SUBJECTS: Cooper Review, Future of Financial Advice reforms, ASIC, Stronger & Fairer Superannuation reforms, Resource Super Profits Tax
PETER SWITZER:
Minister Bowen, thanks for joining us on Switzer.
CHRIS BOWEN:
Pleasure, Peter.
SWITZER:
Alright, so tell us this: we've had the Cooper Review, the Ripoll Review, and I guess [inaudible] I've always thought to myself, did the Labor Government calm the suspicion about financial planning and financial planners, and that's the rules of engagement with companies?
BOWEN:
No, this is a very exhaustive process, so as you say, we've had the Ripoll and Cooper Reviews, and I think if you talk to frankly anybody in the financial planning industry, they would tell you I've had an open door to listen to the various and many views around the financial planning industry about what reforms are necessary to restore confidence in that industry. And I said lots of times, Peter, that I want people getting financial advice but we need to restore confidence to do so.
So I've had over 12 months hundreds of people through my office talking about financial planning and reforms, and you'll find many of the people in the financial planning industry have welcomed our reforms, and I've been pleasantly surprised by the number of emails and letters I've received from financial planners themselves saying, 'You've got this right, this industry needs to lift its public reputation and you've got the balance right in helping us to do so'. So I've been very pleasantly surprised by the response in the financial planning industry and the individuals in it.
SWITZER:
Did the story around Storm Financial, was that something that made you get more serious about this or was this the tip of the iceberg and you're already onto the problems in the industry?
BOWEN:
Well, we're already looking closely at the industry, no question about that, but there's also no question that Storm Financial brought home many of the problems in the industry. It concentrated, if you like, my mind and the mind of the Australian people on the necessity to lift the reputation of the industry, because I took the view very quickly after Storm that all the good financial planners out there would have their reputations affected by it and also, of course, that many thousands of people had their life savings wiped out, and we had to do whatever was necessary to remove that possibility going into the future. So it was one of the factors leading us to these reforms and as I say, for want of a better word, concentrated our mind on the task at hand.
SWITZER:
Now it seems to me, to get your job done really well, you have to have a very proactive ASIC, and there are people out there, Chris, who say that ASIC historically has been, in a sense, a body bag collector. Something goes wrong, they go in and try and find out what the causes of it were.
Do you have the confidence now that ASIC is going to be more proactive and pick up on these sorts of problems? Because I know I wrote two stories about Storm without mentioning them, in both the Telegraph and The Australian, and never once did one ASIC person come to me and say, 'Well, give us the details', and that was probably a year to a year-and-a-half before the Storm thing actually broke. So are you confident that ASIC is becoming a more proactive organisation?
BOWEN:
Well, the short answer to your question is yes. ASIC has a very difficult job. I think you'd accept, Peter, that as the regulator it is not their job to avoid companies going broke, it's not their job to avoid bad business models. It's their job to ensure fair and honest dealings and compliance with the law, and it is often difficult for them in the absence of complaints to be examining every company in the country.
Nevertheless, ASIC has had a significant restructure. There's been significant changes at ASIC; the Chairman, Tony D'Aloisio, has made significant changes at ASIC. And I think the restructure in particular, which focuses ASIC on the market and really changes the way they interact with the market, will see, if you like, a different set of outcomes into the future.
But I'm not going to pretend to you that ASIC will always see every corporate collapse coming, that they'll see every bad bit of behaviour in the Australian corporate market coming, because in a $1 trillion economy that is not going to happen. But nevertheless, we need to make sure they're adequately structured and resourced to minimise the chances of anybody not complying with the corporations law and the other laws.
SWITZER:
Okay. So in a nutshell, Chris, what's going to happen to financial planners? How will the before and after affect this industry?
BOWEN:
Well, I'd like to see, as I say, Peter, financial planning be well respected, be regarded as a profession, and that means after 1 July 2012, when these reforms are in place, that people have confidence when they go to a financial planner that there's a fiduciary duty in place to make sure that the planner is acting in their best interests, that they don't feel there's any risk of commissions influencing the advice that they might be receiving, and that they know they have the chance to opt out of the arrangement or that they're actually obliged to opt into the arrangement every 12 months because that means that the financial planner will be focused on their wellbeing on an ongoing basis. I think that will make a big difference to the industry.
SWITZER:
You must have turned in your potential grave when you realised that this industry previously has used terms like 'clip of the ticket' and 'share of wallet'. I hope those terms will be gone from this industry as a consequence of your reforms.
BOWEN:
Well, I hope so too. I think they're unfortunate. The financial planning industry has a lot of value to add to the Australian economy, they have a lot of value to add to people's individual wealth, and they can and do make a very good difference to people. But we need to make sure that a) the small number of people who are giving the financial planning industry a bad name have their business models removed and secondly, that the reputation and professionalism of the financial planning industry's enhanced. And I think these reforms do so.
SWITZER:
Okay. In a nutshell, changes to super going forward; when will these changes be implemented?
BOWEN:
Well, we're two-thirds of the way through the most significant change to superannuation since national superannuation was introduced, Peter. We've had the Future of Financial advice reforms, which you've talked about. They get implemented on 1 July 2012. We've had our improvements to superannuation: dealing with the adequacy and equity issues, going from nine per cent to 12 per cent, giving low income earners their contribution tax back, giving people over 50 an improved opportunity to make contributions on a tax-free basis. They all apply over the next few years. They're all very important reforms.
And then, the Government's response to the Cooper recommendations will be the third tranche, the third part of those big reforms, which we'll be working through. I receive the report on 30 June and I'll be responding after that in terms of our response to that. Once that's done, they'll be in total, by far, the biggest reforms to superannuation we've seen in 20 years. It hasn't been an easy task and we've still got a bit to go on that final leg, some implementation details to go on the first two legs, but it's a task well worth doing because superannuation has served Australia very well. I just want to see us preparing for that point when we have $5 trillion under management and making sure our system is as efficient as it possibly can be when we get to that.
SWITZER:
Could the changes be in before an election?
BOWEN:
Look, I think that's unlikely when you consider there's a good degree of consultation on the implementation of the Future of Financial Advice reforms to go. I said on the day we announced them, these are the reforms and there's obviously a lot of detail around the reforms which we'll consult with the industry on. That's ongoing and I think it's unlikely that any legislation on that would be introduced before the election. Likewise, our changes to superannuation, going from nine to 12 and the other changes are linked to our Resource Super Profits Tax reforms, and there's some way to go on that. So I think, to be frank, it's unlikely we're going to see legislation before the election, which if you don't mind me saying, Peter, underlines the importance of the re-election of the Government, to ensure the ongoing strength of superannuation and the adequacy and equity of our superannuation system.
SWITZER:
I'm surprised you've said that, Chris. One final quick question: Graham Richardson said you guys need to fix the resource tax within a week. Is that going to happen, because a lot of superannuation people are involved in mining stocks? I'm sure if you guys fixed it up, the mining stocks would go up. What's the chances of seeing it fixed up in a week?
BOWEN:
Well, Peter, let me make two very important points. Every superannuation peak group in the country has made the point very strongly that they don't see a link between the Resource Super Profits Tax and superannuation returns. We saw the Australian Institute of Superannuation Trustees on Friday making that point very strongly, and the others have as well, because if you look at the mining stocks in comparison to the ASX 200, in any comparison to mining stocks around the world, Australian mining stocks over the last month have actually done all right in comparison.
Secondly, there's been a lot of consultation. There's been 265 hours of meetings between the Treasury and mining companies. That's just between the Treasury, that's not including meetings with the Prime Minister, the Treasurer and the Resources Minister. They've been ongoing. Those three – the Prime Minister, Treasurer and Resources Minister – all say in their regard that the consultations have been very constructive, that the vast majority of mining companies have engaged with the Government very well, they've accepted the need to pay more tax, and it's about the details. Those discussions are ongoing. In relation to timing, well, the consultations and discussions are ongoing, Peter, and I'm sure when the relevant Ministers are in a position to say more, they'll do so with alacrity.
SWITZER:
Okay. Minister Bowen, thanks for joining us on Switzer.
BOWEN:
Always nice to talk to you, Peter