QUESTION:
[AUDIO BEGINS] People want to see results a little bit more quickly and evidence beyond dipping you toe in the water, beyond being cautious and exercising patience.
TREASURER:
I wouldn’t understand this frustration because our Government has moved more on this than any other Government before us – with a passion and an application that is looking not just from the funding side of things, but on the practical issues on regulation, the practical issues around arrangements with states and territories. So, no, I wouldn’t share that view. In fact, I think we have quite a cooperative and a mutual commitment to this. The Government’s commitment in this sector matches the sector’s commitment and we will continue to, which is why I’m here today and why we’ve done the things that we’ve done which I think – when I was overseas earlier in the year, I was over there in late January in the UK, I was there for a couple of other issues [inaudible] but while I was there I was also talking to impact investors in the UK and it was Prime Minister Cameron who was a passionate spokesman. They had set up a number of issues to have a close look at. I launched the impact investing discussion paper there in my speech in January this year so I thought that was quite appropriate because not only have we looked across the ditch to New Zealand but we’ve also obviously looked to the UK and places like that. So, I think areas like this do require patience and they require careful preparation in putting the building blocks in place and that’s exactly what we’re doing and intend on doing.
QUESTION:
We’ve talked about moving from the fringe to the mainstream, where do you think we are on that journey?
TREASURER:
I still think we’re in the initial phases and I still think there’s a long way to go, and one of the big competitors in this area which the Government and the sector shares is that so much of our social services delivery model is based on a public delivery mindset, and that mindset needs to change if it’s going to be effective. We’re having the same discussions in terms of delivering health and education services which Peter Harris has highlighted in his Productivity Commission report and indeed Ian Harper – Professor Harper – did in his competition review in saying that human services delivery area – which encompasses all of this – and at the moment, we’re trying to build a National Disability Insurance Scheme which means 65,000 additional people working in this sector that is basically coming out of what was a complete Government funding process and the scale that needs to be achieved in that sector is bigger than Government. So, this broader shift that needs to take place in the delivery of human and social services which encompasses more than just the public sector delivery mindset is essential. That is one of the big obstacles for this argument that needs to be challenged, you are challenging it by doing what you’re doing and I remember I was Social Services Minister, I used to meet the Social Services grants that came in every year and grants going into great organisations all around the country but they were basically limited by what their grant was, and their whole world and business model centred around the grant – I would love to see these organisations unshackled from that by being able to access different forms of capital. It’s not going to be right for everybody and every organisation but it does mean that those who are able to take advantage of what’s happening in this sector will actually free up some of the more traditional sources of public capital that those organisations that can only really operate in that way.
QUESTION:
And you’ve talked about the need obviously to work with the states on this. The history of federal-state cooperation in many areas is not together a happy one. How confident are you that you can work cooperatively with the states? And do you see your role as turbo-charging what they’re already doing, overseeing what they’re doing? How do you see that relationship working?
TREASURER:
There are some things we can just do off our own bat to support what they’re doing and that happens in the regulatory space. I mentioned about mutuals and cooperatives and so on, that really helps those organisations to exist, to function, raise their own capital and then partner with state governments. Equally, on the regulatory issues, there are things we can do there but take social impact bonds, for example, and Mike Baird and I used to talk about this when he was Premier, the problem for a state government getting behind a social impact bond is the benefits of what you’re effectively investing in and the returns that have been derived, don’t just occur at state level, they also occur at Commonwealth level – particularly on the income support side of things. So, being able to move to a position where you can jointly back social impact policy at a Commonwealth and state level is I think an obvious point. Everybody wins from that so the only thing that can stand in the way of that is politics. But so far, I haven’t detected any of that politics in the way of those types of arrangements, we’re already doing a partnership on [inaudible] one exactly what it’s like.
QUESTION:
So you think that idea of cooperating on social impact bonds will at least grow relatively quickly?
TREASURER:
I don’t know is the short answer to that question. I hope it does, I certainly hope it does and we’re going to continue to do everything that we believe we can to ensure that it does. But at the end of the day, the whole point of it is that it’s not actually run by the Government, it’s run by people who are here, it’s run by those who have great ideas, it’s run by organisations, it’s run by financial institutions, it’s run by large family philanthropic funds, it’s run by others. What we can do is our bit which is not inconsequential, it’s not small, and we’ll continue to do that, but how quickly it grows and where it grows is up to these broader considerations. And I keep coming back to that other one, if we think that social, community and human services can only be delivered by the people working for the Government, then we’re not going succeed. The problem is bigger than that capacity, much bigger than that capacity.
QUESTION:
You talked about the fact that you’re working with Jane Hume on the regulatory changes. What are the priorities there, do you think?
TREASURER:
Well, one – we’ve actually just a couple of big issues – we have the Hammond review and many of some of you may have participated in that, and what was great about Greg Hammond’s review is – he’s a sort of quiet, shy, retiring type but with an enormous amount of credibility – and I had a bit of a secret plan with Greg that I didn’t just want him to consult with industry, I wanted to use him to help educate a lot of the regulators at the Commonwealth level and to help them to understand and appreciate what some of the challenges were that have been faced by the mutuals sector. And he was very effective. And meeting with APRA and ASIC since Greg’s review and the Treasury officials, I think there’s a completely different perspective on this now, so achieving some of that cultural shift has been very important. Now, the great thing about Jane Hume is she’ll always move the challenge out to the next step and the next step beyond that and I’ll try keep up with her, but there are other issues about directors’ responsibilities that she has raised in private members’ discussions and how that sits with the responsibilities for directors if there are public interests or community interests type of pursuits that are being undertaken by firms. We don’t want a company putting itself at risk by investing in [inaudible] and Jane’s raised a number of issues around that – which are complicated – and I’ll take a good look at those with her. I don’t want to create uncertainty in our corporate regulatory environment at all and I don’t think anyone who is passionate about this topic wants to create that either, but it’s just one of the practical elements of challenging parts of our statutory regime which was built on some earlier phase understandings of how the market can operate and participate in social community services.
QUESTION:
Jane was formerly involved in the superannuation industry – it has always had a great interest in Australia but has never really pursued that, I don’t think – about using superannuation in some way. Do you see that as feasible, desirable or do you think that you should stick to the idea that superannuation should just be saved for people going on retirement?
TREASURER:
I have the latter view and where that interest lines up with other interests, I see no reason why it shouldn’t invest. I have no interest in mandating super funds to do anything. Their purpose is fairly straightforward and clear. What I sometimes get frustrated with – as many Australians do – with a lot of these funds and it’s not just in this space but other areas of investment – whether that’s in venture capital or infrastructure or things like this – they can take a very passive approach to their investments and that’s a matter for them and their boards. It’s not for me to tell them how they should be investing but it’s interesting that Future Fund has the most active investments in venture capital in Australia. They have civil mandates to those in Industry Super Funds, but if the Future Fund can see the wisdom in going down that path for that particular sector at a more proportionate rate than others – that’s not to say there aren’t funds doing that, there are examples of funds doing that – and I think over time their appetites may change, but in a sector like this at the moment, I would say there is a fair bit that needs to be achieved and the outcomes that we achieve are critical, and as I said, it’s not just a put it in the bottom drawer after the project’s finished, going: “It wasn’t all that wonderful and it proved our point.” That’s not how a normal investment works. A normal investment works where you can see the actual trade performance on a very regular basis and whether that business is actually meeting its goals and its outcomes and it’s important again that you can apply the same level of data certainty to investors in this space as it occurs in alternative investments because if you don’t provide it, they won’t invest.
QUESTION:
Do you think in that sense that it’s not mutually exclusive? You could have things operating in the national interest broadly as well as in the individual’s funds, for example?
TREASURER:
I certainly hope so. I certainly hope so – and if not, that may trouble us more broadly. These things are not irreconcilable, it is not either `will we be a super fund’ or `will we invest in impact investing?’ These questions are not mutually exclusive. At times at the moment because of all the issues that we’re working on, they may appear so, but if we continue to resolve those issues then it would be less so.
QUESTION:
You talked about outcome measurement and the need to get the data as you’re going through. But a lot of these returns of this nature are long-term so how do you reconcile the need to see a short-term return commercially or financially in some ways, and the longer term social returns?
TREASURER:
It all depends on what the investment is – I mean, people buy 30 year bonds - that’s a long-term investment, it’s got a pretty low rate of interest but it’s very certain over that period of time. We, as a Government, did the first 30 year bond and it was very successful. So, increasingly, impact investing does need to be looked at in the long-term, the returns do have to be calibrated along those lines and I think they do take on more of the characteristics of long-term fixed interest and that is why the Budget – particularly around affordable housing – I see the only real way of attracting more capital into that space is by changing from a property investment into sort of a long-term fixed interest investment. If you achieve that, like they have in the UK, then I think you’re going to see more of those bigger funds, longer-term funds, invest in that sector. If it just needs a property development – well, you all know that speculative property development in the private market is going to outdo those investments every day of the week and so it is a question of how people are structuring the nature of investment and what we’re putting them up against – and particularly for overseas mutual funds providing it gets them the scale, which is another challenge, then there is a real appetite for that sort of investment.
QUESTION:
Now there’s obviously an appetite all the time for ever more Government services and as you know as Treasurer, that’s a very difficult balance but to what extent do you think this type of movement reflects a tipping point in the community more broadly about realising that the Government can’t provide things and they want to see things done differently and to harness social capital more, the good of the community more?
TREASURER:
I don’t see it as a philosophical or ideological question. I see it as a practical question. It’s not `is the market the answer to our problem’, but it’s how you use the market to better solve problems in communities. I mean, there’s a practical problem, it’s called homelessness or it’s called drug addiction or it’s called incarceration of indigenous Australians – these are all real problems, not ideological problems, not philosophical problems, they are actual problems. People live with them. As governments, we have to come up with very clever and practical ways of solving them and to not embrace community impact investing, social impact bonds, a whole raft of things that surround this is effectively saying you’re going to leave a whole series of options out of trying to solve the problem – it’s not going to solve all of these problems but it’s just a practical thing we have to embrace, pursue and maximise in terms of other things we have to do as governments. As a Turnbull Government, we are a very practical government, I make this case a lot – it is just about trying to solve as many problems as we can in front of us and if this sector can aid us in that then we’re all for it.
QUESTION:
Given the many problems that are facing you, how optimistic – do you call yourself an optimist about what’s happening in this sector?
TREASURER:
I’m always an optimist. I’m always an optimist because what I’ve had the privilege of being able to do – not just in my political life but outside of my political life – is get a real sense of people’s passion on the ground and passion on the ground for sorting this stuff out and working with anyone who wants to focus on it. One of the reasons why I was passionate about mutuals changes as well as I have been in the not-for-profit sector is there is a passion that exists in those organisations that you cannot compare. You can’t pay for it, it is just innate in people, and what we want to ensure is that we don’t use that in going down the marketplace solving all these issues. I’m passionate about this sector particularly we can marry this passion and kindness and empathy with some very practical business tools that will get a much better outcome. The problem is bigger than governments and I often argue that the problem is often bigger than people’s hearts – as big as those hearts might be. That alone is also looking to solve the problem. This applies a discipline that requires the passion factor that is necessary to nail this. So, even if it means sitting in the traffic for half an hour coming up from the Shire this morning before I fly off to Brisbane, I’m really pleased to be here as I’ve been at other events and just to continue to encourage you and invite you to engage with us on the practical things that you think need to be addressed to enable us to go forward. And Jane Hume is an excellent contact point for all of you to help us achieve that – of course, Michael Sukkar, the Assistant Minister to the Treasurer, he is also in this space as well. They’re both based in Melbourne – so if you’re in Melbourne, go and see them, if you’re in Sydney, come and see me.
QUESTION:
Well, thank you very much, Treasurer.