28 November 2013

Q&A with Jennifer Hewett, Financial Services Council AMP Breakfast

Note

This is a transcript of the Assistant Treasurer's interview with Jennifer Hewett at the FSC Breakfast. The topics discussed included

JENNIFER HEWETT:

We seem to be awash, as part of this new Government, in Commissions of Audits and inquiries and reviews and of course one of the big issues for this audience in particular is the Financial Services Inquiry. And I know it’s kind of early days, but I am trying to figure out have you got a clear view in your mind about what you think this inquiry could do to assist the financial services industry, particularly in terms of international competitiveness or do you think it’s more about domestic resilience?

ARTHUR SINODINOS:

Thanks Jenny. It’s great to be with you all. If I could just take a step backwards first in terms of the context of all these reviews and inquiries. I think part of Tony Abbott’s political strategy in Opposition is to say: look we’ve had a Government that’s had, or the previous Government, a lot of ad hoc decision making, a lot of stuff done on the run, people being surprised and mugged by change. So the idea was on really significant things, actually take time to work through them, have a process of genuine consultation attached to them and also politically get people to own potential change. I think that’s very important, because change does not stick if you don’t take people with you. And one of the lessons… We did some things quite well in the Howard Government, but there were some things, like Work Choices towards the end, it was clear we’d imposed things that people didn’t see coming and we hadn’t built a constituency for further change or people were just reformed fatigued. But the fact of the matter is you want to take people with you.

So part of the Tony Abbott style is we’re going to have these reviews, we’re going to make them broad ranging - the White Paper on tax reform is quite a broad ranging white paper. Notwithstanding what some people say about what’s in and what’s out, the fact of the matter is that it’s intentionally a broad ranging process to give people an opportunity to ventilate the issues. Now what the Government then does, well it can make decisions it can take to a subsequent election.

In the case of the Financial System Inquiry this was something that was particularly close to Joe Hockey’s heart and I think Joe’s view was, coming out of the Global Financial Crisis, first of all, yes we’d done very well in terms of our financial system and that was a tribute to the whole of the regulatory structure around it and a whole slew of other things I won’t go into here, but his point was the land scape has changed here and it’s changed internationally and it’s been sort of something like 15-16 years since the last inquiry. So let’s look at how the landscape has changed.

We’ve got a very big pool of capital there, now called the superannuation pool, which is growing apace. What are the implications of that pool for the rest of the system? We’ve got technology, which means in the banking sector in particular, models are starting to be disrupted in a way the print media have had to cope with for some time. What does that mean about how the banking landscape will look? About the profitability of banks and associated entities in this new world? The opportunities for consumers. And for regulation how do you make, in that sort of fast moving world, how do you make regulation forward looking rather than backward looking?

One of the challenges always for Government is that there is a bit of a recognition lag about when there is a problem, then there is a bit of an implementation lag when you actually deal with it and by the time you’ve dealt with it the world is sort of moving on. So part of the Financial System Inquiry is around just making sure the structure or regulation is fit for purpose as we go into this more dynamic and uncertain world. I think Joe’s also made the point with the inquiry that he does want it to look at some of the gaps in the market for example. As a country do we do enough to commercialise innovations in Australia? Can we do more? Where are the gaps in the financial markets around that? And is there a role for Government in helping to plug those gaps? So it’s actually quite a, I think, forward looking exercise. I don’t expect, for example, that it will mean the end of four pillars and stuff like that, but to the extent that it has more fit for purpose regulation which promotes greater contestability, reduced potential barriers to entry, it will have major implications for competition and for consumers. So it’s a pretty big landscape to paint on.

The other aspect of this is that we also build on, we want to build on the sort of initiatives that, and I commend the previous Government for this, things like the Johnson Report, which were around how do we promote Australia’s financial centre? So I think the inquiry should also look at the ramifications of the way we regulate things in Australia for our capacity to actually export financial services, because this is an industry which has been built out of deregulation. Since 1983, the floating of the dollar, one of the single biggest, most important decisions this country has made, where the result of that was to set off this whole process of building this financial sector of greater expertise. And anywhere you go in the world, you find Australians working in financial services, they’re very highly regarded. I remember John Thornton, one of the former heads of Goldman Sachs, when he was out there he said: you know we love having Australians in the organisation and we love sending them to all different parts of the world because they don’t carry the same baggage basically as Americans or Britts. They fit in everywhere, they understand or have a capacity to understand other cultures and they have this great expertise that’s built up. So there is a lot of opportunity there. So I guess we want to ask the question, how do we build on that? And some of the stuff that our financial institutions are already doing abroad.

JENNIFER HEWETT:

Ok so working on that - the idea of superannuation we always talk about, you know we have this incredible pool of saving and things. I know you’re saying we’re going to be looking forwards, but how effective do you think superannuation could be in really helping build the kind of strengths in the economy in ways we haven’t seen thus far?

ARTHUR SINODINOS:

Well look, the first thing that we don’t want to do, is we don’t want to be mandating where superannuation goes. I think we’ve got to be very careful about how we sort of interfere with broad market disciplines in that regard. Because there are a lot of people who say: well isn’t it fantastic, you know 1.6 trillion in assets or whatever it is and growing apace, why don’t we just mandate 5 per cent for this, 10 per cent for that. And I think once you start to do that it gets very dangerous because at the end of the day superannuation is about retirement incomes, so we want to maximise people’s retirement incomes. But what we want to do is create an environment in which there are potentially more asset classes available to people to invest in. I mean what we often hear from super funds, for example, is they’d love to invest in more infrastructure assets. Well Joe Hockey the other day announced this process by which we want to incentivise the States to privatise more of their existing assets, their brownfield assets, which have a steady, reliable rate of return, relatively long lived assets should fit the sort of asset profile of super funds. What Joe has said is basically the Company Tax title payments that States now make to, or State enterprises now make to their State treasuries. We would basically replace those, if these State corporations are privatised and the States would get those back, as well as the capital value of selling those assets and that’s to incentivise them to do more.

New South Wales has some good assets in that regard, as does Queensland. Both Governments have said they want to go back to the people before they privatise other major assets. But our view is you can persuade the public to do these sorts of things if you say well, the family silver over here, which you may like, actually if we privatise that, we can come up with better public assets or more valuable public assets going forward. And Mike Baird in New South Wales has been involved in this model, where the State Government takes more risk upfront, builds up an asset, gets it to a level where the returns are very certain, then you can flip it into the private sector and recycle that capital.

Why am I harking on about infrastructure? One of the first things Joe Hockey did when he became Treasurer and he had his briefing from Treasury, Treasury made it clear that as we transition the economy from this resource-investment super cycle, what we’re finding is that transition won’t be seamless. I mean housing is starting to come up, non-mining investment has got to get stronger, infrastructure is one of the areas, which is seen as, in part filling the gap. Now my view on this is, apart what we do to get the volume of infrastructure spending up, we’ve also got to make sure we’re improving the quality of infrastructure. So that means there is an obligation on making sure the pricing on infrastructure is right, we send the right signals for investment. It also means, through Infrastructure Australia, and we’ve started to do this through some amendments to the Act that governs Infrastructure Australia, try and give them more of a role in evaluating the costs and benefits of proposals, particularly those over 100 million, publishing those, creating a pipeline of projects, about a 15 year pipeline to give people some certainty about what’s around. Why am I giving you this long ended dissertation on infrastructure? Because my point is rather than try and say the funds are going over X or Y, we create the opportunities and the asset classes and then I think the funds and others will follow.

JENNIFER HEWETT:

And you think the timetable will work and it won’t be too long to kind of take out that slack in the economy?

ARTHUR SINODINOS:

One of the reasons why Joe has done what he’s done in recent days in that discussion with the States, is because he wants projects brought forwards, sure.

JENNIFER HEWETT:

All right, so if we go on to a slightly more immediate issue, which is the discussion paper you’re releasing today, particularly on governance of funds. Now what are you partucarly trying to achieve with this and in particular the role of independent directors?

ARTHUR SINODINOS:

Well first and foremost there are some issues that, when the pipeline from the previous Governments set of changes around things like the MySuper product… dashboard and disclosure portfolio holdings, where we need to finish that work, because there are a lot of players who have been sort of investing or gearing up for these things to happen and I think it is important we continue improved transparency. So part of the Discussion Paper is about how we implement some of those proposals in a way that is user friendly. I don’t know about you, but over the years, even though I’ve worked in Treasury and all the rest of it, I always found it very difficult to read my super statements. So if anybody can come up with a really easy, simple way to explain where the money is going, what is it returning, how much is actually going in fees, in a way that the ordinary consumer can understand, that would be great. Now I’m not saying that’s the fault of the industry, the industry provides a lot of information, but it’s a bit like the budget papers, you put a lot of information out there, but it’s actually doing it in a way that is immediately accessible. So I’m all for stuff that improves that transparency. So the discussion paper is really saying to people: look if you’ve got a better way of doing all this, let us know.

On the issue of the independence of directors, this going back, part of it has its origins in ancient conflicts, which you and I Jenny remember better than most, because you’ve been in the press gallery. But it’s true to say that for a long time there was argy-bargy between both sides of politics over compulsory superannuation. The Coalition approach tended to be more of a voluntary superannuation, the Keating Government in particular and the Hawke-Keating Government in particular went down the route of compulsory super. Now we embraced compulsory super when we came to Government in ‘96, but our beef was there needed to be more choice and we wanted to provide more choice, through things like the retirement savings accounts, choice of fund and all sorts of things, and over the years we’ve battled away with this. But over time what’s happened is, we’ve come to accept and I think the industry funds have come to accept, that there is a place for everybody, right?

We’re not saying that there is a one size fits all, everybody has got to be a certain type of fund. But what we are saying is that when it comes to governance, ultimately, whatever the sort of fund you’re in, you’ve got to be accountable to your members in a way that is transparent and publicly defensible. And therefore we’ve said when it comes to the Government structure, including in the industry funds, that we should look at some of the principles that the stock exchange has for corporate governance, look at some of the principles that APRA applies in these areas.

And look, I bumped into the head of a very major superfund who said that they couldn’t get rid of a member of their board, even though that person was about to be charged with certain criminal offences, right? Because they just didn’t have the control. Now in a normal board there would be a capacity for a board to act collectively in the interest of the fund or a company as a whole and take the decisions about the impact having a certain person on board may have on the reputation of the company or the fund. Now that’s a very small example, but the point is this, we want a situation where it’s transparent how the place is governed, there are enough independent directors to make sure that everybody can see that the fund is being run in the interest of the members as a whole and is not just there are an institutional support for other things. This is not ideological.

The principles we’re basing this on are the principles of transparency, comparable governance across different types of institutions and we also think it can create more competition and people can see how things are governed or not governed.

JENNIFER HEWETT:

And in terms of competition there is also of course this issue of the range of choice of superfunds and industrial awards, but industry funds are always very quick to try and say: I’m sure they’ll disagree with this that actually on average their return are better then retail funds. So what’s the problem you’re actually trying to fix there?

ARTHUR SINODINOS:

The problem we’re trying to fix there is that we think more competition and more informed consumers is a good thing. It’s as simple as that. Why shouldn’t any fund that meets certain basic requirements be able to be selected for being awards? Look it’s old thinking to think that somehow it buttresses the rights of the working man or woman to have trade unions with legislated protection of one sort or another. The thing that will kill unions ultimately is protection. What makes people thrive ultimately is competition, serving you members, as well as you can. So I think in this particular space it’s creating as much competition, as much comparability, as possible. It’s in their interest. It’s in everybody’s interest. And certainly for us, if one of the legacies of my time as Assistant Treasurer is that we’ve made a marked contribution to increasing the choice of fun and the competition of manual funds, I’ll be quite happy with that. Because I think that will lead to better outcomes overall for the system as a whole.

Can I just add one quick point, I often hear that some people say: we’re happy to be in a certain type of fund because it’s for a non-engaged investor, or a passive investor. I don’t want passive investors, I want investors who actively take an interest in the financial outcomes.

JENNIFER HEWETT:

Ok all right, well if you say you don’t want passive investors, one of the other complaints I guess from the industry funds is that obviously there is a trend in the industry towards scalable advice and you know you’ve got to clarify that, but the industry funds are complaining bitterly that you’re going to find intra-fund advice to make only general advice and that is actually going to mean that less people are going to get financial advice fitting their circumstances.

ARTHUR SINODINOS:

Well what we’re trying to do is create a situation where we don’t throw the baby out with the bath water if you’re looking at things like the future of financial advice reforms that we’re looking at. Our view of that was that it involved a heap of a lot of regulation. We saw ways, through a report that was done for the Senate, some of our Senators were on that, there was a descending report, that identified up to I think 16 things that could be changed to reduce the compliance cost of the new regime that we’re talking about. So we’re looking at some of these specific issues in that context.

But my point is we want to reduce the amount of red tape associated with providing financial advice in this new regime. Yes we want to protect consumers, but the point is you don’t want a situation where you create so many costs around the provision of financial advice you actually reduce the accessibility and affordability of advice. Because to go back to my point earlier, we want more active and engaged investors, consumers and all the rest of it, but to do that, they’ve got to be able to have the option of relatively affordable, understandable advice. And what we were concerned about with FOFA was there was too much regulation in the tranche of changes that Labor made around whether it’s the issue of intra-fund advice, whether it’s issues around general versus gullible advice; whether it’s issues around what are basic products, as opposed to sophisticated products; and how they get treated in terms of what advice stream they’re in. The principle we’re applying is where possible we want to reduce the cost of providing advice.

JENNIFER HEWETT:

And do you think you’ve got the balance right, I mean because people say in some ways you’re risking going back to the bad old days where there was inadequate disclosure about you know the fees and when you, in terms of opt-in and things like that?

ARTHUR SINODINOS:

There is a package we’re formulating at the moment based on consultation with all of those, not just one section of industry, I’m putting up to my ministerial colleagues very soon and that will address some of these issues. But the instructions I’ve got is that we’ve got to make sure in reducing red tape, we’re also balancing that with obviously the need for consumers to get as much appropriate information as they can.

Again you’ve got to have that balance, otherwise consumers are going to miss out. In net terms they might end up with less advice then they get now, if we’re not careful. So that’s why I am trying to be very rigorous about how we reduce the cost of regulation in this sector and also deal with practical situations that people face. Because it’s very, I’ve got to tell you, it is very easy sitting back in Canberra to make all sorts of regulations to cover all sorts of contingencies and the point of having consultation is to figure out which contingencies are more likely than others and therefore what is a real problem, as opposed to potential, but it’s in a very long tail of probability of happening.

JENNIFER HEWETT:

Ok so the timetable for that then is that you’re going to take this to the Cabinet very shortly ….

ARTHUR SINODINOS:

Colleagues and by the end of the year there will be road map and then what we do by, regulation or legislation, will be determined in that context. But you will know by the end of the year. Because I am trying to get all this wrapped up, before Parliament sort of rises in terms of getting some decisions. You will know, you should know by the end of the year.

JENNIFER HEWETT:

OK and are you confident that you can get all that through the Senate in the first six months of next year?

ARTHUR SINODINOS:

Ah the Senate thank God [inaudible]. You know some days I sort of look around the Senate and you know you’ve got the Labor and you’ve got the Greens and you know what you get there and you contemplate next year, you know…

JENNIFER HEWETT:

Could be better…

ARTHUR SINODINOS:

And people and everybody else, and I am being nice to everybody, doesn’t matter who they are. Look I think because of the ownership that Labor had on the existing FOFA, I think there will be changes, yes. The Greens? Well I suppose the Greens’ default position tends to be more regulation rather than less, so I’m going to have to play it very carefully, the Government is going to have to play it very carefully, the Government is going to have to play it very carefully. My concern about the new Senate from the 1 July is that we’re potentially going to be rolling up a lot of things to them and it’s just making sure we get priority for the things that you and I might think should be particularly at the head of the cue.

But can I say just parenthetically on the new Senate. This is why people should not underestimate Clive Palmer, right? He didn’t just buy those seats. He was very clever in the strategy that he followed. For example, before the election, just before the election, I bumped into this Comcar driver in Canberra and she was telling me she was getting SMS’s from Clive Palmer. Her colleagues weren’t, but she was. So what he had done is, he’d worked out in marketing terms who were the potential swing voters and he had a strategy to reach out to them. So it wasn’t just a matter of his media antics and all the rest of it. He actually put a lot of resources into identifying the blocks of voters and what he did, there were a lot of disaffected Labor voters that he basically took away from other potential people like Katter and the rest. Some of them came to us, but a lot of them, through Palmer actually ended up voting for Labor again, so that’s why it was a mixed result in some States. So what I‘m saying is, don’t underestimate how clever this guy is.

JENNIFER HEWETT:

No, shame he [inaudible] from that point of view. So on another issue regarding the policy, there is this other question, which I think is kind of the elephant in the room for people, and that is the professional standards of the industry and I think, you know, you get a lot of people who go: well sure we’d like to get financial advice, but we can’t trust it necessarily, we don’t know if we’re going to get a lemon or we’re going to get somebody who is any good. I mean do you think that that has been properly addressed by the industry and do you think there should be more that Government can do to encourage those standards, higher  standards and uniformity of sense?

ARTHUR SINODINOS:

Sure. I mean it’s an industry, which has sort of grown like topsy over an extended period and that’s been part of the issue. And therefore it attracts quite an interesting mix of people in different types of settings. You get the sole trade, you get those who are part of small groups of partnership, then you get those who work as part of large organisations. So it’s a very disparate industry in that way, when you look at it like that. So I think there is more work to do to keep lifting standards. Standards aren’t bad and the associations which seek, represent the sector, I think do a good job, but I think there is a challenge to keep raising standards the whole time, because the industry has grown so quickly and there is this dilemma about making sure it grows in a way, which provides affordable advice. That’s my bugbear.

One of the other things I do is I look after Financial Literacy Board, which is chaired by Paul Clitheroe and they’re doing a lot of work in actually trying to get more stuff on financial literacy as part of school curricula and I think that’s very important. I think you’ve got to keep teaching people from an early age to be financially literate, it’s different from being numerate and I think it’s very important that we compliment these sorts of initiatives.

JENNIFER HEWETT:

But you don’t think there is a role for Government in this, you think it all has to be done by the industry?

ARTHUR SINODINOS:

Look, our default position is that industry should take the lead, rather than, what’s Government going to do? Sort of design another course, where you’ve got to go to university for five or six years to get a masters on top in order to be able to provide advice? I mean I’ve seen industries where the Governments have sought to do that and often what that means, is you get a good product, but it’s the cost of the product, and therefore the accessibility of people to the product. But, so what I prefer to do in the first instance is actually sit down with the industry and say: well what can we do to support your efforts?

JENNIFER HEWETT:

Now the other area of interest and it’s been in a huge change I think, is the growth of self-managed superfunds. And given their exponential growth and the huge role they now play, do you think that we do have the right regulatory structure for them, you know to be supervised by the ATO and do you believe protections are adequate? You know there is a lot of talk now about obviously the use of, you know, people being able to borrow in self-managed super funds. Many people suggest this is kind of an accident waiting to happen. Do you have any concerns about that as an area of risk?

ARTHUR SINODINOS:

I think the first point to make is that philosophically we quite like self-managed super funds, people take responsibility for their own savings and the regime that is attached to that has tended to be a bit more light touch than the regime you get around APRA regulated funds and the like.

But the other side of that is that people in that situation should not expect that the Government necessarily comes to their rescue. Now the politics of this has always been that if things get really hot, the Government always comes to the rescue, depending on how much they’re feeling the heat. But philosophically I would prefer a situation where the regulation remains light touch, there is a bit on an issue, some of the people in those funds raise about the way they’re administered by the ATO, I’m happy to look at any particular beefs they may have about that. We’ve always got to be open to listening to what people are concerned about, but I prefer them to keep a fairly flexible regime, as long as they understand that taking responsibility for your own savings, means taking responsibility for your own savings.

Now some of the issues you’re potentially raising around getting into property and all the rest of it. I think the challenge there is that a lot of the people in this space tend to go with the areas they’re most familiar with. It’s a bit of a tendency in most of us. But what you hope over time is if you keep raising the levels of financial literacy in Australians, is that people will take a more balanced view about how they allocate their assets. But there is no doubt that there has been a lot of interest in the property sector. I think I’m fairly [inaudible] singled out as somehow fuelling a potential bubble here. I don’t think we’re in bubble territory here in the property sector yet. We’re going through a fairly good phase, because interest rates are low, there’s been a lot of interest in the market and there is quite an interesting fine component to that as well. But I don’t think we should be blaming them if there is bubbling up of interest in the market.

JENNIFER HEWETT:

Okay and one of the other things, Australia likes to, you know boast about its superannuation system. They also, of course everyone is very proud of the fact that people are living longer, but in terms of the super system, we don’t seem to have done nearly as well in trying to create that long term ability for people to fund themselves through very long now years of retirement and the whole idea, annuity market for example is still pretty underdeveloped. Have you got any thoughts on that?

ARTHUR SINODINOS:

Yeah. I think the first point to make is its good people are living longer, people are healthier, they can work longer. What the Government wants to is make it easier for people to work longer. As part of our election platform, we actually have some proposals around subsidies for employing older workers. And part of the reason for the subsidy things, is that there is a discrimination against employing older people and that, as someone who’s now approaching the third stage, I’m [inaudible] part of that discrimination as well, we all are. So the point is, Governments need to have strategies to actually take advantage of the fact that people are living longer, are healthier and can make a productive contribution. That does mean over time that we need to keep reviewing the way our superannuation and other rules interact and that’s not to say that suddenly there’s policy change around the corner. But you know it’s common sense that you do have to take into account the idea that people are going to be living longer, you do have to take into account the implications of that and the contributions people make over their lifecycle and whether they’re in the best positions to make those contributions. Often it’s when the kids are off their hands, it’s just the two of them say, if it’s a family situation, they can use some of the later part of their working lives to maximise their contributions. All these sorts of issues that are potentially, at some stage on the table, I’m not saying they’re on the table tomorrow, but it’s common sense that we have to keep an eye on all of that.

I think also it’s very important in this context to recognise that while the aging of the population will also create certain budgetary pressures that have to be deal with, if we get people to work longer and all the rest of it, taxes will also be higher. Now you raise the issue of a annuities. Well look, I’m quite in favour of making sure we make annuities as attractive as possible without unduly distorting markets, because I think we do need to make retirement income dollars go as far as they can. Now and there is some stuff that’s been before the Government around all of this, which will be looked at in due course. Some of it is stuff that’s hanging over from the previous Government, but I’m happy to have a dialogue on all of that, because I think it’s important to create a frame. But the issue is rather than policy on the run, we want to do this in a considered way, because one of the commitments we made in the campaign was no adverse, unexpected further changes in super, at least for a first term. We’re very keen to stay with that, so whatever we do, it’s got to be in the profit context, people have got to have notice, have as much certainty as possible about their retirement.

JENNIFER HEWETT:

In the interest of opening it up, I’m also saying we’re probably, we can talk a lot longer, but if anybody’s got a question now, they could raise their hand.

QUESTION #1:

Good morning, Patrick Millen-Shorta from MOSA. Minister I welcome your comments regarding competition, my question concerns modern awards. Noting that the Government has stated it intends to make changes to the Fair Work Commission process, what advice would you give a superannuation provider, seeking to provide MySuper services to thousands of workplaces from next year? Should they be applying to the Fair Work Commission from 1st January and to what extent should they be participating in a costly and complicated process?

ARTHUR SINODINOS:

The first point to make is that in putting out the Discussion Paper we want to flush out exactly the sort of issues you’re talking about. So I think the first thing I’d suggest is you make a contribution to that paper, setting out some of the issues and the complications that you may see in going down this particular route. But I mean we will do whatever we can from a Government perspective to facilitate getting proper competition in that space. That’s our starting point and therefore finding ways to simplify and reduce the complexity of people getting involved is something we’re happy to have a look at, if that’s your concern.

QUESTION #2:

Assistant Treasurer, Lucas Mckay from BT, you mentioned earlier in your speech the Tax White Paper and I’m just interested in your views on that and in particular, how much that will be just a, you know, re-hash of the Henry Review and whether or not you’re going to look at superannuation tax settings in that White Paper as well?

ARTHUR SINODINOS:

Thanks. The terms of reference haven’t been set out yet, but when Tony Abbott was speaking about this in Opposition, he made it clear that it wasn’t so much a re-hash of what had happened before; it was an opportunity for people out there basically to have their views on the architecture of Henry among other things, but also more broadly issues they felt strongly about.

So if people feel strongly about tax issues around super, I don’t think that will be precluded from being considered. Because at this stage, Tony Abbott’s attitude has been very much ruling in a process of debate for the reasons I mentioned earlier. Now it’s true to say there are some very familiar and [inaudible] chestnuts around taxation of superannuation, no doubt about that. But there’s no harm in putting the ideas on the table, because the other thing is that you put the ideas on the table then as politicians you’ve got to make decisions about what you prioritise, right? And how the various bits of the system fit together.

And the other point I’d make is that, and we found this with the tax reform in 2000, you can’t do everything at once. So for example, we did the major tax mix switch and compensated people through the personal income tax system, that was one discreet set of changes. It was integrated, it had to be to be to get public support. But the second bit, which was more around reform of the corporate tax system, we actually put into a separate bucket and got John Ralph and the committee to have a look at. And we did that separately because frankly, when the Treasury first put up proposals around corporate tax it, was pretty indigestible I’ve got to say. Indigestible in the sense, partly it was hard to follow and what the implications were. So the PM and Peter Costello decided: let’s put out a paper, get a blue ribbon group to go out there and consult on it and let’s see what people think. So in using that analogy what I’m saying is, you don’t necessarily do everything in one go. You find processes for dealing with the separate bits where they are discreet.

QUESTION #3:

My name is James Bond and I’m from M16 and in my spare time I’m president of the Australian Services Roundtable. Obviously the financial services industry isn’t interested in the kind of subsidies the car industry gets. You know we see ourselves as more forward thinking than that and obviously they are on the way up. What sort of things can the Government go or governments do generally to help facilitate financial services exports?

ARTHUR SINODINOS:

Thanks James. I think the first thing to say is that if you get yourself on the subsidies teat, forget it. That is road to perdition. That will not help you. And the car industry is a good example of what’s happened and it’s interesting how the public sentiment on the industry has shifted in recent years. And it’s shifted because even though the subsidies have been kept up or if anything increased, numbers of people employed, number of makes/models has gone down. So this trade off that was there for a very long time, doesn’t seem to be there anymore. And my point on subsidies is that, I find most advanced services have actually done well because they’ve sort of just sprung up, as innovative people, entrepreneurs and risk takers just decided, this is something that needs to happen and then the role of government is to facilitate what they’re doing, rather than saying: well we’re going to subsidize X or Y.

One area where we are interested in looking at gaps in the market is around financing of innovation and venture capital and the like. But that’s about how you fill gaps or market failures if you like, but not subsidies on the scale of what we’ve seen in the past. I mean the challenge around the car industry is not only the potential location of where the jobs are and the impact on particular communities, but there has been this debate for a long time around the upstream and downstream linkages from the industry in terms of the impact it has on technology and other parts of the economy. So it’s not a straight forward equation that we just close the thing down and we save X hundred millions of dollars and all rest of it. But that said, we’re not in the business of setting up the next generation of car industry subsidies, that’s the wrong approach for a country of our size.

JENNIFER HEWETT:

Ah well there’s many more questions that we could all ask. I seem to have a long list here, that I’m not going to do, I will just finish with one thing though and that is clearly that you’ve been in politics a long time. You’re now in a new role, what’s the thing that surprised you most about coming in as a minister?

ARTHUR SINODINOS:

Every time you say something people think that you’re wise and you’ve actually thought about what you’re going to say. You’ve got to be very careful and responsible about what you say, because if you make a flippant remark people may think: well there’s a real purpose behind that! No, but it is the difference between being particularly an adviser and being a Minister is, as the Minister you think that second longer about what you’re about to sign off on or what you’re about to do. That doesn’t stop you making mistakes, but that is the difference, you will always know that ultimately the buck stops with you. And that’s why it’s good to have a Prime Minister, because then you can delegate all really difficult problems to him.

JENNIFER HEWETT:

I’m certainly glad there were no flippant remarks from you today Minister and it’s been a great pleasure to have you here with us and sharing some thoughts and pausing a second before you say anything. We’re now going to get a formal farewell and thank you.

ARTHUR SINODINOS:

Thank you.