable, just to make doubly sure that they are, because of course it will come back and sting you if you do not.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

What concerns me about the minister’s approach is that, when we discussed this matter at estimates and I wanted an indication of what the checks—the process that would be undertaken—would be, he said: ‘We’ve got these criteria in the bill.’ That is fine. Labor has no argument about the criteria in the legislation. Presumably their officers will do something. It would be politically smart if they did, certainly if they went a little bit further than they did with the appointment of Mr Gerard.

But let us just take the issue surrounding Mr Gerard. I do not want to overstate it but, at the moment, my understanding, on the government’s argument, is that you could not check the company tax activities of an individual that may be appointed to the Future Fund board. Government does not have the power, on its claims, to do that. I would have thought it would be smart to be able to do that and to have that in the legislation. We do not know whether the minister’s office or officers will check with the Federal Police. We do not know whether they will check with APRA, the regulator of financial institutions in this country. I am sure they have given some consideration to this. I am sure they have asked: ‘What level of checks will we carry out on the background of the people?’ I am sure the ministers have thought about how we check on these people.

So why won’t the minister outline whether there will be a Federal Police check, whether there will be a tax office check, including their company activities, or whether there will be a check with APRA? It seems to me that they are first base. If they come from overseas or they have had some overseas financial activity, will there be a check with the overseas financial regulators and authorities? It seems to me that they are all prudent things to do in respect of the background of the individuals for what is a unique and highly responsible institution. But the minister cannot outline what the checks will be other than just saying: ‘Trust us’ and ‘Business as usual. We’ll get an officer and go out and do a bit of a check.’ I think in the case of Mr Gerard it was a check of the newspaper clips. That is not an assurance that we can take at face value and that is not a vetting and checking procedure that Labor believes is appropriate.

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

I note what was said and I can assure the Senate that rigorous and appropriate checking of backgrounds will be done, but I do not think we should subject these people to the public circus of sensationalism with regard to the nature of those checks. I think that is inappropriate. I would also just make the point, as it has been drawn to my attention by Senator Sherry’s earlier remarks about APRA and fit and proper person tests, that the government uses a similar process to appoint the employer representatives on the CSS-PSS board. Certainly, in the period of our government, we have made entirely appropriate and sensible appointments—and that is a very good board, one where due care is taken to ensure that it is a responsible and appropriate board. Interestingly, that board has to be licensed by APRA; indeed, the appointment process that we engage in with regard to that board has been accepted by APRA as complying with its requirements for licensing. That is why I do not believe we need to go down this unduly legislative path. The government applies itself diligently to its responsibilities in appointing employer reps for the CSS-PSS board, which has significant responsibilities. In the case of the Future Fund board, we will be taking at the very least the same rigorous approach as we do with the CSS-PSS board.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Can I just clarify that response. Does that mean the minister is actually saying that the government will refer the names to APRA for checking? I was not clear that he was assuring us that that would happen.

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

I simply made the point that the CSS-PSS board is a superannuation fund and it has a responsibility for the funds invested by individuals as well as, of course, an overall responsibility. Therefore, it needs to be licensed, and therefore APRA needs to be satisfied with the process of appointments. APRA is about checking the methodologies, the processes and policies, of appointments.

In the case of the Future Fund, it is not, as I said before, a superannuation fund in the same way that the CSS-PSS board is; it is an investment fund. We have charged it with the responsibility to invest wisely and sensibly moneys under its care. The government have separately made the decision that the funds held in that investment fund will be applied by the government as a matter of budgetary outlays to meeting our annual expenses with regard to public sector superannuation. So the two are different in that sense, albeit that, as I was saying, we will apply the same rigour to the appointment process. But I am not saying—and it will not be the case—that APRA will have that degree of involvement in the Future Fund board.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

We are in a public debate; we are not in the Senate committee inquiry. We have had at least part of this discussion before. The minister is splitting hairs when he claims that this is employer money to meet employer liabilities to a defined benefit fund debt. That is no different from a private sector defined benefit fund that has both employee contributions and employer contributions to meet the accrued liability of the fund and the moneys that will be paid out. It is absolutely no different. It begs the question, and this has been debated ad infinitum: why is the government actually setting up a separate fund? The money should have gone into the existing superannuation structures.

Minister, you shake your head, but the law of the land in this country requires the employer to place their money in a superannuation fund in the same way as the government is placing its money in the Future Fund. The law of the land requires an employer to place into the superannuation fund their money, held in trust for the employees, alongside the employees’ money. Yet the government has chosen something different.

To come back to my point: given that very close analogy, we see no good reason why there should have been a departure from existing superannuation fund practice in this country. It is not the government’s money, Minister; it is actually the money that is going to belong to the superannuation fund members. It is not their money at the moment, legally, because you choose not to put it in the superannuation fund; you refuse to fund it. So the closest analogy is superannuation fund trustee law. That is what guardians are; they are trustees. And the most appropriate way to carry out at least some of the checks is through APRA. Why have we got APRA scouring and licensing every superannuation fund in the country and going back and checking all the trustees’ backgrounds? Why are they doing it? Exactly the same approach should apply to these so-called guardians, who are no more than superannuation fund trustees.

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

I do not want to prolong this debate, but those remarks cannot go uncontested. I have explained ad nauseam, I think, in other forums, particularly estimates, why we are not putting this money into the CSS-PSS structure. I have made that clear. Senator Sherry clearly has still not got his head around what we are doing here. For 100 years, Australian governments have not funded their liabilities to former public servants’ superannuation. What happens is that the money is simply paid out through the budget each year. I think it is currently $7-odd billion, maybe $5 billion; I cannot remember the exact figure off the top of my head. Whatever it is, the reasonably substantial amounts that currently go out each year on public sector superannuation for former public servants come straight off the budget. That has been the case for 100 years.

The Labor Party had 13 years in office to change that if they wanted to. They did not. Indeed, they were not able to because they were in deficit the whole time. They were essentially paying their public sector superannuation liabilities with borrowed money. We are in the much better position of having rescued the fiscal position of this country. We are now in a position where we have effectively paid off general government debt and we are now accumulating surplus funds. At the moment, they are held by the Reserve Bank. We have made the decision that, to the extent that in the near future we will be accumulating additional surplus funds—which is an appropriate consequence of our responsible fiscal policy—there will be, in all likelihood, proceeds of asset sales. These should be invested wisely for the nation’s future.

It so happens that we have made the decision that the best way to use this fund is to relieve the pressure on future budgets, because, as Senator Sherry knows, our Intergenerational report forecast that, without changes to existing policy parameters, the Australian government budget will go into chronic deficit from around the middle of the next decade. We are very conscious of that, and that is one of the reasons this fund has been created. What will happen in 2020 is that governments that succeed us will be in the blessed position of having their budgetary obligation to retired public servants eased by the fact that our government set up this fund. Those budgetary obligations can be met by drawing down on this fund which we are so wisely setting up.

I urge Senator Sherry to get his head around exactly what we are doing here. We are not setting up a superannuation fund per se; we are setting up a mechanism to relieve future governments of what will be a very difficult burden in the future, when they are under enormous fiscal pressure because of the ageing of the population, with respect to the legal obligations to pay superannuation for former public servants.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

I have one final point. If we follow the minister’s logic, we will be establishing a future fund to accrue assets to pay our age pension liabilities. That is the logic the minister is advancing—age pension liabilities. I put the question quite bluntly to the minister: is the government proposing to set up a future fund to accrue assets to cover age pension liabilities? I do not know what the current value of them is. It would be interesting to know, actually; I am sure it would be massively greater than the pension liabilities that have accrued in public sector super funds. But, if we follow your logic, Minister, that will be the next step. I would be interested to know whether the government is considering that.

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

Before I get to that point—and, again, I do not want a long debate on this—I make the point that the current annual liability is around $4 billion, which has come straight out of the budget. The $7 billion to $8 billion to which I referred is our actuarial estimation of the cost of public sector superannuation in the year 2020. That is my point. This fund will relieve future governments of that substantial burden. But, in drawing up this fund, as in the next few months we will have paid off general government debt—the $96 billion that we inherited—we have looked to other liabilities the government had. We looked to the legal liability we have with respect to superannuation. As I say, that is quite a separate issue to public policy programs, whether they be for Medicare, the age pension, the disability pension or anything else. They are a function of policies determined by governments and approved by parliaments, which of course are subject to the vagaries of national politics.

Future governments, in assessing the capacity of the Australian government to meet the consequences of an ageing population, are going to have to deal with a whole range of policy questions. We have already begun that process. We had a terribly difficult time in this very chamber convincing the Senate that, in order to ease the burden on future governments of the Pharmaceutical Benefits Scheme, increases in the copayment—a copayment introduced by the opposition—were necessary. We have finally achieved that. That will help future governments sustain the Pharmaceutical Benefits Scheme. But this is a separate issue where the government knows that it has this legal liability. We are establishing an investment fund with the provision that the government should use that fund to ease the burden on the budget of meeting that liability.

Question put:

That the amendments (Senator Murray’s) be agreed to.