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Friday, 12 June 2020
Page: 4086


Dr MULINO (Fraser) (11:27): The measures contained in this package of bills, including the Australian Prudential Regulation Authority Amendment (APRA Industry Funding) Bill 2020, are a modest step forward when it comes to the way in which APRA will levy industry for its funds. As such, we support these measures. As with so many bills in this place, what we see are relatively modest steps forward, but not an engagement with the broader issues touched on by pieces of legislation.

Today I want to speak about a couple of the measures in these bills, but being modest measures, as they are, I want to spend the bulk of my speech talking about some broader policy and systemic issues in the superannuation industry. The measures today impose or change the schedules, increasing the statutory limits on the amount of levies APRA can collect from the entities that it prudentially regulates. It also makes amendments to how the indexation factor used to index the statutory upper limit is calculated. These changes will allow levies to be more fairly distributed. This is particularly important with respect to the banking sector, where customer-owned banks are disproportionately affected. The APRA industry funding bill 2020 also allows for a wider range of APRA activities to be funded through industry levies. I'll take this opportunity to say that APRA, as the prudential regulator, plays a critical role in the regulation of Australia's financial services sector, and we do support measures that improve the way in which it imposes levies on the industry.

As I said, I want to spend the bulk of my contribution today talking about what I consider to be a serious policy error by the government in the design of its response to the current recession. In particular, I want to focus on the early release program with respect to people's superannuation accounts. This is a wholly unnecessary measure. Not only is it wholly unnecessary; it's very damaging to the superannuation sector and undermines one of its key precepts. I think it's important, when talking about this issue, to spend a bit of time looking at the policy underpinnings of our superannuation sector—our world-leading, path-breaking superannuation sector. I think it's worth going back three decades, to 1991. I'm going to make some references here to some speeches made by Paul Keating and the then Treasurer, John Kerin, when introducing a system that would dramatically expand private accounts so that they would be universally accessible to workers right across the economy.

Paul Keating spoke about the need for the superannuation sector to be expanded so as to provide for more dignity, more self-reliance and prosperity in retirement:

A system of more adequate private provision of retirement income sympathetically interfaced with the public pensions system will not only better provide for the aged, but is more likely to preserve the dignity and independence each have enjoyed in their preretirement years.

Keating said:

It will make Australia a more equal place, a more egalitarian place and, hence, a more cohesive and happy place.

He talked about the fact that, in addition to providing dignity in retirement for retirees, it would also have significant macroeconomic benefits. He said, 'The really attractive advantage is that a much more generous retirement income scheme will not be at the expense of the Australian economy; it will be to its immense benefit.' He said, 'Superannuation can become the biggest single source of increased private savings in the community.'

That was 1991. Fast forward three decades, and, as earlier speakers on this side have mentioned, we have the fourth-largest pool of private savings in the world—what foresight! John Kerin, the Treasurer at the time, when introducing the 1991 budget, said, 'The government's retirement income policy aims to provide adequate income support through the age pension for those who have not been able to save during their working lives.' He also said, 'The super system will encourage those now in the prime of their working lives to provide a higher standard of retirement living for themselves through saving.' It was that key duality—the maintenance of the pension system to provide for those who hadn't been able to save for themselves while at the same time encouraging private savings so as to provide support for that. Back in 1991 Kerin was already alluding to the fact that our pension system, our old-age retirement system, needed to achieve multiple goals.

Fast forward three years. In 1994 the World Bank, in what many see as its seminal piece of work on how countries should design their retirement systems, argued that old-age pension systems should satisfy objectives both for individual people in retirement and the broader economy. For individual people in retirement, the World Bank argued there should be a savings or wage replacement function, a redistribution or policy alleviation function and a social insurance function. It argued that, for the broader economy, there should be a sustainability rationale, there should be minimisation of hidden costs that impede overall economic growth and there should be transparency. Fast forward another couple of decades. Mercer, in its world-leading evaluation of pension systems around the world, argued that one should look at pension systems through the prism of three criteria: adequacy, sustainability and integrity.

The reason I think it's important to establish that policy framework—and this is the point that the World Bank and other organisations made way back in 1994 and many times since—is that no single policy mechanism can satisfy all of those objectives. We need to have multiple policies working together. That's why we look at the United Nations approach to pensions reform. It set up what it called the three pillars: a public pension system, a mandated private savings account system and a voluntary savings account system. The World Bank adopts a similar system: non-contributory means-tested assistance to the poor; a public pay-as-you-go pension system; private occupational pension schemes—much like our super accounts; individual savings; and labour market policies aimed at extending working life.

The point is: we cannot achieve all of the policy goals that we must achieve through one mechanism alone. The World Bank, the OECD and many others have argued that the public pension must remain at the heart of social insurance. For those who aren't able to save for themselves, for those who fall by the wayside, we need to have a safety net. But the World Bank argues that it is also critically important that we have another pillar, one based on personal savings accounts:

The important point is that it should be fully funded and privately managed, but publicly regulated, and it should link benefits closely to costs.

Again, this is years after we had, in 1991, enacted exactly that framework. We were leading the world, and years later the rest of the world enacted our very framework.

So it's that pillar, the private account pillar, which those opposite are so determined to undermine. The shadow Assistant Treasurer, in recent days, has said that everybody in this place, particularly those opposite, has been saying that we should put down our weapons. Well, it's time to put down the weapons with respect to superannuation. It's time to stop undermining one of the critical pillars of our retirement system. I can even quote someone who is about as far from socialism as you can imagine: Martin Feldstein, who was the Chairman of the Council of Economic Advisers to Ronald Reagan. Martin Feldstein, in his very important 2005 address to the American Economic Association, argued very strongly for private personal accounts. If one goes back to that very important speech, he was basically arguing for the Australian superannuation system. I can cite the World Bank, the OECD and leading economists from right across the political spectrum. They all say that a pillar of our retirement policy based upon private personal accounts is absolutely critical. The Keating vision has now become best practice around the world and yet those opposite, at every stage, want to undermine it.

The most recent attempt to undermine it was early release as one of their responses to COVID. When, for the vulnerable in our community, they should have been fully funding a safety net in response to their vulnerability to the COVID recession, instead what they did was to say to the most vulnerable in our community, 'Hey, why don't you self-fund part of your attempt to get out of these dire economic straits?' As the member for Maribyrnong said, there's no excuse for forcing people to raid their savings in order to cope with economic downturns such as the COVID recession that we are currently in—no excuse whatsoever.

So let's look at the way in which this is playing out. As earlier speakers on this side have said, the reason why it is so critical that we encourage people into superannuation accounts as early as possible is the magic of compound interest. Warren Buffett said:

Time is your friend, impulse is your enemy. Take advantage of compound interest and don't be captivated by the siren song of the market.

Charlie Munger, another of this century's great investors, said exactly the same. The quote that compound interest is the eighth wonder of the world is often attributed to Albert Einstein. Many have questioned whether he actually said it, but the fact that it is so plausible that such a genius would have said such a thing shows what a wise statement it is. Compound interest is absolutely critical to a private account system working.

Some opposite say, 'Well, it's their money.' What a hollow debating point on such a foundational part of our pension retirement system! If one were to use that retort, 'It's their money,' then why have a private account system at all? The argument, 'It's their money,' undermines the whole principle that people should save for their retirement years. It's simply not good enough and shows the ideological basis upon which so many of these attacks are based.

Let's look at what's happening in practice as a result of the policy that has been instituted by the government. Mercer has found that seven per cent of the 90,000 customers accessing their savings as a result of this policy have reduced their accounts to zero, totally clearing out their accounts. APRA also believes that seven per cent of the early release applications that it has had any oversight of have led to account balances of zero. When the OECD in 2012 examined critical aspects of best practice in what we should be looking for governments to do with respect to retirement incomes policy, one of their key recommendations was that we should encourage people to enrol and to contribute for long periods. It is absolutely critical that people stay in super for as long as possible to attain the benefits of compound interest.

As the member for Kingsford Smith alluded to in his speech earlier in this debate, one of the great challenges of super, for many disadvantaged groups, such as women, is that, when they have gaps in their working lives, that can lead to significant reductions in their retirement balances, and this is exactly what we are going to be imposing on a whole generation of workers. So many people now in their 20s who have cleared out their accounts are going to be starting their savings a decade behind when they should have. This is compounded by the fact that they're selling at the depths of one of the great bear markets and by the fact that many of them are going to be out of the labour market, potentially, for years. It is the worst of all possible outcomes for some of the most vulnerable in our community.

By the end of May, according to ISA, around 50,000 super fund members had already wiped their super accounts to zero. That's tens of thousands of individuals who, when we fast forward decades, are going to be in a far worse position than they should have been. As alluded to by earlier speakers, so many people, whether it be Andrew Charlton and his work at AlphaBeta, whether it be ASFA or whether it be ISA—it doesn't matter who it is or what assumptions they use, they all say that this is going to result in many multiples of disadvantage down the track because of that compounding that people will miss out on.

Then, of course, there's the other side of the coin: the macroeconomic benefits that we miss out on. Keating, Kerin, the OECD, the World Bank—all of the public finance experts, and I could quote them if I had more time—allude to the fact that this second private-accounts pillar massively boosts the capital stock of a country. This has proved to be so critical in Australia in economic downturns. It was so critical in getting out of the GFC. It is going to be so critical in the investments that super will make to help us get out of this recession.

And then we can look at the counterfactual: if we don't have a strong private accounts system, what kind of tax rates are going to be required to fund the pension system? Let's look at OECD forecasts for the taxation burden of public pension systems in 2050. The forecast for Australia is 3.7; the OECD average, 9.4; Germany, 12.4; and Italy, 17.3—17.3 per cent of GDP to the pension system in Italy! These are scary numbers. Of course, it's good that we're all going to be living longer, but there's a reality to that, which is that, if we don't save more, it is going to impose massive distortionary taxes on our economy.

As earlier speakers have said, it's time that the government accepted that the Australian people like the superannuation system. It's time they accepted that world-leading experts, the OECD, the World Bank and just about every public economics expert in the world like superannuation. It's time they started supporting it, not undermining it. (Time expired)