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Tuesday, 22 November 2011
Page: 13250

Mr FLETCHER (Bradfield) (12:34): I rise to speak on the Superannuation Guarantee (Administration) Amendment Bill 2011. Curiously, this bill forms part of the package of bills that the House is presently debating, dealing in the main with the minerals resource rent tax. But we have here a rather unusual, almost US-style bundling together of fundamentally unrelated issues.

The government is seeking to create the impression in the public mind that there is some linkage—that in some way the revenues raised from the minerals resource rent tax are going to fund the increase in superannuation guarantee contributions. Of course that is wrong. The extra contributions will come from the pockets of employers and employees and represent money that would otherwise go directly into the pay packets of employees.

The substance of this bill is to increase in a gradual fashion, beginning in 2013-14, the percentage of an employee's wage which must be paid by the employer into a superannuation fund. Today that rate is nine per cent, and under this bill it is going to rise to 12 per cent by 2019-20.

In the brief time available to me I want to make three points in relation to this bill. First of all, whether it serves the interests of workers is questionable; secondly, it clearly serves the interests of superannuation funds and particularly industry superannuation funds; and, thirdly, therefore the increase from nine per cent should not be contemplated in the absence of significant reforms to superannuation governance overall.

Let me turn to the first point, which is whether this bill serves the interest of workers is questionable. We have had this assertion from the government that to increase the superannuation guarantee charge levy from nine per cent to 12 per cent is in the interests of working Australians. But this money does not come out of thin air; it comes from employers. It increases the total employment cost to the employer of the particular employee. It is common sense that a dollar paid in increased superannuation contributions is a dollar which will not go into the employee's pay packet directly.

Indeed, if you look at the history of the introduction of today's superannuation arrangements, which emerged in a signature Hawke government style negotiation with the ACTU—in the typical corporatist, 'Let's get everybody around a table smoking cigars and dividing up the pie,' style of deal—that trade-off between money in the pay packet and money going into superannuation contributions was made quite explicit, so it is not a contentious proposition that there is a trade-off between money going either in increased contributions or directly into employees' wages.

This raises the obvious question: why are working Australians not being given a choice about this matter? Is it not likely that many of them might prefer more cash in their pockets now rather than a bigger superannuation payout in 30 or 40 years time? Is it not likely that many young people living in the big cities of our country, such as younger constituents in Bradfield who face the challenge of trying to break into Australia's extortionately expensive housing market, would prefer more cash in their pocket now?

Let me be clear: I am very much in favour of a strong retirement saving system and I agree with the argument that Australia's large pool of retirement savings is to our national advantage, but we already have some $1.3 trillion in the superannuation system and it is growing strongly. So the question before the House is not whether we should maintain our strong and successful superannuation system; the question is whether we should be compelling employees to accept lower wage increases over the next few years in exchange for compelling employers to deliver them the balance of their expected wage increases in the form of increased superannuation guarantee contributions.

It is striking that the government have made little effort to make the case for this change. They simply assert that it serves the interests of working Australians. It is also striking that they have not considered more creative alternatives. One which appeals to me is the adoption of the kind of approach argued in the recent book Nudge by American academics Sunstein and Thaler. They argue for so-called soft compulsion as a way of getting people to do things which are in their interests but also preserving their right to choose for themselves.

Why would we not use a nudge approach so that the increase to 12 per cent would be the default that would apply to all workers unless they made the choice to opt out of it by filling in a form at their pay office indicating that they wish to take the extra contribution amount in the form of ordinary pay taxed at ordinary rates? This would very likely deliver nearly the same benefits in the increase in the retirement savings of most workers but would preserve choice for those who, for example, prefer to take the increase as cash in hand to assist them in making the repayments on a home loan. Alternatively, why do we not consider the approach used in Singapore where the Central Provident Fund, the equivalent of our superannuation system, allows for the withdrawal from an individual's account to contribute towards the cost of buying a home?

Let me turn to the second point I wish to make. While it is far from clear that these changes serve the interests of Australian workers, it is very clear that they do serve the interests of superannuation funds, particularly industry funds. Last year the four types of large superannuation funds—corporate funds, industry funds, public sector funds and retail funds—received $78 billion in contributions, according to the regulator, the Australian Prudential Regulation Authority. Of this, 31.3 per cent went to industry funds. In fact, industry funds received a bigger share of contributions than their share of assets. In economics jargon: their share of flows exceeded their share of stocks. So industry funds are well on the way to becoming the dominant sector within the superannuation industry.

Typically, industry funds have rules specifying that up to half of all directors are appointed by unions. These arrangements were specifically designed in the industry superannuation fund system when it was set up by the Hawke and Keating Labor government, ensuring that that government's friends in the union movement were entrenched at the centre of the governance system of industry super funds. That entrenchment is very much still in place today. According to figures from APRA, in 2004 industry funds held 20.3 per cent of the total assets of the four fund types and only five years later, by 2009, this had reached 27.2 per cent. The changes in this bill are going to deliver substantial benefits to industry funds. Based on 2010 contribution levels, an increase from nine per cent to 12 per cent will bring a further $8 billion a year of contributions into the industry fund sector each year.

Why is it that the industry funds are doing so well and winning a large and growing share of contributions? A key reason is Labor's new modern award system, which is streaming a growing share of compulsory superannuation contributions into the industry funds. Modern awards contain a clause specifying the superannuation fund into which the employer must pay the employee's superannuation contributions and this is the default fund that will receive the payments unless the employee has specifically chosen a fund. In the main, employees do not that; therefore, to be nominated as a default fund is a very valuable thing.

An analysis conducted by the Institute of Public Affairs last year found that across 166 modern awards approved by Fair Work Australia there were a total of 566 superannuation funds specified and 513 of these were either industry funds or public sector funds. The largest industry fund, AustralianSuper, is specified as a default fund in over 70 awards. The Fair Work Australia and modern awards arrangements have been a case of the Rudd and Gillard governments looking after their union backers very nicely by using the modern award system to direct a growing flow of superannuation contributions to the industry funds. The further increase being debated by the House today from nine per cent to 12 per cent in contributions will also serve the interests of the industry super funds very nicely indeed.

It cannot be a coincidence that this bill is the handiwork of the Assistant Treasurer, Bill Shorten, a former union official and former director of an industry superannuation fund. No doubt his former colleagues sitting on the boards of industry superannuation funds will be thankful because a key feature of the industry superannuation system is the large number of well-paid directorships to be allocated amongst the union mates.

The annual report of one industry fund, Cbus, reveals that two directors—one presumably the chair—receive over $90,000 a year and several other directors receive more than $50,000 a year. Disclosure in this area is scanty but it seems that, in some cases, fees paid to directors of industry superannuation funds are pocketed by the individual union nominated directors and, in other cases, the fees are paid to the union. In either case the arrangements suit the union movement very nicely.

I now turn to my third point. The increase from nine per cent to 12 per cent should not be contemplated in the absence of significant reforms to superannuation governance. If the parliament is to consider this proposed increase it must be fully cognisant of who is going to benefit from it. In 2010 only 18.3 per cent of Australians were union members in their main job. There were 1.8 million people in a workforce of around 10 million. Yet APRA figures show that in 2010 there were 11.5 million member accounts in industry superannuation funds. How does it serve the interests of the millions of Australians in these funds, who are not union members, that up to half of the directors of their fund are directly appointed by a union?

The boards of industry super funds are stuffed with union bosses. They include Australian Workers Union boss Paul Howes, Queensland Australian Labor Party heavyweight and AWU strongman Bill Ludwig, Transport Workers Union secretary Tony Sheldon, Health Services Union chief Kathy Jackson and New South Wales Electrical Trades Union supremo Bernie Riordan. AustralianSuper, for example, has six union appointed directors including the chair. The current six come from the Australian Workers Union, the Australian Manufacturing Workers Union, United Voice and the Australian Council of Trade Unions.

It is noteworthy that the Cooper review, which recently explored the whole issue of superannuation, was critical of the current model of third party organisations such as unions directly appointing superannuation fund directors. It is also noteworthy that the Assistant Treasurer, former union official and industry superannuation fund director has done very little in response to that particular recommendation, yet he has been racing to implement other recommendations and, of course, racing to deliver this remarkable increase in the contributions flow that is going to come into the industry superannuation fund sector.

There is an extremely cosy set of arrangements between the industry super funds, the union movement and, of course, Fair Work Australia, which is in the position of approving the modern awards that determine where default contributions go. One might ask why it is that Fair Work Australia so readily signs off on modern awards which entrench the flow of contributions to union friendly superannuation funds. One reason, I venture to speculate, might be that Fair Work Australia is stacked with ex-union officials. Of the 10 people appointed as Fair Work Australia commissioners by the Rudd-Gillard governments since December 2009, eight have been from union backgrounds.

Policy decisions about the superannuation system should be made in the best interests of superannuation fund members and in the best interests of all Australians having regard to the need to trade off their current consumption requirements and the imperative to save for retirement. It is against this backdrop that this parliament should consider the proposed increase in superannuation contributions from nine per cent to 12 per cent. As I have demonstrated, the government has barely bothered to make the case that these changes will benefit Australian workers and, in fact, on closer analysis there are very strong arguments that in depriving workers of choice we are not necessarily serving the interests of ordinary Australians. It is also troublingly clear that there is a very cosy and convenient arrangement and relationship between this government, the union movement and industry superannuation funds. That raises real questions as to what is really motivating this government in increasing contributions from nine per cent to 12 per cent.