SUBJECTS: Productivity Commission Draft Report into Executive Remuneration in Australia, binding votes, retail sales, building approvals, house prices, superannuation, Australia as a financial services hub
CHRIS BOWEN:
Well today the Productivity Commission has released it draft discussion paper on executive pay.
This inquiry was of course instigated by the Rudd Government in March this year.
Today's paper is a draft discussion report. We will be receiving the final recommendations of the Productivity Commission in December and we will work through those final recommendations.
The draft recommendations in this report need to be taken into consideration in line with other actions being undertaken by the Government. Most notably, the work of APRA, through the G20 in relation to executive remuneration of the financial sector in particular. And also the Government's legislation that provides more of a shareholder say on termination benefits for executives, which has passed the House of Representatives, and awaits the approval of the Senate.
The Government has had the view for some time now that there is a very good case for increasing the transparency and accountability in executive pay.
The Government has had the view for some time that the community is right to be concerned about executive pay practices.
The draft recommendations of the Productivity Commission are an important part of the process of bringing more accountability and transparency to executive pay.
We want to make sure that executive pay practices are in line with community expectations and sustainable business practices.
The Productivity Commission has made 15 separate recommendations. Some of these will be seen to be bold. The recommendation, for example, that directors should go to an automatic election if two pay reports are rejected by shareholders will generate significant debate in the business and broader community.
There is an important balance to be struck here. We need to ensure that community expectations for executive pay, which are reasonable, are met. We also need to ensure that Australia remains a competitive and attractive place to work in the international business environment.
The Productivity Commission has worked hard to strike that balance. I look forward to working with the Productivity Commission and with the broader community, to work through the final recommendations when we receive them.
I'd also encourage community and business members to engage with the process and give the Productivity Commission their feedback as they draft their final recommendations to the Government, for December.
I'm more than happy to take some questions.
JOURNALIST:
(Inaudible)
BOWEN:
No, I've always had the view that salary caps would be very difficult to implement and also may have adverse or unintended consequences. So I'm not surprised about that recommendation or disappointed by it. I think the Productivity Commission has worked very hard to strike the right balance and while we await their final recommendations – and these are draft recommendations – I do think that they have by and large got the balance right.
JOURNALIST:
The Productivity Commission did rule out a binding vote for shareholders but it is talking about more involvement for shareholders. In terms of that idea, would the Government look at taking that on board?
BOWEN:
We, as I say, we can't sign up to recommendations today as we don't have any final recommendations. These are draft recommendations from the Productivity Commission that are now out for community consultation. These may change. There will be public consultation over coming months and the Productivity Commission will take on board that consultation. And it would be inappropriate for me to pre-empt the final recommendations of the Productivity Commission. Having said that, I think the Productivity Commission has done a good job.
In relation to binding shareholder votes, the Productivity Commission has found that they would be unworkable and we have said this again, for quite some time, that this would be a concern if you had a board take a recommendation to shareholders for a particular pay package, and shareholders rejected that, that would make it very difficult for boards to enter into negotiation with respective senior executives.
I note that that has been Liberal party policy, apparently, as Malcolm Turnbull said, some time ago, that he supports binding shareholder votes. He will now need to reflect on that policy in light of the Productivity Commission's draft recommendations and then their final recommendations, over the course of the coming period.
JOURNALIST:
Will the 'two strikes' rule be more appropriate than a binding shareholder vote?
BOWEN:
I think the Productivity Commission has worked hard to get that balance right. It's a draft recommendation and we will look closely at the community feedback to that, and the final recommendation that comes to us. But it is an interesting and innovative way of giving shareholders more of a say without the downsides and the problematic elements of a binding shareholder vote.
JOURNALIST:
Are there any of the draft recommendations that would couldn't see working?
BOWEN:
Well these are draft recommendations and we will need to work them through in the cold light of day. I'm not here to pre-empt, positively or negatively, or to respond to any of these draft recommendations.
JOURNALIST:
The draft report suggests that there could be up to 10 rule changes required. If they are entailed in the final report will the Government stand ready, willing and able to legislative if they were in the final report?
BOWEN:
We certainly not rule out legislation. We would look at the recommendations of the Productivity Commission very carefully, and if legislation was required, we would not hesitate to do so.
JOURNALIST:
Just in regard to some of the figures out today, the ABS has found that spending is up, that Australian households are still spending. Does that mean that the Australian economy is in recovery?
BOWEN:
Look some of the figures today are encouraging. They certainly show that the stimulus that the Government has engaged in has had an effect. But of course, nevertheless, there are still significant dangers in the Australian economy and while these figures that any the developed country in the world would be happy with – they are very positive figures when compared to other nations. I think Governor Stevens put it well when he said earlier in the week that it is very hard to argue that there is enough growth in the economy at the moment – that there's enough growth to keep unemployment static or there is enough growth to rest on our laurels and withdraw stimulus. People who are arguing that are making a very big call.
JOURNALIST:
(Inaudible)
BOWEN:
They are encouraging but they also do indicate that there is still some way to go.
JOURNALIST:
The figures also show that the construction sector is weak. What do you think about that?
BOWEN:
Construction sectors around the world are particularly weak. If it wasn't for the Government's stimulus action; if it wasn't for the First Home Owners Grant that we boosted as part of the stimulus package, then construction in Australia would have been in freefall over the last 12 months or so. But the construction figures do indicate that there are significant downside risks in the Australian economy and that underlines the need to keep the stimulus in place.
JOURNALIST:
In parallel with the construction figures, there are some Australian property value figures that have gone up. The RBA has been warning that about a housing bubble. Do you think that is a real concern?
BOWEN:
Well I think what Governor Stevens said on Monday was that keeping interest rates at emergency levels, for too long, could lead to a housing bubble. He also recognised in his evidence before the Senate Committee on Monday that the First Home Owners Grant was being withdrawn in a gradual phase down. I think that has been part of the Government's strategy, to ensure that the property prices across Australia aren't adversely affected by any immediate withdrawal of support. We are doing so in a grateful way and that is the appropriate way.
JOURNALIST:
(Inaudible) Would you consider setting up a default government super fund?
BOWEN:
We have the Cooper Review looking into these superannuation matters. One of the key focuses of the Cooper review of superannuation is fees and charges. I've said publicly, elsewhere, that I think fees and charges on superannuation in Australia could be lower. We now have one of the biggest superannuation systems in the world and you would like to think that economies of scale could flow through to superannuation investments. The Cooper Review will be advising the Government on this issue and I really look forward to working with Jeremy Cooper and the other members of the panel to implement their recommendations and help put downward pressure on these fees and charges over time.
This is one of many views being put to the Cooper Review, one of many different sectors of the superannuation industry, and the community more broadly. Some of these views will be consistent with each other, others won't, so we will need to work those through in a holistic way.
JOURNALIST:
If the review recommended such a default fund would you do that?
BOWEN:
Well we would take it on board, consider it, and work it through.
JOURNALIST:
Minister, the Prime Minister has spoken very strongly about the excesses of capitalism in the context of the global financial crisis. Does the Government still harbour ambitions for Sydney or Australia to be a financial services hub?
BOWEN:
Absolutely. And there is no contradiction between those two points of view. One of the great benefits for Australia, as a financial services hub, will be the well-respected basis of our prudential regulation. We have now the most respected prudential regulation in the world. And fore some time to come, international investors will be looking for safe places to invest. Now what we need to do as a nation is to capitalise on that and promote Australia as a financial services hub. Now we have taken policy decisions to do so, we have reduced withholding tax, we are reforming the managed investments regime and I will soon be receiving the Johnson review into what other measures can be taken to promote as a financial services hub. So we are pursuing that policy with great vigour.
Any other questions? Thanks for your time.