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Thursday, 23 September 1999
Page: 10359

Mr KELVIN THOMSON (11:16 AM) —The Financial Sector Reform (Amendments and Transitional Provisions) Bill (No. 2) 1999 represents the third stage of the Wallis reforms. It is largely supported by the opposition subject to two substantial exceptions. Before I discuss those substantial exceptions, I move:

That all words after "That" be omitted with a view to substituting the following words:

"whilst not declining to give the Bill a second reading, this House condemns the Government for:

(1) watering down the provisions which would enable the Treasurer to fully restore workers' superannuation entitlements which are lost through theft or fraud; and

(2) its continued failure to protect the accrued employee entitlements of working Australians".

I indicated that we have two substantial problems with this bill. The first relates to the government's attempts to water down the provisions which restore employee superannuation entitlements if they are lost in the event of theft or fraud. The second relates to the proposed provisions giving the Reserve Bank the power to exempt a corporation from complying with an information provision standard it makes under the Financial Corporations Act 1974. Indeed, Labor will be moving an amendment to make the exemption a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.

The opposition will be moving amendments to this bill to address both of these issues, and our second reading amendment highlights this government's continued failure to adequately protect employee entitlements. Indeed, in this case the government's attack on the protection of employee entitlements is something we have seen time and time again, and this is another example. There is an old adage that you should not judge a book by its cover. In the case of the bill before us, this is an especially apt cliche. The short title itself appears to be innocuous enough—that is to say, the Financial Sector Reform (Amendments and Transitional Provisions) Bill (No. 2) 1999—but what the long title reveals is an attempt by the government to yet again try and sneak provisions through the parliament which undermine the legitimate and hard-fought rights of working Australian men and women.

Those on the other side of the House are probably not even aware of what it is that their own government is seeking to do. If they were aware, I suspect they would be rather concerned. I want to spell this out to the House for their benefit and for the benefit of millions of Australian workers and voters. The long title of this bill is:

A Bill for an Act to amend laws, and to deal with transitional matters, in connection with the reform of the financial sector, and for other purposes.

Again, on its own that sounds fairly innocent but it is the `other purposes' part of this bill which contains a sinister, sneaky, watering down of the rights of eight million Australians to have their accrued retirement nest eggs protected by legislation.

Schedule 9 of this bill contains amendments to the superannuation legislation relating to financial assistance to super funds. In particular, it contains reforms to the Superannuation (Financial Assistance Funding) Levy Act 1993. Not many people will be familiar with this act as I understand that it has never been called upon. That is a good thing. It is a good thing because it shows that the prudential system of regulation that Labor put in place to ensure that superannuation savings would be safeguarded—held in trust in a secure environment, with employees and employers having a say in how they are invested—is working, and working well.

The Superannuation (Financial Assistance Funding) Levy Act 1993 was established by Labor to ensure that if a super fund containing the retirement nest egg of working Australians ever suffered a loss resulting from theft or fraud of the fund, then the Treasurer would have the power to apply a small levy to other funds to restore the moneys lost to the fund. This power is considered by Labor to be an important part of the protection of employee entitlements. So, if employees lose their superannuation moneys through no fault of their own, they are entitled to know that the government will step in and assist them to recover that money in full if the need arises.

The powers given to the Treasurer to levy the other super funds were deliberately broad to allow for the greatest opportunity for government assistance. The laws also place a collective responsibility on all super funds to ensure that the incidence, or even the suspicion of theft and fraud, is kept to a minimum. It is about Australians looking after each other, pulling together to make sure that our superannuation moneys are safe and sound. If the occasion arises, where moneys are lost through theft or fraud, it is about all of us making a tiny contribution to restore those superannuation funds that are lost. That principle has been an important feature of our world-class superannuation and retirement income system and it shows Australians for the compassionate people that we are. However, it does seem that not all Australians think this way—and perhaps this includes the Treasurer.

I have mentioned that Labor introduced the Superannuation (Financial Assistance Funding) Levy Act to allow the Treasurer to impose levies on superannuation funds and approved deposit funds for the purpose of funding financial assistance to such funds that have suffered loss as a result of fraudulent conduct or theft. The financial systems inquiry, or Wallis inquiry, apparently examined the provisions relating to the restitution of superannuation funds lost through theft and fraud. It concluded that a problem of what something economists call `moral hazard' existed. The moral hazard argument goes something like this: because members of superannuation funds have this levy arrangement to fall back on if their money is stolen, they will not appropriately keep an eye on their superannuation investments to ensure that they are not lost through theft or fraud. The Wallis committee accepted the moral hazard argument and recommended that the total restitution available to members of a superannuation fund which has suffered loss as a result of theft or fraud should be capped. They recommended that it should be capped at 80 per cent.

Let me name the financial sector inquiry members: Stan Wallis, the former managing director of Amcor Ltd, now the deputy chairman—and former president—of the Business Council of Australia; Bill Beerworth, a solicitor and merchant banker and a principal partner of the corporate and financial advisory firm, Beerworth and Partners; Professor Jeffrey Carmichael, formerly a professor of finance at Bond University, now chairman of the Australian Financial Institutions Commission and chief manager of the Market Group of the Reserve Bank; Professor Ian Harper, who is director of the Ian Potter Centre for International Finance at the Melbourne Business School at the University of Melbourne; and Linda Nicholls, company director and adviser to Coopers and Lybrand, who has held senior banking and funds management positions in Australia, New Zealand and the USA. All these eminent, well-educated, well-remunerated people recommended that if a fund falls over as a result of theft and fraud—which is likely to be in no way whatsoever connected with the fund members—the fund members should only be able to get back a maximum $8 out of every $10 that they lose. For those opposite who might like to refer to the Wallis report, that is recommendation No. 55.

I think that, on the issue of moral hazard, the Wallis committee failed to understand a number of important aspects. First, superannuation sits uniquely amongst financial products in the market, in that employers are encouraged through financial incentives to pay it on behalf of their employees. The extent of that financial encouragement is so strong as to amount to compulsion. That element of superannuation has essentially created the financial services industry in Australia. Indeed, without superannuation I suspect that the Minister for Financial Services and Regulation would not have a job because there would not be much in the way of financial services to regulate. The fact that superannuation is unique amongst all other savings vehicles means that it needs special arrangements to ensure that it is safe. It is different from the situation of the voluntary contributions. That is what Labor recognised when we established the levy arrangement, but it is something that the Wallis committee apparently did not understand.

Secondly, the moral hazard issue is minimised by ensuring that the trustees of superannuation funds, the people most likely to be aware of any suspicion of theft or fraud, are able and obligated to report such incidents to the prudential regulator. Fund trustees and administrators get together all the time at conferences and the like. I have had the opportunity to experience this first-hand. They get together frequently and they are much more likely than fund members to hear anything in the way of reports or rumours concerning shonky or unsavoury practices. They are the people who are likely to hear about these things. It is incumbent on them—and we need to maintain that incumbency on them—to make appropriate people aware of any potential problems. There is an incentive for trustees to do this—that is, to avoid their fund being levied by the Treasurer to replace stolen funds—and trustees should consider that obligation to be a part of their fiduciary obligation to fund members.

The third point I want to make about the moral hazard argument is that we ought to be aware of the very cursory nature of the Wallis committee's examination of this issue. The report refers to this issue on page 359, and this is pretty much the extent of their consideration of it:

To minimise the moral hazard risk of such a scheme, it would be advisable to limit restitution to that necessary to restore the investors' funds to, say, 80 per cent of their value.

The language is unbelievably casual. There is no supporting argument about why 80 per cent is the optimum figure for limiting moral hazard, even if you do accept the moral hazard argument. It is as if the Wallis committee members simply plucked a number out of the air and decided to give it weight by including it in the report. That sort of cursory treatment should have appeared obvious to the government when it responded to the Wallis report. One would think that a compassionate government would have nothing to do with a recommendation which suggested watering down the restitution of something which is owned entirely by employees. But not the Howard-Costello government; not the `reform at all costs' Treasurer. The Wallis recommendation was accepted with relish.

We have read something this morning about the leadership credentials of the Treasurer and his view that he has only another budget or two left in him and then he would like to move on to something else—and it is pretty obvious what the something else is. But, if we are going to talk about leadership credentials, they have got to include compassion. Whether the issue is the GST or superannuation co-contributions or nursing homes or employee entitlements—which is the issue here—then the Treasurer needs to show leadership credentials which include compassion.

In the additional documentation tabled by the Treasurer in association with his statement to the House of Representatives in September 1997 in response to the Wallis report, the government accepted the recommendation to limit restitution to 80 per cent of the entitlement of beneficiaries. There was no discussion by the government about how the 80 per cent figure was arrived at, no discussion about how employees would receive only $8 out of every $10 lost and, importantly, no discussion of the capacity of existing legislation to meet the Wallis report's main aim.

The existing legislation does not restrict the Treasurer from applying some sort of cap on the amount that is returned to beneficiaries who lose their funds through theft and fraud. The only two constraints are that the levy should not exceed 0.05 per cent of the total assets at the end of the preceding financial year and that the Commonwealth cannot recoup more than is owing to the beneficiaries. They are the only two constraints. Despite accepting the recommendation of the Wallis inquiry, the government has not legislated for this change. This may be in part due to pressure created by public statements that we on this side of the House have been making indicating our dislike of this proposal.

The bill does, however, attempt to limit the restitution provisions in two ways. The first is by restricting restitution to funds which have only suffered loss at the hands of `persons directly or indirectly responsible for their administration'. The current provisions do not apply that limit. The second is by requiring the Treasurer to seek and consider the advice of the Australian Prudential Regulation Authority, APRA, before making a decision to levy super funds to pay for restitution. This could be interpreted as giving effect to the 80 per cent cap, because APRA's advice may have to consider the systemic impact of providing full restitution to a super fund which has fallen over as a result of theft or fraud and APRA may advise that a cap on the restitution be applied. So this could be the vehicle for implementing that 80 per cent recommendation. In the current context, protecting employee entitlements, the provisions in this bill seeking to limit restitution to fund members are not only poorly timed by the government but also unfair and unjust. Labor is opposing them.

The bill also contains provisions which restrict the restitution powers from being applied to self-managed or DIY funds. It can be argued that, with the passage of the Superannuation Legislation Amendment Bill (No. 3) 1999 , which I dealt with in this place this morning, all members of these funds are required to become trustees and they should be best able to protect their interests in the fund from theft and fraud. Labor will support this proposal. Where a fund is a defined benefit fund and their loss is suffered through theft and fraud, it becomes an eligible loss only where the employer sponsor of the fund is required to pay the fund but cannot pay the fund and remain solvent. The bill does make some attempt to limit the systemic risk to the superannuation system arising from the moral hazard problem. However, the restitution provisions have yet to be used and Labor will oppose any attempt to water down employee entitlements restoration.

I said at the outset that there was a second issue here, and that is that we have proposed provisions which give the Reserve Bank the power to exempt a corporation from complying with an information provision standard it makes under the Financial Corporations Act 1974. Labor will be moving an amendment to make the exemption a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901 in order to increase parliamentary scrutiny of the exercise of the Reserve Bank's powers. This is an important step in improving the openness and information available to the parliament. I have to say that the issue of accountability and transparency is no mere issue at the margin. Saturday's election result in Victoria I think demonstrated that. We have even more concern in the light of the shameless document shredding taking place in the bowels of Spring Street by the perhaps outgoing Kennett government.

I have covered the two key components of the bill which from the opposition's perspective are controversial and concerning which we cannot agree with the government. The bill does include a range of other matters with which we do agree with the government, and I will briefly outline them. The bill is the third stage in the government's implementation of the Wallis reforms to the financial sector. Labor has been largely supportive of these reforms, with some significant exceptions such as, for example, the four pillars policy.

The other amendments in this bill are intended to further refine the financial system. They are largely of an administrative and technical nature. For example, the bill will extend until 30 June 2000 the deadline for the qualification for tax relief for foreign authorised deposit taking institutions transferring assets and liabilities between branches, their subsidiaries and money market corporations. It will allow the electronic lodgment of information by superannuation funds, in accordance with the government's wider objective of establishing a business entry point. It will permit the Reserve Bank to delegate certain information collection functions to the Australian Prudential Regulation Authority and the Australian Bureau of Statistics. It will exempt APRA from paying sales tax on the goods it purchases. It will amend the secrecy provisions of the APRA Act. It will reduce compliance costs on business, increase flexibility and remove unused provisions of the Financial Corporations Act 1974. It will also provide a mechanism, in response to concerns raised by industry, to ensure adequate disclosure to members prior to an ADI effecting a demutualisation.

Labor is supportive of those measures, as we have been in the case of many of the other sensible Wallis reforms. We will not, however, be party to legislation which weakens the provisions allowing the government to step in and help people who, through no fault of their own, could lose their retirement nest egg through theft and fraud without the protection of the government.

I note in conclusion that this issue of loss of legitimate employee entitlements has been a major issue over the past two or three years, with some substantial companies becoming bankrupt. We have seen the examples of Cobar, Woodlawn and others, with workers missing out on their legitimate accrued entitlements. One of those major issues of distress has been the loss of accrued superannuation entitlements. We want to see this problem resolved and we are actively working on solutions to this problem. We would certainly not want to see the scope for loss of employee entitlements extended through weakening of the protections against loss through theft or fraud. That is why we have taken the position that we have on a couple of the provisions of the legislation before the House. That is why I have moved the second reading amendment that I have and why we will pursue some of these matters in the consideration in detail stage.

Mr DEPUTY SPEAKER (Hon. I.R. Causley) —Is the amendment seconded?

Mr O'Connor —I second the amendment and reserve my right to speak.