DAVID SPEERS:
Arthur Sinodinos thanks for your time. Now industry super funds have been and still are outperforming the retail super funds, so what is the problem you’re trying to fix here?
ARTHUR SINODINOS:
Well, the problem we’re trying to fix here is that, David, we believe all funds perform best when there is as much transparency about their operations as possible. That goes to, how they disclose information to their members and to the public. It goes to how they are governed. I don’t believe industry super funds have anything to fear in this new dispensation if they have to put more independent directors onto their particular boards. We have had cases where for example recently some of the super funds have clubbed together to set up an online newsletter, which has raised questions with the prudential regulator about the purpose of such an investment and how it meets the sole purpose test, that governs superannuation investments. So, look, at the end of the day if, as you say, one set of funds are performing better than another then in a world of more competition and more transparency, presumably, they’ll get even more members because they are attracting the support of the people who count.
DAVID SPEERS:
But at the end of the day are the members of industry super funds really any worse off at the moment under the current rules? They do seem to be doing pretty well.
ARTHUR SINODINOS:
Well if you recall the Cooper Review of a couple of years ago, which was done under the Labor Government, that recommended moving to a structure with more independent directors and I think that was a recognition, that all funds could benefit from such a structure. Now the question of the impact that this will have on member returns, as I said before, I think if it improves competition and transparency, we’ll get even better results.
DAVID SPEERS:
Well you’ve raised there the issue of a number of industry funds including Australian Super and
CBUS putting around $6million into this, online new site called The New Daily, it’s apparently money coming out of their marketing budgets. What’s the concern you have here, what’s wrong with them doing this?
ARTHUR SINODINOS:
Well I think part of the problem is that it typifies the issue of, to what extent are members being consulted on some of these activities because the site is more than a journal online or whatever. It includes getting a daily news feed and all the rest of it, and the question in my mind was, how does this all meet the actual needs of members, and indeed, isn’t it important that members be consulted about investments which may appear to be, not directed solely or wholly towards, meeting their particular investment requirements?
DAVID SPEERS:
So you’re concern is that this is more of a propaganda service than a news service?
ARTHUR SINODINOS:
I’ve not sought to use terms pejorative or favourable, all I’ve said is, it raises a question in my mind as to whether it’s an appropriate investment for these funds, the prudential regulator is having a look at it and will monitor it for that very reason.
DAVID SPEERS:
Minister the industry superfunds have been particularly critical of the government for planning to scrap the low income superannuation contribution, the $500 payment for those earning up to
$37,000 a year, now they say this is going to affect half of all women in the workforce, nearly half of all rural Australians as well. Do they have a point, that this does hit, low income earners, while high income earners, continue to enjoy very generous tax concessions?
ARTHUR SINODINOS:
I think we need to step back, from the immediate debate to the context of this, there were a series of measures, including the low income super contribution that were linked to the mining resource rent tax. When that tax was first mooted, it was going to raise $49.5 billion, when it became the MRRT in its current form, the estimate was $26.5 billion, and then it went to $4.4 billion, it’s raised a net $400 million. There was all sorts of spending, as you may recall, attached to it, including this particular, low income super contribution. And our concern was that without the revenue source, the earmarked expenditures were not going to be affordable and we have to make some hard decisions. Now we do have a plan with our Parental Leave Plan to pay the superannuation, particularly of women, obviously coming in and out of the workforce. And for a woman with two kids, who has two children, coming in and out of the workforce on average earnings, over time through our superannuation top-ups, they’ll be about $20,000 better off. So it’s not as if we’re seeking to, if you like, un-prioritise the needs, particularly of working women. We are trying to do it through a separate mechanism, but we could not afford to do what Labor had promised to do, but could not deliver, which was all this spending off the back of the rapidly receding, Mining Resource Rent Tax. We had to do something that was affordable, and by the way, the measure, that Labor claims is the equity measure in all this, which was the increase tax on superannuation earnings above $100,000, the advice we had from Treasury was, it was not implementable in that form. It would require increased compliance costs, some superfunds would have to increase their costs by
$10 million which would come out of members funds, and not only be better off members but all members. So our view was $300 million, if it’s not implementable, or fundamentally, gettable, it was not going to be a great off-set to the $3 billion you’d have to spend on a low income super contribution, we’re committed to looking at that again when the budget is back in the black.
DAVID SPEERS:
Can I ask you about the report from the Grattan Institute earlier this week, which amongst other things recommended lifting the age, at which we can access the pension and indeed access our own superannuation to 70 years old. Now Grattan says this will save about $12 billion a year, is this something that the Government will consider?
ARTHUR SINODINOS:
Firstly, I commend both the Grattan Institute and the Productivity Commission for the work they’ve done around budget and the implications of an aging population. As you know Governments of both stripes have done stuff over the years to raise both the age, pension age and the preservation age
for superannuation. I’ve no doubt that those issues will come back on the table, at some stage, particularly in the context of a population that is not only ageing, but ageing in a healthy way, so there are many more people who want to, not only live longer but they want to work longer, and there’s a whole suite of government policies that have to adapt to this changing regime. And it’s not “all bad,” it’s actually good to extend our labour force by using our older workers and we’ve got a suite of policies to subsidise the use of older workers to overcome some of the discrimination that we find at the moment in the workplace towards older workers. And so, these are all debates that we will have to have. At the moment we’re not proposing anything in particular, but there are various contexts in which these issues will come up over time and don’t forget we’ve also got the Commission of Audit, which will be looking at some of these matters, in the context of what are medium term budgetary savings.
DAVID SPEERS:
And just related to that, a lot of retirees are still opting to take the lump sum superannuation payout when they leave the workforce. That runs out and they then call on the tax-payer funded pension, is this something that the Government is going to look at?
ARTHUR SINODINOS:
Look we’re also interested in looking at how we increase the use of annuities and how we drive the retirement income dollar further. But these are issues which we will consider in the appropriate contexts, and people will have the opportunity through processes like the White Paper on tax reform, to put their views on these issues. But I’m very keen in the Superannuation space David, to provide people which as much certainty and stability as possible. That’s why in this first term we’re committed to no adverse, unexpected changes to superannuation.
DAVID SPEERS:
Finally, on a separate matter if I can, the Treasurer has been talking about Qantas, the pressure it’s under and flagged the option of lifting the foreign ownership restrictions on it, how do you view this? Would you like to see Qantas remain majority Australian owned, would you be comfortable with it being a foreign owned company?
ARTHUR SINODINOS:
Well I think the recent potential, or actual capital raising by Virgin has probably brought to the fore,
a lot of issues which have been brewing for a considerable amount of time. My concern about Virgin, sorry about Qantas, has always been that work practices do need to change further, we do need to make Qantas as competitive as possible so that any debate we have about the future of Qantas should also be about how we lift some of the burden on Qantas so they’re as competitive as
possible, they can grow the pie and actually grow jobs, in Qantas and that includes jobs obviously within Australia. Now the issue you raise around the foreign investment requirements, there’s no doubt that that has an impact on the cost of capital for the airline and on the availability of capital. For a number of years they’ve said that they face increased competition from state-owned enterprises who, in some cases, seem to have very big financial support from the states or governments that own them. But it’s not very easy for Australians to turn around after having privatised this one and TAA, and the reason for doing that was because we didn’t want to spend scarce public capital on supporting businesses as opposed to putting it into health, education and other core Government functions. So what the Treasurer is saying is: let’s have the debate, in order to have the implications sink in of the potential options we face if we are to continue Qantas as a national carrier.
DAVID SPEERS:
Assistant Treasurer, Arthur Sinodinos, thanks for joining us this afternoon.
ARTHUR SINODINOS:
Thanks a lot David.