20 September 2017
The Turnbull government has launched the next phase in its campaign to impose a superior model for superannuation governance as it seeks a fusion between better policy and confronting the financial links between industry funds and trade unions.
This will become an epic battle. It is about financial power, superannuation accountability, consumer choice and fixing the defects and inequality in the system yet retaining its remarkable utility. Below the radar, however, it penetrates to the crisis of institutional power plaguing the Liberal Party.
When those 1980s architects Paul Keating, Bill Kelty and Charlie Fitzgibbon spearheaded the design, they created something unique: mandatory contributions to private super funds. It is an Australian invention.
Australia today has a $2.3 trillion super system, a massive financial edifice, essentially divided three ways: self-management, retail and industry funds. The edifice was built on a Labor-union consensus later embraced by the Coalition. There is no other way a law could exist in an era of stagnant wages that compels workers to defer a portion of their wages — now running at 9.5 per cent — for their future retirement income. In retrospect, it seems astonishing.
Revenue and Financial Services Minister Kelly O’Dwyer, responsible for reform bills in recent days, underlines the government’s starting position: “This money is the property of each and every hardworking Australian superannuation fund member, not the government, not the industry, not the bank executives, not the shareholders, not the employers and not the trade unions.”
Yet Labor and the unions, to this day, retain their sense of political ownership of the system they created. Deep in Labor culture is the belief the Liberals distrust the model, a sentiment the ACTU cultivates relentlessly.
Nothing excites Keating’s anger more than the Howard government’s repudiation of Keating’s 1996 election pledge to lift super to 15 per cent. Consider this ambition — the funds would be immensely more powerful today and the hit on wages far greater.
Kelty was philosophical. “You see, our ideas survived Howard,” he told me in April 2008. Keating’s vision was to tie sharemarket power to retirement incomes, locating super at the heart of globalised capital markets. It was a variation of his enduring strategy now lost to Labor — harness the gains of capitalism for social democratic ends.
The first of the new bills is a re-run of one that failed in the previous parliament — based on searching inquiries by Jeremy Cooper (for the former Labor government) and David Murray (for the Coalition) it proposes super boards have one-third plus the chair as independent directors.
Sounds a no-brainer, you might think. But it clashes with the 50-50 employer-union model for industry fund directors. The unions will tenaciously resist this loss of power. The attitude of Nick Xenophon, who was unpersuaded last time, will be crucial. The argument for reform is strong. The unions have Xenophon in their sights for his support of the Australian Building and Construction Commission law, so the Xenophon-union tensions will play decisively.
But the bigger bill empowers the Australian Prudential Regulation Authority to ensure trustees act in the interests of members, to require greater transparency, to intervene and take protective action — in short, to ensure the law is driven by members, not industry interests. These powers will apply across the board to retail, industry and corporate funds.
At present APRA lacks the power to follow the money trail — it does not know exactly what is happening to members’ funds. The government has dark fears on this front given analysis by former Liberal Party acting director Andrew Bragg that over the past decade as much as $50 million has been paid from industry funds to trade unions. The unions reject this figure.
But if O’Dwyer wants to persuade the Senate independents to back this bill, her pitch is obvious — “empower the regulator to follow the money trail”.
In short, let full transparency apply. If there is nothing to hide, there is nothing to fear.
The third bill is about members’ rights — it allows more than one million workers to choose their super fund and not be bound by the industrial system and an enterprise bargain. Will Labor support individual choice?
The unions will see a pattern here — an attempt to liberate the super model from its industrial origins. Their resistance will be immense. But its zenith will come next year when the Productivity Commission produces its final report on the ultimate fusion between super and industrial relations — the so-called “default” arrangement under which awards and agreements specify a default fund for a member’s super if that person does not nominate a fund.
Incredibly, about two-thirds of fund members fall into this category, but they constitute only about a quarter of the financial assets. That means these people are mainly younger and low paid. Many are locked into poorly performing, smaller industry funds.
If you want an example of roaring inequality here it is – in the super system. There are many low-paid workers (some who can’t afford it) compulsorily losing part of their income to super funds that are underperforming with their assets. Who cares about them?
The Productivity Commission report will explore alternatives to the default model. Its days deserve to be numbered. This will be a defining issue for Labor and the unions. Will the government have the courage to fight this issue in the name of true equality?
The larger picture should be put up in lights. It is about the superiority of Labor at devising long-run institutional arrangements that serve its interests in policy and political terms. In some ways superannuation is the ultimate example. Labor today enjoys support from a coalition of forces — unions, non-governmental organisations, sectoral interest groups and a range of cultural players. The Liberals, by contrast, are weak on two critical fronts: cultural and financial power. This means they stare down the gun barrel of an institutional crisis, a plight concealed by John Howard’s long success as PM.
The irony is exquisite: the party of capital is starved of private capital for its political needs. Remember Malcolm Turnbull had to throw his own money into last year’s campaign. What a humiliation! The Liberal Party’s alleged friends — big banks, big business
— are either no longer its friends or have opted for neutrality.
The message for the Liberals from Bragg is frightening. He judges the anti-Liberal forces — think tanks, unions, super funds, Get Up! and anti-business NGOs — spent about $300m last year on a range of campaigns against the Liberal/business cause, as opposed to $120m spent by groups backing it. You can dispute the numbers; the thesis is correct. The Liberals are being outmuscled and outspent. Labor is the party of institutional power (not always an asset) and the Liberals are weak in networks of support to sustain them.
Bragg attacked the super funds as “cashed-up activists”. In his speech to the Liberal Party federal council, he said: “They fight like mad against independent directors and even harder against the suggestion consumers might be able to pick their own super fund. Why? With $53m paid from super funds to trade unions in the past decade, it’s any wonder.”
Government sources say payments from industry funds to trade unions are about $8m annually and that much of this analysis comes from Australian Electoral Commission data. But what is the true figure and how much is legitimate? We don’t know.
Independent industry figures vigorously discount the quantum. The policy and political stakes in superannuation are intensifying. The showdown will be driven by policy reform and Liberal alarm at the weight of institutional force against it.