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Friday, 6 December 1985
Page: 3184


Senator WALSH (Minister for Finance) —I seek leave to make a statement about the superannuation liabilities of Commonwealth statutory authorities and to incorporate the statement and attached tables and notes in Hansard.

Leave granted.

The documents read as follows-

SUPERANNUATION LIABILITIES OF COMMONWEALTH STATUTORY AUTHORITIES

I will not attempt to cover all relevant matters here as aspects of this matter have been taken up by the Senate Standing Committee on Finance and Government Operations, the Joint Parliamentary Committee of Public Accounts and in recent reports of the Auditor-General.

Senators will be aware that approximately half of the 307,000 contributors to the Comnmonwealth Superannuation Scheme are employed by Commonwealth statutory authorities and other independent employers. Benefits due to members of the Commonwealth Superannuation Scheme are, in the main, paid from the Consolidated Revenue Fund and the Commonwealth recovers from those authorities and employers the appropriate share of the cost of providing superannuation benefits for their staff. Most authorities and employers pay a percentage of their employees' salaries to the Commonwealth each fortnight.

The Australian Government Actuary was asked to review the percentage of salary contribution rates paid by 16 of the largest Commonwealth authorities and report on the adequacy of the superannuation contributions being paid. Together these 16 authorities employ approximately 88% of all the employees of Commonwealth authorities contributing to the Commonwealth Superannuation Scheme. The results of the Actuary's reviews have been summarised in a table.

The reviews showed that:

Only minor adjustments were required in the ongoing contributions being paid at the time of the review by 11 of the 16 authorities examined;

A substantial increase in ongoing contributions (from 15% of salaries to around 22% of salaries) was necessary in the case of 5 authorities; and

In respect of the past employer contributions, ie. those paid prior to 1 July 1983, Australia Post, Telecom and the ACT Health Authority has surpluses of $101m, $358m and $5m respectively, eight authorities had deficiencies ranging from $2.2m to $54.7m and five authorities had neither a surplus nor a deficit.

In the light of the Actuary's reports, action is being taken, where necessary, to adjust the ongoing contribution rates being paid by the authorities concerned. In all but three cases, the required adjustment has been made.

Australia Post and the ACT Health Authority will be given the benefit of the surpluses in their past superannuation contributions in setting the level of their future superannuation payments to the Commonwealth.

In Telecom's case, special arrangements have been made as the final step in the Government's initiatives to put the financial arrangements between Telecom and the Commonwealth on a more conventional footing. The initiatives have been taken to correct for the so-called ``loan-back'' scheme accepted by Mr Howard as Treasurer in the previous Government.

Beginning in 1978-79 Mr Howard authorised loans from the Commonwealth for Telecom's capital works program. The conventional and honest way of providing those Commonwealth funds would have been an interest-bearing advance from the Budget, as was done in each of the three financial years immediately following Telecom's establishment in 1975. It would then appear as a Budget outlay and would increase the Budget deficit.

But ever conscious of projecting his image of a practitioner of small government, Mr Howard decided to use mirrors to conceal the extra outlays on Telecom. He allowed Telecom to retain parts of its employer superannuation contributions-which ordinarily would be paid directly to the Commonwealth-to finance its capital works program. The consequent reductions in Telecom's superannuation contributions to the Commonwealth did not affect the receipts side of the Budget (so did not increase the officially recorded deficit) because these contributions are formally treated as Financing Transactions, not as Receipts.

The convenient effect of this creative accounting was to conceal the true size of the Budget deficit from 1978-79 to 1982-83. If Mr Howard had instead followed the conventional procedure of making interest-bearing advances from the Budget, the Budget deficit over that period would have been $490m bigger.

To achieve this cosmetic reduction in Commonwealth outlays and the deficit, Mr Howard set up an interest-free loan of nearly $500m which had no contractual basis, was not authorised by Parliament and placed no formal repayment obligation on Telecom.

The Hawke Government moved to change this practice as soon as it took office. In 1983-84 it required Telecom to start paying interest of 13.54 per cent on the amount retained in that year.

The next year it discontinued the ``loan-back'' arrangements altogether and required Telecom to pay interest on the sum of the total loans plus accrued interest-a total of $870.2m.

After offsetting Telecom's employer superannuation contribution surplus of $357.2m identified by the Actuary, Telecom's outstanding ``loan'' liability at 30 June 1984 was $512.5m. Telecom is to repay this balance to the Commonwealth in 8 equal annual instalments. The first payment was made on 15 August 1985. Telecom will be required to pay interest at 13.47 per cent a year on the diminishing balance.

Where deficits exist in past employer contributions of the other authorities, they have arisen largely because the contribution rates paid by the authorities at various times in the past did not:

allow for the cost of indexing the pensions payable to the authority's former employees or their spouses; or

make advance provision for expected future salary increases.

Moreover, the interest rate chosen for crediting to the notional funds of the various authorities is the allocation rate of the Commonwealth Superannuation Fund, which is regarded as a realistic guide to the earnings that can be achieved on a large superannuation fund invested with expertise and extensive investment powers. It was not, however, a realistic guide in this respect before 1976, because the investment powers relating to the Commonwealth Superannuation Fund under the Superannuation Act 1922 were very limited (for example, investment in shares and real property was permitted only after 1976.

The Government has decided not to waive the deficits because, for the non-Budget-dependent authorities, it would involve transferring to the Commonwealth costs that are attributable to the past activities of the authorities. A precedent would also be created in the event of deficits being disclosed by subsequent investigations.

The main objectives to be served in adjusting for past surpluses and deficits are to ensure that:

authorities have the same incentive to control their superannuation costs as they have to control their other costs;

the costs of superannuation provision are fully disclosed; and

the authorities, rather than taxpayers generally, reap the benefit or bear the burden of any revealed overprovision or underprovision for superannuation in respect of the past service of their employees.

Nevertheless, the Government believes that there is a number of reasons why it should not now seek to recover deficits that the Actuary has identified as arising from service before the revised Commonwealth Superannuation Scheme was introduced on 1 July 1976. These include:

the effect of the pre-1976 limitations on the investment powers relating to the Commonwealth Superannuation Fund referred to previously;

the nature of the amendments to the Superannu- ation Act in 1973 providing for automatic indexation of Commonwealth scheme pensions; the amendments included the indexation of pensions accrued from prior service that, until the amendments were made, had been covered by contributions from the authorities concerned; and

the fact that on the establishment of Telecom and Australia Post in 1975, deficiencies in respect of past service which were many times greater than those of all other Commonwealth authorities combined, were effectively waived at that time.

The Government has decided that those authorities for which a deficit exists in past contributions will be required to make good only that part of the deficit that has arisen in respect of benefits accrued from service by staff since 1 July 1976. This will be done by the authority making additional contributions to the Commonwealth over and above its normal ongoing contribution rate. Where necessary the additional payments will be spread over a number of years. Two of the authorities are already paying additional contributions.

Whereas the Actuary's investigations disclosed deficits totalling $139.6m, the Government's decision means that authorities will be required to pay off deficits of approximately $26.6m. The effect of the Government's decision will be most significant in the case of those authorities whose superannuation obligations extend back over a long period. For example, the Australian Shipping Commission's post 1976 deficit is $4.8m compared to a deficit of $54.7m for the whole period from 1956 to 1983; OTC has a post 1976 surplus of $2.6m compared to a deficit of $33.9m for the period 1950 to 1983.

The following table sets out, for each of the authorities concerned, the impact of the Government's decision to require authorities to pay off only the post 1 July 1976 deficits.

I stress that a deficit in an authority's past employer superannuation contributions will not affect the rights of employees of the authority to receive the benefits due under the Commonwealth Superannuation Scheme. As mentioned previously, the superannuation benefits for individual members are met from the Consolidated Revenue Fund and are guaranteed by the Commonwealth. The Actuary's reviews relate only to the financial arrangements between the Commonwealth and the Authorities.

Actuarial reviews of the percentage of salary contribution rate paid by other authorities will be undertaken progressively. Once the initial reviews have been completed it is proposed to undertake regular three-yearly reviews of the contribution rates paid by authorities.

COMMONWEALTH SUPERANNUATION SCHEME

Summary of Actuary's Reports on Employer Superannuation Contributions

Authority

Ongoing employer

contribution rate

Rate being

paid before

review (%

of salaries)

Actuary's

recommended

rate (% of

salaries)

Employer

Super-

annuation

obligation

dates from

At 30 June 1983

Value of

past

service

benefits

Balance in

notional

account

Surplus

(deficiency)

Adjustment to employer

contribution rate in

Col. (3) needed to

liquidate surplus/

deficiency over 20

years (% of salaries)

($m)

($m)

($m)

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

Australian Atomic Energy Commission...

20

20.7

1981

(a)

8.3

(a)

-

Australian Broadcasting Corporation...

20

20.7

1981

(a)

35.1

(a)

-

ACT Electricity Authority...

25

(b)...19.9

1963

12.8

9.3

(3.5)

+2.7

Australian National Railways Commission...

15

21.4

1975

44.3

33.1

(11.2)

+2.0

Australian Postal Commission...

20

19.7

1975

650.7

752.2

101.5

-1.2

Australian Shipping Commission...

15

22.7

1956

92.8

38.1

(54.7)

(c)

Australian Telecommunications Commission...

20

19.2

1975

1,839.6

2,197.3

(d)...357.7

-1.4

Canberra College of Advanced Education...

15

22.4

1967

12.2

8.0

(4.2)

+2.6

Capital Territory Health Commission...

15

14.9

(e)

28.2

33.6

5.3

(e)

Commonwealth Accommodation and Catering Services Ltd...

15

22.0

1977

(f)...8.0

5.8

(2.2)

+2.6

Commonwealth Scientific and Industrial Research Organization...

20

20.5

1981

(a)

61.1

(a)

-

Commonwealth Serum Laboratories Commission...

21.5

20.5

1961

45.9

23.6

(22.3)

+10.8

Health Insurance Commission (g)...

18

19.2

1974

14.0

-

-

-

National Capital Development Commission...

20

21.4

1981

(a)

3.0

(a)

-

Overseas Telecommunications Commission (Australia)...

16

17.3

1950

90.9

57.0

(33.9)

+4.7

Snowy Mountains Engineering Corporation...

15

21.9

1970

24.3

16.7

(7.6)

+3.4

For notes see attached sheet.

NOTES TO SUMMARY OF ACTUARY'S REPORTS ON EMPLOYER SUPERANNUATION CONTRIBUTIONS

(a) Since the liability of these authorities commenced in 1981, the Actuary considered it unnecessary to split the costs of past and future service. The ongoing contribution rate was calculated to meet the difference between the balance in the notional account and the value of all benefits in respect of service after 1 July 1981.

(b) The ACT Electricity Authority voluntarily increased its contribution rate from 15% of salaries to 25% of salaries with effect from 26 July 1984.

(c) The Australian Shipping Commission established a separate superannuation scheme for its employees and closed entry to the Commonwealth Superannuation Scheme (CSS) for new employees as from 1 October 1982. In view of this factor and the size of the deficiency, the Actuary considered it inappropriate to propose dealing with the deficiency by a contribution expressed as a percentage of salaries of members remaining in the CSS.

(d) The Australian Telecommunications Commission maintains an internal provision (arising from the loan-backs of its superannuation payments) amounting to $664.5 million at 30 June 1983. This amount has been included in the balance of $2197.3 million shown for the notional account.

(e) The Capital Territory Health Commission was established on 1 July 1975 but the actuarial investigation was confined to the payments and benefits accrued in respect of service after 1 July 1976.

(f) Commonwealth Accommodation and Catering Services Ltd (then Commonwealth Hostels Ltd) made superannuation payments prior to 5 April 1977 in respect of some officers transferred to it from the Commonwealth. The Actuary's investigation did not extend to assessing the adequacy of the pre-1977 payments.

(g) The Actuary was asked to assess the amount required to be paid to the Commonwealth from the Health Insurance Commission's internal provision to meet the outstanding liability for the period 1 July 1978 to 30 June 1983. This was $14.0 million at 30 June 1983 and the Commission has made special payments to discharge this liability. There have been significant changes to the staff profile of the Commission since the date at which the calculation of an ongoing rate of 19.2% of salaries was made. The Actuary, therefore, has suggested that the contribution rate of 18% of salaries be maintained until a further review, using the data at 30 June 1985, is undertaken.

IMPACT OF DECISION THAT AUTHORITIES BE REQUIRED TO PAY OFF ONLY THE POST 1 JULY 1976 DEFICITS

Authority

Deficit

reported

by Actuary

Post

1.7.1976

Deficit

(Surplus)

Difference

$m

$m

$m

ACT Electricity Authority...

3.5

0.3

3.2

Australian National Railways Commission...

11.2

9.2

2.0

Australian Shipping Commission...

54.7

4.8

49.9

Canberra College of Advanced Education...

4.2

2.2

2.0

Commonwealth Accommodation and Catering Services Ltd...

2.2

2.2

-

Commonwealth Serum Laboratories...

22.3

3.4

18.9

Overseas Telecommunications Commission (Australia)...

33.9

(2.6)

36.5

Snowy Mountains Engineering Corporation...

7.6

4.1

3.5

Total Deficit...

139.6

26.2

Less: Surplus...

-

(2.6)

Net...

139.6

23.6

116.0


Senator WALSH —I move:

That the Senate take note of the statement.

I seek leave to continue my remarks later. I also say that if anybody else wants to make a short statement by leave, I certainly will not object to it.

Leave granted; debate adjourned.