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Parliamentary Joint Committee on Foreign Affairs, Defence and Trade
28/02/2012
Department of Defence annual report 2010-11

JAMISON, Colonel David (Retired), National President, Defence Force Welfare Association

MORRALL, Group Captain Philip Leslie (Retired), Vice President, Pay and Conditions of Service, Defence Force Welfare Association

CHAIR ( Senator Furner ): I welcome officers of the Defence Force Welfare Association to today's hearing. Although the committee does not require you to give evidence on oath, I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard. I invite you to make an opening statement.

Col. Jamison : Thank you for the opportunity to appear and make some comments. There are four short issues that we would like to address. First of all, I want to affirm the importance and significance of the issues raised in our submission. Second, I want to update the committee on three things that have occurred since our submission was lodged. I also want to raise an additional matter for the committee's consideration and I would also like to elaborate on the proposal for a military covenant.

Superannuation and particularly indexation is an issue that we are trying to have positively addressed. The committee will be aware that the Assistant Treasurer, Mr Shorten, has proposed a roundtable discussion on superannuation matters. However, there is no representative at this roundtable discussion for military superannuation members. This is reportedly because the Assistant Treasurer views military superannuation as a matter for Minister Snowdon, the Minister for Defence Science and Personnel. That might be seen as advantageous. However, Mr Snowdon has taken some two years to reply to representations on this matter by the national president of the RSL. Hence, in our assessment, prospects for early resolution are not good.

The second matter is pay and remuneration.

ACTING CHAIR ( Dr Jensen ): As there is a division being called in the Senate, I will take over as acting chair.

Col. Jamison : The Defence Force Remuneration Tribunal recently released its reasons for decisions in respect of the ADF workplace remuneration arrangement of October 2011. A copy is available here if you need one. Within these reasons, the tribunal highlights the incongruity of ADF members pay being considered within a bargaining framework when ADF members are not employees and have no capacity to bargain and the incongruity of the representative of ADF members, the Chief of the Defence Force, proposing a pay outcome on behalf of ADF members when some 62 per cent indicated that it was unacceptable to them. At paragraph 29, the tribunal recommends 'the parties explore the possibilities of an alternate method and process for considering and determining future wage arrangements'. We consider this unprecedented recommendation to be very significant indeed. It provides an opportunity to advance the process by which ADF pay is determined. Another issue is married quarter rent increases. The ADF has just announced the latest married quarter rent increases. We have a copy of that announcement to show you. These increases range from 8.4 per cent to 0.37 per cent. To illustrate the practical effects of such rent increases, I would like to draw the committee's attention to the effect on a midrange corporal at pay grade 5 as an example. In November 2010, this corporal received a pay increase of $45 per fortnight. In May 2011, his married quarter rent increased by about $40 per fortnight. In November 2011, this corporal received a pay increase of about $70 per fortnight. In March 2012, his married quarters rent will increase again by $40 a fortnight. You quickly realise that the corporal is losing a considerable amount of the wage increases that have been offered to him and the cost of living pressures on his family have therefore increased. In addition, there are the increases in utilities, petrol and other household services that these pay increases will have to go towards.

The new issues that I would like to raise is a citizenship issue to do with lateral recruiting from other countries. The committee will be aware that the ADF recruits members from other forces, such as those from the UK, Canada, New Zealand and the US. Defence members are granted Australian citizenship on being recruited into the ADF, as are any children under the age of 16. But their spouses and children over 16 are not granted citizenship; they are granted residency only. These dependents are then ineligible to apply for citizenship for a period of three years and their access to Australian government services, such as Medicare, is restricted. Perhaps more importantly, should an ADF member be injured or die, access to superannuation and veteran entitlements is extremely complicated. This matter has been raised by the ADF within interdepartmental forums and at ministerial level but we have had no resolution. You might like to investigate this matter further, because it is a matter of some concern, particularly the Defence Families Association, which represents these people.

Thank you for the opportunity to appear. We are happy to answer any questions in relation to our submissions.

CHAIR: I apologise for missing the majority of your statement because of that division, which was a Mickey Mouse one. Can you explain the concept of a military covenant and how that would operate?

Col. Jamison : I have some notes which we can hand to you. The proposed military covenant is an instrument designed to articulate the to date largely unwritten mutual obligations between the nature and members of the Australian Defence Force. This concept is a development of an understanding of the unique nation of service in the ADF and the mutual obligations owed between the nation and its service personnel that flow from this service. There are two precedents for such a covenant. In 2011, the United Kingdom encapsulated a military covenant in the Armed Forces Act 2011, which received royal assent on 3 November. The UK Ministry of Defence stated, 'In putting the needs of the nation and the Army before their own, they forgo some of the rights enjoyed by those outside the Armed Forces.' They went on to say that at the very least British soldiers should always expect the nation and their commanders to treat them fairly, to value and respect them as individuals and to sustain and reward them and their families.

In the Australian context, there is a precedent also. In February 2009, an Australian employment covenant was implemented. This covenant is a national industry led initiative that brings together all Australians to help close the gap between Indigenous and non-Indigenous employment and employment opportunities. It is the first of its kind and represents a major commitment to providing the majority of Indigenous Australians who are able to work with a real opportunity to achieve their potential. The Australian government committed to contribute to funding and expertise for direct administrative assistance, which included one-off funding for the establishment of an interim call centre and for the development of commercial and website materials. The Defence Force Welfare Association is presently refining the concept and is developing a draft that we can use as a basis for designing an Australian military covenant in cooperation with the ADF, other service and ex-service organisations and, hopefully, the government.

CHAIR: Thank you. We will go to questions, first from Dr Jensen.

Dr JENSEN: In terms of indexation of military pensions, I would like to know your thoughts on the way that that should be done. I have heard various scenarios, such as the higher of MTAWE or CPI. What is your view? I will just say my concern about going with a 'higher of' and two different ways of measuring it is that it means that ultimately that pension will be creeping up in comparison with that average and you would end up at some stage in the distant future where the pension would in fact be more than the average weekly wage.

Col. Jamison : Gee, that'd be good! Some time ago we refined the objective to state what we are trying to achieve: that, for indexation of military superannuation pensions, all components, including the preserved funds for members in the MSBS, be indexed at the same rate as the age and service pensions are indexed. That is the objective that we are setting out to achieve. If, for example, that had been done in 2011, it would have cost the budget $19 million in total. That is the gross cost, which then needs to be refined by the clawback, which the Department of Finance and Deregulation keep telling us is about 30 per cent of that total. So the gross cost is $19 million, from figures published in the DFRB and the MSBS annual reports, and using the clawback percentage that the department of finance have advised us is appropriate, it would be one-third, essentially, reduced from the $19 million. To illustrate our issue, this graph which is put out by SCOA illustrates the age pension—

CHAIR: Colonel Jamison, we might need to have that tabled, if you are referring to that.

Col. Jamison : Yes, I have a copy to give you. It has three lines on the graph. The top line is the age pension, which has increased over this period of time by something like 140 per cent.

Dr JENSEN: Sorry, since what date?

Col. Jamison : Since December 1989. Military pensions have increased by, it says, 80.8 per cent. So there is a substantial gap that opens up and it is growing all the time.

We have been grappling with a lack of definitive data on costing for some time. We came across an article from the Australia Institute, from senior researcher David Richardson, who for the first time I thought put quite clearly what we are grappling with. In essence, the figures that are used to make decisions on issues such as this include real budget figures and fictitious figures based on accrual accounting conventions, and the mixture of these two accounting conventions varies from time to time and depends on the topic, the approach and the person who is providing the information. A mixture of real figures and pretend figures is not helpful to anyone and it certainly made it very difficult for our representations to be understood. As I understand it, Commonwealth finances are a cash appropriation system on an annual basis. Accrual accounting is a standard of accounting that is very appropriate for commercial and industrial entities, but to try and apply it in the public administration field produces difficulties, particularly when it is mixed with annual appropriation cash accounting. It muddies the waters and in fact has had the impact in our area of showing the cost of indexation at three times the rate it ought to be, because there are fictitious payments brought into the equation. But, even in the accrual accounting convention sense, the fictitious costs are explained but there is no offsetting accrual of funds, even though they be fictitious, to balance it, so the accrual accounting conventions, to my mind, have been diluted in such a way that the figures that are produced are meaningless. I instance our $19 million figure against the extraordinary figures that have been floating around from government sources.

Mr ROBERT: Colonel Jamison, thank you, sir. If I could just look at the DHA increase, increases from 0.2 to 8.4 per cent—which you cited, obviously, and then you cited your corporal example—it is my understanding, and correct me if I am wrong, that over the last few years prices have risen substantially in various areas of the market. Defence have tried their best to flatten those out whilst always trying to get to the point of 50 per cent. That is the level of rebate or allowance, whatever term is applicable, in terms of DHA housing. That is my understanding. Is that your understanding?

Col. Jamison : That is certainly the line, if you like, that is put out by the department. We would say to you—and Phil can talk in detail here—that there is no such thing as a subsidy for ADF housing. In fact it is an operational expense because we post and deploy people around the country and we need to provide accommodation for them in those sorts of circumstances. They are transients. The cost of providing housing is an operational expense. To look at DHA figures as providing a subsidy for housing I think introduces an unnatural and unreal element. It is not a subsidy.

Mr ROBERT: Noted. Let us accept then that the operational expense is 50 per cent of what the market charges. Either way we arrive at the same conclusion, whatever language we use. If it is an operational expense of the military, the level that has been chosen—and I think it is been around for quite a while—is 50 per cent. Do we agree on that basis?

Group Capt. Morrall : That is true. The idea of a subsidy came in 1983 to 1986, when there was an interdepartmental committee on APS and ADF housing. That is where the Defence Housing Authority came from, in that era. The proposition from the conditions of service area was to introduce this thing of subsidy. We have just been through the argument against that. In the article that we have just passed around, which is an extract from Air Force news, but it is in Army news and Navy News, you will see that most of the increase this time around, coming in March, is to do with raising the level of the subsidy—or reducing the level of the subsidy, if you want to use those terms. It is not necessarily the increase in rent in the wider community.

Mr ROBERT: My understanding from speaking to DHA in preparation is that, because housing prices had moved and DHA were seeking to flatten it out, they had allowed that subsidy/operational expense—using the same terms, without prejudicing it—to get to 48, 46 or whatever, and they are now just bringing it back. Rather than doing it in one hit, they are trying to stage it over a few years.

Group Capt. Morrall : That is true, but that is because—

Mr ROBERT: Fair enough.

Group Capt. Morrall : And this late next increase supposedly gets it to the 50 per cent.

Mr ROBERT: So if we agree that there is nothing untoward and what they are trying to do is well flagged and well understood—

Group Capt. Morrall : Yes.

Mr ROBERT: having said that, what is DFWA's view on what DHA should be doing? If the 50 per cent operational deduction is well accepted and well understood and they have tried to balance it out over a few years, could you apprise the committee of what you would like to see the department do in terms of the future of the operational expense? Do you want it increased? Do you want it decreased? What is your view?

Group Capt. Morrall : My view would be to take issue with one portion of your statement there: 'well accepted'. I do not believe it is well accepted by members of the ADF. They are confronted with it. An important issue, I think, is that this is imposed by the department, not DHA. DHA are the vehicle, but the policy decision that the 'subsidy' shall be 50 per cent is a departmental policy.

Mr ROBERT: Noted. When was that policy made?

Group Capt. Morrall : I cannot give you an exact date, but the idea started to come as the Defence Housing Authority was formed in 1983 to 1986.

Mr ROBERT: So let us assume that it has been around for 18 years. Therefore we can assume that it is ingrained and/or reasonably well understood, after 18 years.

Group Capt. Morrall : Well understood indeed, but I would not agree that it is well accepted.

Mr ADAMS: It can naturally improve substandard housing in the Defence Force—

Group Capt. Morrall : Indeed.

Mr ADAMS: and women living in substandard housing, and all the problems that came from that.

Group Capt. Morrall : Indeed, that is true.

Mr ROBERT: If we accept that, I am still at a loss, sir, as to what DFWA is advocating for.

Group Capt. Morrall : DFWA, in relation to the Group Rent Scheme, would advocate that we should have as much concern in the pay side of things as we have in the rent side of things. Right?

Mr ROBERT: Actually no, because I do not understand the statement.

Group Capt. Morrall : The department seem to have no problem at all in increasing group rents to meet their policy objective.

Mr ROBERT: The department moves rents in line with the national rental market, with the intent of the 50 per cent. So, if the 50 per cent has been there for 17 years, if rents go up, you would assume that it is because the housing market has gone up.

Group Capt. Morrall : Indeed. They do that with mechanical alacrity.

Mr ROBERT: Because of the linkage between the markets.

Group Capt. Morrall : Because of the linkage of the two, yes. The issue that we take with that is that we do not see that same mechanical alacrity applied to the pay side of the argument, hence the bit about the Defence Force Remuneration Tribunal and its reasons for decision.

Mr ROBERT: Is it fair to say, then, that your concern is not so much about the 50 per cent with DHA; it is that, as rents rise faster than the increase in salaries, you are getting a disparity in terms of the money left over for living?

Group Capt. Morrall : Indeed.

Col. Jamison : And to some extent we wonder if the rental charges to our ADF people actually reflect the cost of providing that accommodation. When you talk market rents, you are talking returns, not necessarily the cost of providing that housing.

CHAIR: There is a procedural matter about the submissions you have provided. I am seeking someone to move the acceptance of those documents—there are five, I think. That is moved by Mr Scott and seconded by Ms Brodtmann. All those in favour? That is carried. Thank you.

Col. Jamison : Mr Chair, could we offer one more document in relation to the costing of superannuation et cetera?

CHAIR: Of course.

Col. Jamison : It is an article of some substance by Mr Peter Thornton. I will not attempt to go through it. He takes issue with the costings out in the public domain.

CHAIR: We will keep that consistent with the passed motion that has been moved, if that is okay.

Ms BRODTMANN: There are two things from your submission. First of all, on the SRP, you mentioned:

… ADF members receive little recognition and no reward for their achievements in contributing to these important efficiency gains and savings.

I am wondering what expectations you had in terms of recognition and reward.

Col. Jamison : For example, in our submission to the defence remuneration tribunal we say that we believe there ought to have been 1½ per cent per year over the life of that agreement to recognise the productivity improvements provided by ADF personnel. Of course these expectations were not met.

Ms BRODTMANN: It was a pay increase that you wanted.

Group Capt. Morrall : Yes. We attempted in the submission to factor that into the pay increase. That came from a sentiment that was put to the association from members that they are contributing quite substantially. I do not think that is in dispute. You can see articles in every service newspaper you receive and on the SRP website, both inside and outside the organisation. People are lauding the contribution of ADF members towards the SRP savings. They came to us saying they felt they should see some 'reward' for that effort. We put that to the remuneration tribunal, as is in the submission. We were not successful.

Col. Jamison : We did this in the context that the stated objective of the SRP was to free up resources to buy more capability. Our contention is that the members of the ADF, the personnel in the ADF, are a significant part of our defence capability and should not be excluded from that equation.

Ms BRODTMANN: In terms of the civilian side of the house, they have just gone through their enterprise agreement negotiations, and I think they got three, three and three—nine per cent, essentially. I think they have agreed on it. What do you see as appropriate reward for their performance?

Group Capt. Morrall : The civilian DECA has yet to be announced. The department and the unions have come to an agreement which needs to be certified by the Public Service Commission. It is supposedly a permutation, I think, of three, three, three. In the context of the Defence Force remuneration, at the Defence Force Remuneration Tribunal the parties, being the Commonwealth and CDF, undertook that if the DECA is materially different to the judgement brought down by the remuneration tribunal they would come back to the remuneration tribunal. There, again, is a bit of a philosophic problem. Because of the unique nature of military service we, as an organisation, do not accept that there should be parity—as in parity of philosophy, parity of outcome—necessarily between the Public Service and the uniformed Defence Force members. That has been an arrangement of convenience by the department. They have arguments to support it, but it is really an arrangement of convenience. We wait to see what the difference is, if any—and then I suspect there is going to be a debate about whether the difference is material. I think you will find that in the DECA argument the Public Service side of the house has been saying much the same thing. They, too, are contributing. This is not just uniformed people.

Ms BRODTMANN: That is what I am suggesting.

Col. Jamison : Indeed. It is the defence organisation that is producing these savings.

Ms BRODTMANN: That is right.

Group Capt. Morrall : They have been saying similar things—that they are making the savings, they are doing what they are asked, they are being lauded for doing so.

CHAIR: They need recognition as well.

Group Capt. Morrall : They wish for some monetary recognition. The dilemma is—and this is brought out in the decision by the Defence Force Remuneration Tribunal—the Australian Defence Force is required by government direction to operate inside the government's bargaining framework. The tribunal points out that, one, Defence Force members are not employees; two, they have absolutely no capacity to bargain; and, three, up until now CDF has been able to say that he had a majority support of ADF members for the pay case he was putting. In October that was not so. So that is what the tribunal is saying. I invite the committee to consider this: does the committee know of any other industrial relations example in Australia where a members' representative has put to a tribunal a case rejected by 62 per cent of those members?

That is the dilemma that the tribunal have pointed out and they have suggested, in nice words, that that has broken the system. They are not employees, they cannot bargain and their representative has put a case that 62 per cent of them have rejected. Bizarre does not even start my opinion to describe that.

Mrs GASH: Excuse my ignorance but the Defence Force Welfare Association was formed in 1959 and you changed its format in 2007, as I see, so is it a voluntary organisation?

Col. Jamison : Yes, it is. It is completely voluntary. We have one-and-a-bit remunerated positions but the remuneration is in the nature of an honorarium.

Mrs GASH: Paid for by?

Col. Jamison : Paid for by the members.

Mrs GASH: By the members themselves?

Col. Jamison : By the members themselves.

Mrs GASH: So you cover all Defence Force personnel, as I understand it.

Col. Jamison : Yes, we do.

Mrs GASH: Do they pay to join?

Col. Jamison : Yes. There is a membership fee whether they be serving or former members of the ADF. There is a membership fee for joining the organisation.

Mrs GASH: And what percentage would have joined and what percentage would have not joined?

Col. Jamison : We are a relatively small organisation in overall terms. Trying to get anyone to join anything in this day and age is extremely difficult, as you probably find in your own situation. I think we are slightly less than 50 per cent serving people, but we do not have exact figures.

Mrs GASH: Are there any other organisations like yourselves that do much the same sort of thing?

Col. Jamison : We formed an alliance with the Naval Association of Australia, the RAAF Association, the Royal Australian Regiment Corporation and the Australian SAS Association. Collectively we have a membership verging on 49,000. We cooperate on matters to do with personnel service conditions in the ADF.

Mrs GASH: So you would have discussed this with the other associations?

Col. Jamison : Absolutely.

CHAIR: I might jump in here with quick questions before we go to Mr Adams. Has your organisation undertaken any work to determine the number of members that fall below the average pension, rather than the overall average at all?

Group Capt. Morrall : Yes. I do not have figures that are totally current. They can be found on the ComSuper website in both the DFRDB annual report and the MSPS report. In something like 2007, 58 per cent of pensioners received less than $20,000 and 88 per cent of pensioners received less than $30,000 as an annual figure. The last year which would have been reported would have been the 2010-11 year, which parallels the departmental report. The average DFRDB pension was about $24,000. As I say, whenever you crunch these numbers you certainly start to see something like three-quarters of people getting less than $24,000 or $25,000 a year.

CHAIR: So do the average pension amounts used by your organisation take into account the fact that a number of pensioners only serve part of their careers in the military and would therefore have alternative retirement incomes?

Group Capt. Morrall : Yes.

Col. Jamison : Yes, it does. Can I just say a word about this. There is a bit of misunderstanding. The DFRB and the DFRDB superannuation schemes were crafted in days with different conditions in the country and in the ADF. In those days the ADF compulsory retiring age was, for the vast bulk of members of the ADF, 47. That was the upper age limit. The scheme was crafted with that in mind, and it was designed to allow people to serve their 20-odd years in the Defence Force before they retired and help them set up so that they could settle their families, get somewhere to live and then pursue a civilian career, bearing in mind that they might not have the qualifications and experience of their peers who had already had a career in commerce and industry. So there was that recognition to it. The current scheme, the Military Superannuation and Benefits Scheme, is more akin to the standard super scheme of the nineties—put it that way—in that it is a defined benefits scheme and you cannot access benefits until you reach your preservation age, which is 55 and is going up. So they are two totally different schemes designed for totally different eras and totally different ADFs. The demography of the current ADF, I suggest, is different from the seventies.

Mr ADAMS: What recognition would you like ADF members to receive in relation to the Strategic Reform Program?

Col. Jamison : We flagged that in the case that we put before the Defence Force Remuneration Tribunal. We believe that 1½ per cent per year over the life of that agreement would have been a just reward for what they have done.

Mr ADAMS: With the covenant you talk about, what is this idea? I read that the one that the UK has is for the nation to recognise services and treat service members fairly and respect them as individuals. I think the Defence Force and Australian personnel have that from the country.

Col. Jamison : One of the issues that we are grappling with is that the Australian community is moving away from an understanding of its Defence Force, what its Defence Force do on its behalf and what that entails. When you go through the earlier part of the last century, we had the First World War and the Second World War, followed by Korea, followed by Malaya, followed by Vietnam. Then there was a hiatus until the recent conflicts. Most of the families of the country had some sort of connection with a person who had served in the ADF. That does not seem to be the case anymore, and I think we are losing the connection with the community that we need to maintain to ensure that we have the support of the community and the recognition of the worth and value of ADF members and the work that they undertake on the community's behalf. Certainly, as we said in our submission, we think that adequate recognition has not always been forthcoming from successive governments. What we are trying to do is raise the issue and raise, if you like, the understanding within the community, but also within the parliament, of the nature of service in the ADF, what it actually costs the individuals and what they do on behalf of the nation. So we have taken the concept of a covenant from the UK, but we have not actually taken the content of the covenant that they have, because we believe that it should be a high-level document of principle that articulates an understanding of each component's responsibilities to each other component. It is an extension of our paper on the uniqueness of service in the ADF, what that means and what the basis of that uniqueness is.

Mr ADAMS: Recognising that it is a different world and we are a different country in the way that we operate now, it seems that defence forces are being dispersed to and pulled out of civilian work situations. I think the UK does a lot of that. It is a lot more interspersed within the community, I would have thought, than it was with the elite class of offices that we started off with after Federation and going through the first war. It is now a much more mixed up a lot.

Col. Jamison : The ADF is, in many ways, a reflection of the general Australian community. In that sense, we are different from other defence forces, I guess. That our members come and go is also an issue. They get sent to operations and their families remain in the normal community. They do not have the close connection with the families of their compatriots that they used to have in the days when we had married quarter neighbourhoods and that sort of thing. That sort of support has diminished, and the community, in many ways, does not understand what the soldier, sailor or airman on operations goes through and why he is the way he is when he comes back. It is difficult for some families as well. In fact, we believe that there is a greater level of family issues now than we have ever had before because of the nature of the deployments and the difficulty of reintegrating back into a peaceful Australian community having been on operations where every part of the day is dominated by the conflict.

Mr ADAMS: This is an issue for every defence force in the world.

Col. Jamison : Yes, it is.

Senator FAWCETT: Reading through the background of the briefs you cover that one of the intentions was that that would bind government to provide adequate training, equipment et cetera for the people in theatre as well as care for people coming back. The covenant is not all that old but I note that there are still significant numbers of charities working in the UK to provide care for veterans that we seem to pick up through DVA here. Is there any evidence that, to date, the existence of a covenant has actually bound the government of the day, whether it be the previous one or the current one, to make decisions that are meeting the original intent of the covenant?

Col. Jamison : We need to await the working out of the concept of the covenant because, as I understand it, it is an initiative of the present government, which has not been in power for all that long. But the standing of the UK defence forces in the community and the charitable support that they get from, particularly, the Royal British Legion but other charities as well reflects the nature of the UK community. We have to operate within our community and we have a different set of circumstances. In the proposal of the covenant that we are looking at we are looking to start from a different basis—a higher level of understanding of the mutual obligations from which we can build outcomes, support and community understanding of the nature of service in the ADF and what it does to our individuals.

CHAIR: Thanks for coming along this evening and providing that evidence. If you have been asked to provide any additional information, please forward that to the secretary. You will be sent a copy of the transcript of today's proceedings to which you may make corrections of grammar or fact.

Resolved (on motion by SenatorMacdonald):

That this committee authorises publication, including publication on the parliamentary database, of the transcript of the evidence given before it at public hearing this day.

Com mittee adjourned at 18:34