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Tuesday, 30 August 1994
Page: 584

Senator KERNOT (Leader of the Australian Democrats) (4.16 p.m.) —The Superannuation Industry (Supervision) Legislation Amendment Bill 1994 which we are currently debating, as Senator Watson said, contains a number of technical and finetuning amendments to that landmark piece of legislation—the Superannuation Industry Supervision Act—passed by the Senate last November. The original SIS Act established a strong prudential supervision regime for the superannuation industry in Australia. The need for such a prudential supervisory system had already been established by the Senate Select Committee on Superannuation in its various reports.

  I take the opportunity to remind all senators yet again that it was an Australian Democrats initiative which set up that superannuation committee, but it was one which quickly gained the support of all parties. The committee and its work start as a high water mark of what can be achieved by a strong Senate committee acting in a cross-party way.

  The bill before us today finetunes the original legislation in various technical ways, clarifying the rules relating to guarantees, in-house investment, approved deposit funds, appointment of custodians and retirement of trustees, provides trustee arrangements options for public offer funds, and modifies disclosure provisions. The Superannuation (Resolution of Complaints) Act 1993 is also to be amended to allow exempt public sector superannuation schemes, which are mostly state government funds, to become subject to the tribunal. I wish to speak on only two aspects of the bill.

  The first one is the amendment to allow exempt public sector superannuation funds to come under the Superannuation Complaints Tribunal. As I understand it, the provision will allow the states to refer the power to hear complaints arising out of their superannuation funds to the Commonwealth and its single purpose tribunal. I think that is a welcome initiative. I know that in Queensland, my home state, the only appeal against a decision of the trustees is a case to the Supreme Court. That requires expenditure of several thousand dollars simply to exercise a right of review.

  I think the Commonwealth should encourage all states to refer their complaints resolution powers to the new low cost tribunal. I understand that the four smaller states intend doing this under this amendment, but the two largest states, New South Wales and Victoria, do not intend to do so. If this is the case, I think it will reflect very badly on what I consider to be the already poor performance of those two states as employers on superannuation issues.

  In the last two years both New South Wales and Victoria have moved to radically reduce the entitlements of their employees for superannuation. For example, in New South Wales the original and sloppy—I think it was sloppy—attempt to abolish the rights of 70,000 employees to join the old state superannuation scheme without notice was thrown out by the courts. That is why I say it was sloppy. However, in its place what could be called a shonky deal between the Fahey government and the Carr Labor opposition then allowed the reduction of superannuation entitlements for new employees to occur.

  The Victorian government has followed the New South Wales model. Based on creative accounting practices, the Victorian government managed to mix up the issue of its grossly overstated, unfunded superannuation liability with the issue of state debt. In the process, the Victorian government has run roughshod over the rights of its employees, both existing and new. It has rewritten unilaterally its employment contract and, on at least three occasions, breached federal law. On 22 June my colleague Senator John Woodley dealt in detail with the curious case of the Insurance and Superannuation Commissioner's finding of the three breaches and his decision, after consulting the Treasurer, to forgive two of those three breaches.

  I note that the Federal President of the Australian Services Union, Mr Tony Touhey, is seeking to have the issue raised at next month's ALP National Conference. But given what has happened, at both state and federal level in both those states, I really do wonder about the role of some Labor members of parliament and their professed concern for the welfare of workers.

  We in the Democrats remain extremely concerned about what has been and is being done to the superannuation rights of Victorian public servants. Senator Watson said Commissioner Pooley had responded promptly to several requests for information. I want to know from Senator Watson why Commissioner Pooley has not yet responded to the complaint from Victorian workers of the fourth breach of federal law by the Victorian state government. This concerns the complaint by state government employees about the coercive tactics used by the Victorian government to force people to leave the old super scheme and join the revised scheme. That might sound like a good idea but the problem is that these employees will face benefit reductions of up to 20 per cent.

Senator Watson —You will find that he did.

Senator KERNOT —Did he. I would like to see that.

  The ACTING DEPUTY PRESIDENT (Senator West)—Senator Watson, please.

Senator KERNOT —He is being helpful.

The ACTING DEPUTY PRESIDENT —I realise that, but we are not in committee at this stage.

Senator KERNOT —I will confer with Senator Watson when I have finished speaking. I will move on to the second issue which deals with clause 26. Clause 26 seeks to amend section 66 of the principal act, which governs the acquisition of assets from members of superannuation funds. The original section 66 was easily the most controversial of the clauses in the original SIS Act. Given the careful balancing of the issues in the superannuation committee's report on the section and the subsequent compromise amendment in this place, we must look with particular care at the proposal to restrict further the section.

  The original clause was designed to allow those small business people who felt that they were capable of running their own superannuation schemes to do so, but not in such a way as to provide tax shelter status to their ordinary business or income. In my speech during the second reading debate on the original bill last year, I said:

  On the one hand, the government has argued that clause 64—

now 66—

will close a significant tax avoidance provision whereby members transfer assets into superannuation at a concessional tax rate. . .

On the other hand, small business groups, the Law Council and the accountants association have argued that the government is seeking to crack a walnut with a sledgehammer.

We just want to be reassured that the clause, as it was originally drafted, cannot adversely affect smaller superannuation funds. There appeared to be an assumption that members of small funds were incapable of running their own investment funds without engaging in tax avoidance—in other words, that tax avoidance was their primary motivation.

  The current amendment will restrict the operation of this section to assets of the fund member's principal business. I need to ask a few questions about that. I wonder whether in some respects this might not be going in the opposite direction of what the government says is needed. For example, where a small business person runs a small business but owns an investment property, he or she cannot sell the investment property to the superannuation fund. Why does the government think that this achieves the purpose that it seeks?

  I finish my comments by welcoming the important finetuning provisions contained in this bill to improve the operation of the complaints tribunal, but I urge the government to get its house in order. Two months after the tribunal was supposed to be operational—I think I am right in saying this—the secretariat is still not fully staffed and a chair is yet to be appointed.

  But more worrying than that is what I see as an insurance industry-led push to have complaints arising from personal superannuation accounts moved from the jurisdiction of the tribunal and placed under the privately run industry complaints body set up by LIFA. That is a totally unacceptable reduction in the tribunal's jurisdiction.

  The Democrats believe that an independent, low cost government complaints system is far more likely to produce fair results than the tamer industry self-regulation complaints body. Where would it end? If we take this model, will we then say that banks can insist that complaints relating to their super funds be referred to the greatly restricted Banking Ombudsman? I urge the government to resist any restrictions on the tribunal's jurisdiction, at least until the tribunal has had a chance to sort itself out and find its feet.