SUBJECTS: Superannuation, Australia as a Financial Services Hub, Employee Share Schemes, Fuel Watch
KERRY O'BRIEN:
The new Minister for Superannuation is Chris Bowen, promoted from his job as Assistant Treasurer to a broad ranging Cabinet post including corporate law and financial and human services, and he joins me now.
Chris Bowen, as the new Minister you've walked into something of a hot potato with superannuation given the timing because there are obvious serious shortcomings in the system now in terms of guaranteeing a dignified retirement for Australians without putting too much pressure on the aged pensions, which is already developing into a high pressure point in itself as we've seen tonight. So what will your priorities be for superannuation?
CHRIS BOWEN:
Well, the first thing to say is, Kerry, that the nation and individuals are better off because of the superannuation system we have that's been in place now for about 20 years.
Yes, we've had a period of negative returns and that's happened around the world, pension funds, superannuation funds have been buffeted and returns have fallen around the world. And Australia less so than some other places, so it's a tough time. But I think the important message for us all to take is to have a look at the long run, over the long run we're all better off with super, yes.
We have a range of reforms that we're considering through a range of reviews, the Henry Review, the Cooper review, et cetera, which I'll be working through. I've been the Minister now for a good 10 hours, Kerry, so I'm getting my head around all those issues on a steep learning curve. But superannuation is a very good thing for individuals and the nation, and it's something that we shouldn't lose sight of.
KERRY O'BRIEN:
Well, but you'll understand that a lot of people are very bruised, and there is a bitter irony, isn't there, for those who embraced the Keating Government's compulsory super scheme to prepare properly for retirement, only to see that nest egg shattered in many cases.
CHRIS BOWEN:
Sure, I do understand that. Over a period of 30 years returns on super have been about 4 per cent higher than inflation.
So, yes, we're going through a very difficult period and our reductions in super in Australia have been about 15 per cent of GDP, compared to, say, the United Kingdom of 30 per cent. So we are facing a difficult time and people, particular nearing the end of their working life or in retirement, are facing a very difficult time.
We've taken some steps in terms of reducing the compulsory withdrawals et cetera, to try and ease the way through that. But we shouldn't lose sight of the fact that individuals and Australia are much better off with the superannuation reforms put in place by the Keating Government.
O'BRIEN:
Given the story today that Australians are far more exposed to share market investment than any other nation - 80 per cent of assets here in shares or mutual funds - what are the alternatives. I know the Henry tax review is considering proposals on this issue, but do you think that the country's level of reliance on the share market is too high, that too many people are left too exposed given what's at stake for their retirement?
BOWEN:
Well, look, there are options for people who are interested in less risk, or more risks and less returns or in that equation there are annuity products available at the moment, but they're not very popular because people tend to go for the higher returns and the higher risk. And there are some ideas floating around, I read one in 'The Australian' today, one submission to the Henry review is to make those sorts of products a bigger part of the system.
The Henry Review will work those issues through, and then we as a Government will work them through. As to whether there is a case for any reform in that area, but there are products, as I say, available now. At the end of the day it comes down to individual choices about the risk versus return, on behalf of the individual and on behalf of the fund.
O'BRIEN:
It also comes down to the kind of advice that's being given, too, and you've expressed concern about the potential conflict of interest of people who are giving that advice but also accepting commissions. What are you going to do about that and how urgently?
BOWEN:
Well, what I've said there is I think there is a real problem in terms of perception, certainly, and perhaps in terms of reality, and I've said to the industry this is not an issue that's going to go away. Where you have that perceived conflict of interest, it's going to keep coming up again and again. That advice is being based on return to the advisors through the commission system. And I think the industry has accepted that, and certainly industry peak bodies are moving in that direction to say yes, we recognise there is a perception problem. Some people will argue there's a reality problem, some people argue…
O'BRIEN:
Do you believe there's a reality problem?
BOWEN:
Well, I believe there's potential, there's certainly potential for conflicts. And I believe there's a very real perception problem, and it will be much better for the industry if a better way could be found.
O'BRIEN:
And if the industry isn't prepared to bite the bullet on that to your satisfaction, are you prepared to act? To enforce?
BOWEN:
Well, I'll be weighing up the recommendations of the Cooper review which is considering this matter and I'll express my view to industry publicly and privately about my concerns. And I think, as I say, industry is taking those concerns on board.
O'BRIEN:
If the original Keating proposal on superannuation had gone through to its full extent, Australians would now be in a scheme of 15 per cent compulsory super. You've said in an ideal world that's a good thing, but it's not on your agenda at the moment. If it's the only way that most Australians can retire without a very significant reduction in their lifestyle, why isn't it a priority?
BOWEN:
Well, what I've said is that in an ideal world obviously, if your policy objective is to maximise retirement incomes, then the higher the contribution rate, the higher the income. The preliminary Henry review recognises that, and the Henry preliminary review argued that 9 per cent was adequate, but that of course the higher the contributions, the higher the return. Now we'll work through those issues in conjunction with the Henry review.
There's some very strong views expressed by individuals, by the sector, by peak groups about the appropriate level of contribution and we'll work those through. It's not something that you rush into; it's something that you consider.
The Henry review is a great opportunity for Australia and we shouldn't be ruling things in or out as that review is going ahead, because it's a great opportunity for reform, and we'll certainly take it on board. It's a very difficult environment at the moment in terms of the global financial crisis to be dealing with these issues, but we'll consider it in a measured way and over a period of time.
O'BRIEN:
Wearing your financial services hat, you've expressed the view this week that much more could be done by way of opportunities for Sydney as a financial services hub in the region. What are the opportunities missed and what are the opportunities that you think can be redressed?
BOWEN:
Well, Sydney and Australia, Kerry, there are great opportunities here. And look, the global financial crisis is a great challenge but it's also an opportunity for us. If we come through this crisis as we are, as one of the few nations not to have a run on a deposit taking institution, where our prudential regulation is now respected as well as best practice, we'll have great opportunities. The world's investors will be looking for a long time for safe and stable places to invest. So what we're doing is knocking down the regulatory burdens to our fund managers and financial services providers competing to create jobs.
In this Budget just gone we've abolished the foreign investment fund regime, we've made major reforms to the controlled foreign company regime. We've reduced our withholding tax from effectively the highest tax rate in the world to the lowest, to say to our financial services industry 'we'll remove the barriers to your competition because you're good at what you do'.
Despite our superannuation funds being buffeted, we have a very, very large pool of funds under management. So we've developed great skills in Australia; we've got to export those skills and create well paid interesting jobs for our young people.
O'BRIEN:
Very quickly, the Opposition of course has you in its sights as the newest Cabinet Minister. They say you were a failure as a junior Minister, a failure on Fuel Watch, a failure on Grocery Watch - now Grocery Choice - and a failure with the tax assault on employee share schemes. Fuel Watch first, not exactly one of your great success politically or practically?
BOWEN:
Oh, look, let's talk about that, Kerry. Fuel Watch has been in place in Western Australia since the year 2000. The only people who have the benefit of Fuel Watch now are the people who live under the Liberal Party in Western Australia. The Premier of Western Australia and the Treasurer of Western Australia have said they're not going to change it because Fuel Watch works. Why didn't Fuel Watch apply across the country? Because the Liberal Party opposed it in the Senate.
O'BRIEN:
Not just the Liberal Party, not just the Coalition, but also one independent Senator. Now, unlike the alcopops tax, you've done nothing to bring Fuel Watch back and try to persuade that one Senator to put it through. If it's so important and if you're so convinced about its success, why not push it?
BOWEN:
Well, it would go through tomorrow if the Liberal Party supported it, and that's the opportunism we see from the Liberal Party. All I tried to do was take the scheme that's worked in Western Australia, on the advice of the ACCC which said, "You can do this to improve competition," and apply it across the country. Okay we couldn't convince the Senate. It's a very difficult Senate to work with in terms of the numbers you need. I copped that, but it was a reform which has worked in Western Australia under a Liberal Government, which we attempted to roll out across the country.
O'BRIEN:
Very briefly, we don't have time to go into Grocery Watch unfortunately, but on the employee share scheme, what share of the responsibility do you take for the stuff-up in the Budget? Because anything that causes such a radical rethink so quickly after the Budget with a 57-page review with different options that you've now done has to be a stuff-up.
BOWEN:
Well, no, look - the Government's got an obligation to protect the revenue base and to stop tax evasion. Faced with very strong advice that that was a problem, we acted, the Government acted…
O'BRIEN:
Yes, but the point I'm getting to now, I don't want to go back over the whole virtue of doing the broad thing or not. The bottom line is you came up with a system that you've had to reshape very quickly after the Budget because it seems you didn't do your basic homework.
BOWEN:
No, very quickly, because we responded very quickly. We - the Treasurer said and I've said, 'Okay, we'll talk with industry, we'll deal with the unintended consequences and we'll fix it'.
O'BRIEN:
These are unintended consequences that I would suggest to you that if you'd done your homework properly and efficiently, you would have seen in advance and not have to so quickly after your Budget, revisit it.
BOWEN:
Look, Kerry, out of 654 measures in the Budget, it's very unusual if some of them don't get finetuned as we go along.
O'BRIEN:
Yes, but this one had your name on it.
BOWEN:
Well, Kerry, look, 'The Australian', the financial editor of 'The Australian', Andrew Main, has said the Government's handled the issue very well in terms of dealing with the industry concerns. We've listened, we've sat down with industry and we've said, "Okay, we won't walk away from the fundamental tenant of the Budget measure," which was to raise a significant amount of money and to protect the revenue base and ensure everyone's paying their fair share of tax. Now we've got a measure which does that, and which by and large - you'll never please everybody - which by and large, most reasonable commentators have said, achieves those objectives in a way which they can live with. So we have - this is not an easy issue, we've got a real obligation to protect the revenue base and ensure everybody's paying their fair share of tax. That's never going to be uncontroversial, Kerry. That's never going to be easy to do.
O'BRIEN:
We're out of time unfortunately. Chris Bowen thanks very much for talking to us.
BOWEN:
Great pleasure. Thanks, Kerry.