Ursula Stephens (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I rise this evening to contribute to this debate on the appropriation bills and I really want to focus, have had the discussion earlier today about the reforms to FoFA being proposed by the government, to revisit an issue that I raised earlier today, and that is the role of the financial services industry in the administration of charitable trusts. Coincidentally, just a year ago I raised this issue in the Senate, because the administration of charitable trusts is quite fundamental to many Australian charities.

Just over a year ago the Parliamentary Secretary to the Treasurer referred the issue of regulation of certain aspects of activities of trustee companies under the Corporations Act 2001, particularly the fees they charge charitable trusts and the accountability and portability of their services. He referred those issues to the Corporations and Markets Advisory Committee, CAMAC, which is a very important advisory arm to the government of the day. It provides independent advice on issues that arise in corporations and financial markets law and practice. Corporations Law we would think is a pretty long way away from the day-to-day operations of local charities, but in this instance Corporations Law is impacting in a very real way on the invaluable work of the charitable organisations that we will rely on to build and strengthen our communities.

So the parliamentary secretary sought advice on the range of additional fees beyond those regulated under the act that are or could be charged by professional trustee companies; the effectiveness of the regulation of the new arrangements between professional trustee companies and a trust; the effectiveness of grandfathering existing fee arrangements; and what the current position is with regard to the removal and replacement of a trustee of a charitable trust, whether this position is unsatisfactory from a consumer protection perspective, and if so what, if any, reforms are necessary to address this. Finally, he encouraged the committee to bring to the attention of government any other issues that impact on the objectives of that 2001 act on the charitable purposes of trusts.

So what does that all mean? The previous government was committed to strengthening our communities by enhancing the work of charitable organisations. We have spoken many times about the opportunity and purpose of growing the culture of giving in Australia. The previous government had made very significant commitments to improving the regulatory environment in relation to philanthropy, with some very interesting consequences. An expert in philanthropy, Ms Elizabeth Cham, wrote in 2009:

Australian philanthropy has had a pervasive impact on society but it is largely invisible. Nothing illustrates this more starkly than the total absence of attention paid to, or discussion about, a landmark act that was passed by the Commonwealth parliament under which the Commonwealth assumed responsibility for the regulation of the traditional services of trustee companies.

You would be more interested if you understood that one consequence of this could be a transfer each year of potentially up to about $23 million from the amount available for grants to the not-for-profit sector into administrative fees of trustee companies. It also alters the fee structure of perpetual charity trusts. Historically, they have been charged five to six per cent of income. Under the new regime, they will be charged up to 1.056 per cent of capital. The impact on a foundation with a capital base of, say, $50 million will be a fee increase from $131,840 to $528,000. So I think that you can see the dead hand of the Financial Services Council in what has happened in this space, just as we have seen the dead hand of the Financial Services Council on the FoFA reforms.

I was very disturbed when I absorbed this information. Like many of my colleagues, I did not realise the extent of the fees that come out of the moneys left by generous dead individuals and families on the understanding that the trust or foundation would be maintained in perpetuity for the benefit of those most disadvantaged in the community. Ironically, of course, the founders are no longer there to advocate on their own behalf and most have no independent trustees to challenge fee increases. This means that trustee companies are now the sole trustees for the great majority of trusts and foundations they administer. In practice, the for-profit arm of these companies tells itself, as the sole trustee of a charitable trust, that its fees will be increased. So you can begin to understand why the government is ready to review the legislation, which has now been in operation for two years.

At the time, I for one was quite disturbed about what happened and, like most of my colleagues, did not realise the extent of the fees that come out of the moneys left by generous dead individuals and families on the understanding that the trust or foundation would be maintained in perpetuity for the benefit of those most disadvantaged in the community. Ironically, of course, the founders are no longer there to advocate on their own behalf and most have no independent trustees to challenge fee increases. This means that trustee companies are now the sole trustees for the great majority of trusts and foundations that they administer. In practice, this means that the for-profit arm of these companies tells itself that, as the sole trustee of a charitable trust, its fees will be increased. So you can begin to understand why the previous government was ready to review the legislation—which, at the time, had been in operation for two years. It has now been in operation for three.

Before I go to the report of the committee—which has yet to see the light of day—let me explain a little bit more about trustee companies and their significance for philanthropy and the not-for-profit sector. First of all, trustee companies are actually a uniquely Australian invention and, until the deregulation of the Australian financial sector in the 1980s, were somewhat old-fashioned entities established by gentlemen for gentlemen. Their initial role was to manage the assets of wealthy individuals when they travelled abroad for, very often, lengthy periods. Later, that was extended to managing deceased estates—some of which established perpetual charitable foundations. The trustee companies were seen as particularly suited for this because they had financial expertise and were perpetual organisations.

Trustee companies manage some of Australia's most valuable and significant cultural, medical and scientific awards and prizes, including the Miles Franklin Literary Award, the Patrick White Literary Award and the Ramaciotti medal for medicine. They also administer some of Australia's oldest foundations and bequests, such as the Alfred Felton Bequest established in 1904, and more recent ones like the Shane Warne Foundation.

Today, Australian trustee companies are the largest administrators of charitable trusts and foundations, usually as the sole trustee. They manage about 2,000 charitable trusts and foundations, with assets of approximately $3.3 billion—although that was at the time. In the report to CAMAC, the figures are mind-blowingly more. I will quote from the report which shows how significant these are. The report says that the organisations are:

… the sole trustee or co-trustee of some 1500 charitable trusts, with a combined capitalisation of approximately $3.4 billion. The FSC estimates that the entire charitable trust sector is valued at around $7 billion. The FSC has further indicated that (excluding charitable trusts that are PAFs—

private ancillary funds—

or PuAFs—

public ancillary funds—

administered by LTCs) LTCs, on average, distribute annual trust income amounts equivalent to 4-6% of the total capital value of the charitable trusts that they administer.

So this is a very significant sector, where the Financial Services Council has been having a significant influence for a long period of time.

The Corporations and Markets Advisory Committee, having been given that reference early in 2013, had as one of its challenges a consultation process that included calling for submissions. The committee received six submissions, including one from the Charitable Alliance, which is an alliance of concerned trustees, advisers to and stakeholders of charitable trust foundations, which provides significant financial support to communities across Australia. That submission made a series of recommendations related to reforming fees and prices, governance, transparency, portability and the issue of orphan trusts. The other submissions, with the exception of the Financial Services Council's own submission, supported the call for radical change in the interests of the charitable trust sector. Unsurprisingly, the Financial Services Council disagreed with those recommendations.

CAMAC had been due to have round table discussion, which was cancelled at the last minute because of the withdrawal of the Financial Services Council. So CAMAC then had to move to establish a new round table with interested parties and work out how this oversight could be part and parcel of the role of the new ACNC, the Australian Charities and Not-for-profits Commission.

I will go now to the report, and the recommendations of this very senior advisory body are twofold. Firstly, CAMAC recommends that:

… the ACNC implement, or co-ordinate, Stewardship audits of a cross-section of charitable trusts administered by LTCs—

that is, licensed trustee companies. The recommendation continues:

The purpose of the audits would be to obtain information on how LTCs have performed their administrative responsibilities in the context of the philanthropic and benevolent purposes of these trusts.

So the issue of stewardship audits was a very significant reform. They took up the recommendations of the submitters to the inquiry and considered the concerns that were raised across the board. The stewardship audits that were recommended included things such as, the report says:

And the CAMAC report says:

The views of donees on relevant matters should also be sought, where appropriate.

So you can see that that is a far-reaching recommendation by the advisory council to initiate this concept of stewardship audits.

As soon as those recommendations were made public, the Financial Services Council went into overdrive to do whatever it took to advocate that these changes were not implemented, despite the recognition by the Corporations and Markets Advisory Committee that this level of transparency was required for both donors and the philanthropic community to have confidence about the way in which this significant part of the charitable sector was being administered.

CAMAC proposed that:

… Stewardship audits be conducted or co-ordinated by the ACNC, with the trusts included for audit being selected by the ACNC or the party it appoints to conduct the audits.

It was anticipated that:

… participation in Stewardship audits would be on a voluntary basis.

Use by a regulator of investigative powers to conduct the audits was seen to be inappropriate, because it was not suggested that there was any deliberate evidence of improper conduct; it was about improving the processes of transparency. This was the crux of the CAMAC proposal, and, with it, came the notion that, by conducting stewardship audits, it could delay what some of the submissions were actually looking for: a more pressing and urgent regulatory reform. So CAMAC came down on the side of caution, on the side of a light-touch approach—a stewardship audit which would improve best practice of the management of these trusts and the activities of the licensed trustee companies.

Also in the CAMAC's report is a consideration of a review of a range of alternative approaches to trustee fees, which was suggested again in the submissions. CAMAC proposed that:

… fees and costs charged against a charitable trust be subject to a requirement that they be fair and reasonable—

something that all of us would think was fair and reasonable—

with an extended power of the court to deal with disputes alleging the charging of excessive fees or costs.

Well, the Financial Services Council has indicated that this was not something that they wanted to engage in. From the time of these recommendations being presented in the May 2013 report they actively began advocating and systematically campaigning for rejection of the recommendations that would see them be much more accountable and having to justify to philanthropic organisations around the fees and charges that they were charging, but also those that would make them accountable through the activities and oversight of the Australian Charities and Not-for-profits Commission. Therein lies the story about the fundamental shift to ensure that the coalition government persists in unravelling the ACMC.

Fundamentally, it is the influence of the Financial Services Council to ensure that they are not subject to greater oversight and this, for me, is a hugely important issue. It is about the gouging of fees from trustee accounts and philanthropic foundations, where there is no capacity for anyone to challenge the management of those trusts and there is no capacity for people to even shift from one trustee company to another. People may not realise that if you are subject to the public trustee—if someone's estate has been taken over by the public trustee—there is no capacity for beneficiaries of that trust to challenge the management of the trust and move it to some other organisation that might be prepared to manage the trust in a more transparent, fair and reasonable way.

We have seen the FoFA reforms and we have seen the Financial Services Council move to advocate in every way that it can for less accountability and less transparency. This issue about the administration of charitable trusts is something that will become a national shame if we do not focus on getting it right. The Corporations and Markets Advisory Committee is a professional, legal support to the government, and its advice should be adhered to.

Glenn Sterle (WA, Australian Labor Party) Share this | Link to this | Hansard source

It is always a pleasure to follow my colleague and friend Senator Stephens. She worries about one word; I have days where I forget whole topics. We will see how I go at this late hour. I too rise to speak tonight on the Appropriations Parliamentary Departments Bill No. 2 2013-14, the Appropriations Bill No. 3 and Appropriations Bill No. 4. Before I get to the core of my comments, I have to say that I am having an exciting week and it is only Tuesday. Not a lot of things excite me, but I have to tell you, Mr Deputy President, it has been all about Western Australia this week and I have clearly thoroughly enjoyed the contributions, particularly from senators on the other side from South Australia, New South Wales, Tasmania, Queensland, Victoria. And there was a contribution from the Minister for Finance, Senator Cormann, who has now picked up the portfolio of Assistant Treasurer as well.

Fiona Nash (NSW, National Party, Assistant Minister for Health) Share this | Link to this | Hansard source

You must not forget Senator Cash.

Glenn Sterle (WA, Australian Labor Party) Share this | Link to this | Hansard source

I will take that interjection from Senator Nash, for whom I have the greatest respect. We have worked together very closely for six years, but she has decided to run off to have another life as minister. Congratulations, Senator Nash. Senator Cash is always exciting—there is no argument about that. I know that, when we were in government, Prime Minister Gillard used to worry about what came out of my mouth sometimes, but Senator Cash leaves me for dead. She is a beauty! I mean that sincerely.

I want to talk about Senator Cormann's contributions today and for the last couple of days. We are talking about finance and we are talking about appropriations. Last year when we went to the federal election the current government made it very clear that they wanted to make massive changes to Labor's FoFA legislation—Future of Financial Advice legislation. We had taken serious action because we had seen some shocking developments with major collapses of financial advisory corporations, namely Westpoint. A number of Western Australians were caught up in that. They and other Australians were blistered—that is the only word I can find to describe it—by devious people who should have been locked up much earlier than they were. There were losses of up to about $312 million through very shady deals. We also remember the collapse of Storm Financial almost five years ago—a disastrous part of our mostly proud history. That unfortunately was not a proud bit.

We believe the financial advisory industry has a role to play. There is no doubt about that. But, sadly, there are some very shady characters—I will go so far as to call them crooks—who should not be in the industry. Unfortunately, you have some in every industry. They saw their way to garnering huge rewards from pushing certain products that did not suit their clients' needs. They got rich; the other poor devils lost their money. Hence, we put in some tight legislation. It irks me to think that the current government is doing everything it can to overturn it. Why would you want to overturn the protection of people's savings? The only reason I can find—and I will stand corrected if I am wrong—is some sort of payback to mates, though I am not too sure. I did touch on this earlier today and I would like to touch on it again because I think it is essential for those who may be seeking financial advice or those who may be wondering what the heck is going on with the backflips on some regulations from the other side of the chamber. I am touching on it again because this time it will be without the constant interjections and chatter from those opposite who are sent in to make a lot of noise and put off speakers in the hope that the message does not get out. Mr Deputy President, you know that I do not act like that. I would much prefer to have an informed debate and be heard by both sides.

I must quote from a piece in today's AustralianFinancial Review written by that well-respected and highly regarded journalist Philip Coorey. It talks about the backflip from Senator Cormann on the FoFA regulations. It says:

It is too early to describe the FoFA freeze as a backdown but it could end up that way. Finance Minister Mathias Cormann says he intends to legislate for the policy as promised before the election, just that it would be better to have all the interest groups in agreement first.

What we have seen is a massive backlash in large parts of the community from people seeking finance, from pensioners and from community groups who are absolutely furious that this would overturn the tight legislation that was put in to protect people from bad advice, or just crooked advice—if I could put it any other way I would, but I cannot think of another way. Going back to the article from Mr Coorey, it states that Minister Cormann:

… who designed the FoFA changes in opposition, is hardly signalling a rousing endorsement of stood-aside assistant treasurer Arthur Sinodinos.

It was Sinodinos's job to box the changes into shape, present them as regulations and legislation, consult the stakeholders and let fly.

By Cormann's own admission, the stakeholders are largely opposed to what the government is proposing.

He believes this to be more the product of misunderstanding and sloppy reporting than anything the government has done.

Every Western Australian listening should be very well aware of what our Minister for Finance, who is Western Australia based, actually means. In question time today in this chamber, he said—and, if I am wrong, he can challenge me anywhere he likes—that he was new to it and so he could not answers questions from, I think, Senator Dastyari and Senator Bishop in relation to why things changed, and he left it at that. Somebody is not telling the truth, because Mr Coorey clearly said that in opposition this was Minister Cormann's baby, that he developed it.

I refer now to another article in The Australian Financial Reviewin Chanticleer with the headline 'Cormann makes a clean break'. It states:

Sinodinos bungled the financial advice reforms by putting too much emphasis on cutting red tape and too little on what it would mean for consumers.

Where I am coming to with this is that we are still waiting for the National Commission of Audit report. I want to make that clear so there is no confusion.

I want to go to one more article that Western Australians must be well aware of. It is also from The Australian Financial Reviewand Sally Patten is the reporter. In the article, she says:

Commonwealth Bank of Australia revealed in September last year that it had stopped putting in place systems that would have enabled its advisers to sign fresh contracts with clients every two years, a measure Senator Cormann has been keen to drop.

The government may also come under pressure to either obtain industry consensus—

Well, we hope. Where I am leading to is that there was going to be a commission of audit where the belt would have to be tightened and a lot of promises might not be kept. It is my belief that something is not right here. Everyone wants to talk about us Western Australians this week, so why can't we have the report of the Commission of Audit? Why is it so secretive? It has been ready now for a couple of weeks, but it cannot be released. Some may think that because there is a Western Australia Senate election Saturday week on 5 April—and I have no proof because I have seen nothing—there might be some bad news in it not only for West Aussies but for every single Australian.

I now turn to another aspect that has given me much grief over the last few months. I have shared it with as many people as I can, but I would like to share it again now because I have not yet had the opportunity here. On Sunday, 17 February last year, the Hon. Tony Abbott as opposition leader visited Western Australia. I am told he had a Liberal Party campaign rally in Perth—so he was there to gee up the troops. I will read from a media release from the ABC; there is no stunt here. He told the crowd that 'he hopes to model his government on Premier Colin Barnett'. When I put that to some Western Australians in this place, no-one denied it. In fact, one of the good senators from Western Australia shook his head in agreement, so I am not making anything up. The article says of the then opposition leader and now Prime Minister Mr Abbott:

He says he has learned a lot from Mr Barnett, describing his government as a model he hopes to repeat in Canberra.

The party faithful thought, 'You beauty!' Bear in mind that February last year was one month before the Western Australia state election. So just under a month later, we went to a Western Australian state election where Mr Barnett was returned with a majority of more seats than he had in the previous government. He had received a glowing endorsement from a lot of Western Australians—not me, of course—that they wanted him as their Premier. This would have excited Mr Abbott because he wanted to model himself on Mr Barnett's government.

What happened between 14 March and a month later? Mr Barnett went to the election telling all Western Australians to tighten their belts, that it was time for fiscal responsibility, that there was not a lot of money to throw around and that they wanted to contain pay rises through the public sector. I think the figure was a modest three per cent or something like that.

But—lo and behold!—about three or four weeks after the election, this wonderful article came out in Perth and talked about Mr Barnett's adviser Dixie Marshall's pay rise. You can see the nervousness that I want to share with every Western Australian, because there is a Senate election coming. I am not scared to talk about it. If Mr Abbott wants to model himself on Mr Barnett—uh, oh! Nothing was said about this, but a pay rise of $84,534—I am not making this up; I do wear glasses, but this is very clear—brings Ms Marshall's pay packet to $245,000 a year. This is why we have to be very careful. We are being told by Mr Hockey and Mr Abbott that we have got to tighten the belt, and we are also being denied access to the audit. What have they got to hide?

Government senators interjecting—

I notice the chirping starting. You will all have your turn, because I want to know if you know something I do not. But West Aussies need to be very nervous if Mr Abbott models himself on Mr Barnett and wants a repeat of his government in Canberra. I am getting a horrible feeling here. How can you get an $84,000 pay rise to take your pay up to $245,000 when you are the Premier's media adviser?

There was also another pay rise that snuck through that there was no mention about before the election. It was to a Ms Cant. I do not know Ms Cant, but it says in this article that she is a long-time ally and director of government strategy. She got a pay rise of $52,963. This is absolutely disgusting and disgraceful. If you had the intestinal fortitude to go to the election and say that you were going to deliver these pay rises, maybe then I would be wrong and would not be talking about it.

But—do you know what?—I have absolute faith in the political system in Western Australia. It has just brought me back to the pack, because I have been a little bit unfair. You see, the Liberal members of the government over there in WA—and I am reading from the PerthNow article—were really annoyed. It says here that it caused 'furore amongst Liberal MPs' that wage rises like that could be awarded to two political advisers. There was no mention about it before the election. Western Australians are being told to tighten their belts. You know why there was furore? Because they said they believed they too should receive the big pay rises and then got cranky because their pays are set by the Salaries and Allowances Tribunal. I have got faith; I am back on. No worries.

You can see why we have the Prime Minister wanting to model himself on Mr Barnett. There are more reasons for fear. Let me tell you of another really dangerous situation that will occur if Mr Abbott reflects Mr Barnett. He has already started to reflect Mr Barnett. It will be cuts to education. My, my, my! In that great state of Western Australia there was no mention of the cuts that were coming to education. I have to share this with you. It may bore some over there. I see Senator Bernardi is yawning. It may bore him because he is not up for election and so he is sitting there feeling very cocky. But it does not bore me that $183 million has been taken out of Western Australian state schools. I know I am on a high horse here, because this is something that I am absolutely passionate about. I am actually honoured to be the patron of the Darling Range Sports College in Forrestfield in Mr Wyatt's federal electorate of Hasluck. It may sound very flash, but its previous name was Forrestfield Senior High School. It is a really good, knockabout, low socioeconomic public school, and it is not awash with the cash that you find at private schools. It had its funding cut by no less than $379,268.

Senator Bernardi interjecting—

That is absolutely frightening. It has an Aboriginal population of about eight per cent too. It is not cashed up like maybe the school you went to was, Senator Bernardi.

But while we are talking about good knockabout public schools, I want to talk about my old school, Thornlie Senior High School, also in the same electorate. Their funding has been cut by $435,000. I have examples of primary schools in the same electorate—primary schools, for crying out loud! Here is one. Forest Crescent Primary School in Thornlie has had $230,885 cut from their funding.

Alex Gallacher (SA, Australian Labor Party) Share this | Link to this | Hansard source

Did you go to high school?

Glenn Sterle (WA, Australian Labor Party) Share this | Link to this | Hansard source

I did go to high school. I actually did. I was there, Senator Gallacher.

Debate interrupted.