Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I move:

(1)    Page 2 (after line 11), after clause 3, insert:

4 Payments to executives of entities dealt with by this Act

        (1)    No authorised deposit-taking institution or other entity which has deposits guaranteed, or which is otherwise protected or regulated, under the provisions of this Act shall pay any of its executives an annual salary of more than $5 million, or ten times the base wage of the Prime Minister of Australia, whichever is the lesser.

        (2)    In this section:

executive can include any person engaged or employed by the entity on any basis.

salary includes any remuneration paid, promised or guaranteed in any form, including through consultancy agreements and grants of shares or other interests, and including any payment made upon resignation or retirement, however described.

I have already spoken on the need for this move. I do not believe the Prime Minister’s flagged request to APRA yesterday is going to lead to any sort of regulation of the self-assigned payments going to executives generally, but particularly chief executives, in this area. But, as I said, I believe that, now that the guarantee is coming from the taxpayer, the taxpayer should have some guarantee in return, and it should begin at the top. I quote again from John Kenneth Galbraith in The Culture of Contentment, at page 48, where he says:

… support to failing financial institutions—

including that of commercial banks—

… is a fully defended function of the government, however evident the financial extravagance and extensive and visible larceny that made it necessary.

He is talking about that in the context of the repeated attacks by the very people, the executives, that we are speaking about here on such things as social welfare, unemployment benefits, relief to people who are distressed in the community and the general provision of social services and particularly public funding for public education, public health and even public security these days, let alone public transport—as against the road transport system and the private transport system.

We in this country have a much greater gap between the rich and the poor than ever before in history because of the power and the influence of the people that this amendment is aimed at and their ability to be self-serving and self-seeking and also to put down the people who do the hard work in making sure that our society is what it is. When did any one of these executives ever support a pay rise for nurses, one of the most disgracefully overlooked professions in the country? Nurses are taken for granted repeatedly and left occasionally to protest and have marches in the streets—these people who defend our health, not least the public health system. Whenever did one of these executives support a fair go for these people?

I can tell you what has happened. We now have a system in Australia where the executives are getting 70 times the take-home pay of the average worker—70 times. I have an amendment here which says, ‘At least, let’s restrict them to 10 times the base take-home wage of the Prime Minister of this country,’ who has, one would argue, no less executive responsibility than any of these people. But we are going to find here today that neither of the major parties will support this amendment. That speaks for itself, and that is because of the prodigious lobbying system in this country. It follows maybe a decade or two behind the US, but, nevertheless, the lobbyists for business interests have extraordinary firepower. That includes those who have proclaimed for years against government intervention but who are right behind this intervention now to guarantee their institutions. I have not heard any of those chief executives out proclaiming against this government intervention in the marketplace. It is not even sotto voce; it is just not there at all.

Suddenly, the taxpayers—the nurses, through their taxes, and the teachers, the police and the road workers—are required to back up these multimillionaires who have given no reverse support whatever. In fact, they have opposed many of the moves that government would and should have made to make this a more egalitarian society and to guarantee a fair day’s pay for a fair day’s work. Instead of that, we saw Work Choices, of course backed by these millionaires, being used to intervene in the workplace to prevent unionists, for goodness sake—those vilified representatives of the workers—trying to get a fair go for workers in the workplace.

What an extraordinary outcome this is. This is a blank cheque being written to guarantee the banks, including deposits in branches of foreign banks and financial institutions in this country and borrowings from overseas. The government says, ‘Well, our institutions are in better health, but it is the international financial system.’ This government and the last government are leading supporters of that very same international financial system, and they have failed to get up the regulatory requirements that should be imposed on that financial system and that would have stopped this meltdown in Wall Street.

The minister said that Australia does not have the significant exposure—except at the margins, I think he said—of similar institutions in the United States and Europe. I want to ask him about the exposure of the very institutions we are guaranteeing today to credit default swaps, which the banks have been heavily into to avoid responsibility for bad debts. Mr Tanner, the Minister for Finance and Deregulation, told ABC TV two nights ago that it was ‘not possible to be absolutely precise with respect to the magnitude of that exposure’. In the absence of absolute precision, let us have a general statement to the Senate about what the exposure of these institutions is to these credit default swaps, because we should know. We are being asked to give the guarantee against them being found effectively to be bad debts, so we have a right to know, and we should know. In fact, we have a responsibility to find out what that exposure is in real terms. I would like the minister to give us an answer to that question.

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

I will endeavour to find out the information you have requested: credit default swap exposure by Australian financial institutions. I will cover off on some other remarks in respect of your amendment, Senator Brown, while we attempt to get some information for you on that particular issue. I have spoken about the general robustness, strength, prudential supervision of Australian financial institutions. I am not being critical of you, Senator Brown, because I know senators’ time is limited and the capacity of senators to go to the estimates where APRA appear three times a year is limited. We all have our own time demands. I have been at estimates for the last 18 years—

Helen Coonan (NSW, Liberal Party, Manager of Opposition Business in the Senate) Share this | Link to this | Hansard source

It seems longer!

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

It does seem longer, Senator Coonan, particularly when you have been in opposition going to APRA estimates and ASIC estimates and Treasury estimates for almost 12 years. In my time in the last 18 years I do not think there has been an appearance of APRA that I have missed at Senate estimates.

Helen Coonan (NSW, Liberal Party, Manager of Opposition Business in the Senate) Share this | Link to this | Hansard source

And they are on again next week!

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

They are on again next week. I just mention this, Senator Brown: APRA are on again next week and usually there is a lot of questioning and a lot of very valuable information not just from APRA but also from ASIC, the ACCC et cetera.

I thought it was regrettable when we had the estimates in May that APRA appeared first thing after dinner, relatively late at night, and they went through the measures they have taken in the last year, particularly given the international environment, to analyse and examine the various exposures of the Australian financial institutions—banks, credit unions, building societies—and they gave a very strong report of health and robustness. There will be another opportunity next week for those senators who are interested—and I am sure there will be, not unsurprisingly, a few more interested than on the previous occasion—to very precisely go through the questions that you and others have raised on a number of perfectly legitimate issues of detail about implementation, concerns and worries you may have about exposures in this country.

In the general sense, and specifically concerning all Australian financial institutions, APRA has carried out rigorous, ongoing oversight. I referred to the HIH royal commission earlier, Senator Brown. In fact, we learnt a valuable lesson from the HIH collapse. I will not go into the detail today, but there was a royal commission and the regulator, APRA, was substantially overhauled as a consequence of that royal commission. We did learn some valuable lessons out of that that have effectively helped to well prepare our regulator for these sorts of circumstances and have led to an increased vigour and surveillance of the broader financial sector, not just insurance companies.

Senator Brown made some comments about executive salaries. I said in my earlier remarks that the Australian position for executives and salaries is somewhat different from that of the United States. I am not just talking about levels of salaries; I am talking about the practices, the excesses, the sheer greed of some of these executives in the United States and the effective insider trading when they knew a company was going to collapse. They bailed out, they sold their shares and sold their shares in their pension funds. Unfortunately, the employees in the United States, through share ownership plans through their pension funds, ended up not just losing their jobs but losing their pension funds as well. The Australian law does not allow that sort of practice. I might say in that sense it is a strong regulatory oversight that we built into our pension superannuation fund system some 20 years ago. But we have not seen the sorts of abuses—the rewards for failure—that have occurred in the United States. We have not seen that in Australia when a financial institution has collapsed.

Senator Brown, I think you paint an overly bleak picture of the outlook of these CEOs. You said that they have self-assigned their pay. Executives do not self assign their pay. They do not sit down at their desk as a new CEO and say: ‘Right, I’m worth $5 million and I’m going to sign off. That’s what I’m worth. And I’m worth another couple of million on share bonuses.’ They do not sit down and self assess and assign what they want. The boards in this country and the shareholders oversee executive salaries. There is an oversight mechanism. It is not a self-assignment mechanism, and rightly so. Particularly in this environment, Senator Brown, I think there will be renewed focus and vigour by boards and shareholders, and we have seen some recent examples of this. Telstra was one. There has been renewed interest and vigour by boards and shareholders in the remuneration of executives. I think that is very appropriate. There has been renewed interest by superannuation funds and fund managers in the level and makeup of executive pay in Australia. I think that is welcome, and I do not think it will come as news that there will be much greater scrutiny of these executive pays in the current environment going forward, and the boards and the shareholders are responsible for this.

But the Prime Minister himself has admitted that that in itself is not sufficient. The Prime Minister has advocated reform of financial executive salaries. He has said it on a number of occasions. It was not just yesterday. He reiterated and gave renewed focus to this issue in his speech at the Press Club yesterday. I was present at a dinner in Sydney on Friday a week ago when there were many of these senior executives present. The Prime Minister—I thought very refreshingly and rightly—outlined his concern about executive greed, moral failure and the need to reconnect moral judgement to the approach by executives to decision making, in particular executive pay. He spoke about this at the UN. Reform has been advocated at the International Monetary Fund and the G20.

The Prime Minister addressed this topic at the UN when he argued financial institutions need to have clear incentives to promote responsible behaviour rather than unrestrained greed. He referred to the Basel rules on capital adequacy that should be linked to the issue of the executive remuneration. Specifically, he referred to regulators setting higher capital requirements for financial firms with executive remuneration packages that reward short-term return or excessive risk taking. That is, that institutions that have more aggressive pay packages would have to hold more capital to reflect the increased risk.

The government is examining the implementation of this approach in Australia. Discussions are taking place with our regulators and one in particular, APRA, which has the prudential responsibility for financial institutions. So both here and internationally this issue has to have far greater focus with a much clearer set of rules in respect of financial stability in the future. The work will also engage the Basel Committee on Banking Supervision to determine the best means of implementing this initiative. So the Prime Minister has been on the record on a number of occasions, certainly at least four of five that I can recall, expressing the need for this work to be carried out and to be implemented in both an international and a domestic framework.

I did say earlier that I think you have painted an overly bleak picture, Senator Brown, of the attitude of senior executives in financial institutions in this country. I would have to say that financial companies in this country, when it comes to areas like socially responsible investment, generally have been leaders in the development of this field, in contrast to many other top 500 companies in Australia. So I do not think it is a totally bleak picture. I do think that on many occasions financial institutions—and this includes the involvement of their CEOs and/or senior executives—have taken a greater involvement and have had a greater focus on areas such as socially responsible investment. I can think of a number of our banks, for example, that have implemented active programs with respect to Aboriginal employment, and with respect to some areas of responsible lending and trying to redress some of the areas of irresponsible lending. So I do not think it is a totally bleak picture. I can think of some examples where our banks and financial institutions, including CEOs, have improved their approach. It is not perfect; I have still got some worries and concerns about areas such as credit card selling and distribution, payday lending—areas which we are bringing into Commonwealth regulation and where we do intend to take a more active approach as a government, once we have got regulatory control of these areas, to encourage responsible lending. I would not argue it is perfect, but I do not think it is quite as bleak as you paint.

On exposure of Australian institutions to CDSs, which you have asked me about, banks must disclose their material exposures, and obviously APRA as the responsible regulator oversights and examines their material exposures. The CDS exposure of Australian banks, I am told, is one to two per cent of their total balance sheet as at June 2008. So the total balance sheets of the businesses in Australia show one to two per cent exposure. APRA requires Australian deposit-taking institutions, ADIs, to report on their CDSs as part of their quarterly reporting. APRA is aware of the level of material exposure by financial institutions and obviously it oversights and checks to ensure that the extent of any exposure to CDS is within prudential requirements in this country. That is a general overview of the exposure. I cannot give you more detail as of this morning on that level of exposure, where that lies and with what particular institutions et cetera, but there will be the capacity for APRA to outline this in much greater detail at Senate estimates next week. I am more than happy to indicate to APRA that in their introductory remarks, for example, they provide some additional information, and then senators will obviously have the ability to question them more intently and to a greater level of detail.

We do not support your amendment, Senator Brown. The Prime Minister has indicated the way in which the government will approach policy development. We do consider it an important issue, not just in the context of this legislation but in the context of what is, rightly, a broader community concern about the level of executive packages for some CEOs, particularly against a background of the well-known and exposed excesses that have occurred in the United States. But I make the point that we have not had a financial institution here collapse. We have not had payment for failure as we have seen in the United States. I do not believe the situation is as bleak as you portray but I accept that you raise some legitimate concerns, Senator Brown. I believe that the process and the way forward that the Prime Minister has set out, and the process that I am sure will take place amongst boards and shareholders and superannuation funds in their scrutiny of executive pay over the coming year and years, will reflect the broader concern that you hold.

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I wonder if the minister could tell us what one to two per cent exposure is in real terms. I note that Citigroup analyst Craig Williams says that for the four big banks the exposure to the credit default swaps is some tens of billions of dollars. I wonder if that aligns with the minister’s estimate. And I ask this question in this splendid chamber: is there a senator here who believes that there are executives who are worth more than 10 times the base wage of the Prime Minister of this country?

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

When I read ‘one to two per cent’ for off balance sheet exposures, it should have been ‘1.2 per cent’. I read the dash as a dot. I just wanted to make sure that is on the record. As I have said, senators can question APRA in far greater detail about the specifics of these exposures.

In response to Senator Brown, I am not on the board of a company; I do not sit down and determine the relative worth of an executive and what they should be paid. Boards, superannuation funds, funds managers and their shareholders carry out that process. They come to a conclusion about the relative worth of senior executives. I do not know whether, when they look at that relative worth, they look at the pay of the Prime Minister, the Treasurer, or anyone else, for that matter. I do not know what the comparative evaluation benchmarks are. What I am very confident about is that boards, shareholders and fund managers, particularly in the current market, will be very rigorous in their assessment of the pay of executives this year and in the coming years.

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I take it from that that there are not any senators so disposed. It is not a matter of this particular period or any other period—the fact that some CEOs are getting 20, 30 or 40 times what the Prime Minister gets is simply unjustifiable. It cannot be seen as fair, equitable, responsible or proper remuneration. I repeat: it is not coming out of thin air. It is being taken out of the pockets of deposit holders—pensioners and workers, the people of Australia—along with their ability to have a fair go. I can tell the minister who they measure themselves against: the US executives, the other end, with their obscene payouts which go to hundreds of millions of US dollars per annum. That is because of the failure of the democratic system, because of the power of the lobbyists and because of, it has to be accepted, the popular approval of such failed Presidents as Reagan, George Bush Sr and George Bush Jr, who I saw being called by one columnist in the last week the most incompetent President in history. He came to this parliament in 2003 and you could hear a pin drop as his passage to the rostrum was watched with awe, as if he were some majestic being without imperfection. This is an important amendment. I seek the amendment to be put and then I have one other matter I would like to deal with.

Question put:

That the amendment (Senator Bob Brown’s) be agreed to.

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

There is another matter I wanted to deal with. Could the minister be so good as to explain why the provision in this legislation for a levy to be put onto succeeding financial institutions if one crashes, to cover the public liability for the crash, awaits the crash? Seeing we are guaranteeing financial institutions here and now through this legislation, with taxpayers’ backup, why is a levy not being sought from those financial institutions so that it can help ameliorate the prospect of a collapse of one of them? I would have thought that, if you wait until one of them collapses, the argument is going to be very strong indeed from those who remain that a levy will do nothing but make their situation more precarious. It would seem logical to me that the quid pro quo for the public largesse in this extraordinarily valuable guarantee being given to financial institutions should be a fund to be raised now to save the public dollar in the event of a financial collapse.

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

It is a good question, Senator Brown, because the issue you have raised—whether you do a prior levy and establish a fund in anticipation of perhaps a collapse occurring or you wait and do a levy at the time—is one of the issues that are considered in an approach to a financial stability guarantee.

We discussed and debated the approach to and the principle and practicality of a levy some 20 years ago, in the context of superannuation—if money were stolen from a superannuation fund, should we have a guarantee, as we now do in Australia up to 90 per cent? One of the fundamentals of the debate was: do you levy the industry and build up some sort of reserve and pay the loss out of that reserve or do you wait and, if a collapse occurs—or if theft and fraud occur, in that case—do you then apply the levy?

The approach that was taken then—which in my view was correct—was the same as the approach that is taken in this legislation: if you levy before a collapse occurs, if it occurs, to what level do you levy? You obviously do not know what the size of the collapse would be, should it occur, so what would be the size of the levy? What would be the size of the reserve fund that is established?

Secondly, when the collapse occurs you do not know what the size of the liability will be after the disposal of any remaining assets until the liquidators have given at least a preliminary report. So there is a second issue that you do not know of until the collapse occurs. You then apply the levy to the degree that is necessary, having established that degree by knowing the facts of the circumstances—if the collapse occurs. Unfortunately, theft and fraud do occur with respect to superannuation funds, but it is a very rare event. Generally the level of theft and fraud in the superannuation system is miniscule, with a few hundred members each year affected. That is very important for them as individuals because they lose everything, but in the context of the system it is miniscule. What happens is that when you know the size of the losses and whether you can recover any assets, a levy is then applied across the entire superannuation system. That post event levy principle has applied every year in Australia for the last 18 or 20 years. The same sort of principle is being applied in respect of these circumstances, and we think that that is very unlikely and very remote because we know our financial institutions—the banks, building societies and credit unions—are strong.

I accept that there is a valid debate about this, and there has been a debate in other countries. Some countries have a reserve that they have established and built up before an event occurs; some countries have a post event levy. The government is determined that a post event levy is the best approach, and obviously I agree with that because I have referred to circumstances some years ago where I was involved in the superannuation system. We know that the outcome is sound; we know that that is the best way and the best time to recover the costs from those financial institutions and the broader financial system.

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I thank the minister. I remind him that I asked what the 1.2 per cent exposure to the credit default swaps was in dollars. Could he give us that figure? I also just want to say that I disagree with the minister on not having the levy now. I mean, it does not take too much imagination to know that a levy imposed now while things are moving along will then be readily available for people who may lose their deposits or their insurance if an institution crashes, without having to dip into the public purse. It is not beyond our wit and wisdom to be able to work out a good way of using such a fund if in the long run it is found not to be required to help depositors hurt because of a failing institution. All over the country there are people who are hurt by the failure or the fraud that occurs in trusts and so on, and 125,000 homeless people are sleeping out every night in Australia. I can think of a very great many ways in which such a levy could be used, were it found not to be necessary for the purpose for which it was raised.

Finally, I just want to comment on the decision by both Labor and the coalition not to support the Greens motion to curb executive salaries. It points to, again, a failure of nerve and a failure of proper public application in the responsibility of us as elected representatives to work within the free enterprise system to ensure that there is fairness at both ends. It is our responsibility to have a safety net for those people who are down on their luck, who are dispossessed and who, through misfortune of one form or another, are having it hard in life. There is a lot of debate in here about that. But when it comes to curbing the excess at the other end everybody is frightened and everybody disappears into their hidey holes. Let us face it: we and our fellow parliamentarians spend a lot of time mixing with the very executives who are affected here. They turn up at the $1,000-a-head dinners, they buy the tables that are used for fundraising at political events and they exercise enormous firepower through the media to be critical of governments, oppositions or the Greens—and they certainly exercise criticism there without too much restraint.

I think we are going to see no good outcome here. The Prime Minister has put in train a system of asking APRA and then taking whatever scheme to curb excessive payouts APRA comes up with to the international authorities—and if they then act, so will he. Well, tell me a better prescription for failure. Written into this process from Prime Minister Rudd is an escape from the responsibility to curb the most obscene executive pay packages in this country. It is written in there. It was very clearly in the speech that he gave at the Press Club yesterday. The debate in here today simply confirms that the big parties are not going to act in this field, and when and if they show some sign of doing something it is going to be very non-specific and it is not going to hurt any of those people and the multi-million dollars that they are going to take home this year.

When I asked if there was anybody here who disagrees that there should not be anybody in the country getting more than 10 times what the Prime Minister takes home as base salary, of course there were no takers on that because it is so logical—it is so inherently fair and logical. My embarrassment here is that that in itself is too easy a test, as is the $5 million per annum rule.

What is happening in a democratic system where there is a failure of the nerve of members of parliament when it comes to tackling the big end of town, but not so when it comes to the other end of town and tackling people who are said to be a drain on the system, irresponsible, unable to look after their own affairs and not getting jobs or skills, or going to school et cetera—witness the Northern Territory intervention and, I again say, witness Work Choices? And now there is ‘work choices lite’ coming down the path; it is not going to make a significant difference in the way in which workers representation in the system has been curtailed in the last decade while the excesses of the rich at the other end have blossomed. I do not see a government or a Prime Minister here who is about to tackle that disparity with any grit at all.

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

Senator Brown, you asked what the precise dollar figure is that the 1.2 per cent represents. I cannot give you a figure now. I want to make sure that APRA have an up-to-date figure. They are appearing at Senate estimates next Thursday, but I will make sure that they are contacted prior to that. If you are unable to be there, I will make sure that they are able to provide a figure there and then so that it is on the public record.

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I would like that figure today.

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

I will see what I can do but I cannot give you a guarantee.

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I thank the minister, but we should have that figure today. Goodness gracious! The government has that figure. If it has not, there is a degree of irresponsibility involved. When you bring forward legislation like this, surely you know what that figure is. The Senate ought to have that information; it ought to be part of this debate. The minister says he does not have it. He knows it is 1.2 per cent—1.2 per cent of what? It is quite extraordinary that he says that he cannot give that figure in dollar terms. I certainly hope he will give that figure to the Senate before the end of business today.

Bill agreed to.

FINANCIAL CLAIMS SCHEME (ADIs) LEVY BILL 2008

FINANCIAL CLAIMS SCHEME (GENERAL INSURERS) LEVY BILL 2008

Bills—by leave—taken together and as a whole.

Bills agreed to.

Bills reported without amendment; report adopted.