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Wednesday, 9 February 2005
Page: 40


Senator ELLISON (Minister for Justice and Customs) (12:20 PM) —I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows—

Superannuation Supervisory Levy Imposition Amendment Bill 2004

The Government is committed to ensuring that prudential regulation and the consumer protection functions associated with prudentially regulated entities are adequately funded and that the regulators have adequate resources and expertise to perform their functions properly. Part of this commitment is ensuring that the framework for setting the Financial Sector Levies is up to date and continues to raise the necessary funding from industry in an equitable and sustainable way.

As such, the Government commissioned a ‘Review of Financial Sector Levies’ to evaluate the arrangements for determination of levies imposed on the financial sector that support the operations of the Australian Prudential Regulation Authority, and certain operations of the Australian Securities and Investments Commission and the Australian Tax Office.

Fundamentally, the task of the Review was to consider how the burden of funding the relevant regulatory activities might best be distributed between all of the regulated entities. At a broad level, the central issues involved the horizontal distribution of levies between different institutions or industry sectors and the vertical distribution between larger and smaller institutions.

The Review was chaired by the Treasury and undertaken jointly by Treasury and APRA in consultation with ASIC and the ATO. Extensive consultation was undertaken with industry, including roundtable discussions and consideration of formal submissions made to the Review.

The Review and the Government’s response were released in May 2004. Several key recommendations were made to alter the existing Financial Sector Levy framework. The recommendations aim to ensure that levies are collected fairly and efficiently between industry sectors and from all entities within industry sectors. They also aim to ensure that APRA, in particular, has a sustainable funding base that is able to meet any changes in APRA’s future budget requirements equitably and efficiently. In general, the recommendations allow increased flexibility in the way levies are collected to ensure that these goals can be met. This bill and the other six levy Bills that are being considered concurrently contain the legislative changes necessary to implement the new levy setting framework.

The Bill proposes that that there be two separate elements to the determination of financial sector levies. The first element has a cost of supervision based rationale with a percentage levy rate on assets subject to minimum and maximum amounts. This element is essentially the same structure as the existing levy framework where the levy determinations are based solely on the cost of supervision. The second, and new, element reflects the potential financial system impact of an entity and addresses vertical equity concerns. It will be a low percentage levy on assets, without a minimum or maximum amount for individual regulated entities. The Government proposes to set levies such that the portion of the total levies raised from this second element will be between 10 and 30 per cent of APRA’s total levy funding requirement in each year.

These arrangements recognise the particular importance of regulating the largest institutions in our financial system as the larger the financial institution, the greater the likely impact on the financial system and economy in the event of it facing financial difficulties or failing. The relationship is not one which tapers off in a way that would make a cap on the amount paid by an individual institution appropriate. Therefore the Government considers that system risk can be taken into account through a single levy rate applied to the assets of an institution and without a floor or cap.

In addition, because the current cap arrangements involve zero marginal levy rates, once the maximum levy cap is reached many consider that these arrangements breach vertical equity norms. For example, the levy amounts paid by the largest banks are little more than the levies paid by the much smaller and less complex banks. The new element of the levy determination framework seeks to address this inequitable outcome.

The Bill will allow changes in the levy arrangements for many of the smallest APRA regulated superannuation funds—referred to as SAFs—by separating their levy determinations from those of other superannuation funds. This recognises that it is common for a single approved trustee to manage a large number of SAFs and for the main focus of prudential attention to be on the trustee rather than each of the individual funds. In particular, this will allow SAFs to be levied at lower minimum rates than other superannuation funds.

More generally, through its response to the Review the Government has ensured that changes to the levy determination arrangements will not lead to increases in the amounts paid by the smallest financial institutions. This, in part, reflects the Government’s acceptance of the Review’s conclusion that system risk and vertical equity considerations, as well as cost, should be taken into account in the determination of levies. Furthermore, the Government considers that small financial institutions fill an important niche in terms of alternate service provision, competition and choice for consumers.

Along with ensuring that all regulated institutions pay an equitable share of levies, the Government considers that it is very important to maintain the long term sustainability of the levy funding base so that it can respond efficiently and fairly to any changes in the prudential regulation funding requirements. This Bill enhances the sustainability of the funding base through two means. First, an increase in the statutory maximum levy able to be levied on institutions in each sector for the cost of supervision based element. And second, an increase of three percentage points in the indexation factor applied annually to the statutory maxima.

I commend the Bill.


Authorised Deposit-taking Institutions Supervisory Levy Imposition Amendment Bill 2004

This Bill is one of a package of seven bills that implement the new financial sector levy setting framework set out in the Government’s response to the ‘Review of Financial Sector Levies’.

I commend the Bill.


Life Insurance Supervisory Levy Imposition Amendment Bill 2004

This Bill is one of a package of seven bills that implement the new financial sector levy setting framework set out in the Government’s response to the ‘Review of Financial Sector Levies’.

I commend the Bill.


General Insurance Supervisory Levy Imposition Amendment Bill 2004

This Bill is one of a package of seven bills that implement the new financial sector levy setting framework set out in the Government’s response to the ‘Review of Financial Sector Levies’.

I commend the Bill.


Retirement Savings Account Providers Supervisory Levy Imposition Amendment Bill 2004

This Bill is one of a package of seven bills that implement the new financial sector levy setting framework set out in the Government’s response to the ‘Review of Financial Sector Levies’.

I commend the Bill.


Authorised Non-operating Holding Companies Supervisory Levy Imposition Amendment Bill 2004

This Bill is one of a package of seven bills that implement the new financial sector levy setting framework set out in the Government’s response to the ‘Review of Financial Sector Levies’.

I commend the Bill.


Financial Institutions Supervisory Levies Collection Amendment Bill 2004

This Bill is one of a package of seven bills that implement the new financial sector levy setting framework set out in the Government’s response to the ‘Review of Financial Sector Levies’.

I commend the Bill.