29 August 2017
Transcript - #2017029, 2017

Interview with Ross Greenwood, 2GB

Subjects: banking executive accountability regime; superannuation guarantee; mortgage brokers

ROSS GREENWOOD:

There’s plenty happening inside the Treasurer’s office right now and it involves tax, it involves superannuation, it involves mortgages, mortgage brokers as well. So I want to try and bring you up to date with what’s happening here. The Minister for Revenue and Financial Services is Kelly O’Dwyer, who’s online right now and in charge of much of this stuff. Kelly, many thanks for your time today.

KELLY O’DWYER:

Great to be with you Ross.

ROSS GREENWOOD:

OK I want to start, however, with banks and the Treasurer who not only presided over partly APRA, saying it will conduct an independent review into the Commonwealth Bank, he went one step further and then said maybe APRA should be given power to consider the bonuses of bank executives. Do you think this is a good idea to have governments starting to dictate to private industry and to these shareholders that own those businesses, the salaries that can be paid to executives?

KELLY O’DWYER:

Well he hasn’t said maybe, this was actually announced in the Budget earlier in the year that there would be a banking executive accountability regime and the Treasurer’s looking to introduce that legislation in the second half of this year. Now the purpose behind it is that where there is misconduct within a banking institution, there needs to be a level of accountability. And so this regime, which borrows much from the UK regime, will see executives become responsible for misconduct that might’ve occurred at a bank or failures that might’ve occurred in relation to governance and their bonuses can be clawed back. So it’s not about setting their pay, it’s not about that at all, but it is saying that there needs to be a level of accountability because at the end of the day, banks are critically important to our financial system. It is very important that people have trust and confidence in our banking system and in our financial system.

ROSS GREENWOOD:

Why wouldn’t the shareholders that own the bank be the ones who would be, shall I say, the ones that would dish out any punishment? I mean you’ve seen in the Commonwealth Bank, the bonuses have been cut so the shareholders can certainly have their say. They can spill the board if they want to as well.

KELLY O’DWYER:

Indeed, absolutely right. They can in fact have their say in a very significant way. But it’s not just about being able to claw back bonuses. This regime has got other elements as well and another element involves APRA, the prudential regulator, being able to step in and remove directors or particular senior executives from their job at the bank if they have got concerns.

ROSS GREENWOOD:

OK but why wouldn’t then the management and the board be doing that anyway? Because surely that would be in the interest of the banks and the boards to always do that, to make certain they don’t have incorrect people inside their organisations.

KELLY O’DWYER:

Well, indeed. And that is exactly right. And this is one of the questions, I suppose, that is being asked in relation to a series of incidents that have occurred within the CBA. APRA, as you know, announced that they were going to take a very close look at the governance around the CBA and they were going to conduct an independent panel that would look at a number of these issues to do with that. And that’s entirely appropriate. But at the end of the day, these executives will be accountable to the shareholders but it’s important that they are also responsive to the regulator as well that is responsible for making sure that we have got sound governance structures in place within our banking institutions and making sure that people can have trust and confidence.

ROSS GREENWOOD:

So why not the health care industry, which obviously we need to have trust and confidence in? Why not the mining industry? I mean these situations where people can be paid for very poor performance in other industries as well.

KELLY O’DWYER:

Well this goes to the heart of our financial system. And this is, I suppose, where it is different. Banks, there is a four pillar policy that we have in Australia. Banks have got a very unique position in our economy and because of that they are different to other institutions.

ROSS GREENWOOD:

Alright I want to go to a few other bits and pieces that came out today. One is the tax office today has released an estimate of what it calls the superannuation guarantee gap. This is the difference between the amount that employers put aside for their employees and the amount that the tax office thinks they should’ve put aside. So in other words, it’s saying the gap is some $2.85 billion. This is a 5.2 per cent gap. In other words, they said that they should’ve put aside some $54.78 billion in the 2014-15 year but there was $2.85 billion missing. That means workers are not necessarily getting their full wack of superannuation.

KELLY O’DWYER:

Indeed and it is a shocking finding and it is one that is deeply, deeply concerning to the Government. As you’d be aware, Ross, I set up a specific taskforce, a working group, to look at this particular question because despite the fact that we’ve had superannuation, compulsory super, for more than 20 years now, this is not something that any government has actually focused on. Now our government has not shirked the hard task, we’ve asked the question, we’ve found the answer, the answer isn’t good, and we’ve now announced today a number of measures to help plug that gap that exists because that’s money that is rightfully owed to workers that they have not been paid. It’s their money and if they missed out on it, they are being dudded on their entitlement and, ultimately, on their retirement income.

ROSS GREENWOOD:

I noticed today, could I pick up there, that the Tax Institute Senior Tax Counsel, Professor Robert Deutsch, who is well respected, said the tax office, he fears, might not have sufficient resources to effectively utilise the influx of data that would come with this initiative and may not be able to follow up on some non-complying employers. Does the tax office have sufficient resources?

KELLY O’DWYER:

Well we’re giving them additional resources in two ways. One, we’re giving them additional powers to make it much easier for them to one, detect whether there is an issue, being able to data match and with the more frequent reporting by funds, they will be able to see when there are people who have missed out on their entitlements and be able to intervene at an earlier opportunity. But two, we are also making sure that we give them appropriate resources to be able to do that intervention, do the enforcement, make sure that they can get the right penalties and we’re setting up, within the ATO, a special superannuation taskforce that will look at making sure that this gap is plugged in so far as it can be and that they go after particularly those high risk employers who are dudding their workers.

ROSS GREENWOOD:

OK dudding workers is the important part about this. Final one I want to go to – mortgage brokers. As we know, mortgage brokers are paid by commission so while other financial planners and others in the banking industry can no longer receive commissions and certainly cannot receive commissions are bonuses, in this case, the mortgage brokers quite clearly can and it’s a big, big industry. Now what you’re changing is the bonus structures, soft dollar benefits, trying to move and improve the standard commission model. And this has come after a review by ASIC, the Australian Securities and Investments Commission.

KELLY O’DWYER:

Yes, so ASIC actually had a look at the mortgage broking industry and despite there being a lot of white noise about conflicts, on the whole, ASIC did find that the actual commission structure wasn’t providing a conflict directly for those people who were purchasing their mortgage through a mortgage broker. In fact, in some instances, because of the additional competition, it was proving to be actually quite valuable but it also reveals that there are soft benefits that are received by a number of mortgage brokers…

ROSS GREENWOOD:

In other words, free trips or whatever it might be yeah?

KELLY O’DWYER:

Free trips, you know, big conferences that people attend for three days in fancy locations, things like that that could in fact pose a problem and certainly, we have very clearly said that this needs to end.

ROSS GREENWOOD:

I’ll tell you what, it’s always good to have you on the program. There are so many things happening at the moment in this regard. Tell me this, just a quick one in regards to those bank remunerations, just going back to that very quickly. How confident are you that you’ll get it through both houses of parliament?

KELLY O’DWYER:

Well look, we’re very confident. I know that the Treasurer’s already been having discussions with a number of people about this particular piece of legislation. Very confident because at the end of the day we’re confident that other parliamentarians want to see a very strong and robust financial system.

ROSS GREENWOOD:

Kelly O’Dwyer is the Minister for Revenue and Financial Services and as always, Kelly, we appreciate your time.

KELLY O’DWYER:

Great pleasure, thanks Ross for having me on.