‘YOU CAN ALMOST REGISTER YOUR DOG AS A COMPANY DIRECTOR’

Australian Tax Office Commissioner Chris Jordan this morning has confirmed the need for action on dodgy phoenix operators, who deliberately burn companies in an attempt to avoid their obligations to employees, taxpayers and honest businesses.

The Tax Commissioner told a Senate Estimates Committee:

“This is not a new issue. Phoenixing is a big problem, especially when you have these people that are unassociated with the principals. You can’t keep track.”

When speaking on how easy it is to become a company director in Australia, Mr Jordan told one Senator

“I could appoint you as a company director without you even knowing and me then controlling the company”

The Tax Commissioner also noted that in other countries, proper identification checks are required for anyone wanting to become a director.

Illegal phoenix activity costs our economy billions of dollars annually. That’s why Labor last week announced measures to crack down on dodgy directors:

  • Requiring all company directors to obtain a unique Director Identification Number with a 100-point identification check.
  • Increasing penalties associated with phoenix activity
  • Introducing an objective test for transactions depriving employees of their entitlements
  • Clarifying the availability of compensation orders against accessories
  • Consulting on targeted integrity measures based on the recommendations of the Melbourne Law School / Monash Business School Phoenix Research Team recommendations.

Among the bodies that support Labor’s call for a Director Identification Number are:

  • The Productivity Commission
  • The Australian Institute of Company Directors
  • The Australian Small Business and Family Enterprise Ombudsman
  • The Australian Chamber of Commerce and Industry
  • Master Builders Australia
  • The Australian Council of Trade Unions
  • The Australian Restructuring Insolvency and Turnaround Association
  • The Phoenix Project (comprising experts from Melbourne University Law School and Monash University Business School)

As one expert said today:

“you can, almost literally, register your dog as a company director”

Why is the Turnbull Government letting dodgy directors off the leash?

TUESDAY, 30 MAY 2017

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$204 MILLION AND COUNTING: FEE FOR NO SERVICE SCANDAL GETS WORSE

A compensation update from ASIC over the banks fee-for-no-service scandal has revealed that a further 100,000 customer accounts have been implicated in the scandal and the bill to repay ripped off customers now exceeds $200 million.

The scandal, where customers were charged a fee to receive ongoing advice but didn't receive any has now affected over 300,000 customers from AMP, ANZ, NAB, CBA and Westpac.

Since the original fee-for-no-service report was released (REP499) a further 100,000 accounts have been identified where fees were charged for services that customers never received.

This update increases the estimated compensation bill by a further 15% to a staggering total of $204 million without including interest charges.

The fact that a further 100,000 customers have been identified since the first report was released just over six months ago makes you wonder where it is all going to end.  

How many more banking customers need to be overcharged fees by their bank before Malcolm Turnbull will act and call a royal commission?

How many millions of dollars will have to be paid back to customers in compensation before Malcolm Turnbull will act and call a royal commission?

Just in this one scandal alone 300,000 customers accounts have been ripped off and need to be repaid more than $200 million by their own bank.

It’s time for Malcolm Turnbull to act in the interests of Australian banking customers and establish a royal commission.  

Only a royal commission will provide the scrutiny that's required to get to the bottom of what has gone wrong in Australia's banking and financial services system and Labor will continue to call for one.

SATURDAY, 20 MAY 2017

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SPEECH TO THE FUTURE OF SUPERANNUATION CONFERENCE

Let me begin by acknowledging the traditional custodians of the land upon which we meet, the Gadigal people of the Eora Nation, and extending my respects to elders past and present.

 

I would like to also extend my thanks to Mike Taylor and his colleagues at Super Review for the invitation to speak to with you all today.

 

As the Shadow Minister for Small Business and Financial Services I have been asked to speak today about the Federal Opposition’s approach to superannuation in particular.

 

With the Federal Budget released just over a week ago, I also thought that I would make a few remarks about some of the policies it contained and our views on that.

 

But before I do, I will just start with Labor’s vision for superannuation and why we think it is so important.   

 

Labor’s vision for superannuation 

 

Labor has a proud history on superannuation. 

 

Labor established the age pension and we built universal, compulsory superannuation.

 

Now, the Labor party itself can't take all the credit for creating the world class superannuation system we have in place now, we must acknowledge the  role played by the labor movement over many years in recognising the need for a mechanism which ensured improved income for workers in their retirement years, and also acknowledged the inequitable access to superannuation schemes, particularly for low income workers and women workers at the time, and their role in advocating for a system where working people have the same access to super savings as high income earners and public schemes that were in operation at the time. 

 

It was off the back of negotiations between the industrial and political wings of the labour movement that in1992 that Labor in Government introduced Australia’s compulsory super system with the requirement that employers make superannuation contributions on behalf of their employees.  And aren't we all glad today that they did.

 

Since that time, estimated superannuation assets have increased from around $148 billion in March 1992 to over $2 trillion today and the rate of employer contributions has also steadily increased from 3 percent to the current level of 9.5 percent. 

 

Further increases to the contribution rate as we all know were scheduled to raise it to 12 percent by 2019, but these gradual increases fell victim to the infamous Hockey/Abbott budget of 2014, and the contribution rate is now not planned to reach 12 per cent until 2025-26. Labor strongly believes in protecting and growing superannuation. We also believe in increasing the superannuation guarantee increase to 12 per cent, when fiscal circumstances allow to provide millions of Australians with higher retirement incomes.

 

We also believe in pursuing proactive and progressive policies that improve fairness and strengthen retirement incomes, for all working people and particularly for women and low and middle income earners. 

 

In terms of fairness, Labor has led the debate about tightening superannuation tax concessions when we announced our policy back in April 2015.  At the time the Government came out attacking those policies, but by last year’s budget they, for the large part, accepted the general direction of Labor’s proposed reforms and legislated substantial changes to super tax concessions which Labor largely supported.

 

Whilst our proposed reforms went further than what the Parliament legislated, we believe the changes are fair and fiscally responsible. Following on from these changes we would, however, like to see a period of stability where super does not become victim to a yearly assault by the budget razor gang and we have announced our position in terms of a five year report from an independent council of superannuation custodians to assist with that.

 

In terms of other reforms before the parliament, legislating an objective for super remains on the table. Currently, Labor does believe in legislating an objective for superannuation, as a way to protect the integrity of the system, as recommended by the Murray Financial Systems Inquiry.  But we strongly believe that we need to get the objective right - we will not agree to a Bill which doesn't protect or strengthen super - or we believe we are better off without the legislation.

 

Superannuation in the 2017-18 Federal budget

 

If I turn to how the Federal budget released last week and see how that rests against our vision of a stronger super system for all Australians.

 

First home super saver scheme

 

An issue which we have heard quite a lot about over the past few months is whether the Government should allow first home buyers to access superannuation for a housing deposit.

 

We all witnessed the various internal disputes from within the Cabinet play out in the papers on what seemed like a daily basis for a while there. Labor has been very clear from the outset that we do not support accessing super for housing. 

 

Superannuation is for retirement incomes.

 

The stated purpose of the Government’s first home super saver scheme is to encourage home ownership. 

 

Now, Labor is all for supporting home ownership – housing affordability is a huge issue in this country – whether it’s those trying to break into the housing market or people struggling with high rents or others who are homeless – but we don’t believe this policy will not do anything to resolve these critical issues. 

 

We believe there are several problems with the Government’s policy.

 

Firstly, that it undermines superannuation. We believe, as I said, superannuation is to build up savings for retirement.  It is not a savings tool for housing or for that matter any other significant financial liability that a person may have during their lifetime.

 

The introduction of this policy could be just the beginning of allowing other withdrawals from super – which we believe would be a disastrous approach which would severely undermine our superannuation system. 

 

Secondly, it is inconsistent with the Government’s proposed objective for superannuation.

 

The Superannuation (Objective) Bill 2016 is currently before the Senate and it proposes that: 

 

“The primary objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension.”

 

The legislation also provides for subsidiary objectives of the superannuation system to be prescribed by regulations.  The Government has said that these regulations are to:

·         facilitate consumption smoothing over the course of an individual's life;

·         manage risks in retirement;

·         be invested in the interests of superannuation fund members;

·         alleviate fiscal pressures on government from the retirement income system; and 

·         be simple, efficient and provide safeguards.

 

Quite rightly we would argue that they didn’t include saving for a home or using the superannuation system as an alternative to genuine policies to address housing affordability in this Bill. 

 

Thirdly, the Government’s policy could have unintended impacts on other members of a superannuation fund. 

 

The Government’s policy is that the amount of earnings that will be released to the first home buyer will be calculated using a deemed rate of return based on the 90 day Bank Bill rate plus three percentage points. It is not clear what would happen in the event that the prescribed earnings rate for housing deposits differs from the earnings of the super fund.  For example, if the housing deposit earnings rate is higher than what the super fund earns, will other members cross subsidise those who withdraw their super for housing?   Or will the super fund need to draw from the member’s compulsory super savings?  

 

Fourth, the policy could be very difficult to implement. 

 

The Government’s budget fact sheet says that the ATO will have primary responsibility for administering the scheme. It will be responsible for determining the eligibility of the person seeking a release and for calculating the release amounts.  Its decision is to be based on information provided by the applicant and superannuation funds.

The ATO is also to be responsible for compliance – to ensure that people who withdraw their deposit actually go on to purchase their first home.

 

Frankly, we are yet to see the details about how the ATO will go about these various responsibilities. 

 

We know from a recent Senate Inquiry into the non-payment of the superannuation guarantee that there are significant gaps in data and reporting of superannuation to the ATO that have constrained its ability to identify when employers do not meet their superannuation guarantee obligations. 

 

These data gaps may make it difficult for the ATO to implement the first home super saver policy effectively and with job losses and other pressures on the ATO, which are well known and documented, its difficult to see how they would prioritise or manage this scheme.

 

Fifth, the first home super saver scheme may not make a significant impact on the ability of first home owners to purchase a home. 

 

Plenty has been written by commentators on this since the Budget was handed down last week. The Government’s budget fact sheet gives an example of Michelle and Nick saving for their home deposit.  Under this example, they both earn $60,000 per year and salary sacrifice $10,000 into super.  Under the new policy, after three years, they will save $12,480 more than if they had the funds in a standard savings account. 

 

But if the house prices in Australia grow even at their average historical rates since December 2011, then it could be that the median price of a residential dwelling in Australia would grow by over $100,000 in the three years that a first home buyer was saving. So under the scheme, a first home owner couple would receive an additional, just shy of$12,500 but meanwhile while house prices could have increased by over $100,000 over the same time.

 

Clearly this policy isn’t going to be a game changer for first home buyers. 

 

And, this brings me to my sixth point – that this policy does nothing to address housing affordability. 

 

It will do nothing to put first home buyers back on to a level playing field with investors or take the heat out of the housing market.We’ve certainly been taking the lead on developing policies that will genuinely work to address housing affordability. 

 

Labor’s housing affordability plan is to respond across the housing spectrum with tax reform, national leadership through COAG, new financing vehicles, homelessness support, better outcomes from national agreements and for the expenditure contained within them, and support for a  better supply of housing.

 

Contributing the proceeds of downsizing to superannuation

 

Another policy announced in last week’s budget is to allow people aged 65 or over to make a non-concessional concessional contribution to their superannuation of up to $300,000 from the proceeds of selling their home from 1 July 2018.     

 

Labor has previously supported a policy objective of creating an incentive for older Australians to down-size their home.

 

In government we had program called Housing Help for Seniors pilot program in 2013-14 which was to provide an income and assets test exemption for pensions over the age pension age who downsized their home.  The pilot program was to run for three years and be reviewed, however it also fell victim to  the Abbott Government back in2014 and was scrapped before it had a chance to even commence.

 

The Government’s policy though, is to provide superannuation tax concessions for over 65s who downsize their home.

 

The difficulty is that it is likely to only be taken up by higher wealth individuals.  This is because the proceeds of the sale of the home will still count towards the calculation of the pension asset test.  So anyone who is currently receiving the age pension, or is marginally above the cut off, would think twice about downsizing purely for the financial benefits.  

 

Labor however is still consulting stakeholders and considering whether there are sufficient benefits to the housing market to justify granting further superannuation tax concessions to higher income earners. 

 

Policies to address unpaid super missing from the 2017-18 budget

 

In terms of what wasn’t in the budget, it was certainly disappointing to see that there was nothing to address the issue of unpaid superannuation.

 

A report by Industry Super Australia released in late last year, and updated earlier this year, projected that 2.76 million Australians are being underpaid on their super, with an aggregate amount of $5.6 billion.  This equates to an average amount of just over $2,000 per person. If this situation is allowed to continue ISA projects that the cumulative impact on retirement savings would be $102 billion over the period 2013-14 to 2023-24. 

 

This would not only put significant further demand on the age pension, but it would also deny employees the superannuation payments they are legally entitled to.

Australians deserve to get the super that they have earned.  That is why Labor moved to establish a Senate Inquiry into the non-payment of the superannuation guarantee which has recently reported

 

The Inquiry heard many cases where employers were failing to meet their superannuation guarantee obligations and made recommendations on how to strengthen compliance to ensure that all workers receive the superannuation that they are entitled to.

 

In January this year, the Government announced that it had established a new multi-agency working group to investigate and develop practical recommendations to deal with superannuation guarantee non-compliance.  It also said that the working group had been going since December last year.But despite the working group being due to provide a final report to the Minister back in March, we are yet to see action from the Government in this area. 

 

In fact, I would argue we are yet to see a broad vision for superannuation from this Government, perhaps beyond its pursuit of a clear ideological agenda against certain elements of the sector. 

 

There are many long term policy challenges for Australian super and for retirement incomes more generally. These include ensuring that lower income workers, particularly women have access to a decent retirement. It includes ensuring that the changes we are seeing over time in the labour market do not leave people who do contract, casual and part-time work get left behind. It also includes positioning ourselves to meet the future challenge of supporting more Australians to live longer lives of value and dignity.  Superannuation, and its interactions with the age pension, health and aged care sector, will be a critical component of this future.

 

As a $2 trillion sector, with growth coming forward and such a significant impact on people’s lives, governments and policy makers should be turning their minds now to meeting the challenges of the future.

 

In terms of what Labor will do we will always support evidence based policies that seek to strengthen superannuation – particularly for low income workers and women – but we will not support policies which aim to weaken and target the labour movement’s role within the superannuation system. We know there is substantial work underway – with the Productivity Commission review and other super industry working groups along with changes flagged by the Government. Labor will be active participants in these debates and our focus will always be on what is in the interests of working people across Australia.

 

This principle has guided us from the very beginning and it will continue to serve us well in 2017 and beyond.

 

Major banks levy

 

Finally If I could just make a few comments on the Government’s new bank levy which also featured prominently in last week’s budget and every day since.  I see from the program that this policy that may be discussed in the conference later in the day.

 

Given the tight fiscal circumstances, Labor has said that we will not stand in the way of the new major banks levy. However, we do believe the Government needs to ensure that the burden of levy isn’t simply passed on to banking customers.  The Government promised very clearly on Budget day that this levy had been designed in a particular way that protected consumers and Labor believes they need to stick to their word.

 

Like everyone it seems, including the banks themselves, we would like to see more details from the Government on exactly how intend to do this.

We note the concerns that have been raised about the rushed process, lack of information, modelling or regulatory impact statement. We believe it is important and in the public interest, that all of this information is released ahead of the legislation coming before the parliament.

 

I have to say with my other hat on as Manager of Opposition Business in the Senate, It is pretty common these days for rushed legislation to come before the Parliament without proper process resulting in the need for substantial amendments bills to come later. Last year’s superannuation bills were a classic example of this. Whilst we will not seek to delay the bank levy bills we do believe a Senate inquiry is warranted and we will begin scrutiny of this measure in next week’s estimates hearings.

 

Conclusion

 

I know in the time available I’ve only been able to address a few of the many issues facing the superannuation and the financial sector more broadly.

 

There is a lot more we could discuss today but I can assure you that Labor’s response to the Government’s proposals in the budget will be guided by our values, by doing the right thing in the interests of working people and by what's in the long term interest of the country.

 

Thank you very much for the opportunity to talk to you at the conference today.

 

ENDS

 

 

 

Let me begin by acknowledging the traditional custodians of the land upon which we meet, the Gadigal people of the Eora Nation, and extending my respects to elders past and present.

 

I would like to also extend my thanks to Mike Taylor and his colleagues at Super Review for the invitation to speak to with you all today.

 

As the Shadow Minister for Small Business and Financial Services I have been asked to speak today about the Federal Opposition’s approach to superannuation in particular.

 

With the Federal Budget released just over a week ago, I also thought that I would make a few remarks about some of the policies it contained and our views on that.

 

But before I do, I will just start with Labor’s vision for superannuation and why we think it is so important.   

 

Labor’s vision for superannuation 

 

Labor has a proud history on superannuation. 

 

Labor established the age pension and we built universal, compulsory superannuation.

 

Now, the Labor party itself can't take all the credit for creating the world class superannuation system we have in place now, we must acknowledge the  role played by the labor movement over many years in recognising the need for a mechanism which ensured improved income for workers in their retirement years, and also acknowledged the inequitable access to superannuation schemes, particularly for low income workers and women workers at the time, and their role in advocating for a system where working people have the same access to super savings as high income earners and public schemes that were in operation at the time. 

 

It was off the back of negotiations between the industrial and political wings of the labour movement that in1992 that Labor in Government introduced Australia’s compulsory super system with the requirement that employers make superannuation contributions on behalf of their employees.  And aren't we all glad today that they did.

 

Since that time, estimated superannuation assets have increased from around $148 billion in March 1992 to over $2 trillion today and the rate of employer contributions has also steadily increased from 3 percent to the current level of 9.5 percent. 

 

Further increases to the contribution rate as we all know were scheduled to raise it to 12 percent by 2019, but these gradual increases fell victim to the infamous Hockey/Abbott budget of 2014, and the contribution rate is now not planned to reach 12 per cent until 2025-26. Labor strongly believes in protecting and growing superannuation. We also believe in increasing the superannuation guarantee increase to 12 per cent, when fiscal circumstances allow to provide millions of Australians with higher retirement incomes.

 

We also believe in pursuing proactive and progressive policies that improve fairness and strengthen retirement incomes, for all working people and particularly for women and low and middle income earners. 

 

In terms of fairness, Labor has led the debate about tightening superannuation tax concessions when we announced our policy back in April 2015.  At the time the Government came out attacking those policies, but by last year’s budget they, for the large part, accepted the general direction of Labor’s proposed reforms and legislated substantial changes to super tax concessions which Labor largely supported.

 

Whilst our proposed reforms went further than what the Parliament legislated, we believe the changes are fair and fiscally responsible. Following on from these changes we would, however, like to see a period of stability where super does not become victim to a yearly assault by the budget razor gang and we have announced our position in terms of a five year report from an independent council of superannuation custodians to assist with that.

 

In terms of other reforms before the parliament, legislating an objective for super remains on the table. Currently, Labor does believe in legislating an objective for superannuation, as a way to protect the integrity of the system, as recommended by the Murray Financial Systems Inquiry.  But we strongly believe that we need to get the objective right - we will not agree to a Bill which doesn't protect or strengthen super - or we believe we are better off without the legislation.

 

Superannuation in the 2017-18 Federal budget

 

If I turn to how the Federal budget released last week and see how that rests against our vision of a stronger super system for all Australians.

 

First home super saver scheme

 

An issue which we have heard quite a lot about over the past few months is whether the Government should allow first home buyers to access superannuation for a housing deposit.

 

We all witnessed the various internal disputes from within the Cabinet play out in the papers on what seemed like a daily basis for a while there. Labor has been very clear from the outset that we do not support accessing super for housing. 

 

Superannuation is for retirement incomes.

 

The stated purpose of the Government’s first home super saver scheme is to encourage home ownership. 

 

Now, Labor is all for supporting home ownership – housing affordability is a huge issue in this country – whether it’s those trying to break into the housing market or people struggling with high rents or others who are homeless – but we don’t believe this policy will not do anything to resolve these critical issues. 

 

We believe there are several problems with the Government’s policy.

 

Firstly, that it undermines superannuation. We believe, as I said, superannuation is to build up savings for retirement.  It is not a savings tool for housing or for that matter any other significant financial liability that a person may have during their lifetime.

 

The introduction of this policy could be just the beginning of allowing other withdrawals from super – which we believe would be a disastrous approach which would severely undermine our superannuation system. 

 

Secondly, it is inconsistent with the Government’s proposed objective for superannuation.

 

The Superannuation (Objective) Bill 2016 is currently before the Senate and it proposes that: 

 

“The primary objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension.”

 

The legislation also provides for subsidiary objectives of the superannuation system to be prescribed by regulations.  The Government has said that these regulations are to:

·         facilitate consumption smoothing over the course of an individual's life;

·         manage risks in retirement;

·         be invested in the interests of superannuation fund members;

·         alleviate fiscal pressures on government from the retirement income system; and 

·         be simple, efficient and provide safeguards.

 

Quite rightly we would argue that they didn’t include saving for a home or using the superannuation system as an alternative to genuine policies to address housing affordability in this Bill. 

 

Thirdly, the Government’s policy could have unintended impacts on other members of a superannuation fund. 

 

The Government’s policy is that the amount of earnings that will be released to the first home buyer will be calculated using a deemed rate of return based on the 90 day Bank Bill rate plus three percentage points. It is not clear what would happen in the event that the prescribed earnings rate for housing deposits differs from the earnings of the super fund.  For example, if the housing deposit earnings rate is higher than what the super fund earns, will other members cross subsidise those who withdraw their super for housing?   Or will the super fund need to draw from the member’s compulsory super savings?  

 

Fourth, the policy could be very difficult to implement. 

 

The Government’s budget fact sheet says that the ATO will have primary responsibility for administering the scheme. It will be responsible for determining the eligibility of the person seeking a release and for calculating the release amounts.  Its decision is to be based on information provided by the applicant and superannuation funds.

The ATO is also to be responsible for compliance – to ensure that people who withdraw their deposit actually go on to purchase their first home.

 

Frankly, we are yet to see the details about how the ATO will go about these various responsibilities. 

 

We know from a recent Senate Inquiry into the non-payment of the superannuation guarantee that there are significant gaps in data and reporting of superannuation to the ATO that have constrained its ability to identify when employers do not meet their superannuation guarantee obligations. 

 

These data gaps may make it difficult for the ATO to implement the first home super saver policy effectively and with job losses and other pressures on the ATO, which are well known and documented, its difficult to see how they would prioritise or manage this scheme.

 

Fifth, the first home super saver scheme may not make a significant impact on the ability of first home owners to purchase a home. 

 

Plenty has been written by commentators on this since the Budget was handed down last week. The Government’s budget fact sheet gives an example of Michelle and Nick saving for their home deposit.  Under this example, they both earn $60,000 per year and salary sacrifice $10,000 into super.  Under the new policy, after three years, they will save $12,480 more than if they had the funds in a standard savings account. 

 

But if the house prices in Australia grow even at their average historical rates since December 2011, then it could be that the median price of a residential dwelling in Australia would grow by over $100,000 in the three years that a first home buyer was saving. So under the scheme, a first home owner couple would receive an additional, just shy of$12,500 but meanwhile while house prices could have increased by over $100,000 over the same time.

 

Clearly this policy isn’t going to be a game changer for first home buyers. 

 

And, this brings me to my sixth point – that this policy does nothing to address housing affordability. 

 

It will do nothing to put first home buyers back on to a level playing field with investors or take the heat out of the housing market.We’ve certainly been taking the lead on developing policies that will genuinely work to address housing affordability. 

 

Labor’s housing affordability plan is to respond across the housing spectrum with tax reform, national leadership through COAG, new financing vehicles, homelessness support, better outcomes from national agreements and for the expenditure contained within them, and support for a  better supply of housing.

 

Contributing the proceeds of downsizing to superannuation

 

Another policy announced in last week’s budget is to allow people aged 65 or over to make a non-concessional concessional contribution to their superannuation of up to $300,000 from the proceeds of selling their home from 1 July 2018.     

 

Labor has previously supported a policy objective of creating an incentive for older Australians to down-size their home.

 

In government we had program called Housing Help for Seniors pilot program in 2013-14 which was to provide an income and assets test exemption for pensions over the age pension age who downsized their home.  The pilot program was to run for three years and be reviewed, however it also fell victim to  the Abbott Government back in2014 and was scrapped before it had a chance to even commence.

 

The Government’s policy though, is to provide superannuation tax concessions for over 65s who downsize their home.

 

The difficulty is that it is likely to only be taken up by higher wealth individuals.  This is because the proceeds of the sale of the home will still count towards the calculation of the pension asset test.  So anyone who is currently receiving the age pension, or is marginally above the cut off, would think twice about downsizing purely for the financial benefits.  

 

Labor however is still consulting stakeholders and considering whether there are sufficient benefits to the housing market to justify granting further superannuation tax concessions to higher income earners. 

 

Policies to address unpaid super missing from the 2017-18 budget

 

In terms of what wasn’t in the budget, it was certainly disappointing to see that there was nothing to address the issue of unpaid superannuation.

 

A report by Industry Super Australia released in late last year, and updated earlier this year, projected that 2.76 million Australians are being underpaid on their super, with an aggregate amount of $5.6 billion.  This equates to an average amount of just over $2,000 per person. If this situation is allowed to continue ISA projects that the cumulative impact on retirement savings would be $102 billion over the period 2013-14 to 2023-24. 

 

This would not only put significant further demand on the age pension, but it would also deny employees the superannuation payments they are legally entitled to.

Australians deserve to get the super that they have earned.  That is why Labor moved to establish a Senate Inquiry into the non-payment of the superannuation guarantee which has recently reported

 

The Inquiry heard many cases where employers were failing to meet their superannuation guarantee obligations and made recommendations on how to strengthen compliance to ensure that all workers receive the superannuation that they are entitled to.

 

In January this year, the Government announced that it had established a new multi-agency working group to investigate and develop practical recommendations to deal with superannuation guarantee non-compliance.  It also said that the working group had been going since December last year.But despite the working group being due to provide a final report to the Minister back in March, we are yet to see action from the Government in this area. 

 

In fact, I would argue we are yet to see a broad vision for superannuation from this Government, perhaps beyond its pursuit of a clear ideological agenda against certain elements of the sector. 

 

There are many long term policy challenges for Australian super and for retirement incomes more generally. These include ensuring that lower income workers, particularly women have access to a decent retirement. It includes ensuring that the changes we are seeing over time in the labour market do not leave people who do contract, casual and part-time work get left behind. It also includes positioning ourselves to meet the future challenge of supporting more Australians to live longer lives of value and dignity.  Superannuation, and its interactions with the age pension, health and aged care sector, will be a critical component of this future.

 

As a $2 trillion sector, with growth coming forward and such a significant impact on people’s lives, governments and policy makers should be turning their minds now to meeting the challenges of the future.

 

In terms of what Labor will do we will always support evidence based policies that seek to strengthen superannuation – particularly for low income workers and women – but we will not support policies which aim to weaken and target the labour movement’s role within the superannuation system. We know there is substantial work underway – with the Productivity Commission review and other super industry working groups along with changes flagged by the Government. Labor will be active participants in these debates and our focus will always be on what is in the interests of working people across Australia.

 

This principle has guided us from the very beginning and it will continue to serve us well in 2017 and beyond.

 

Major banks levy

 

Finally If I could just make a few comments on the Government’s new bank levy which also featured prominently in last week’s budget and every day since.  I see from the program that this policy that may be discussed in the conference later in the day.

 

Given the tight fiscal circumstances, Labor has said that we will not stand in the way of the new major banks levy. However, we do believe the Government needs to ensure that the burden of levy isn’t simply passed on to banking customers.  The Government promised very clearly on Budget day that this levy had been designed in a particular way that protected consumers and Labor believes they need to stick to their word.

 

Like everyone it seems, including the banks themselves, we would like to see more details from the Government on exactly how intend to do this.

We note the concerns that have been raised about the rushed process, lack of information, modelling or regulatory impact statement. We believe it is important and in the public interest, that all of this information is released ahead of the legislation coming before the parliament.

 

I have to say with my other hat on as Manager of Opposition Business in the Senate, It is pretty common these days for rushed legislation to come before the Parliament without proper process resulting in the need for substantial amendments bills to come later. Last year’s superannuation bills were a classic example of this. Whilst we will not seek to delay the bank levy bills we do believe a Senate inquiry is warranted and we will begin scrutiny of this measure in next week’s estimates hearings.

 

Conclusion

 

I know in the time available I’ve only been able to address a few of the many issues facing the superannuation and the financial sector more broadly.

 

There is a lot more we could discuss today but I can assure you that Labor’s response to the Government’s proposals in the budget will be guided by our values, by doing the right thing in the interests of working people and by what's in the long term interest of the country.

 

Thank you very much for the opportunity to talk to you at the conference today.

 

ENDS

 

 

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Labor calls for high-calibre talent on new standards body

This will be another important year for the financial advice sector, which faces the serious work of implementing the reforms passed earlier this year. In some ways, passing the laws was the easy bit. Making sure the new arrangements work for the profession will be just as important.

Labor supported recent legislation to strengthen professional standards for financial advisers because we believe it will strengthen the profession, address some of the shortcomings in the quality of financial advice that has plagued the sector in recent times and weed out the poor and shonky operators. This has certainly been the experience when similar bodies have been established across other professional groups.

Under the new law, financial advisers will be required to hold a degree or equivalent qualification, undertake a professional year, pass an exam, undertake continuous professional development and comply with a code of ethics. There is an obligation on the Australian Financial Services licensee to ensure that advisers comply with the new education standards and are covered by a compliance scheme. The legislation protects the use of the terms ‘financial adviser’ and ‘financial planner’, in recognition of the unique skill set that providing financial advice requires.

The reforms include the recognition of a new standard-setting body that will detail the new education standards and develop a code of ethics for financial advisers. Labor will be watching the appointees to the board of the new standards body closely. This board will have a great deal of responsibility in setting the new degree requirements that financial advisers have to meet. Labor expects people of a high calibre with significant experience to be appointed to the board, to ensure that these new standards are set at a robust level.

I was pleased to see the support across industry and consumer groups for this legislation. These reforms have been a long time coming. It was back in May 2014 that the Financial Planning Association (FPA) released a white paper that put forward a plan to prepare the profession for higher professional standards. And it was in September 2014 that the Financial Services Council called for an independent body to have control of education and professional standards for financial advisers.

With the financial services industry firmly in the political and public spotlight, the challenge before the profession in building and maintaining public confidence is not insignificant and I am hopeful that these laws, supported by all sides of politics and the financial planning industry, will assist with meeting that challenge.

Keen to engage with sector

As the financial planning industry adapts to the changes to professionalise the industry and the financial costs that come with that, Labor is keen to engage with the sector on ways to ensure that personal financial advice is something that remains accessible and affordable for people. This is especially relevant for women and those on lower incomes, who we already know experience financial exclusion to a much greater degree than others and are arguably more in need of the specialist advice that financial planners can provide.

Since taking on the shadow minister for small business and financial services role, I have learnt a great deal about this incredibly important industry. I would like to thank everyone who has invested time and energy in bringing me up to speed on the major issues. In such a complex, changing and politically charged policy space, the expertise and advice that advisers and the FPA have given me in my first few months in the role has been invaluable.

I look forward to strengthening the relationship with financial advisers and their representative bodies in 2017.

This article first appeared in Professional Planner on March 16, 2017.

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SPEECH TO INSURANCE COUNCIL OF AUSTRALIA FORUM - FRIDAY, 17 FEBRUARY 2017

Thank you for that warm welcome, Michael. And thank you also to Rob Whelan for the invitation to be with you today and to address you this morning. It really is an honour to be invited to speak with you and I know this forum, over the years, has been a significant place to discuss issues facing the insurance industry.

The Insurance Council of Australia is the voice of the general insurance industry, and it plays a crucial role in informing governments and oppositions as we consider policy that affects the industry.

And this is a sector that is crucial to Australia. Businesses rely on you to manage their risk. Travelers rely on you to help them out when a holiday goes awry. And then there is the fact that, every day, you meet ordinary Australians at the worst moments of their lives and try to help them rebuild. Australians take out insurance in the hope that they’ll never have to rely on it, but when the worst happens they turn to you. 

When preparing my remarks I thought back to one of my earliest memories being a minister in the ACT Government. It was 2003 and it was a hot Canberra summer, similar to the one we are experiencing now. Many of you in this room will be familiar with the tragic events that occurred in Canberra that January, where bushfires ripped through parts of the city, killing 4 people, injuring hundreds and destroying over 500 homes.

It was at this point that the value of insurance on a mass scale became very real to me. Canberrans who were traumatised and who had been left, in many cases with nothing, turned to their insurer and expected support, finances and answers on how to rebuild their lives, literally from the ground up. And for many of them the reality of underinsurance hit hard. 

It must be said, that these large scale disasters are always going to present issues and there will always be cases where people feel aggrieved, however, it would be remiss of me not to acknowledge the significant role that insurers played in rebuilding chunks of suburban Canberra following that time.

Since 2003, unfortunately we have seen this kind of experience many times across the country.

Disaster Mitigation

But of course, the time for action is not just after disasters occur, but before they occur again. To this end, in the ACT we did take proactive steps to improve land use planning, building standards and community awareness.

Federally, Labor has a record of taking proactive steps to reduce the impact of disasters.

In government, we invested in mitigation, most notably measures to reduce flood risk, as part of our National Insurance Affordability Initiative. We also established a National Insurance Affordability Council to coordinate flood risk management and to look at mitigation work and reducing natural disaster insurance premiums. Unfortunately, this council was abolished by the current government.

We recognise that disaster mitigation is an issue of ongoing significance to the industry. I know that the industry was disappointed with the government’s response to the Productivity Commission’s Inquiry into Natural Disaster Funding Arrangements, with regard to disaster resilience and mitigation measures.

It was at last year’s forum that the Government released the Northern Australia Insurance Premiums Taskforce Report. This report was spurred by rising premiums in those parts of northern Australia with a high risk of cyclones. It found that mitigation was the best and most realistic way to reduce premiums on a sustainable basis.

Despite the Government promising a detailed response by 30 June last year, the response has yet to be delivered.

I wanted to recognise that some insurers have already acted on recommendations in the report by developing insurance pricing systems that provide greater recognition of mitigation action. 

This is an area in which Labor is continuing to be engaged. We are willing to work with the government on this issue.

Labor’s vision for the financial services sector

I also wanted to speak to Labor’s vision for the financial services sector. The 2009 Johnson Report set out what our financial sector has to offer the world: a skilled workforce, a solid legal and regulatory framework, and a competitive sector that offers a wide range of products, including through our advanced insurance industry.

Labor continues to support the Johnson Report’s vision of enabling our financial sector to take full advantage of the opportunities in our region.

Many of the recommendations in this report remain incomplete.

However, as Chris Bowen, the Shadow Treasurer has said, 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.

State Insurance Duties – The ACT Experience

One of the recommendations in the Johnson Report was the removal of state insurance taxes. This is something that the ICA has consistently called for.

And yet, according to a recent report from the Financial Services Council, reform on these taxes has actually gone backwards since 2009. 

Maybe that’s not surprising, given the challenges that are facing state budgets, but it is something that we were able to address in the ACT, and so I want to reflect briefly on my experiences reforming insurance tax there.

In addition to the Johnson Report, the inefficiency of state insurance taxes has been flagged in a number of reviews including:

-       The 2010 Henry Review;

-       The 2014 Financial System Inquiry;

-       The 2014 Productivity Commission report into Natural Disaster Funding Arrangements that I’ve already mentioned;

-       And even the 2015 discussion paper from the government’s now defunct tax white paper task force.

These reviews are consistent in highlighting how insurance taxes contribute to underinsurance, and discourage people from taking out an appropriate level of cover.

The Henry Review also pointed out that “Australia has high taxes on insurance, both in comparison to taxes imposed on other products and industries, as well as compared to other countries”.

There’s also an equity dimension. The Henry Review found that “[l]ow-income earners are more likely than high-income earners to abandon insurance in response to higher premiums. The result is that they bear more risk themselves, although they are less well-placed to do so than people with higher incomes.”

And then there’s the confusion and red tape for business that operate across state borders. As the Johnson Report noted, “the range and diversity of state taxes adds significantly to the cost of insurance, especially for those businesses operating on a national level.”

I was Treasurer of the ACT when the Henry Tax Review was handed down by the Federal Government in 2010. My thinking at the time was that we shouldn’t miss this opportunity for reform, and so I launched our own ACT Tax Review, off the back of the section of the Henry Tax Review that looked at state taxation.

That review, the ACT one, endorsed the recommendation to remove insurance taxes in the ACT, which at that time included a 10% duty on general insurance premiums.

At the time, insurance taxes made up about 5% of the ACT’s own-source revenue. It would have been difficult to address these taxes in isolation.

So what we did was to address it as part of – what some have called bold, others brave - 20 year program of tax reform that my government, when I was Chief Minister, announced in 2012, and has been continued by my successor Andrew Barr.

A key part of this 20 year program was to move our tax base from stamp duties on property transfers to a broad-based land tax. 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, as of late, by the Prime Minister and Treasurer.

It’s a tax that’s more efficient, and it’s more equitable too, because it eases the burden on those looking to buy a home. 

Crucially, it also provides a broader, more stable revenue base to State governments. This, I have to say, was a key part of my considerations when we went down this path.

And it was this broader, more stable revenue base that enabled us, as part of this tax reform package, to commit to phasing down of those duties on insurance.

I’m pleased to say this phase-down finished on July 1 last year when, right on schedule, insurance stamp duties in the ACT were completely abolished. That is, for premiums paid from 1 July 2016, the rate of stamp duty on home insurance, contents insurance, motor vehicle insurance, business insurance and life insurance in the ACT is nil.

This means that 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 protection that they need.

But I have to say, that despite the benefits to consumers and businesses, there were challenges in delivering these reforms.

The phasing down of insurance taxes was at a time when premiums were rising across the country. This meant that the very real savings to consumers and businesses were less obvious than they might have been. 

And then there was also the fact that, to date, the Labor Party in the ACT has had to fight and win two elections in the teeth of very negative opposition campaigns about the tax reform package overall.

Despite this, I think the ACT experience does provide a guide to other jurisdictions about how good 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.

It is in a similar vein that Labor has led the debate on reforms to superannuation tax concessions, working to make them fairer and more sustainable in the long run. And, it is in a similar vein that Labor is calling for changes to negative gearing, and the capital gains tax discount.

There is a strong Labor tradition of pursuing and making the case for difficult reforms that are in the interests of the community as a whole. The abolition of insurance duties in the ACT, and the broader tax reform that has occurred there, fall very much within that tradition.

Consumer Protection in Insurance

I wanted to speak for a moment about a number of issues of consumer protection which, as you know, are currently front and centre in the financial sector. I know this issue is on the radar of the insurance industry, including with the Review of the General Insurance Code of Practice that Rob has launched this morning.

I expect that the issue of consumer protections will be a focus of my work as Labor’s spokesperson for financial services. To this end, Labor has established a Senate Inquiry into consumer protections in the banking, insurance and financial services sector. This is an inquiry that will continue through the year. It has broad terms of reference, and it will look into any areas where there are deficiencies or gaps in the protection of consumers or small businesses. And I know that the ICA and individual insurers will get involved in that.

As you know, Labor’s policy is for a royal commission into the banking and financial services sector. This was not a decision that we took lightly, when it was made in April 2016. It was, however, a decision we took with a view to making sure that any systemic issues were examined in a thorough and transparent way.

While parts of the banking and financial services sector may disagree with us on the need for a royal commission, we do recognise the industry work that is going on to improve consumer outcomes.

Effective Disclosure Taskforce

This includes the work that the Insurance Council of Australia are doing with their Effective Disclosure Taskforce.

This is the first of three issues of consumer protection in insurance that I just want to touch on briefly today.

Recent CHOICE research confirms that the most important thing that consumers look for with regard to general insurance is whether the insurance company will pay a claim when the time comes. Clear and simple disclosure will reduce the chance of customer disappointment when they make a claim. 

The ICA’s Effective Disclosure Taskforce is recognition of the importance of consumers being able to easily gain an upfront understanding of the insurance product that that they are buying. Given the complexity of some products, this is not an easy issue to resolve. In launching the Effective Disclosure Taskforce in July 2015, the ICA noted that "[t]he insurance industry, governments and consumer groups all perceive the current disclosure regimen to being lengthy, often complex and not always helpful in ensuring consumers understand the product they are buying," .

In late 2015, the ICA Board accepted all of the recommendations of the ‘Too Long, Didn’t Read’ Report of the taskforce. The ICA is now in the process of implementing these recommendations.

I know this afternoon you have a presentation on the results of the major consumer research project undertaken as part of this process.  This is important work in looking at the way consumers respond to disclosures, and how they can be best advised about what they’re purchasing, and what they can expect when they make a claim.

I commend the ICA for this work and look forward to seeing it continue. 

The second consumer protections issue I wanted to speak about is insurance investigations. This is an issue that has been raised with me in my short time in this portfolio. I know that the Insurance Council of Australia’s Code Governance Committee is looking into how general insurers investigate claims and how their outsourced services compete, including the Financial Rights Legal Centre’s 2016 report on insurance investigations.

While the need to guard against fraudulent insurance claims is clear, we can all agree that such investigations must be conducted in a professional manner that limits the impact on vulnerable claimants. They should be conducted in a way that allows genuine claimants to get back on their feet as soon as possible. We will continue to follow this issue and anticipate the Code Governance Committee’s response.

Add-on insurance

The third consumer protection issue that I want to speak about is that of add-on insurance: insurance products sold alongside other products, such as cars and credit cards. As you know, these products have sometimes been sold in very concerning ways. Sometimes they are sold on an opt-out basis, or with pressure applied at the point of sale, or to consumers who have no need for the product in the first place. These issues were reported in ASIC’s Report 492, which looked at sales of add-on insurance through car dealers and found serious problems in that market.

I know that the industry has proposed a response of capping commissions at 20%, and that this is being considered by the ACCC, with I understand a draft determination issued this morning. I also know that the ICA is discussing further measures with ASIC and consumer groups. The final design of these further measures will be crucial to addressing this issue. There is a need to make sure that consumers fully understand what they are buying, and have the opportunity to properly consider whether it meets their needs.

Parliamentary issues

Now if I can just touch on briefly of the issues that are currently on the parliament’s radar.

As you all know – probably only too well - there are a number of reviews and inquiries relevant to the insurance sector at the moment.  I have already mentioned our Senate inquiry into consumer protections.

Xenophon Inquiry

There is also a Senate inquiry looking into the costs and benefits of the establishment of an independent price comparison service for insurance products. This inquiry was moved by Senator Xenophon late last year.

While the aim of maximising competition and value for money for consumers is a good one, I understand that the industry has raised concerns around the difficulties in comparing products. They’ve raised the many differences between regions, risk ratings, loyalty bonuses and the coverage itself that such a service would have to navigate. Labor’s keeping an open mind at this stage and will follow the inquiry as it considers the views that are presented before it and I’ll continue talking with the insurance sector more broadly about this matter in particular.

Ramsay Review

The Ramsay Review into External Dispute Resolution Schemes is another one that we are watching. We know the crucial role external dispute resolution plays for both consumers and the industry in allowing disputes to be resolved in a quick and accessible way. Labor will be motivated by what will improve consumer outcomes, when we look at the Ramsay Review’s report, due in March.

Terrorism Insurance Act

Changes to the Terrorism Insurance Act are currently before the parliament. As you know, the terrorism insurance scheme was established by government in 2001 to provide reinsurance for terrorism attacks: this was reinsurance that the market could not provide. This meant that public liability insurance and insurance for commercial property and associated business interruption could not extend to damage caused by terrorist events. The terrorism insurance scheme is designed to fill that gap.

The changes before the parliament are to put beyond doubt that the scheme covers attacks by chemical or biological means.

Since its establishment, the scheme, including the periodic reviews to ensure the continuing need for it, has enjoyed bipartisan support. This will continue with Labor’s support of this legislation.

Insurance and Mental Health

Finally today, I would like to say a few words about the issue of insurance and mental health.  This was an issue that was thrust certainly on to my radar back in 2015 as a result of the Ella Ingram case in Melbourne who felt let down by her insurer and took her case to the Victorian Civil and Administrative Court.

I note that the VCAT did find in Ella’s favour. They made this decision on the basis that she had been discriminated against when her insurer refused her travel insurance claim while on a trip overseas. 

I think the VCAT decision has prompted a positive move in the insurance industry to think about how travel insurance products might be developed in a cost effective manner that also meet the needs of those who are living with a mental illness.

Last year my predecessor in this portfolio, Jim Chalmers, and I, when I had the shadow mental health portfolio, hosted a roundtable on this issue. We brought together representatives from the insurance industry, including the Insurance Council, peak bodies in the mental health sector as well as consumer advocates and community legal groups to all discuss how progress could be made. I am pleased to note that progress, although its limited to date, was made following that meeting.

And can I just say I do very much acknowledge that this issue is not a straight forward one, nor something that can be resolved overnight.

But we also know mental health affects 1in 5 Australians, the trajectory is not a positive one, and a CHOICE investigation recently found that only two insurers had products that offered travel insurance policies to those who are living with a mental illness.

While I do acknowledge that there are a very small amount of products on the market, they do not cover people in the same way as those taking out travel insurance with medical cover and fall ill or sustain a disability of a physical nature.

The unique nature of mental illness presents insurers with a significant, but in my opinion, not insurmountable challenge, to develop cost effective products that meet the needs of the customer and open the world to them through travel while at the same time remaining profitable.

This is something that I believe we need to continue to work together on to arrive at a position which will address some of the challenges people with mental illness face but also insurers as well.

I valued the willingness of the industry and the consumer advocacy sectors to work constructively on this issue at the roundtable last year, and I hope that can continue now that the turmoil of the election year has settled.

I know that you will hear about the ICA’s latest thinking on this issue in a session this afternoon.

I would also like to say that not all of the work rests with the industry.

I have written to the minister asking for the government to consider the option of commissioning the Government Actuary to undertake work that would better assist the industry in developing products that are based on solid and reliable data.

The minister, in her response, assured me that the Insurance Council of Australia is working with the Actuaries Institute to undertake new work in this area. The Government has given an undertaking that it will keep an eye on this work and wait to see what data can be generated as part of this partnership before commissioning any further work within government.

I know that, in its pre-budget submission, the ICA has called for the ABS to update the 2007 National Survey of Mental Health and Wellbeing, to provide reliable data. 

I wanted to say that it was very heartening to see that progressing work on the issue of insurance coverage and mental health conditions, and that it is one of the ICA’s top three priorities for this year’s budget.

This work is something that Julie Collins as the Shadow Minister for Mental Health and I will watch and continue to pursue throughout the term of this parliament.

I know that there are many more issues to talk about with respect to the insurance sector. There is no shortage of work to do, problems to solve, reviews to take part in, or challenges to respond to. It’s certainly a dynamic policy area - but fundamentally to me – it’s an industry that is of crucial importance to Australians.

And so I thank you again for the invitation to speak with today – I look forward to continuing to work with the sector. I thank you for the investment you’ve already put into me, in training me up, on all of the issues I needed to be made aware of when I took on the portfolio six months ago and I look forward to pursuing that and continuing those relationships in the year ahead. Thank you very much.

ENDS

Thank you for that warm welcome, Michael. And thank you also to Rob Whelan for the invitation to be with you today and to address you this morning. It really is an honour to be invited to speak with you and I know this forum, over the years, has been a significant place to discuss issues facing the insurance industry.

The Insurance Council of Australia is the voice of the general insurance industry, and it plays a crucial role in informing governments and oppositions as we consider policy that affects the industry.

And this is a sector that is crucial to Australia. Businesses rely on you to manage their risk. Travelers rely on you to help them out when a holiday goes awry. And then there is the fact that, every day, you meet ordinary Australians at the worst moments of their lives and try to help them rebuild. Australians take out insurance in the hope that they’ll never have to rely on it, but when the worst happens they turn to you. 

When preparing my remarks I thought back to one of my earliest memories being a minister in the ACT Government. It was 2003 and it was a hot Canberra summer, similar to the one we are experiencing now. Many of you in this room will be familiar with the tragic events that occurred in Canberra that January, where bushfires ripped through parts of the city, killing 4 people, injuring hundreds and destroying over 500 homes.

It was at this point that the value of insurance on a mass scale became very real to me. Canberrans who were traumatised and who had been left, in many cases with nothing, turned to their insurer and expected support, finances and answers on how to rebuild their lives, literally from the ground up. And for many of them the reality of underinsurance hit hard. 

It must be said, that these large scale disasters are always going to present issues and there will always be cases where people feel aggrieved, however, it would be remiss of me not to acknowledge the significant role that insurers played in rebuilding chunks of suburban Canberra following that time.

Since 2003, unfortunately we have seen this kind of experience many times across the country.

Disaster Mitigation

But of course, the time for action is not just after disasters occur, but before they occur again. To this end, in the ACT we did take proactive steps to improve land use planning, building standards and community awareness.

Federally, Labor has a record of taking proactive steps to reduce the impact of disasters.

In government, we invested in mitigation, most notably measures to reduce flood risk, as part of our National Insurance Affordability Initiative. We also established a National Insurance Affordability Council to coordinate flood risk management and to look at mitigation work and reducing natural disaster insurance premiums. Unfortunately, this council was abolished by the current government.

We recognise that disaster mitigation is an issue of ongoing significance to the industry. I know that the industry was disappointed with the government’s response to the Productivity Commission’s Inquiry into Natural Disaster Funding Arrangements, with regard to disaster resilience and mitigation measures.

It was at last year’s forum that the Government released the Northern Australia Insurance Premiums Taskforce Report. This report was spurred by rising premiums in those parts of northern Australia with a high risk of cyclones. It found that mitigation was the best and most realistic way to reduce premiums on a sustainable basis.

Despite the Government promising a detailed response by 30 June last year, the response has yet to be delivered.

I wanted to recognise that some insurers have already acted on recommendations in the report by developing insurance pricing systems that provide greater recognition of mitigation action. 

This is an area in which Labor is continuing to be engaged. We are willing to work with the government on this issue.

Labor’s vision for the financial services sector

I also wanted to speak to Labor’s vision for the financial services sector. The 2009 Johnson Report set out what our financial sector has to offer the world: a skilled workforce, a solid legal and regulatory framework, and a competitive sector that offers a wide range of products, including through our advanced insurance industry.

Labor continues to support the Johnson Report’s vision of enabling our financial sector to take full advantage of the opportunities in our region.

Many of the recommendations in this report remain incomplete.

However, as Chris Bowen, the Shadow Treasurer has said, 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.

State Insurance Duties – The ACT Experience

One of the recommendations in the Johnson Report was the removal of state insurance taxes. This is something that the ICA has consistently called for.

And yet, according to a recent report from the Financial Services Council, reform on these taxes has actually gone backwards since 2009. 

Maybe that’s not surprising, given the challenges that are facing state budgets, but it is something that we were able to address in the ACT, and so I want to reflect briefly on my experiences reforming insurance tax there.

In addition to the Johnson Report, the inefficiency of state insurance taxes has been flagged in a number of reviews including:

-       The 2010 Henry Review;

-       The 2014 Financial System Inquiry;

-       The 2014 Productivity Commission report into Natural Disaster Funding Arrangements that I’ve already mentioned;

-       And even the 2015 discussion paper from the government’s now defunct tax white paper task force.

These reviews are consistent in highlighting how insurance taxes contribute to underinsurance, and discourage people from taking out an appropriate level of cover.

The Henry Review also pointed out that “Australia has high taxes on insurance, both in comparison to taxes imposed on other products and industries, as well as compared to other countries”.

There’s also an equity dimension. The Henry Review found that “[l]ow-income earners are more likely than high-income earners to abandon insurance in response to higher premiums. The result is that they bear more risk themselves, although they are less well-placed to do so than people with higher incomes.”

And then there’s the confusion and red tape for business that operate across state borders. As the Johnson Report noted, “the range and diversity of state taxes adds significantly to the cost of insurance, especially for those businesses operating on a national level.”

I was Treasurer of the ACT when the Henry Tax Review was handed down by the Federal Government in 2010. My thinking at the time was that we shouldn’t miss this opportunity for reform, and so I launched our own ACT Tax Review, off the back of the section of the Henry Tax Review that looked at state taxation.

That review, the ACT one, endorsed the recommendation to remove insurance taxes in the ACT, which at that time included a 10% duty on general insurance premiums.

At the time, insurance taxes made up about 5% of the ACT’s own-source revenue. It would have been difficult to address these taxes in isolation.

So what we did was to address it as part of – what some have called bold, others brave - 20 year program of tax reform that my government, when I was Chief Minister, announced in 2012, and has been continued by my successor Andrew Barr.

A key part of this 20 year program was to move our tax base from stamp duties on property transfers to a broad-based land tax. 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, as of late, by the Prime Minister and Treasurer.

It’s a tax that’s more efficient, and it’s more equitable too, because it eases the burden on those looking to buy a home. 

Crucially, it also provides a broader, more stable revenue base to State governments. This, I have to say, was a key part of my considerations when we went down this path.

And it was this broader, more stable revenue base that enabled us, as part of this tax reform package, to commit to phasing down of those duties on insurance.

I’m pleased to say this phase-down finished on July 1 last year when, right on schedule, insurance stamp duties in the ACT were completely abolished. That is, for premiums paid from 1 July 2016, the rate of stamp duty on home insurance, contents insurance, motor vehicle insurance, business insurance and life insurance in the ACT is nil.

This means that 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 protection that they need.

But I have to say, that despite the benefits to consumers and businesses, there were challenges in delivering these reforms.

The phasing down of insurance taxes was at a time when premiums were rising across the country. This meant that the very real savings to consumers and businesses were less obvious than they might have been. 

And then there was also the fact that, to date, the Labor Party in the ACT has had to fight and win two elections in the teeth of very negative opposition campaigns about the tax reform package overall.

Despite this, I think the ACT experience does provide a guide to other jurisdictions about how good 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.

It is in a similar vein that Labor has led the debate on reforms to superannuation tax concessions, working to make them fairer and more sustainable in the long run. And, it is in a similar vein that Labor is calling for changes to negative gearing, and the capital gains tax discount.

There is a strong Labor tradition of pursuing and making the case for difficult reforms that are in the interests of the community as a whole. The abolition of insurance duties in the ACT, and the broader tax reform that has occurred there, fall very much within that tradition.

Consumer Protection in Insurance

I wanted to speak for a moment about a number of issues of consumer protection which, as you know, are currently front and centre in the financial sector. I know this issue is on the radar of the insurance industry, including with the Review of the General Insurance Code of Practice that Rob has launched this morning.

I expect that the issue of consumer protections will be a focus of my work as Labor’s spokesperson for financial services. To this end, Labor has established a Senate Inquiry into consumer protections in the banking, insurance and financial services sector. This is an inquiry that will continue through the year. It has broad terms of reference, and it will look into any areas where there are deficiencies or gaps in the protection of consumers or small businesses. And I know that the ICA and individual insurers will get involved in that.

As you know, Labor’s policy is for a royal commission into the banking and financial services sector. This was not a decision that we took lightly, when it was made in April 2016. It was, however, a decision we took with a view to making sure that any systemic issues were examined in a thorough and transparent way.

While parts of the banking and financial services sector may disagree with us on the need for a royal commission, we do recognise the industry work that is going on to improve consumer outcomes.

Effective Disclosure Taskforce

This includes the work that the Insurance Council of Australia are doing with their Effective Disclosure Taskforce.

This is the first of three issues of consumer protection in insurance that I just want to touch on briefly today.

Recent CHOICE research confirms that the most important thing that consumers look for with regard to general insurance is whether the insurance company will pay a claim when the time comes. Clear and simple disclosure will reduce the chance of customer disappointment when they make a claim. 

The ICA’s Effective Disclosure Taskforce is recognition of the importance of consumers being able to easily gain an upfront understanding of the insurance product that that they are buying. Given the complexity of some products, this is not an easy issue to resolve. In launching the Effective Disclosure Taskforce in July 2015, the ICA noted that "[t]he insurance industry, governments and consumer groups all perceive the current disclosure regimen to being lengthy, often complex and not always helpful in ensuring consumers understand the product they are buying," .

In late 2015, the ICA Board accepted all of the recommendations of the ‘Too Long, Didn’t Read’ Report of the taskforce. The ICA is now in the process of implementing these recommendations.

I know this afternoon you have a presentation on the results of the major consumer research project undertaken as part of this process.  This is important work in looking at the way consumers respond to disclosures, and how they can be best advised about what they’re purchasing, and what they can expect when they make a claim.

I commend the ICA for this work and look forward to seeing it continue. 

The second consumer protections issue I wanted to speak about is insurance investigations. This is an issue that has been raised with me in my short time in this portfolio. I know that the Insurance Council of Australia’s Code Governance Committee is looking into how general insurers investigate claims and how their outsourced services compete, including the Financial Rights Legal Centre’s 2016 report on insurance investigations.

While the need to guard against fraudulent insurance claims is clear, we can all agree that such investigations must be conducted in a professional manner that limits the impact on vulnerable claimants. They should be conducted in a way that allows genuine claimants to get back on their feet as soon as possible. We will continue to follow this issue and anticipate the Code Governance Committee’s response.

Add-on insurance

The third consumer protection issue that I want to speak about is that of add-on insurance: insurance products sold alongside other products, such as cars and credit cards. As you know, these products have sometimes been sold in very concerning ways. Sometimes they are sold on an opt-out basis, or with pressure applied at the point of sale, or to consumers who have no need for the product in the first place. These issues were reported in ASIC’s Report 492, which looked at sales of add-on insurance through car dealers and found serious problems in that market.

I know that the industry has proposed a response of capping commissions at 20%, and that this is being considered by the ACCC, with I understand a draft determination issued this morning. I also know that the ICA is discussing further measures with ASIC and consumer groups. The final design of these further measures will be crucial to addressing this issue. There is a need to make sure that consumers fully understand what they are buying, and have the opportunity to properly consider whether it meets their needs.

Parliamentary issues

Now if I can just touch on briefly of the issues that are currently on the parliament’s radar.

As you all know – probably only too well - there are a number of reviews and inquiries relevant to the insurance sector at the moment.  I have already mentioned our Senate inquiry into consumer protections.

Xenophon Inquiry

There is also a Senate inquiry looking into the costs and benefits of the establishment of an independent price comparison service for insurance products. This inquiry was moved by Senator Xenophon late last year.

While the aim of maximising competition and value for money for consumers is a good one, I understand that the industry has raised concerns around the difficulties in comparing products. They’ve raised the many differences between regions, risk ratings, loyalty bonuses and the coverage itself that such a service would have to navigate. Labor’s keeping an open mind at this stage and will follow the inquiry as it considers the views that are presented before it and I’ll continue talking with the insurance sector more broadly about this matter in particular.

Ramsay Review

The Ramsay Review into External Dispute Resolution Schemes is another one that we are watching. We know the crucial role external dispute resolution plays for both consumers and the industry in allowing disputes to be resolved in a quick and accessible way. Labor will be motivated by what will improve consumer outcomes, when we look at the Ramsay Review’s report, due in March.

Terrorism Insurance Act

Changes to the Terrorism Insurance Act are currently before the parliament. As you know, the terrorism insurance scheme was established by government in 2001 to provide reinsurance for terrorism attacks: this was reinsurance that the market could not provide. This meant that public liability insurance and insurance for commercial property and associated business interruption could not extend to damage caused by terrorist events. The terrorism insurance scheme is designed to fill that gap.

The changes before the parliament are to put beyond doubt that the scheme covers attacks by chemical or biological means.

Since its establishment, the scheme, including the periodic reviews to ensure the continuing need for it, has enjoyed bipartisan support. This will continue with Labor’s support of this legislation.

Insurance and Mental Health

Finally today, I would like to say a few words about the issue of insurance and mental health.  This was an issue that was thrust certainly on to my radar back in 2015 as a result of the Ella Ingram case in Melbourne who felt let down by her insurer and took her case to the Victorian Civil and Administrative Court.

I note that the VCAT did find in Ella’s favour. They made this decision on the basis that she had been discriminated against when her insurer refused her travel insurance claim while on a trip overseas. 

I think the VCAT decision has prompted a positive move in the insurance industry to think about how travel insurance products might be developed in a cost effective manner that also meet the needs of those who are living with a mental illness.

Last year my predecessor in this portfolio, Jim Chalmers, and I, when I had the shadow mental health portfolio, hosted a roundtable on this issue. We brought together representatives from the insurance industry, including the Insurance Council, peak bodies in the mental health sector as well as consumer advocates and community legal groups to all discuss how progress could be made. I am pleased to note that progress, although its limited to date, was made following that meeting.

And can I just say I do very much acknowledge that this issue is not a straight forward one, nor something that can be resolved overnight.

But we also know mental health affects 1in 5 Australians, the trajectory is not a positive one, and a CHOICE investigation recently found that only two insurers had products that offered travel insurance policies to those who are living with a mental illness.

While I do acknowledge that there are a very small amount of products on the market, they do not cover people in the same way as those taking out travel insurance with medical cover and fall ill or sustain a disability of a physical nature.

The unique nature of mental illness presents insurers with a significant, but in my opinion, not insurmountable challenge, to develop cost effective products that meet the needs of the customer and open the world to them through travel while at the same time remaining profitable.

This is something that I believe we need to continue to work together on to arrive at a position which will address some of the challenges people with mental illness face but also insurers as well.

I valued the willingness of the industry and the consumer advocacy sectors to work constructively on this issue at the roundtable last year, and I hope that can continue now that the turmoil of the election year has settled.

I know that you will hear about the ICA’s latest thinking on this issue in a session this afternoon.

I would also like to say that not all of the work rests with the industry.

I have written to the minister asking for the government to consider the option of commissioning the Government Actuary to undertake work that would better assist the industry in developing products that are based on solid and reliable data.

The minister, in her response, assured me that the Insurance Council of Australia is working with the Actuaries Institute to undertake new work in this area. The Government has given an undertaking that it will keep an eye on this work and wait to see what data can be generated as part of this partnership before commissioning any further work within government.

I know that, in its pre-budget submission, the ICA has called for the ABS to update the 2007 National Survey of Mental Health and Wellbeing, to provide reliable data. 

I wanted to say that it was very heartening to see that progressing work on the issue of insurance coverage and mental health conditions, and that it is one of the ICA’s top three priorities for this year’s budget.

This work is something that Julie Collins as the Shadow Minister for Mental Health and I will watch and continue to pursue throughout the term of this parliament.

I know that there are many more issues to talk about with respect to the insurance sector. There is no shortage of work to do, problems to solve, reviews to take part in, or challenges to respond to. It’s certainly a dynamic policy area - but fundamentally to me – it’s an industry that is of crucial importance to Australians.

And so I thank you again for the invitation to speak with today – I look forward to continuing to work with the sector. I thank you for the investment you’ve already put into me, in training me up, on all of the issues I needed to be made aware of when I took on the portfolio six months ago and I look forward to pursuing that and continuing those relationships in the year ahead. Thank you very much.

ENDS

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SPEECH TO THE FINANCIAL SERVICES COUNCIL POLITICAL BREAKFAST

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.

ENDS

FRIDAY, 18 NOVEMBER 2016

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SPEECH TO THE AUSTRALIAN COMMITTEE ON SUSTAINABLE RETIREMENT INCOMES LEADERSHIP FORUM

Thank you very much for that warm welcome and can I thank you very much for the invitation to speak with you this morning in my new role as Shadow Minister for Small Business and Financial Services.

May I begin by acknowledging the traditional custodians of the land we are meeting on, the Ngunnawal people. I pay my respects to elders past and present, and acknowledge and respect their continuing culture and the contribution they make to the life of this city and this region.

I’d like to begin by thanking the organisers of this year's Leadership Forum for inviting me to speak with you this morning.

As a proud – and what some might say parochial – Senator for the ACT it would be remiss of me to not also welcome you to our beautiful city, for those of you who are coming from elsewhere and hope that you get some time to enjoy the beauty of the nation’s capital.

Having recently taken on the shadow portfolio of Small Business and Financial Services, I have been spending a great deal of time trying to get around and meet with all of the stakeholders and can I say there are an enormous amount of you. Particularly in the area of superannuation where there is so much work underway, so much reform happening and so much politics around it.

It’s been really generous of people; I know I have met with some of the people in this room. I have many, many more meetings to go but it has been very generous of people with their time and their preparedness to talk and share information and to provide me with their priorities and other issues of concern.

In terms of retirement income policy there is certainly a great deal of reform and discussion underway. It is our challenge as lawmakers to coordinate these reforms and ensure that those in retirement are properly supported across all the relevant policy areas.

I believe that Labor has been leading much of the discussion in this area and I will comment on that further but my comments here today reflect my initial observations in this portfolio on the key issues facing us and the elements that are required for Australia to continue to build a strong and sustainable retirement income policy for the long term.

I should begin by saying that Labor believes that we need to approach ageing as a positive. 

We should be celebrating our longevity.  It is a sign of Australia’s success that we are living longer and healthier lives.  Of course, that doesn’t apply to all of us. The life expectancy of indigenous people still remains at appalling low levels.

We should be pleased overall that more people are living longer and spending longer in the retirement phase.

Yet often the tone of our public discussion on ageing and retirement is framed in terms of costs.  Older people are not, and should not be a burden.

I’m sure it’s not the intention to frame the debate as being negative; however, one of the downsides of the focus on the fiscal challenges has meant that at a time when people should be enjoying their post-working lives, some are feeling like a burden. 

People who have worked and contributed to the economy and the community for decades, be it in the workforce, family or community sectors have earned the right to a dignified retirement.

The best way to counteract any tendency to consider older Australians a burden is to ensure that our policy settings are as coherent, effective and targeted as much as possible to support our ageing across the community in a fiscally sustainable way.

Government policies directly impact the lives of people in retirement in many ways and they will become increasingly important as our ageing population continues to grow.

According to the Blueprint for an Ageing Australia the number of people aged over 65 will increase by 84.8 per cent from 3.1 million in 2011 to 5.7 million in 2031. I am sure I am not telling anyone in this room these statistics for the first time. 

Concerns have been raised by think tanks such as the Grattan Institute that today’s generation of young Australians may have lower living standards than their parents did at a similar age.

We cannot afford to let this happen and to prevent it we need a well thought through and comprehensive approach to longevity.

Earlier this year, my colleague Jenny Macklin released Labor’s agenda for tacking inequality.  This offered new thinking and a new agenda.  

If we are to ensure that older Australians can be active members of our community then we have a duty to ensure that we have a proactive plan to support longevity, for protecting the rights of older Australians and to provide them with an opportunity to continue to work if they choose to, or to live a dignified and fulfilling retirement.

We believe that Australia needs a national strategy to coordinate longevity priorities, policies and programs across all governments across the country.

Future Labor governments should consider appointing a dedicated Minister for Ageing and Longevity to oversee a whole-of-government approach to longevity policy, similar to the coordinating role that the Minister Assisting the Prime Minister for Women currently plays.

An obvious area for further thinking is the issue of retirement income for women. 

This has come up a lot in my first few months in this portfolio. It is something that Chris Bowen has spoken about previously and my Senate colleague from New South Wales Jenny McAllister has worked very hard on progressing through the Senate Committee process during the last Parliament which many of you may have participated in.

I share Chris and Jenny’s concern around the disparity between men and women’s retirement savings balances.

Women suffer in their super savings in several ways. They earn less during their working life and they often take time out of the workforce with parenting or caring responsibilities. This means that there can be years where no income is received at all or when they do work they work part time hours to juggle the demands of children, ageing parents and their careers.

The facts are clear:

  • 43% of women work part time
  • women working full time earn 19% less than their male colleagues, and
  • women take on average five years out of the workplace to care for children or other family members. 

44% of women rely on their partner’s income as their main source of retirement income and according to a recent Senate inquiry into women’s superannuation at retirement men’s superannuation balances at retirement are on average twice as large as those of women. 

This concerning statistic means that women, particularly single women, are at greater risk of experiencing poverty, housing stress and homelessness in retirement.

If we are to address this issue as a whole we do need to fix the pay disparity between men and women and more generally the way that women are treated in the workplace.

I am not saying that we haven’t come a long way. We have.

If we look back even 50 years women were often limited on their choice of career but we now do have women in senior decision making roles in the board room or indeed, as members of the Australian Senate, but we cannot ignore the fact that women are generally paid less than men for doing the same job.

We will never succeed in ensuring that women can live a dignified retirement if we cannot address the issue of pay equity at the early stages of a woman’s career.

We also need to look more closely at the periods of time when women take leave to have a child. This might be looking more closely at superannuation during periods of paid parental leave. I do acknowledge that this is not necessarily a cheap or easy solution, although it is probably easier than cheaper, and is something that we as a party have not yet reached a final position on, but that does not mean that we are not looking at it.

I will be working with my colleagues including Senator McAllister to progress our thinking on these issues during this term of Parliament and I would welcome the views of any of you here today on this issue because it’s an area that I have particular interest in and I know many others share my views.

In terms of some of the recent debates around superannuation in particular, the Labor party strongly believes that we need confidence in the retirement incomes system. 

In recent times we have seen significant policy changes proposed and in some cases implemented, to the age pension, the age pension asset and incomes test and superannuation with more to come.

Too many policy changes introduced too quickly can undermine public confidence. People close to or in retirement feel the impact of these changes particularly acutely and I have noticed this in the correspondence I have been getting from people right across Australia since the announcements were made in the budget.

Unfortunately, the Government’s mismanagement of its proposed changes to superannuation taxation has certainly shaken this confidence in the broader community.

Currently the superannuation system holds approximately $2 trillion dollars in national savings with estimates showing that this will grow to $4 trillion over the next 10 years and to $9.5 trillion by 2035 it’s essential that confidence is maintained in the system.

Labor recognises the need for certainty and that is why in the past we have advocated for a Council of Superannuation Custodians which would help to maintain a period of stability over government decisions regarding super and help guide lawmakers about the best approach to policy changes that may affect confidence and certainty in the superannuation sector.

Such a Council would allow future changes to superannuation to be more thoroughly considered and done in a timeframe that allows people to invest their money with greater certainty and without the added concern that government may change the goal posts on a frequent basis.

Many have raised the option with me of only making significant legislative changes to super on a five yearly basis, in line with the Intergenerational Report. This is something we do see merit in and will continue to discuss with stakeholders right across the sector.

For more than a year Labor clearly and consistently made the case that a system which sees half of all superannuation benefits flow to the top 20 per cent of income earners, and 40 per cent of all benefits flow to the top 10 per cent of earners, is a system in need of reform.

In the current fiscal environment, we need to ensure that our superannuation tax concessions are targeted and effective.  That is why Labor proposed changes back in April 2015. 

After initially opposing Labor’s approach, the Government announced changes to superannuation tax concessions in the 2016-17 budget.  Unfortunately, these changes were developed in the rush to prepare a budget to go to the election and the proposed policies had flaws and certainly those were drawn out over the election campaign and over recent months.

The issue of retrospectivity has obviously dominated the recent election campaign and the different views within the Government over retrospectivity have done nothing to encourage Australians to contribute to their superannuation balances over and above their employer’s concessional contributions.

People want to know that decisions they take now will still deliver their intended outcome in retirement. We believe this is crucial and it is something that Labor will always protect.

Labor has attempted to work collaboratively with the government on the changes to superannuation. We took this approach because we believe that it is crucial that, despite political differences, Australians know that their retirement savings are protected and that the Parliament will act maturely and responsibly to legislate in Australia’s best interests.

We will continue to work in good faith as we consider the Government’s latest legislation. 

However, I cannot let the government’s grand plan for addressing women’s low superannuation balances through allowing ‘catch up payments’ go unremarked upon.

Labor’s position to oppose catch up payments as proposed by the government is based on fact.

The fact is that these payments will help those on high incomes and will cost the budget $350 million over the forward estimates at a time when we don’t believe we can afford it.

It won’t provide a vehicle for women on lower incomes who have been out of the workforce for several years to contribute extra to their super balances.

I have talked with many women’s groups about this issue and I have read the independent analysis.

There may well be women who take advantage of catch up payments but we maintain that these women will be predominantly higher income earners who have the capacity to contribute over and above their employer contributions.

We are continuing to analyse the Government proposals that were released in the recent weeks and I will be in charge of taking our proposed response through our normal Shadow Cabinet and Caucus processes in the next sitting period.

In terms of the objective of superannuation the Government has also proposed an objective of superannuation which would be legislated for the first time.

This is something that we do support and it came out of the Murray FSI Inquiry.

We believe that something as significant as the objective of super needs bipartisan support and are seeking to engage more with the Government on their proposed definition. 

The Government commenced discussions and negotiations with Labor in late 2015. This was prior to my time but I am told that discussions were progressing well. However, they did stop in the election and the definition was announced as part of the Government’s wider reform package on budget night without any further consultation.

We understand that there are many in the sector who have concerns with the Government’s process of consultation on the objective as well as its wording.

I have no doubt that everyone here today would have an opinion on what the definition should be and I note that CSRI has expressed a view on the wording of the objective stating that it is “to provide adequate income through all the years of retirement for all Australians in a sustainable way.”

If we are to truly seize the opportunity that we have before us and legislate the best possible objective of superannuation we need to involve all of those who have a view, listen, genuinely consult and be willing to open our minds to other opinions.

If an objective is worth having and is worth legislating then it’s worth doing properly and we are continuing to consult with stakeholders and the government over this and will finalise our position in the next few weeks.

I know in the time I have available to me today I have only touched on a few of the issues and it is my early thoughts in this policy space. I know that there is much work underway and many reviews in train and a lot of stakeholders to continue to get around to. I will say that the approach that Jim Chalmers took and Chris Bowen took on developing policy ideas and genuinely consulting is one that I intend to continue.

At the same time we will work with the government in good faith in the interests of the Australian superannuation system on issues soon to be before the Parliament.

We will also continue to look to ways to further strengthen our retirement income policies for the future and certainly Jenny Macklin has laid down the challenge for us all in that regard.

I once again thank you for the opportunity to speak today as part of this Forum and I genuinely look forward to engaging with you as I continue my work for the Federal Labor Party.

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