6 February 2009

Interview with Ali Moore, Lateline Business

Note

SUBJECTS: Superannuation returns, super funds and infrastructure, Opposition idea that Govt pay small business super obligations

ALI MOORE:

Well as the Senate mulls the Government's $42 billion stimulus package aimed at giving the economy here a solid kick along, there are hundreds of billions of dollars in superannuation funds that could be invested in infrastructure and other projects.

Right now, a relatively small proportion of funds flow into infrastructure and the industry says it would like more opportunities to invest, but it needs a clear view of the risks and it needs a return.

So, how does the Government unlock some of that money, which is growing by the day through compulsory super contributions?

To look at the issues I was joined in the studio earlier by the Minister for Superannuation Nick Sherry.

Nick Sherry, before we get to the issue of infrastructure investment, I understand a number of super funds have seen a substantial reduction in the proportion of voluntary contributions. Is that concerning you?

SENATOR NICK SHERRY, MINISTER FOR SUPERANNUATION:

Well, that's certainly true. I mean, you'd expect in the current climate where there's a period of negative returns that many members rightly are worried, concerned.

For many it's a first experience - there has been, I think, approximately $2 billion in the last September quarter of reduction.

ALI MOORE:

Withdrawn? That's people putting in their pocket, not as in voluntary super.

NICK SHERRY:

Oh, no, no. Just dropping contributions - either salary sacrifice or car contributions.

ALI MOORE:

That's going to have longterm ramifications if it continues.

NICK SHERRY:

Yes, it does and I'm obviously concerned about it. But it's that focus on the longterm that we ... I think the industry needs to do a much better job in communicating that longterm return.

It's not minus 15 or plus 15, it's plus five over 35 years, and the industry hasn't done a good job of communicating that, and that's one area where they need to improve.

ALI MOORE:

At the same time what can the Government do to try to stem that flow, if you like?

I mean for a low-income earner, they get hit with a 15 per cent tax when they earn the money and they get hit with another 15 when they put it in as a voluntary.

So at times like this I guess your inclination is 'well, I'll keep that, I won't put it in'. What about a tax holiday for low-income earners?

NICK SHERRY:

Well, in terms of low-income earners that's an issue being addressed by Henry tax review.

ALI MOORE:

But that's a longterm thing. In the short-term would you consider it?

NICK SHERRY:

Oh, it's not that longterm. I mean the Henry tax review ... and on retirement incomes, age pensions, super will be reporting back by May. So it's not that longterm.

But you're right. I mean, for low income earners super isn't a good deal on the tax front - it's one of the key issues that's been identified.

But I think importantly in the context of super, we've identified some issues around governance and safety where improvements can be made and particularly the cost - the efficiency of our system.

We can get costs down and we can get fees down, which in the longer term will leave returns, and that's going to be a key focus of the Government going forward - improving governance and safety and improving the fees, getting them down.

ALI MOORE:

Let's look at the bigger picture at infrastructure funding. You're about to get a priority list of projects from Infrastructure Australia for some of these really big-ticket items.

How do you encourage the super funds putting money in that direction?

NICK SHERRY:

Many funds have been doing that. And obviously in the current financial circumstances, as a result of the US subprime crisis, the likely withdrawal of foreign banks investing in that particular area, we do intend to encourage it, we're not going to direct super funds.

ALI MOORE:

No, but what the super funds say is that they'd like more opportunities - there aren't the right vehicles, that they need certainty of risk and they need certainty of return - and that's why they say there are funds that invest in infrastructure.

But proportionally it's still a relatively small amount. Could you encourage them with a Government infrastructure bond?

NICK SHERRY:

It's certainly encouragement and the form that will take - it's been closely examined, because Government's certainly aware of the difficulties super funds face.

There's the uncertainty of members shifting from, say, equity investment to cash - it makes it more difficult for super fund trustees to invest long term, which is what we want in this current environment.

So there are ways in which that investment in infrastructure can and will be encouraged.

ALI MOORE:

Is a Government infrastructure bond on the table?

NICK SHERRY:

Well look, the details of how we can encourage investment from super funds and other areas, that will be released in due course.

ALI MOORE:

But can you acknowledge at least that it's being talked about because that's what the super funds have said.

NICK SHERRY:

What I can acknowledge is the Government is very well aware of the issue and details to encourage super funds and other investments will be announced.

ALI MOORE:

As part of its response to the Government stimulus package the Federal Opposition proposes that the Government contribute a proportion of small business super obligation.

The idea they say is to target businesses with less than 20 employees, free cash flow and free funds for investment. What's wrong with that idea?

NICK SHERRY:

Well, the cost. The cost is extraordinary.

ALI MOORE:

What do you think the cost would be?

NICK SHERRY:

Well, we've calculated it, because when it was announced yesterday by the Opposition Leader Malcolm Turnbull I went and asked for the costs. And the costs over a four-year period would be $43 billion.

ALI MOORE:

But what have you costed? Have you costed the whole nine per cent paid by the Government or as they've proposed, a proportion of it?

NICK SHERRY:

We costed it on the basis of the announcement that was made by Mr Turnball yesterday.

ALI MOORE:

The use of the word in that announcement, or the word you used, was proportion.

So have you costed it on two per cent, three per cent, four per cent, the whole nine per cent?

NICK SHERRY:

We costed it on the basis of nine per cent.

ALI MOORE:

But that's not what they said - they said a proportion.

NICK SHERRY:

Well, that is what they said frankly, I've read it and I asked for the costing.

ALI MOORE:

Well, I've read the press release as well and it says a proportion.

NICK SHERRY:

The cost is $43 billion over four years, and that is greater than the Government's package. So they've announced in one hit, one change they want to make, the Government being asked to pay superannuation contributions.

But the cost will be greater than the Government's package, and yet they're criticising us for Budget deficits and Government debt.

ALI MOORE:

Nick Sherry, many thanks for your time.

NICK SHERRY:

Thank you.