Thank you very much Melinda for the warm welcome, and for BT’s support for the FSC’s series of breakfast events.
It’s a great opportunity for me to talk with people, to meet you, and to make those important connections.
Can I begin by acknowledging the we gather today on the land the Gadigal people of the Eora Nation, and I extend my respects to elders past and present.
Can I also acknowledge Sally Loane, and all of your team Sally. I really do appreciate the time you have spent with me, the conversations we have had and the opportunities I’ve been given in just the short few months that I have had the portfolio to learn about what issues concern you, what priorities you are driving and what is important for your members. It’s been a great assistance for me in trying to get across my portfolio brief.
It is a great opportunity to speak with you about Labor’s policies in financial services this morning. There is certainly no shortage of policy discussions happening, or reforms taking place. It’s certainly I’ve learnt a very dynamic policy area. It’s been a very busy few months for me.
But today I will talk to you about some of the major issues I’ve been working on in the sector, and I’ll try and outline Labor’s positions on these key issues.
To those who attended the ASFA conference and were there when I spoke on Friday, apologies in advance, there may be some repetition of areas I covered there.
As the Financial Services Council’s 2016 State of the Industry report noted, the financial services industry employs 451,000 people, 52 per cent of whom are women. The ABS data for the June 2016 quarter shows that over the previous 12 months, the Gross Value Add to the Australian economy for the financial and insurance services industry was almost $148 billion. The industry manages $2.6 trillion in funds, including $2 trillion in superannuation funds.
So, put simply, the financial sector is of paramount importance to Australia. Because of the wealth it generates, because of the jobs it provides, and because of the unique responsibility it has for every Australian.
It’s also a sector that holds great opportunities for Australia.
The 2009 Johnson Report which Sally mentioned in her opening comments, set out what our financial sector has to offer the world: a skilled workforce, a solid legal and regulatory framework, and the sophisticated funds management sector that has grown up around our superannuation system.
Labor continues to support the Johnson Report’s vision of enabling our financial sector to take full advantage of the opportunities in our region. As the FSC has recently pointed out, many of the recommendations of that Report remain incomplete.
However, as Chris Bowen, the Shadow Treasurer, told the FSC’s Leadership Summit earlier this year, we are willing to work with the government on these measures and on measures that look to reduce any new and emerging barriers for our financial services industry.
If I could just for a moment reflect on my experience in implementing one of the recommendations of the Johnson Report. This is the recommendation that all state taxes and levies on the insurance sector be removed. As the FSC has noted, these taxes add significantly to the cost of insurance and they’re an impost on business. Just as significantly, they discourage consumers from taking out adequate levels of cover.
The FSC’s recent stock take says that implementation of this recommendation has actually gone backwards. That’s perhaps not surprising given some of the challenging budget situations many states face.
However, it is a recommendation that we were able to address in the ACT.
We addressed it as part of a bold, some would say brave, 20 year program of tax reform that my government when I was Chief Minister announced in 2012, and my successor Andrew Barr has continued on.
A key part of this reform was to move our tax base from stamp duties on property transfers to land tax. That was a key element of it. To date, this reform has eluded other states and territories. And yet, it’s reform that has been recommended by economists, tax reviews, and even recently by the Prime Minister and the Treasurer. It’s a tax that is more efficient and it’s more equitable, amongst other things it eases the burden on homebuyers.
Crucially, it also provides a broader, more stable revenue base. This was a key part of my considerations when we went down this path. It was this that enabled us, as part of this tax reform package, to commit to the phasing down of taxes on insurance. I’m pleased to say this phase-down actually finished on July 1 this year when, when right on schedule, insurance duties in the ACT, including duties on life insurance, were completely abolished.
The ACT has become the first place in Australia where businesses are not burdened by insurance taxes; the first place in Australia where consumers are not discouraged from taking out the insurance protection that they need.
But these reforms have not been easy, and, to date, the Labor Party in the ACT has fought and won two elections in the teeth of negative opposition campaigns about these reforms. However, the ACT experience provides a guide to other jurisdictions about how reforms like these can be delivered even in the face of strong political and stakeholder opposition. And it shows that even in the current budgetary and political environments, when governments explain reforms and persist with them, they can be delivered.
There is a strong Labor tradition of pursuing and making the case for difficult reforms in the interests of the community as a whole. And, it is perhaps in this spirit that I will talk later today about our policies on the tax treatment of superannuation. But first, I will mention a couple of other areas.
As you know, part of Labor’s policy is a royal commission into the banking and financial services sector. Our decision in April this year to call for a royal commission was not one that was taken lightly. But it was taken with the aim of ensuring that any systemic issues in the industry are addressed in a thorough and transparent way.
I know that the FSC and everyone here today feels disappointed with and let down by the instances of misconduct and unethical behavior that have come to light. While I know that the FSC is on the record as opposing a royal commission, I also know we share a common understanding of the importance of strengthening consumer confidence and trust in our financial services sector, particularly given that all Australians rely on it.
And despite our differences on the issue, we do recognise the proactive steps that the FSC is taking to improve trust and consumer outcomes.
One such example is the FSC’s Life Insurance Code of Practice. The FSC managed to bring together the industry in support of the industry’s first ever code.
We welcome the code as a first step to lifting insurer practices and obligations so that they better meet consumer needs and expectations.
If the code removes conflicted remuneration for claims handlers, improves the timeframes for the processing of life insurance claims, and limits the use of invasive surveillance, these will be good things.
However, there are issues that need to be further addressed, and I know that the FSC is aware of these, including the code’s application to superannuation trustees, medical definitions, and the independence of medical specialists assessing claims.
We do believe that there is much more to be done in this space, both for consumers and for confidence in the life insurance sector and I look forward to continuing to discuss these matters with the FSC as they are worked through in more detail, and as future stages of the code are developed.
Another example of the FSC’s proactive work is the role that you all play through your members in the reform to commissions to financial advisers who sell life insurance products. The recommendations of the Trowbridge Review, in which the FSC was involved, were influential in the bill to reform life insurance commissions that is currently before the parliament.
Labor’s supported the Life Insurance Framework Bill when it was first introduced to parliament earlier this year before the election, and that remains our position. However, as we noted then, we have some reservations about the reforms. Industry has been engaged in a long process of consultation over these reforms, but we acknowledge that there are some financial advisers who, whether rightly or wrongly, feel that their voices have not been heard in the process.
And we also acknowledge concerns of consumer groups that the bill could go further in protecting consumers in this space.
The new timeframe as outlined in the legislation means that it will now be 2020 when these reforms are fully implemented. We think that the ASIC Review, now scheduled for 2021, is important in making sure that these reforms are improving consumer outcomes required and desired.
We also anticipate the introduction to the parliament of reforms to mandate professional standards for financial advisers. It was back in September 2014 that the FSC called for an independent body to have control of education and professional standards for financial advisers, declaring that “self-regulation is no longer a credible option for establishing higher standards”. The FSC at the time urged the industry to redefine itself “through robust oversight and high competency standards to rebuild the trust and confidence of consumers so more Australians seek financial advice.” These reforms to professional standards for financial advisers have been a long time coming and the government has announced that they will be in parliament perhaps this year, and we will certainly await their introduction.
We welcome the steps that the FSC through Sally and her team were one of the first groups to knock down my door and come in and tell me about all the work that they were doing. It is work that I welcome, because ensuring that the sector delivers for consumers is a focus that I will bring to this portfolio.
Now let me turn to the superannuation reforms that are currently before the parliament. It does look like these are two of the bills that will – there are three bills – but two will certainly get the attention of both houses of parliament before parliament rises at the end of the next two weeks of sitting.
It’s worth remembering that up until the 1980s superannuation in Australia was largely the preserve of public servants and wealthy corporate employees. The Hawke-Keating government set in train a series of developments which led to super being rolled out to the whole workforce, culminating in the super guarantee. From this, stemmed the benefits of reducing reliance on the aged pension, and a large national pool of capital. And there was the key vision that super should be something not just for the privileged few, but something from which all working Australians should benefit. That was Labor’s vision back then. It remains Labor’s vision today, and it is a vision that we have consistently worked to build on over the past 30 years.
Now, as in the 80s, Labor recognises that the tax treatment of superannuation has to encourage savings, but that it has to be sustainable and equitable. This has been the driving ideology behind the way that Labor has approached the significant reforms which are now before the Parliament.
Superannuation tax concessions cost the budget about $30 billion per annum.
And we note that the top 10% of income earners are receiving 38% of those concessions and the top 20% take 55%. Given the need for budget repair in the current environment and I know that’s a risky statement to put out in the superannuation industry who don’t want super being seen in terms of budget savings, but having said that these figures could not be ignored. There was a clear case for sensible reform which sought to rebalance the growing inequity across the system. And that is why, prior to my time in this portfolio, Chris Bowen and the economics team has been leading the superannuation reform debate arguing for superannuation tax settings that are targeted, fair and sustainable.
Now, we first announced our intention to make reforms to super tax concessions back in April 2015. At the time the Government attacked those proposals and criticised them. However, they then announced their own rushed package in the 2016 Budget with several measures that were if not similar to Labor’s package, certainly delivered a very similar outcome.
The pledge at that time was that the policies were ‘iron-clad’, but as everyone in the room will know there were several months of discomfort and the Government scrapped the most controversial part of their super reform package by getting rid of the $500,000 life time non-concessional contributions cap.
Following the Government’s revised legislation we had a look at our own package again and revised it against the package that was actually going to come before the parliament.
I think we’ve tried to work in good faith with the government to see genuine reform in this area, and Chris Bowen and I finalised a package which we announced a couple weeks ago that sought to find that balance between sensible reforms which make the system fairer whilst also contributing to budget repair.
I should say at this point, and to give you some hope on the job of reform that sits before parliament, I think there are nine measures that the government seeks to address, there are five where Labor agrees with the Government. There are two other areas where we think there should be further amendments, and two area where we oppose – and perhaps if I just go to those.
In terms of the areas where we don’t agree, where we are proposing changes to the Government’s measures, they’ve introduced a $100,000 cap on non-concessional contributions cap. We believe there’s room to lower that to $75,000 per annum.
It’s clear that fewer than 1 per cent of Australian taxpayers made $100,000 or more in non-concessional contributions. While over 86 per cent of taxpayers made no non-concessional contributions. That’s back in the 2012/13 financial year.
Many Australians will however provide one lump-sum, large non-concessional contribution at some stage in their working life – and the superannuation system allows for this and should allow for this. And the proposal is to bring forward three years’ worth of contributions into a single year if people need it. It’s very clear that under the Government’s proposal, or Labor’s proposal that there is still more than enough room for those one-off lump sums to be provided.
I think the Treasury figures show the average contribution for these one-off lump sums is $135,000 – so well under what would be allowed under either of the Labor or the Government’s plan.
In terms of the other area we would seek amendments it relates to the higher income superannuation contribution. The Government wants to reduce that to $250,000. We believe there is room to lower that to $200,000.
In terms of the areas where we don’t support in the package, one of them is the catch up contributions. Basically our opposition to that and the tax deductibility for superannuation contributions, is that they will open spending in the order of $1b over the forward estimates, but also about $12.3b over the ten year period.
We don’t think that at a time when the budget is in the state is, and we’re looking to refine so of the superannuation tax concessions that it’s the time to open up new tax concessions. Particularly if the evidence is, and this goes to the catch up contributions, that they are not going to attract the benefits for the people that the Government says it is.
I know that catch up contributions are very much being sold as something that will help women who have fragmented time in the workforce. But it’s very clear from the figures, whilst they haven’t been provided by the Treasury because Treasury hasn’t done any gender analysis of that measure, but by other experts, that it would not be women who would benefit from this. Predominately, it would be men who are on higher incomes and have the capacity to put that money into super.
In terms of the objective of super – and I will finish very shortly, I know it is a long speech –I have sought the agreement of the Government to refer this off to a committee. I know that will probably reach a few groans in the room. But the point here – and I know that many of you would have provided submissions for this legislation, is that there seem to me to be, well, I think I found one submission that was supportive of the objective as currently defined by the legislation. There were a lot of submissions across the board, from the left to the right, with views about what it should be.
I know while there had been some good early work done on consultation on this that the work that was done post the Government settling on this Bill was very short, about 9 days for people to get their submission in. And there remain a number of unanswered questions.
Not just about the objective, but about the secondary objectives or the subsidiary objectives and about how they relate to the primary objective, where they are located in the legislation – at the moment they are located in the explanatory memorandum and not in the Bill. Also, about how compatibility statements would work. There is seemingly no enforceability of that.
And for something that seems to me to be at the heart of the discussions that will be happening about super and super 2.0, the fit for purpose discussion that will be ongoing. I have no doubt, it seems to me that getting the objective right and as David Murray said in the FSI report, a broad political consensus or I think those were the terms used, that we should attempt to reach that before an objective is legislated.
I don’t know if that’s possible. But I think we need the time to try and get it right.
Many people have said to me that their preference would be to have no objective of super if it meant that we got one that nobody agreed with considering the role that it will play in formulating public policy, but also the role we see super playing, particularly as people are living longer and spending more time reliant on retirement savings.
My own view is let’s get it right. I pretty sure – In fact I am sure the Government agreed to carve that legislation off. It will go for a committee inquiry. I expect people will be able to resubmit the submissions they have provided to Treasury. So there won’t be too much more work but we’ll be able to have that discussion and it is due to report in February next year.
I might leave it there. It’s been really good to meet so many of you over the past three months. I know I still have a lot to learn and a lot of people to meet. As I said at the beginning the policy work is very dynamic. It is front and centre of the political debate. I know that, and I know that puts a lot of pressure working in the industry.
I also acknowledge the very significant steps the industry has taken to reform and to reflect and better meet the needs of consumers that we are here to serve.
I look forward to hopefully coming back another time. I look forward to outliving some of my predecessors – it’s not a very long life expectancy! I was just telling my table that I was health minister for 8 years and the life expectancy for a health minister is about 12 to 15 months so, I have got a bit of a track record of hanging around longer than others. I’m hoping I can keep that up because I really am genuinely impressed by the work that’s underway. I am interested in it, there’s a work to be done and there are a lot of issues I think to resolve and discussions to be had. It’s been a very intellectually stimulated, a little bit frightening, last four months or so but I feel that once the parliament rises I’ll have a great opportunity to reflect on and resolve the areas I want to focus on. I look forward to discussing that with you all next year.
Thank you very much.
FRIDAY, 18 NOVEMBER 2016