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Tuesday, 7 December 1993
Page: 4008


Senator WATSON (3.21 p.m.) —by leave—I move:

  That the Senate take note of the answer given by the Minister for Science and Small Business (Senator Schacht), to a question without notice asked by Senator Kernot this day, relating to the investment of superannuation funds.

Not surprisingly, the response this afternoon by the Minister for Science and Small Business (Senator Schacht) confirming and endorsing the fact that the federal government is seriously examining a move to direct a fixed proportion of superannuation funds to be invested in small and medium sized business has brought outrage and criticism from a wide range of industry groups.

  When the government first mooted the superannuation guarantee charge whereby employers were obliged to fund their employees' superannuation retirement benefits, many far-sighted observers believed that this pool of funds would be seen as a pool that the government could use for its own economic directions.

  Within about 12 months of the passage of this legislation the government is now moving to interfere with investment patterns of superannuation moneys. Such plans to interfere with retirement savings will undermine the public's confidence in superannuation. A recent report by MLC-BIS Shrapnel confirmed that confidence in superannuation had unfortunately fallen to a new low.

  Many years ago we had what is known as the 30-20 investment rule whereby legislative provisions meant that investment had to be 30 per cent in government securities of which a minimum had to be placed in Commonwealth bonds. Although unpopular at the time, I remind the Senate that both capital and income in such a legislative provision were secure, but not so; with income flowing to medium and small size businesses, even the capital could be at risk.

  I also draw the Senate's attention to the fact that in the event of loss of such capital, there could be constitutional implications for the Commonwealth's directives. But attempts by state governments in recent times to meddle in capital markets have not been good, and I draw the Senate's attention to the Victorian Economic Development Corporation.

  When banks cannot be persuaded to lend, why should the government allow small contributions from people to be put at risk? It also runs counter to the prudential standards and the need to protect retirees' superannuation moneys, particularly in the recently passed superannuation security investment legislation package of seven important bills.

  The government's failure to enable moneys to be attracted through incentives, such as development capital for new corporations through the MICs, which provided generous tax incentives, is but one example of the government's failed attempts to provide a climate in which capital could be available to small business. Therefore, I use this opportunity to call on the government to promote small business not only through economic reform but also to develop appropriate finance mechanisms available to small business, but not by putting retirees' funds at risk in the form of a direction of superannuation moneys.

  I remind the Senate that a set percentage of superannuation directed to small business can also cause dilemmas for trustees because under the SIS legislation, the prudential controls which were designed to protect the superannuation moneys of retirees, these trustees and investment managers are charged with the responsibility of upholding prudential standards and investing securely.

They could be legislatively at risk in terms of a financial or a gaol penalty in the event of investing in small companies which, for example, go bankrupt. I urge the government to approach this issue with caution because it has many ramifications, particularly for the superannuation industry. I think finance for small business can be better served by other avenues.