PAULINE VAMOS:
Welcome Arthur and thank you for making the time to have this interview today, particularly on Melbourne Cup day
ASSISTANT TREASURER:
Thank you Pauline, and I hope you back a winner and I'm sorry that I can't be there with you in Perth for the actual conference. It sounds like it will be very good, informative and exciting.
PAULINE VAMOS:
Let me start by asking the question that I know many of our members have been dying to ask. So was this your portfolio of choice?
ASSISTANT TREASURER:
It was in the sense that when I was hoping to get promoted after the election, as all budding Opposition politicians do, I wanted something in the economic and financial space. So this portfolio, because of the range covering for me – tax policy and administration, financial services, superannuation, corporate law and even some insolvency, hopefully not too much insolvency – it was a good fit and I'm quite excited by it. There's real stuff to get your teeth into and I think I'm working with the best Department in Canberra. I have a lot of regard for the Treasury. I worked there at one stage myself.
The thing that impresses me is that this is a portfolio with a lot of very informed, well-resourced stakeholders and so the only way you can play the game with them is to be straight up and down, have transparency about what you're doing and try and take people with you.
PAULINE VAMOS:
Now there's a lot of unfinished business. We gave you the ASFA implementation tables last week and went through some of the policy issues we think need to be revisited, some of the legislative gaps and misdrafting which I think happened because it was done in such haste and of course some of the guidance that is still needed. So what's going to be your approach to that long but not incredibly long list?
ASSISTANT TREASURER:
Well the first writing instructions that we all had from Tony Abbott as Prime Minister was to get on with implementing our election commitments so in my areas like superannuation and financial services, my priorities have been around areas like the Future of Financial Advice reforms, implementing the commitments we made there to reduce red tape and the compliance costs that go with that. In the superannuation area, we made a number of commitments around improving disclosure and transparency of information, implementing the rest of the MySuper changes – the dashboards and disclosure of holdings and all the rest of it – and we are working on that.
We have commitments around governance in the superannuation space. We want to make sure the trend towards independent directors is fortified and that as much as possible we can adapt a version of the ASX corporate governance principles.
It's true to say that we've also made some pledges about what we won't do and the major pledge there was not to make any unexpected adverse changes, and that's a pledge that the Prime Minister made very early on at the beginning of the year at the National Press Club when he kicked the election year off and I'm very keen to make sure that that pledge is adhered to. But that doesn't mean we won't take other action which can be to the advantage of the members of superannuation funds.
What I will say is that when it comes to our superannuation commitments, we will be putting out a discussion paper in the very near future in order to test people's reactions to how we implement our election commitments. I'm taking the Future of Financial Advice reforms and our approach to them to Ministerial colleagues and ultimately the Cabinet and I want by the end of the year for the sector to have certainty around those reforms as well.
So I want by the end of the year for people to feel like they have out of us a sense of direction, a sense of certainty about the commitments we've made and how we're going to implement them.
The other leg to all of this that Tony Abbott has impressed on his colleagues is the importance of genuine consultation – giving time for proper consultation and listening. And what we mean by listening is active listening. You put yourself in the shoes of the people you are dealing with and try and see it from their perspective and then because inevitably there are a number of different perspectives at the table, we try and shake out of that 'what is the public interest?' and how is that reflected in the views of the participants.
PAULINE VAMOS:
Now often people don't link FoFA and superannuation but it is at the core of what superannuation funds and providers actually provide and in particular, the simple advice or help provided to the average fund member and that's been a fundamental outcome that ASFA has been trying to drive for quite some time – access to cost-efficient, effective, easy-to-access scaled advice.
People want to get help about the interests they have in their superannuation fund or their superannuation product. So in terms of the whole definition of 'intra-fund advice', I know there is a lot of movement and discussion around it, particularly how it's funded. Have you got any early thoughts on that?
ASSISTANT TREASURER:
My starting point on FoFA is this – that we support the principle of FoFA. There does need to be proper integrity in the provision of financial advice. The financial advice industry has grown like topsy over time and it's on a journey of greater and greater professionalisation. As part of that journey, having intelligent regulation will be important in giving the people receiving the advice the assurance that they are dealing with true professionals – and that's something that the industry itself recognises.
But what the industry has said to us very clearly as well is "look, we don't want the obligations to be too onerous". To get to the point where you actually price advice out of the grasp of most Australians because at the moment – and I think these are numbers that you have been quoting around the place – only two out of five Australians get financial advice. Now I suppose my aspiration is in an atmosphere of low-cost access to advice where possible, to maximise the number of people who can get advice.
We want to reduce the red tape associated with FoFA. So issues like the opt-in requirement, to opt-in every two years even though that was a concession by the Labor Party from where they began, we want to scrap that. We want to look more closely at issues around conflicted remuneration. The circumstances in which there is remuneration, we want to be more specific about the mischief there and focus on the mischief as opposed to entirely removing some of the remuneration structures that are in place. People are on a journey when it comes to conflicted remuneration and we will ultimately end up in the right place, but on the way through, we have to recognise the different structure of some of the funds and other entities that play in this space.
So there have been dilemmas for us about the boundary between general advice for example, and personal advice. There have been issues around the nature of intra-fund advice. What is overarching general advice and what is particularly specific to the individual and all the rest of it. With intra-fund advice as well, because it has been a bit of a different beast compared to some of the other areas that we have been dealing with, we have been taking a bit longer to actually look through the ramifications of dealing with that but the spirit always is, how do you reduce the compliance costs of having FoFA continue to be implemented.
PAULINE VAMOS:
Let's go back to another point you mentioned and that was the consultation paper that we should be seeing soon. So what are the types of issues in that consultation – is it merely tax measures or is it broader than that?
ASSISTANT TREASURER:
It's picking up a lot of the superannuation measures that were left over from the previous government around the further implementation of the MySuper changes. Looking at issues like the default funds and who can provide a default fund – again we want maximum competition and transparency in that process rather than a process where they are selected, whether by the Fair Work Commission or some other entity. I want to look at the corporate governance principles in that context as well.
But by putting out a discussion paper we are saying to everybody that this is not going to be driven by just some idealogical bent of government. This is evidenced-based policy making. You put out a series of propositions and you get people to react to those and then we will take those views back, look at them against some measure of the public interest and then take it from there.
PAULINE VAMOS:
In terms of the role of the superannuation pool in the economy, investment in infrastructure, bonds etc. What are your views on that and is it something you are going to look at early or later?
ASSISTANT TREASURER:
If I can step back one step – we believe superannuation is to provide for people's retirement so we're not in the business of seeking to crimp the returns from superannuation for that purpose. So we're not looking to mandate the use of superannuation for other purposes. It's true that we are looking for mechanisms by which we can more tap into superannuation. We've announced through Warren Truss that we're going to look at private sector financing of infrastructure, the use of infrastructure bonds, tax breaks, measures like that.
We're looking with the states how we can maximise the sale of brownfields assets which they can recycle into greenfields assets. But what we are looking for are ways in which we increase the attractiveness of the infrastructure asset as a class for superannuation funds to invest in, as opposed to saying to the funds 'we are going to reintroduce something like the old 30:20 rule' or some other mechanism.
This is about how you make it attractive for them to invest in that as an asset class without, if you like, unbalancing their portfolios. That is the context because from an efficiency point of view what's important also is that we make sure that the sort of investment in infrastructure is driven by economic and commercial viability concerns, because there has been too much of a pattern in the past of wanting to mandate infrastructure on political grounds. We're trying to take more of the politics out of that through publishing cost-benefit analyses of major infrastructure projects. We're encouraging the states to do the same. We're talking about a 15 year pipeline of projects so that the private sector, the super funds and everybody else know what is possibly available. We're looking to build on the innovations, like Mike Baird's in NSW, around who bears what project risk early on and how that helps to facilitate investment in infrastructure. So it's all about making that class of asset more attractive to invest in rather than seeking to push the super funds into it.
PAULINE VAMOS:
You mentioned the word 'retirement' and when we met recently we gave you the ASFA '7 Impediments' paper. These are the seven major things you have to do just to remove that whole ability to develop post-retirement products. So is that something that excited you? Something that you are going to look at it? Is it early on your list or will we have to wait until later?
ASSISTANT TREASURER:
Few things that excite me these days but I have to say that I did get excited by the seven points because what I think is important is to help people maximise the amount of income they receive in retirement and to help to make sure they can draw on their income in retirement for as long as possible. So issues around how income streams can be as attractive as possible, where there are barriers to making them more attractive – we've committed in our policy to having a look at that.
At this stage I can't give you chapter and verse on that because it's very early days and I also have to have an eye to how the tax regime looks in the future and that's more a subject for the White Paper. But what I can say is we are keen to make sure income streams can be maximised for as long as possible. We are also aware of issues around the minimum payments that you take out of retirement incomes, but I am happy to sit down and talk to people further about the way in which we evolve annuities and retirement income. I am interested in those issues.
PAULINE VAMOS:
Excellent because a lot of that then goes to the future design of the system. As you well know it was designed when people were not living as long and certainly looking at having a real income in retirement. So we have been developing a White Paper, it's now two years that we have been looking at this issue. It's a complex issue.
ASSISTANT TREASURER:
You sound like you're wanting to take my job Pauline, this is quite a list of initiatives that you're putting out there!
PAULINE VAMOS:
I'm happy to be your key adviser on all things superannuation – I think we have done a lot of work! But in terms of the design of the system, we have gone to the general public and we've been very pleased at the growing level of understanding of the need to make sure the system is sustainable, is equitable and it does actually provide retirement incomes. Are you saying there is an appetite for this government to look, at some stage, at the future design of the system?
ASSISTANT TREASURER:
The appetite is there but it is in a staged, consultative way. No surprises and certainly we want to turn our back on ad-hoc, fiscally-driven decision making because I think that is inimical to getting people to own the changes and behave in a way that is appropriate with the sort of savings framework that we are trying to set up. What has happened is that confidence in super, which is a 30-40 year proposition, or should be, has been shaken and we are trying to find a way to instil further confidence.
We don't want to go out there every day and say 'well, we're going to contemplate a further change on X or Y'. In consultation with stakeholders, we do want to look at how the system evolves in response to changes in our circumstances, whether it's the ageing of the population, technology and innovation, competition from other savings measures and all the rest of it. But the important thing is to do it in a staged and managed way. That's why, for example, we are having a White Paper on tax reform. That's a mechanism for looking at, in a holistic way, the shape of the tax system or the architecture of the tax system as a whole.
PAULINE VAMOS:
And that will include superannuation taxes?
ASSISTANT TREASURER:
I don't think you can stop people putting up propositions. We won't go to the White Paper with certain propositions – we are using that as a process for people to come forward with ideas and then the view is any ideas that we pick up, we will ultimately go back to the people at the next election for a mandate.
PAULINE VAMOS:
Financial System Inquiry – what is going to be your involvement and what do you think the Terms of Reference are going to cover?
ASSISTANT TREASURER:
As to my involvement, this is very much the Treasurer's baby but as Minister for Financial Services I will be providing the back up as to what the Treasurer wants to do. We have been looking at draft Terms of Reference and we hope to consult people before we finalise the Terms of Reference and we would like to get those out in the next little while, certainly before the end of the year and get the Inquiry kicked off by next year.
We would give it a fairly wide remit in the sense that it has to look at how the financial system has evolved, the role that superannuation increasingly is playing in the system and where the system is likely to go because of technology and innovation, which is throwing up new payments methods, new potential players. There's a lot of disruptive technology in the field which has implications for, particularly, the banking sector but then the role of superannuation as a major savings pool and how that has impacted on the rest of the system.
It's a great way to look at how we harness what the system has evolved into, and not only make it fit for purpose, given what challenges we may face in the future domestically, but also how we promote the sector internationally, including the super sector.
PAULINE VAMOS:
So with such a wide remit, what is your approach to choosing the panel?
ASSISTANT TREASURER:
Well that's principally the Treasurer's responsibility and I think he's looking for people with broad experience, not just in the financial sector but more broadly in industry and with an understanding of global trends. But that's something he will address in due course.
PAULINE VAMOS:
Go 12 months from today. You want to look back on those 12 months – what would be the key things you would want to have seen happen in those first 12 months?
ASSISTANT TREASURER:
I would have hoped that within 12 months we will have been seen to have addressed our election commitments in my areas, around FoFA, around superannuation and to the extent possible, we've implemented the changes through legislation and/or regulation, depending on the nature of the changes, so that we can say by the middle of next year that in effect we have reached a point where the election commitments are implemented, the budget reflects the commitments we made at the election – because I will also be involved in matters to do with the Budget through the Expenditure Review Committee. And I want people to have confidence that the Financial System Inquiry is underway and that it's charting a potentially exciting new course, not only for the financial sector but actually for the country because the financial system is so vital to financing the rest of the economy but also to providing a great springboard for the export of advanced services
PAULINE VAMOS:
Thank you
ASSISTANT TREASURER:
Thanks