Senator SHERRY (Minister for Superannuation and Corporate Law) (11:57 AM) —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.