I acknowledge the traditional owners of the land on which we meet, the Gadigal people of the Eora nation, and acknowledge elders past, present and emerging.
And here at this Banking & Wealth Summit, let’s do more than just a symbolic acknowledgement of our first peoples.
How have we done as a nation – providing financial services to our indigenous peoples that help build their wealth?
The Royal commission provided some harrowing examples of where indigenous disadvantage has been seen by some as an opportunity for financial exploitation, not an opportunity to help close the gap.
It also made clear that when it comes to superannuation, there isn’t even a word for super in the indigenous vernacular and many indigenous people find it near impossible to navigate through such a complex system.
More positively, lifting the financial literacy and economic engagement of our first peoples is a vital part of truly closing the gap of indigenous disadvantage.
How our financial services system caters for our first people’ and the role of the financial services industry in closing the gap on indigenous disadvantage is not a big part of our national conversation.
I’d like it to be much more.
If I get the opportunity to be Treasurer I’d like it to be actively engaged with you on these matters.
I’m confident, that, working together, we could do much more.
Thank you for the opportunity to speak at the Bank and Wealth Summit. Banking, wealth and financial services will of course keep the next government busy.
From our point of view:
- We will implement 75 of the 76 banking royal commission recommendation and achieve the objective of the 76th in a slightly different way.
- We will have important reforms to improve superannuation, some of which I will talk about today.
- We will reform unsustainable and regressive tax arrangements, including ending the situation in which we are the only country in the world that provides tax refunds to shareholders who have not paid income tax, at the cost of $6 billion a year to the budget
- Importantly, going forward, we will also create a council of superannuation custodians to take superannuation out of the annual budget cycle, and ensure that the only changes made to superannuation going forward are those recommended by the council on a 5 yearly cycle.
I’ll talk about some of these matters today.
Government doesn’t believe in royal commission
First, to the Royal Commission.
I’m not normally too partisan at events such as this, but given we are at the business end of the term, with the election less than 50 days away, I’m sure you’ll forgive some plain speaking.
The choice is between an opposition that has got the big calls right, versus a government that has got the big calls wrong.
Unlike the Government, we actually believed a Royal Commission was necessary.
And I think most will agree history will show that it was. The Royal Commission was very clear in its observations:
- The interests of customers was relegated to second place behind the pursuit of profit and individual self interest
- Too often the consumer being left in the dark about how products or services are acquired an delivered
- And too often financial services entities were breaking the law and then not held to account for their actions.
These are systemic failures in the financial services industry when it comes to living up to community standards and expectations.
It was a big call for Bill Shorten, the Labor Party and I to call for a Royal Commission into Banking. A big call but the right call.
Scott Morrison and Josh Frydenberg at various points in time said the Commission was “regrettable”, a “populist whinge”, a “reckless distraction” and a “QC’s complaints desk”.
We need a government which gets the big calls right not wrong.
If there was ever a sign the Government’s heart isn’t in improving transparency of remuneration arrangements and associated corporate malfeasance, it’s on mortgage broker remuneration.
Just a few days after the Royal Commission was handed down to the Government, Josh Frydenberg was up there waving his hands, telling us how tough he was “taking action” on all the recommendations.
When it came to trailing commissions and mortgage remuneration, he gave it the big “tick”.
No discussion, no nuance. Just that this element of the commission’s findings would be implemented.
Now the reasons given by the Commissioner on this issue were clear “The chief value of trail commissions to the recipient, to put it bluntly, is that they are money for nothing”.
And these issues have been known for some time.
Prior to the RC, the Productivity Commission found “trail commissions have the effect of aligning the broker’s interests with those of the lender, rather than those of the borrower”.
The case was clear.
In what can only described as a backflip with triple pike, just weeks after giving a recommendation a big “tick”, Josh has given it the big “flick”.
The fact it took just  days to backflip on a major reform to phase out trailing commissions on new loans is a sign of the ticker of this Government.
To be clear, there was a case for thinking carefully about the Royal Commission recommendation, such as the fact we do not want to have negative impacts on competition. Labor has announced we will deal with conflicted remuneration in a careful way by legislating a flat upfront commission rate to avoid mortgage brokers advice being conflicted by the rate of the commission.
It’s one thing to meet the objectives of the Royal commission in a different way as Labor has done.
It’s another thing to completely abrogate any policy action under political pressure as Josh Frydenberg has done.
When Labor’s makes big calls – and we’ve made a few of them – we stick to them.
We fight for them.
We believe in them.
We seek a mandate for them.
A Shorten Labor Government will implement 75 recommendations of the Royal Commission in full and stand up for Australians affected by banking misconduct.
It’s no surprise that consumer groups are already concerned that the Government is already walking away from recommendations contained in the Royal Commission report, with recent backflips sending a signal to every vested interest that the government is not that serious about reform.
Liberals inaction on pay day lending
On the subject of inaction, in an important area of reform I want to spend some time today on the government’s abject failure to deal with pay day lending.
A Banking and Wealth summit should spend time looking at how our system is treating vulnerable Australians who rely on not so much the bank and wealth funds, but others in the sector.
You can tell a lot about a Government by the way it handles public policy issues that directly affect the most vulnerable.
The cost of inaction here for the nation and vulnerable Australians has been sustained and real.
It has been four years since Josh Frydenberg commissioned an independent review of small amount credit contracts or payday loans and ‘consumer leases’ – and 1070 days since the Liberals received that report.
During that time – where exactly nothing has happened to protect Australia’s most vulnerable from dodgy payday loans – more than 800,000 Australians have accessed these poorly regulated loans, with all of spiralling in debt and broader social cost that can come with these credit products.
The facts on the social cost are clear:
- Over a 5-year period around 15% of payday borrowers will get into a debt spiral which leads to events such as bankruptcy;
- While single-mother families make up 15 per cent of households, 47 per cent of the women using payday loans are from one-parent families.
We have seen the proliferation in recent times of payday or cash loans being described as ‘consumer leases’ to avoid the cap on costs under national credit laws – an issue highlighted by that independent report the Government has done nothing with for a long time.
In a lot of instances, vulnerable Australians already experiencing crippling debt repayment from existing payday loans have then entered into these leases.
In these rent-to-buy contracts, it is possible for vulnerable consumers to end up paying the equivalent of 800 per cent of the retail price of the good.
All the while, the Government has stood on the sideline while welfare recipients have suffered as predatory lease providers have used the Centrepay system to recover funds. Often these people should never have been assessed as eligible for credit.
At a number of decision-making points over the last five years – the Liberals and successive Ministers have made the calculation that these people and their problems and the cost for the country don’t matter.
It sounds callous and it is. It’s political failure and social cost writ large.
Let me briefly step out the extent of this inaction.
As I mentioned earlier, in 2015 the now Treasurer commissioned the independent review of small amount credit contracts.
At the end of 2016, the Member for Higgins, Kelly O’Dwyer accepted all of the recommendations of this independent report, including properly regulating unscrupulous pay day lenders and consumer lessors.
One year later, in October 2017, Ms O’Dwyer and the now Deputy Prime Minister, Michael McCormack, released an exposure draft of legislation that included the regulation of small amount credit contracts.
Michael McCormack’s view on this legislation at the time was that it would: “increase financial inclusion and reduce the likelihood of vulnerable consumers defaulting on repayments and encountering difficulties meeting their basic need”.
That was the last we heard. The legislation has never been introduced, let alone brought on for a debate. Labor, willing to give bipartisan support, even introduced the legislation ourselves, but the government refuses to bring it on for a vote.
It is impossible to draw any other conclusion that the Government has abjectively caved to the loud vested interests of pay day lenders and refused to act in the national interest.
The current Minister responsible Stuart Robert said he would wait for the Royal Commission before deciding to proceed.
Well the Royal Commission has well and truly reported and there is no reason not to act.
He specifically said:
“The government will consider the extent to which the issues raised through the next round of hearings of the royal commission will impact on the drafting of the final SACC legislation’. ‘.. it will … consider what the royal commission has got to say in this space.’
‘We'll sit and wait for the royal commission's advice.’
‘Sit and wait’ is an apt description of the last five years of Government inaction on payday lending.
That was said by the Assistant Treasurer in full knowledge that pay day lending was not within scope of the Banking Royal Commission.
An incoming Labor Government will act urgently on legislating the recommendations of the independent report into SACC and we’ll do more.
A Federal Labor Government would also provide $60 million from the Banking Fairness Fund to give vulnerable Australians an alternative to pay day loans by doubling funding for not-for-profit microfinance programs across Australia.
The $60 million investment [$15 million a year over four years] will expand programs run by the Good Shepherd Microfinance which will see microfinance open up for 307,000 new clients, delivering up to 76,800 new low cost loans to vulnerable Australians.
What this means in a nutshell is Australians experiencing financial hardship have a viable pathway other than using harmful financial products that might see them spiral into debt and bankruptcy.
Good Shepherd Microfinance’s No Interest Loans Scheme (NILs) and the StepUP loans scheme offer a financial life line to individuals who might otherwise turn to these high-interest credit products.
Pay day lending is not the only area in which the government has frankly completely abrogated its responsibilities.
Last week we got just the latest insight into the approach this government takes when it comes to important policy matters, this time on superannuation and limited recourse borrowing.
Last Friday, the Council of Financial Regulators released a report into Self-managed superannuation fund borrowing arrangements.
A report which highlighted the “presence of leverage in SMSFs through LRBAs has significant implications for the security of individuals’ retirement savings”.
The report was crystal clear:
“The regulator members of CFR and the ATO note that no longer allowing limited recourse borrowing will address a number of significant risks which could be detrimental to individuals’ retirement incomes due to shifts in the property market, particularly for those with high levels of leverage and low diversification of assets.”
So how did Josh Frydenberg respond to this report?
Not just disagree with the report’s findings, but put out a deliberately misleading press release late Friday afternoon downplaying the concerns of the regulators on this important matter.
This is an issue Labor committed to taking action on 4 years ago.
The Government’s Murray FSI Report recommended that SMSFs be banned from borrowing to invest in property – Labor accepted the recommendation, the Government did not.
Let me remind you what Murray said back in 2014:
“Further growth in superannuation funds’ direct borrowing would, over time, increase risk in the financial system.”
It again demonstrates that when it comes to making big calls, the Government simply doesn’t have the courage or the fortitude.
You know a government is behind the curve, when the major banks are out in front on this issue reforming their own borrowing programs for SMSFs.
As it stands it will be left to a Labor government to take the responsible decision and adopt the recommendation of the Financial System Inquiry – a report delivered years ago – to restore the prohibition on direct borrowing by superannuation funds on a prospective basis.
Now turning to the important matter of superannuation reforms.
Superannuation has received its fair share of attention in recent months.
And this is not a bad thing.
Our superannuation system is in its third decade and there are challenges no one could have reasonably foreseen 25 years ago, challenges that should lead to necessary improvements being made.
Our $2.7 trillion pool of superannuation assets means Australia now has the third largest private pensions industry in the world after the USA and the United Kingdom.
It’s already taking pressure off the aged pension and will continue to do so even as the population ages.
It’s quite remarkable that despite our ageing demographic under a no policy change, what we spend on the age pension is only projected to rise modestly from around 3% to around 3½% of GDP by 2055.
This is in large part due to superannuation – keeping millions of people from having to rely on the age pension.
This should be celebrated.
But there are areas we can improve on and refurbish.
Far too often the Liberal Government has seen superannuation as either an ideological culture war or a potential political wedge but their record is far from rosy.
This has been no more obvious in the area of adequacy, where we’ve seen successive delays to legislated increases in the superannuation guarantee.
The delays we saw under the Howard Government then two delays under the Abbott-Turnbull-Morrison government mean people retiring today have nearly $100,000 less in super than if the original 1993 super timetable had been implemented.
Just last week I mentioned my concerns about the government reneging again on the current 12% superannuation guarantee schedule.
And yesterday I read that the Government is indeed considering further delays to an increase in the SG as we see new “confidential Treasury modelling” suggesting aged pension costs will be less than expected under existing policy settings.
It would seem my concerns are well founded.
Let me make it clear that the Labor Party does not regard a 9.5 per cent SG as providing adequacy – we will brook no further delay to the legislated timetable.
Now I’d like to turn to a two other superannuation areas in particular that have received hardly any attention in the political debate, areas that will be Labor’s top priorities when it comes to superannuation: making super work for women and dealing with superannuation theft.
It is completely unacceptable for there to be such a big retirement income gap between Australia’s men and women in 2019.
The gender pay gap compounds through a woman’s working life and is worsened by maternity leave and other career breaks for family purposes.
Women retire (on average) with median superannuation balances that are just $36,000 compared to $110,000 for men. Two in five retired single women live poverty.
And we call superannuation universal. But it isn’t. Our lowest paid workers (who also are typically women) don’t get any superannuation.
You have to earn more than $450 a month in a particular job to receive any superannuation at all.
Some of our most vulnerable workers are working multiple casual or part time jobs earning less than the threshold and eventually retiring with nothing in superannuation.
It’s why Labor has been on the front foot on these matters.
We’ll ensure women get paid the superannuation guarantee on Paid Parental Leave and Dad and Partner Pay payments and we’ll also gradually abolish the $450 a month threshold.
This isn’t a panacea, but it’s a step in the right direction.
These measures alone will see a mother that has two kids in her late 20s with an extra $24,000 in today’s dollars when she retires.
In my electorate office, I see too many people who come to me for help when they realise their employer has not been paying their superannuation. Often it’s too late to help them.
Nearly $3 billion each year is lost from superannuation accounts from employers who decide the law doesn’t apply to them. This is nothing short of theft.
It also puts those businesses doing the right thing and meeting their obligations at a competitive disadvantage.
This is why Labor will change the law to include a right to superannuation within the National Employment Standards, which will give all employees the power to pursue their unpaid superannuation through the Fair Work Commission or Federal Court.
Finally, to fund underperformance.
The Productivity Commission report “Superannuation: Assessing Efficiency and Competitiveness” and more recently the Royal Commission both identified some real problems with chronically underperforming funds.
Shifting the dial even by a few basis points can have huge ramifications for people when they retire due to compounding over a working life, which makes getting people into better performing funds paramount.
The PC highlighted the real implications for fund members, pointing out that a typical full time worker in an underperforming fund in the bottom quartile over their lifetime would end up with 54% or a massive $660,000 less in retirement compared to if they had experienced top quartile fund returns.
Right now there is a bill in the Parliament which would require super funds to report on their performance compared to similar products.
Labor amended this bill in the Senate to make the outcomes test tougher, make director penalties higher and make APRA’s powers stronger.
Millions of Australians are being ripped off by underperforming accounts and we want to force these funds to report on their performance and lift their game.
The Government – preferring politics over policy – opposed our amendments, and has failed to bring the bill back to the House of Representatives for a vote.
Unfortunately, the Liberal Government has spent too much of its energy on its ideological war on Industry super funds.
Such faction fights within superannuation garner very little attention from me.
To conclude, so thanks for inviting me to be here today.
A healthy banking system based on good and ethical conduct is of course vital for our economy and for our society.
Sensible reforms to improve superannuation and ensure it is working for all is also a vital part of a well-functioning Australian economy.
Improving regulation, whether it has been shown necessary after a careful evaluation of the evidence in areas such as pay day lending and non-recourse borrowing in the self-managed superannuation sector are all important areas for government attention
Having been Assistant Treasurer, Financial Services Minister, and served as Treasurer previously, I’ve benefited from many conversations and interactions with many of you in this room and many people in the sector about how we can improve the sector’s efficiency and performance.
Should we win the Federal election in less than 50 days’ time my door would remain open to you as Federal Treasurer to continue to discuss how the federal government and the sector needs to work together on these matters that are important to all of us.