The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Chris Bowen

Chris Bowen

Treasurer

27 June 2013 - 18 September 2013

Speech of 31/07/2013

NO.003

Address to the Financial Services Council Annual Conference, Brisbane

Wednesday, 31 July 2013

-- CHECK AGAINST DELIVERY --

Ladies and gentlemen, thank you for your kind welcome. 

I'd like to acknowledge Greg Medcraft, Chair of ASIC, Helen Rowell from APRA, the out-going Chair of the Financial Services Council, Peter Maher, and incoming Chair, Greg Cooper.

It's good to be back. It's good to be in Brisbane, which will play host to the G20 in just over a years' time.  It's also good to be back at the Financial Services Council Conference.

I attended my first FSC Conference in 2006 (when the Council still revelled under the name IFSA), as Shadow Assistant Treasurer. I came in later years as Assistant Treasurer and then as Minister for Superannuation and Financial Services.

I didn't make it here as Immigration Minister, but I was pleased to accept the invitation to come here this year as the back bench Member for McMahon.

I was going to speak later in the program. When I became Treasurer, John Brogden thought it best to bump me up the program a bit, and I'm happy to oblige.

But of course, it is not attending conferences that counts when it comes to this Government's record in financial services – it is concrete achievements and it is robust plans for the future of financial services.

Of course, the Government's record of reform, achieved working with the sector, is real and has provided tangible benefits for Australia and for individual Australians – now and into the future.

Beyond

The theme of this conference is "Beyond".  The theme encourages us to take the 20, 30, 40 year view.

The long view is at the core of what you do. You help Australians build a better future for themselves and their families.

You manage Australians' retirement savings – which for the most part can't be accessed for 30 to 40 years after someone's first job – and ensure that upon retirement Australians can have a more comfortable assured retirement.

I could quote a series of statistics about demographic trends in Australia. I'm sure you're pretty familiar with these and you certainly don't need me to tell you that we are living longer.

As individuals and as a nation, we need to act, to avoid a fall in living standards in the future.  The future is shaped by the positive choices we make now, as individuals, but also as a nation.

There is no better illustration of this than in the area of superannuation.

We must increase our private superannuation savings. The more we save in superannuation, the more we take the pressure off the pension and reduce the pressure on our tax base.

If we defer, delay or simply stop increases in superannuation, we are making the wrong choices for our nation's future.  

In 20, 30 or 40 years' time, that generation will ask – why didn't you increase superannuation when you had the opportunity?

Superannuation

The increase in the superannuation guarantee from 9 per cent to 12 per cent means an extra $500 billion of superannuation savings at the disposal of the Australian economy by 2037. 

For a 30 year old in the workforce today, it means another $127,000 in retirement savings.

It means more money available at the disposal of the nation. More money available for investment in infrastructure. 

More liquidity when the economy needs it, like it did during the Global Financial Crisis (GFC).

It means a bigger and stronger financial sector, playing a strong role in our economy, post the mining investment boom.

It's a good and sensible policy. It helps more people have a better standard of living in retirement.

Superannuation has also been so important in Australia's economic success over the last 20 years. It will continue to play an even more important role going forward.

And importantly, as our population ages, increased superannuation will help Australians achieve a smoother transition from work into retirement. 

And of course, as you know, moving the superannuation guarantee from 9 per cent to 12 per cent is far from the be‑all‑and‑end‑all of our reform when it comes to securing retirement incomes.

The ‘Future of Financial Advice' and ‘Stronger Super' reforms, together with our reforms to make the taxation of superannuation fairer for low income earners, amount to by far the most comprehensive reform package since the superannuation guarantee was introduced. 

These have real and substantial benefits for Australia and for millions of Australians.

Not every aspect of all these reforms has been universally popular with everybody in this room, at every stage of the process.

But from my point of view, the Government certainly worked constructively with all players in the sector, listening to feedback and getting the reform agenda program complete. 

Following the Super System Review – otherwise known as the Cooper Review – we introduced MySuper, a default superannuation product that fund members can rely on, regardless of how active a role they take in managing their savings.

From 1 January 2014, contributions from employers on behalf of employees who have not chosen their superannuation fund must go into MySuper products.

MySuper, together with our streamlining reform – SuperStream – is expected to put downward pressure on fees over time.

In fact, the Super System Review estimated that these two reforms would see a fee cut of 40 per cent in the long run and a final balance increase of 7 per cent for anyone who switches to a MySuper account.

Also following the Review, we improved regulation of the self-managed super fund sector by raising standards for self-managed super funds (SMSFs) and improving processes to make sure they comply with the law and win the confidence of the community.

We've also improved governance in the superannuation sector by strengthening the requirements for trustees and directors of super funds from 1 July this year.

As well, we're making sure that super funds disclose and clearly display information to improve the transparency of the system.

Compulsory super was introduced to make sure Australian employees would have access to superannuation and thereby achieve a higher standard of living in retirement.

To that end, we boosted the superannuation savings of low-income earners by increasing the super guarantee rate and by cutting tax on the super contributions of 3.6 million workers earning up to $37,000. 

That's about 1 in 3 workers, including sales assistants, cleaners, electricians and child care workers. 

Certainty

But now that this process of reform is drawing to completion, it is time to consolidate and deliver what I think Australian people are now looking to as the most important element of superannuation policy – certainty in term of tax arrangements.

I know and appreciate that there is a perception that superannuation tax arrangements are constantly being tinkered with and that it's at the mercy of the annual Budget cycle. 

This perception has existed for long time and it is counterproductive when it comes to encouraging people to put money into superannuation.

And I'll be brutally frank.  The size and scope of Australia's superannuation tax concessions will mean that, in times of fiscal pressure (which are now more and more the norm), superannuation will always draw the attention of Treasury and the Department of Finance when making recommendations to governments about potential revenue measures. 

And, to be equally frank, governments of both persuasions will always have some temptation to take them.

With Australians living longer, the superannuation system must be fair and sustainable. 

So, for genuine confidence in the system to build, an independent body should be formulating or testing superannuation policy against a Super Charter.

That's why, in April this year, the Government announced that we would establish a Super Council to ensure that any future changes are consistent with an agreed Super Charter. This was a very good decision for which Minister Shorten should be congratulated.

Minister Shorten appointed a Charter Group, chaired by Jeremy Cooper, to consult on the development of the Charter and the Council.

Today, I'm releasing the Charter Group's final report – which includes a draft Super Charter. 

Today I can announce that following the setting of the Charter, a re-elected Rudd Labor Government will enshrine the Charter in legislation and establish the Council as an independent institution overseeing the Charter.

Super Council

And today I am announcing further steps to ensure certainty for Australians when it comes to their superannuation investment decisions.

Today I'm announcing that a re-elected Rudd Labor Government will commit that the tax treatment of superannuation will only be considered for amendment every five years, after an open and transparent period of consultation, guided by the Super Council.

Every five years, the Council will issue a discussion paper about possible changes to taxation designed to deal with adequacy, sustainability and fairness.

The discussion paper will be released for extensive consultation; the Super Council will then make recommendations to be made. 

Once any changes arising out of that process are legislated, there will be a further five year moratorium on further major taxation changes.

The reform I'm announcing today does one very important thing. It makes it clear that the Rudd Labor Government believes Australia's treatment of superannuation should be dealt with as considered retirement incomes policy – not seen through the annual Budget savings task.

Of course, there are always some minor issues, such as technical amendments and clarifications, which will still be dealt with when appropriate, if recommended and supported by the Super Council. 

I also believe the Government needs to do more to reunite workers with their inactive and lost accounts. 

The Super Council, to be initially formed as an advisory body, will consist of a Chair and up to six other members, appointed on a part-time basis for five years. 

The Council will consult widely on the Charter Group's recommendations and draft Charter and develop the legislative framework for the Charter and Council.

This is about giving Australians the confidence that the system is fair, robust and sufficient for our needs well into the future.

Of course our national success in building a robust superannuation system has been part of the reason for the growth of our financial services sector.

The development of the skills required to manage our $1.6 trillion in superannuation has meant our financial services sector is well placed to expect more and provide better, well trained and well-paying jobs for Australians.

Two weeks ago, I spoke at the National Press Club about managing the transition in our economy.  This follows an address by the Prime Minister a week earlier, on exactly the same topic.

I spoke about the mining investment boom coming to an end, and the need for more growth to be driven by the non‑resource sector.

Of course, this is not a new topic for us to be discussing.

But there is potential to do so much more.

Because, although the local industry is strong, our financial services exports and imports are low by international standards.

In 2009, it was pretty unfashionable for Governments around the world to announce that they wanted to promote financial services.

But we decided the financial services sector was a good, indeed essential, area for us to invest in as a policy priority.

So, as Assistant Treasurer in 2009, we commissioned Mark Johnson to Chair the Australian Financial Centre Taskforce.

In January 2010, as Minister for Financial Services, I released the Australian Financial Centre Forum's report on Australia as a Financial Centre – the Johnson Report as it became known – and four months later, the Government started implementing the key reforms.

The Johnson report made 19 policy recommendations, we accepted 18 of them.  Four of these have been fully implemented; four have been very substantially progressed; six were already underway or are a matter for the States and Territories; and five remain works in progress.

One of the Report's recommendations was the establishment of an Asia Region Funds Passport.

The Passport will provide streamlined access by Australian fund managers to markets in regional economies and give Australian consumers greater product choice.

As you know, Australia has been leading the development of the Passport and I took the opportunity to discuss the initiative with several of my Asia-Pacific counterparts at the recent G-20 Finance Ministers meeting.

I am hopeful that we will see several Asia-Pacific nations signing on to a Statement of Intent to progress the Asia Region Funds Passport in the next few months.

The Statement will commit signatories to undertake industry consultations on the proposed framework with a view to participating in the Passport.

Progress has also been made on a number of other key Johnson Report recommendations. Elements 1 and 2 of the Investment Manager Regime (IMR) are now law.

Today I released the third and final tranche of IMR legislation for consultation.  When complete this will amount to a major streamlining and improvement to regulation of this field.

We have also taken steps to create a deep and liquid corporate bond market in Australia. Legislation to simplify corporate bonds issuance has passed the House of Representatives. And the Government has passed legislation to enable the retail trading of Australian Government Bonds.

Austrade has launched an online gateway for overseas investors to help them navigate the Australian regulatory system.

Competition in trading cash equities is also underway: Chi-X, starting in November 2011, opens the door for alternative exchanges that encourage competitive, efficient and innovative equity markets.

And the Government recently announced that the Australian dollar will be the third major currency in the world, after the US dollar and the Japanese Yen, to be able to trade directly against the RMB in China's foreign exchange market.

Conclusion

To conclude, commentators often lament that the major political parties have very similar policies. In the area of superannuation, this couldn't be further from the truth.

In this election season, I'm sure you will forgive me for talking a little bit about the choice facing the Australian people in the not too distant future.

There is a lot at stake in relation to superannuation.

And there is a contrast in the approach of the two alternatives:

  • The Government has legislated to increase the Superannuation Guarantee from 9 per cent to 12 per cent.
    • The Opposition has already broken an earlier explicit commitment to not change this by deferring the superannuation guarantee increase by two years.
    • I'll make this prediction now – we will never get to 12 per cent under the Coalition.
    • This is a repeat of the 1996 election, where John Howard went to the election promising to take super to 12 per cent and never delivered.
    • It was Labor that introduced universal superannuation.
    • Labor that increased super contributions to 9 per cent and only Labor that will deliver 12 per cent.
  • The Government has already cut the 15 per cent contributions tax on Superannuation Guarantee contributions for 3.6 million workers earning up to $37,000, including 2.1 million women.
    • The Coalition will reintroduce a 15 per cent tax on the superannuation of these workers in a measure which penalizes low income earners.

And today the Government is committing to enshrine in legislation a five year moratorium on further major taxation changes.

The alternative is a government lead by Liberal Prime Minister who not only called superannuation a "con job" but relatively recently, and might I say bizarrely, in his book ‘Battlelines' called for all tax concessions for superannuation to be abolished and for the aged pension to be made universal instead.

The Government is releasing an economic statement before an election which will outline our approach to balancing the budget. 

The Opposition will not.

And they rely on the promise of a Commission of Audit which will reveal spending cuts and tax increases after the election.

But in this coming contest we will offer a positive agenda for the nation's future.

This applies to our economy and to managing the economic transition underway in our nation.

It also applies to securing good retirement incomes for Australians and a strong and robust financial services sector expanding its role in the economy and playing an even bigger role in the post-mining investment boom economy.

The best way of shaping the future is to make positive choices today.

The choice to increase superannuation savings.

The choice to cut taxes for some of our lowest paid workers, boosting incentives to work and save.

The choice to provide certainty in superannuation through a robust Super Charter and a predictable 5 year cycle of change for taxation arrangements.

The Labor Government has made the right choices for our nation's future.