SUBJECTS: Cooper Panel report into superannuation, Mineral Resources Rent Tax, independent review of tax.
ROSS GREENWOOD:
It's been called one of the biggest overhauls of our superannuation system since compulsory super was introduced in the early 1990s. Jeremy Cooper, the former Deputy Chairman of ASIC, the Australian Securities and Investments Commission – the corporate watchdog – has spent the past year reviewing the superannuation system, and today his final recommendations were produced. The Government will now consider those, although it is expected will broadly enact many of the recommendations from the Cooper Review.
Amongst those, the most important is the MySuper scheme, which is effectively the simplified superannuation system; which promises to cut fees and could deliver a person on average wages potentially an extra $40,000 in to their retirement fund by the time they retire. But as we indicated earlier when we were speaking with John Brogden, one of the issues about superannuation; the industry itself is split down the middle, which is unfortunate. It's almost on political lines: the industry super funds line up on one side, the commercial superannuation funds line up on the other; and it would be fair to say that many of the recommendations probably tilt more to towards the line of the industry funds.
Chris Bowen is the Minister for Financial Services, Superannuation and Corporate Law. He joins me now on Money News. Hello Chris.
CHRIS BOWEN:
Good evening Ross, good to talk to you.
GREENWOOD:
First up, do you agree with my prognosis that the superannuation industry is split and largely along political lines?
BOWEN:
Well look firstly, there's a lot in this report that everybody in the superannuation industry agrees with and supports…
GREENWOOD:
That's true.
BOWEN:
It's bringing the superannuation industry in to the 21st Century frankly; making it a lot more electronic, a lot more efficient and really driving down costs; and everybody in the superannuation industry, I think, supports that.
GREENWOOD:
Sure. Can I just pull you up there and just as we go, we'll just clarify a couple of points: the electronic that you're talking about really is all about people being able to keep track of their superannuation so you don't end up with a situation – as there is currently – with $10 billion in lost superannuation that the Government is going to take back in to its own revenue, is it?
BOWEN:
That's partly it: it'll really be making it a lot easier for superannuation funds to put people back in contact with their lost superannuation. We've got far too much lost superannuation in Australia: people change jobs, they change super fund, they might move house and they lose contact with their account, and that money is just lost to them; it's money that they could be living on in their retirement that's just gone. So it's about making it a lot easier for people keep track of their own…
GREENWOOD:
So that's one key recommendation, from it…
BOWEN:
Yes.
GREENWOOD:
The second part of it, of course, is trying to make superannuation simple. This is where I suggest that it probably tilts more towards the line of the industry superannuation funds who have clearly been, if you like, recommending that there be some simplified form of super without commissions that, as a result, probably bends it a little bit their way.
BOWEN:
Well you're right to say that the industry super funds are more supportive of the My Super account; which is the basic default account, to say, if you're not maybe so much interested in super. Imagine maybe a 20 year old, who's not really thinking about their retirement income; we should have a basic account which caters for those people; or it might be for those people interested in super but just don't feel qualified to be making complex investment decisions, to have a basic account which people know has low fees and which has a diversified investment option; so that, basically, they're covered: they've got some peace of mind; and that's what that the My Super recommendation in the Cooper Report is about.
GREENWOOD:
And am I right to say that that is broadly by the use of index funds – in other words, funds that follow the stock market index or the property index or the bond market index, for example? And there's no extra brainpower put into it, other than if you see that the stock market's up one per cent, the share market portion of your superannuation is up one per cent; because the truth is that these are the cheapest form of investment for a person who wants to get out of – shall I say – money in the bag.
BOWEN:
Well trustees would have those options available to them but it is true to say it would be a basic diversified account; so it wouldn't necessarily be only index funds. It would be basic and it wouldn't have some of those 'bells and whistles' that other accounts have. If you want a more diversified account or different options, more complex options, that certainly would be available to you; but for people who don't really feel comfortable or inclined to do that, then My Super would be for them.
GREENWOOD:
And if you wanted the brainpower of Anton Tagliaferro, of let's say for example, Robert Maple-Brown from the old days, of some of the other superannuation funds – Kerr Nielsen, would be another one – any of the top superannuation fund managers in this country, then quite clearly you'd have to go and seek out that investment and you'd have to therefore pay more or be prepared to pay more, for that advice as well.
BOWEN:
A lot of the retail funds already have basic accounts and they put that out, and that's true; and a lot of those would classify as My Super accounts. It's a matter of whether you need to, whether you're inclined, to get those other options. So a lot of the private sector, firms that you were talking about, would still have some availability of the basic My Super account but others would just be the more complex and, therefore, wouldn't qualify for My Super accounts; they'd certainly still be available for people but they wouldn't be the default fund it will automatically go in to.
GREENWOOD:
Just a strange question: of the recommendations from Jeremy Cooper's review on superannuation, how many of those recommendations will be taken up by the Government?
BOWEN:
Well, I've got to work them through. I certainly have made it clear that I support the thrust of the Report, the principles of the Report: a simpler superannuation system.
A lot of these recommendations have been well known for a long time; the superannuation industry's known that they've been coming, and I've been talking to the superannuation industry about them; but we've only just got the final report released today, so I'll be sitting down with the superannuation industry and talking a lot of those options through, but the thrust of it is something I support and welcome.
GREENWOOD:
Is there a parallel, therefore, that the Government did not really have the, shall I say, full support, shall I say, of the Henry Tax Review; when in comparison just 4 out of 103 recommendations are taken up – one of which has been now vastly modified in the Mining Resource Rent Tax; as compared with this Report from Jeremy Cooper – where the Government's likely to take-up the vast majority of the recommendations?
BOWEN:
Well, I think they're very different reports, in fairness Ross. The Henry Report itself made the point that a lot of their recommendations couldn't be taken up in the short-term; they were longer-term recommendations that governments would look at over five and ten years. Whereas this Report is more immediate; so I think they're quite different.
What this Report does is build on the reforms that we've already done.
GREENWOOD:
In hindsight, was the Henry Review a waste of resources and a waste of time? And really, a waste of brainpower?
BOWEN:
No, I don't think so Ross, because look, just take this for example: you've got the Mineral Resource Rent Tax, which is funding the boosting of superannuation through the increase…
GREENWOOD:
Which Ken Henry has said today, he's disappointed that it has been modified, because he thought his Resource Super Profits Tax wasn't a bad one.
BOWEN:
Yeah but we've got a tax which is going to raise a lot of money; where the mining industry have accepted they need to pay more tax; and that will fund things like the superannuation guarantee increase – the tax concession part of that, the reduction in corporate tax rate from 30 to 29, and the infrastructure fund.
So that's one big reform; and a lot of the other reforms are recommended by Ken Henry and the independent Tax Review Panel would be things that government would look at and deal with over coming years; there's some that we've ruled out – that we've just said that we'd never do – but we've said it's still on the table.
GREENWOOD:
Just one thing, I'll put you on the spot: I've noticed the Opposition – this evening we spoke to Joe Hockey earlier on this program, talking about the fact that the Government had taken up the most recent ABARE figures, which were released on June 24, as distinct from previously using ABARE figures which were 5 year figures which had been presented in the Federal Budget. The most recent one year forecast of course, are more volatile numbers, based on the most recent contracts that have been brought down, but are very difficult to judge over a longer period of time. Is it reasonable to say that the reason why the Government thinks that there's only a one and a half billion dollar hole in the new Mineral Resource Rent Tax is because it's used the most inflated figures possible.
BOWEN:
No it's not. I haven't seen Joe Hockey's comments: I've been in meetings all day. But I can say this: the estimates in the Budget and the estimates which were released last week, are based on the Treasury's best estimate, and are generally conservative. Treasury doesn't go out there and say, what's the highest number that we think that might happen? They say, what's the number that is most likely to happen? It could well be that the commodity market is even stronger than the Treasury estimates, so I reject that.
The funding that you've seen - the funding model that you've seen – and the costings that you've seen are based on the Treasury's best estimates. They include the removal of the refundability; so not the refundability of the royalties – as I heard one of your listeners say just before, that's not quite right.
GREENWOOD:
Yes…
BOWEN:
it's the refundability of...
GREENWOOD:
…of the losses incurred when they close mines.
BOWEN:
That's right, and that has changed – and we've reduced the rate and increased the threshold at which the tax applies. So when you put all that together and with the Treasury's best estimates of what's happening, that's how you come up with those costings.
GREENWOOD:
Chris Bowen is the Minister for Financial Services, Superannuation and Corporate Law here in Australia. We appreciate your time – many thanks for your time on Money News here tonight.
BOWEN:
Always nice to talk to you Ross.
GREENWOOD:
Good on you Chris thanks very much for that.