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Tuesday, 4 November 2003
Page: 21994


Mr LATHAM (8:34 PM) —It is a pleasure to follow the member for Moncrieff in this debate on the Financial Services Reform Amendment Bill 2003. In the first half of his speech at least he gave a well-researched and thorough presentation. Thereafter he lapsed into unnecessary political point scoring. But I congratulate him on his speech, as his colleague the member for Parramatta has done, and I look forward to him becoming the shadow Assistant Treasurer one day soon.

This bill amends the regulations covering the provision of financial services in chapter 7 of the Corporations Act 2001. It specifically expands the definition of a basic deposit product and widens ASIC's powers to make certain exemptions and modifications. In my contribution to the second reading debate I wish to address issues concerning the role and reputation of ASIC plus talk about a new basic deposit product being developed by the ANZ Bank—its Saver Plus product. I say this not only because it is an example of a matched savings account but also because this new product is being developed in my own constituency of Werriwa.

Australia needs a new culture of savings and new incentives for people to put money aside and plan ahead. At the moment we draw heavily on the savings of other countries. This is why we have a record current account deficit and record foreign debt. New policies are needed to lift household savings and break the cycle of deficit and debt. This is why Labor has announced the superannuation tax cut to help working Australians grow their retirement savings and security and this is why I am keen on the idea of nest egg accounts to help families save for the future needs of their children.

In September I released a report from the Chifley Research Centre on matched savings accounts—a new way of helping low-income families save and accumulate assets. The international experience has shown that poor families can save as long as they receive the right incentives and support from government or, in this case, a new financial product being developed by the ANZ Bank. This indeed is the best way of breaking the poverty cycle and building self-esteem and financial success through the virtues of saving.

This program involves the creation of parallel savings accounts. In the first account, low-income families aim to reach a savings target over several years. Matching contributions from government and community groups are paid into a second account. Participants cannot access the second account unless they reach their initial savings target—that is, they help themselves upfront. This is a program for people willing to help themselves. It is a something-for-something policy. The accounts can only be used for sound purposes—such as the education of children and home ownership—thus helping poor families accumulate a home deposit and build up a savings and credit record.

Income support for the poor is vital—that is true—but nothing beats new ideas and new ways of beating poverty itself. It is time to tackle the root causes of disadvantage by fostering self-reliance and dignity through savings. I believe that this is the pathway to a fair society. The trouble with assets and capital is not that they exist but that too few people have them. Opportunities for saving and owning assets should not be restricted to high-income earners. I believe in a stakeholder society in which all Australians are encouraged to save and take an ownership stake in the economy.

The Chifley report that I mentioned earlier generated a substantial public debate about savings and poverty eradication. There were some interesting responses. Older people outlined to me their attachment to savings and the virtues of thrift. I remember an old fellow in Perth saying that it reminded him of one of Curtin's schemes back in the war years. Younger people of course expressed a greater attachment to spending. We are in the consumer age—an age of television advertising promoting the virtues of consumption.

Treasurer Costello said that matched savings accounts were used in the United States only to fund college education. This is not true; it is a basic misunderstanding of the scheme. He also said that they were too expensive, but this ignores the fact that the costs are defrayed by non-government involvement: charities, community groups and even financial institutions. The new product I am talking about this evening is being pioneered and fully funded by the ANZ Bank. At a time of substantial public criticism of the banks, I congratulate the ANZ Bank for shifting its philanthropic effort into an area that is relevant to its own bottom line. It is good to see this bank encouraging low-income people to save. Sure, it is developing new customers for itself, but it is also making a vital contribution in working-class communities. This is a good scheme and it does help to break the poverty cycle—the cycle of the working poor. In fact, matched savings accounts and the investment in them costs just a small fraction of the substantial public costs of long-term poverty: the welfare and transfer payments, the public housing, the extra education and health outlays, and the costs to policing and the legal system. Nothing beats the public sector efficiency in saving that comes from beating poverty itself.

Of course, internationally these schemes are achieving fine results. A recent OECD report states that in the United States asset building for the poor has encountered very little political controversy. It receives support from both sides of the political spectrum. Proposals for national programs have come from the White House in both the Clinton and Bush administrations, and the chairman of the Federal Reserve has pronounced himself as `friendly'. Legislative proposals have had bipartisan support in the Congress, so why should the Treasurer here contradict President Bush and Alan Greenspan in making these particular criticisms of what is a fine scheme? In the United States 150 participants have joined in the savings gateway and, remarkably, 100 per cent of them are saving to the maximum amount—a fine achievement in the pilot group of 1,500.

The main public debate concerns the capacity of low-income people to save. Of course, there is no shortage of sceptics—that is hardly surprising. With a new idea in this country you are always going to have an amount of scepticism, whether at ideological or interest group level. But, again, the overseas experience is compelling, especially in the United States. There is a stunning finding that poor people can save and, in fact, the poorer the group involved in the matched savings accounts, the greater the determination to get out of poverty and the greater the inclination to save. It is out of desperation. To some extent, they are rewriting the economic textbook. The lower the income, the higher the propensity to save—no economist would ever put that in a textbook. But in the United States people desperate to get out of poor circumstances take on the incentives and the encouragement for matched savings accounts. The lower the income in those pilot groups, the higher the propensity to save. That is an absolutely remarkable outcome but one that again demonstrates the point that low-income people do in fact have the capacity to save and lift themselves out of poverty if support from the government and the community is sufficient.

In the United States the poverty line is much lower than in Australia—for participants in these schemes it is 50 per cent to 100 per cent of the poverty line—and that is a very encouraging sign for Australia. How do they do it? The overseas experience shows that people save in one of three ways or in a combination of three ways. The first is the benefit of financial education courses: running a household budget, knowing how to do the finances, and being more aware of how the financial system itself works. The second way in which they achieve the savings target is to drag themselves away from the loan sharks and the pawnbrokers. That is a commonsense conclusion: if people can find better forms of finance and financial arrangements they will do better in the management of their household budget and create some room for savings. The third conclusion from overseas is that people tend to rearrange the family budget. It is the discipline of a budget that matters, and also cutting back on wasteful spending, such as excessive use of cigarettes and alcohol, and gambling.

But why would there be scepticism, given the strength of the overseas evidence and experience? There are perhaps four reasons. The first is that it is counterintuitive. Most government programs for savings and assets in this country are aimed at middle- to high-income earners. We do not really think in these terms. We have not thought in these terms in Australia before, but it is time to think this way. Low-income people have got the capacity to save. Why should the savings and asset programs be dedicated to just the high- and middle-income earners? The second source of the scepticism is that we tend to take a monolithic, one size fits all approach to low-income earners. In fact, there is enormous diversity within the group. Poverty, in a day-to-day sense, is a state of crisis—the struggle from day to day. There is a need to do many things in public policy to address the many causes of poverty—the education, health, employment and community dimensions—and saving can be one of the answers to the poverty cycle. Matched savings accounts is one of the many solutions that are needed to help lift people out of disadvantaged circumstances. It is not suited to all—a 10 per cent to 20 per cent take-up rate is projected in the Chifley report—but it is certainly a significant contribution to this important public task.

The third reason for scepticism, I believe, is the failure to understand that poverty is a process; it is not a static condition. People are not frozen in their life circumstances forever. There are enormous spin-off benefits that come from savings. The spin-off benefits that come from the matched savings accounts include stability in the family budget and lifestyle, and benefits in terms of health care outcomes, community participation and labour market participation. As people save and get more involved in these schemes, their circumstances change. Poverty is not a static condition. Poverty should not be regarded as a static issue in terms of public policy. We need to see it as a process and engage people in the right sorts of incentives and encouragement as they build a new and better life.

The fourth area of scepticism, I believe, comes from the patronising and almost elitist view of those who assume that they know better the circumstances of low-income earners than the low-income earners themselves. Why is it that some would assume they know more about this group than the people involved in real-life circumstances? This patronising view tends to write off the capacity of the poor to innovate, to dedicate themselves to good purposes and to do good things in their lives. In this country we have, perhaps, failed to find lasting solutions to poverty because of this patronising or elitist point of view. We should not underestimate the capacity of people to do good things for themselves in the right, encouraging circumstances.

Again, I congratulate the ANZ Bank for their Saver Plus scheme. This is the first Australian pilot of matched savings accounts. It provides a two-to-one match for parents of secondary school students. The savings will be used for education purposes and the children involved are in years 5 to 10 at school. The participants are the working poor. They have some paid income, but the group targeted is health care cardholders. By and large, that is people on $32,000 a year and below, depending on the number of children. So we are talking about a group in this scheme that can be classified and regarded as the working poor. These are not affluent people—they are health care cardholders.

Another aspect of the scheme is that financial literacy classes are compulsory. There are two pilot schemes being funded by the ANZ Bank in Victoria. One is in Frankston in the electorate of Dunkley, in partnership with the Brotherhood of St Laurence. The second scheme is at Shepparton, in partnership with the Berry Street charity. Both of those schemes in Victoria have started up. In my own electorate of Werriwa—and this spills into the electorate of Macarthur in Campbelltown—the ANZ Bank is moving into partnership with the Benevolent Society to establish a pilot scheme in the south-west of Sydney.

The early signs are very encouraging. The two Victorian schemes have been spreading the word and information through school principals, inviting people to attend information sessions and join up to the matched savings account scheme. All but two people attending the information sessions have in fact signed up. That is a pretty good strike rate. They have reached 60 of the targeted 100 participants at Frankston and 15 of the targeted 100 in Shepparton—it is early days there.

The reaction at the information centre has been very instructive, particularly for the sceptics who say that low income people cannot save. People have not been coming to the information sessions and signing up in such substantial proportions saying, `We can't save.' In fact, the reaction has been: `This scheme is too good to be true. What is the trick? What is the catch? Why are the ANZ Bank and these charities offering such a generous scheme for saving?' They have not been saying that they cannot save; they have been saying that the scheme is too good to be true. Of the 77 people who have been to information sessions in Frankston and Shepparton, once the scheme is explained to them, 75 have signed up. Seventy-five out of 77 is a very high strike rate indeed. These people are keen to save and they believe they have the capacity to do so.

For those who say they cannot save, tell that to Mary of Frankston—a single mum and a part-time emergency relief teacher with two children. She is putting aside $15 per week, trying to reach a $1,000 target. That will be matched to give her $3,000 for the education of her children. If you think that she cannot save, try telling that to her. She is trying to save $1,000 to build it into $3,000 for the education of her children, a home computer and books. She told me, when I visited Frankston on 24 October, that she did not think that $15 per week was too much. She has made her initial deposits comfortably and she sees the benefit of the discipline of having a family budget. She is not saying she cannot save; she is saying that $15 a week is not too much, but the benefits are huge. She is welcoming the opportunity to get involved in this scheme and even sees beyond education to the possibility of saving for home ownership. I say: good on you, Mary—good on you for answering the sceptics who assume they know more about your circumstances in life than you know yourself. They do not know about her circumstances, because she is demonstrating in practice that, with the right encouragement, incentive and, of course, the great love and pride that a mother feels for her children, she is going to dedicate herself to saving. She is going to do something very good for herself and, I believe, for the country in an overall sense.

For those people who say that the working poor cannot save, try saying that to Simon. He is also in the Frankston matched savings account scheme. He is 39 years of age and a casual teacher's aide on $20,000 per annum. He is a single dad with two boys at home. This is what the Age newspaper reported on 4 October:

When the local schools sent home a flyer about the Brotherhood of St Laurence-ANZ pilot savings program for low income earners, Simon jumped at the opportunity to start saving for his older son's final years at school.

`He'd got to a point where he didn't want to go to school,' Simon said.

`When I mentioned I wanted to save for school uniforms, camps, maybe even a new computer, his eyes lit up.'

It is early days. Since the pilot program started three months ago, Simon has saved $28 a fortnight toward his target of $1,000, which he hopes to achieve by December next year.

That $1,000 target, of course, would be then matched into a $3,000 amount for the education of Simon's sons. The Age went on to report:

But the most profound change for Simon has been the new possibilities that have opened up before him.

`Maybe it's the big picture, improving the way I look at things,' he said.

`Even if the program went broke, for me, I would still have saved $1,000 that I never would have, and it's changed my son's attitude to school.'

What better purpose do you get in life than that? It has improved his son's attitude to school; given Simon himself a great sense of pride and self-esteem as he saves for this fine purpose; brought Simon and his son closer together, I am sure; and given them better life opportunities. It is a sense of purpose and stability. I believe this is a typical example of how the pilot schemes can be successful. It is certainly typical of the pilot scheme so far that they have had a family-building effect. Again, this is not the working poor caught in static conditions. Saving is a process. It has enormous spin-off benefits that can improve and change people's lives. So how can the sceptics know more about Mary and Simon than they know about themselves? Of course, they do not. Their scepticism is a nonsense when measured up against real-life circumstances here in this country, backed heavily by the overseas experience.

Another positive coming out of the Frankston pilot scheme is that the estimated administrative cost of the scheme is $1,000 per person. I am glad to hear that, because, in our Chifley report, it was estimated at $1,900 per person. So it is about half the forecast in the Chifley report. The real-life practice is very encouraging indeed. Let us talk about the benefits of good corporate citizenship. At the ANZ Bank this has had a good impact on staff morale, and not just in Frankston and Shepparton. Other branches are phoning up to find out how they can get involved in the Saver Plus scheme, this new financial product. The RMIT in Melbourne is doing a monitoring report on the three schemes in Frankston, Shepparton and Campbelltown. I look forward to the full analysis. I would also mention, for the benefit of the government, that the scheme at Frankston at least is making representations to the Australian Taxation Office. It is looking for a class ruling to treat the matched savings amounts as a gift rather than as taxable income. I hope the government can follow the lead of President Bush and other Republicans in the United States—and, indeed, innovative people like the member for Parramatta—because you need to try new things to solve poverty. I hope they themselves can make representations to the tax office for a favourable ruling to ensure that the Frankston scheme is a great success. So there is, in this new financial product that comes under the scope of this legislation, so much promise for the future.

I believe we never have enough innovation in economic, welfare and social policy in Australia. We have tried one size fits all solutions that have not really worked in practice. From time to time government has had a centralised or even a patronising view about how it can solve the circumstances of disadvantage and poverty. That in practice has not worked too well. This is an innovative example of what is starting to work in this country. I look forward to the day when it is scaled up to a full national program. I again congratulate the ANZ Bank on its financial commitment, its vision and its innovation. I congratulate the three participating charities. They have not engaged in a traditional charitable approach, if I can say that; they are looking at enterprise, saving, asset-building solutions to the problems of the working poor. It is early days, but it is certainly promising and it confirms the benefits of evidence based policy. We do not need an ideological, dogmatic view of the world. We need to back the things that work. What matters in public policy is what works. Matched savings accounts are working in Australia, and I look forward to the time when in government we can make them work even more effectively for the future.