Good morning, everyone. Thank you for being here for the announcement of the Government's response to the Financial System Inquiry.
This is a very important step in continuing the assurance that Australia's financial services system – all our banks, insurance companies, superannuation, the whole system, the whole industry is safe and secure.
It is part of a continuous thread of Liberal National Party Governments ensuring that. The hard work that John Howard and Peter Costello did in ensuring the security of our financial services system during their time in Government was a major part in ensuring in turn that we did not have as severe an outcome during the Global Financial Crisis as many other countries did. So, this the Murray Inquiry has been a very important part of that continuing work.
Now, I want to thank David Murray and his panel for the hard work they've done. I want to thank the Treasurer and the Assistant Treasurer for the hard work they have done and of course their predecessors – in particular Joe Hockey and Josh Frydenberg. But this response is a response of the Turnbull Government to this inquiry.
Now, there are a number of matters that are going to be dealt with, but I will just touch on some of the highlights. Firstly, above all, we are constantly focused on ensuring from a prudential point of view our banks and major financial institutions are safe, both for depositors and for investors. They're critical to the stability of our whole economy.
From a superannuation point of view, the focus is on ensuring that people, Australians saving for their retirement, have both choice and security. From consumers, there is also important responses here to ensure that consumers are protected – and there is one change that I will note and Scott Morrison will have more to say about this in a moment – and that is that we will be regulating, changing the law, to ensure that where a merchant charges a surcharge for using a card such as, but not exclusively a credit card, that surcharge can be no more than the merchant's actual cost, additional cost of processing that payment through use of that card.
This issue has been, this use of credit card surcharges, has been the subject of considerable consumer concern and quite plainly where a merchant says if you use a credit card it's an extra 2 per cent or 3 per cent, that carries with it an absolutely crystal clear, irrefutable representation that the merchant is seeking to recover his or her costs and in some cases they may be, in other cases they're not. We think that consumers are entitled to a very fair deal here and in other words, to get exactly what they are being represented to be getting, which is an additional charge that recovers no more than the merchant's costs.
So, ensuring the security of our financial system – fundamental – ensuring choice and security for people saving for retirement and ensuring that consumers are protected. These are some of the important outcomes from the Government's response to the Murray inquiry.
Thank you, Prime Minister, and it's a great opportunity for our Government to make it very clear how important we see the financial system in our overall economy. It is one of the most significant, if not the most significant, asset our economy has. It is central to the Government's plan to grow our economy and to grow jobs.
This is yet another plan, another plank, in the strategy that we've been outlining now for some period of time, particularly reinforcing whether it's on changing the tax system or whether it's strengthening competition with our three Free Trade Agreements. All of these are important planks in this Government's strong economic plan to grow the economy and to grow jobs.
As the Prime Minister said, our response today, the response of the Turnbull Government builds on the work of previous Coalition governments, in particular the work of the Howard/Costello Government that responded to the Wallace inquiry that built the protections, that built the insurance that enabled Australia to work through the GFC some years ago.
The Government's response is all about four key things. It is about strength of our financial system, it is about choice for Australians, it's about innovation to enable the system to keep pace and to provide the opportunities Australians need from the system and that it's fit for purpose and it's about transparency.
I also want to thank David Murray for the quality of the work in this report and I also want to thank the former treasurer and the former assistant treasurer Joe Hockey and Josh Frydenberg for initiating this review.
It's a common sense report. It has very common sense recommendations, as the Prime Minister has remarked on other occasions, a health check on where our financial system is at and this provides us with the opportunity to further strengthen this environment in which we all operate.
In terms of the financial system itself, it makes it stronger by embedding deeper protections within the system, whether it's on capital adequacy, improved governance and standards right across the system and empowering our regulators to be able to enforce the protections that are in that system, protect consumers and Australians and our economy at the end of the day. It does provide Australians with greater choice and greater control over their own money, whether it's their superannuation or anything else.
It's their money and they need to be in the driver's seat when it comes to their money and our response to the inquiry today puts Australians in the driver's seat of their own money and no-one else and that's as it should be. It does end the closed shop when it comes to mandatory superannuation contributions and how they are directed off into funds and it will give Australians greater choice about where they invest their own money for their own retirement.
Thirdly, in areas of greater innovation and of course the Government will have a major innovation statement before the end of the year, and that will, of course, be led by the Prime Minister, of course, together with the Minister for Industry, Innovation and Science. But the innovation which we're seeking to encourage as part of this response is to ensure that the system keeps up to date and also remains very fit for purpose and in particular in relation to superannuation, the recommendation that says that we need to define the purpose of superannuation in legislation is the one that the Government embraces and we will be doing that through the course of our other work. But it does make it pretty clear. It makes it very clear that superannuation is there to ensure that when Australians reach retirement age they will not be reliant on welfare payments, in the form of the pension. This is the primary purpose and this is what's been outlined in the Murray Report and I think that provides an excellent starting point as to how we might then go and prepare wording that might form part of legislation.
Also on superannuation, on the issue of choice, it's not just about ensuring that people have that choice but we give them the tools to make better choices about superannuation and the Assistant Treasurer will talk more about that.
Finally, on the issue of transparency and greater alignment, the Prime Minister has announced the response on credit surcharging and we will legislate to ban merchants from imposing unfair credit card, or sorry, card surcharges that are greater than the cost of them of accepting payment by the card.
The Government will work with stakeholders on the legislative response and phasing of the implementation of this initiative. We will also make the Australian Competition and Consumer Commission responsible for enforcing these surcharging regulations to ensure consumers are treated fairly and not overcharged when they pay for using a card. We also endorse the Payment Systems Board ongoing review of interchange fees.
So there's it's two-pronged. It's dealing with the fees that are charged to merchants by working through the Payment System Board and the process there and it's by protecting consumers to ensure that if businesses wish to charge for more services, then we can't control what they ultimately charge but they have to be transparent about that and they can't blame increased prices on other matters.
The response is already under way. You will know that we have already - the Government has announced its response to the bank deposits tax.
That initiative has already been put in place in terms of not proceeding with that recommendation, as the Murray Inquiry suggested we should not proceed with what the previous Government had done on the banks deposit tax.
The implementation phase of this response will now run out over the next couple of years but some of the most important initiatives, like creating greater choice in super, that will enable the Productivity Commission to get on with putting the frameworks in place to enable that to happen as soon as possible and with that I pass to the Assistant Treasurer.
Thank you very much. I'd like to echo the comments of the Treasurer and the Prime Minister in thanking David Murray for his excellent inquiry and today this forms the Government's response to the Financial Systems Inquiry and there are a number of measures that have been announced – more than 48 measures that have announced as part of our response.
I'd like to draw out just a couple that I think will be of particular interest to those of you here. We obviously agree with the inquiry that superannuation needs to be competitive, it needs to be efficient and overall it needs to be transparent. We need to be able to deliver the best possible outcomes for those people who are contributing to their retirement at their retirement and having an efficient, competitive and transparent system will do just that.
We will immediately task the Productivity Commission to develop criteria to assess the competitiveness and the efficiency within the superannuation system. We will also immediately task the Productivity Commission to develop alternative models allocating default fund members to products. In time, the Productivity Commission will assess the efficiency and competition of the superannuation system against this criteria and the Government will continue to explore measures around efficiency and competition in the accumulation phase of the superannuation system.
We are already in superannuation, strengthening the governance arrangements. There is legislation before the Parliament that puts in place minimum governance standards. This forms our response to the Murray Inquiry. The legislation itself sets out the minimum standards that a third of directors on superannuation boards need to be independent and that the chairman also needs to be independent.
We believe it's important that more needs to be done as well, to align the interests of financial firms and consumers. The Government has been working very hard with industry to improve remuneration in particular in the life insurance sector and I'd like to congratulate the former Assistant Treasurer in this regard.
On 25 June in 2015, earlier this year, he announced an industry reform proposal with the Association of Financial Advisers, the Financial Planning Association of Australia and the Financial Services Council. Today we are announcing the adoption of that industry proposal in response to the inquiry and that will commence from July 2016. There are changes to the up-front commissions that will be applied and also the trailing commissions.
There will also be a claw back period that also applies for remuneration.
Finally or almost finally, the Government is committed is committed to raising the professional standards of financial advisers as well. There will be some transitional arrangements but in essence financial advisers will need to hold a degree, they will need to undertake a professional year, they will need to undergo an exam, they will need to have ongoing professional development and finally they will need to subscribe to a code of ethics. This raises financial advisers in line with other professions and will give consumers confidence that when they go to financial advisers that they will be receiving the best possible advice.
And now, finally, let me also outline the Government's response as part of our innovation response to the inquiry around crowd sourcing equity funding. The Government has held extensive consultations in order to be able to deliver capital to small businesses and also to start ups and crowd source equity funding is one of the ways that this can be delivered. We're announcing today that we will have legislation to be before the Parliament, before the end of the year, we will continue to consult around crowd source debt funding in addition to bringing into legislation crowd source equity funding.
Prime Minister is there anything in this report today that could lead a bank to increase its interest rates?
Well, I don't believe so, but the Treasurer may express a view on that. The consideration that banks take into account in terms of raising interest rates are many. You know, their own costs, competition, international markets, the cost of funds above all. The Treasurer had some remarks about Westpac's decision last week, critical of that. I think many people thought that was not necessary, but look, we're running the Government. We'll express some views from time to time about banks movements on interest rates, but it is ultimately a matter for them and of course for the market.
Scott, do you want to add to that.
A banks decision will always be a commercial decision and it's always up to the bank to explain their decisions to their own customers. There are pressures on banks, but there are pressures on all businesses. There are many businesses, particularly small businesses, that aren't in a position always to pass on the costs that they're having to bear to their customers and they make the hard choice that they have to make in those circumstances. And so, whether you're a large bank or you're a small business, you have to face your customer and the decisions that you make have to be transparent and that's how you maintain your customers.
Now, the Murray report talked about in relation to the capital adequacy issues of a 10 basis point modification, but that doesn't mean they have to act on it and as we've already seen from some of the other major banks, and the banks have already commenced these capital raisings, as you know.
The other major banks haven't followed Westpac's path and today, in fact, we've seen with some of the smaller banks they've been cutting rates. So, there will be an array of commercial decisions and our point is simply this: they're commercial decisions. They're not decisions that have been imposed on them by APRA or by the Government. The banks will make their own calls and they can deal with their own customers.
Superannuation being fit for purpose, Mr Morrison mentioned avoiding reliance on the pension. What about avoiding using superannuation for wealth creation, will that be part of your legislated definition to keep superannuation just for an adequate retirement? Speak for the Government, something on superannuation tax concessions to curb wealth creation, using it for wealth creation?
Well, I think Scott's dealt with the point, the purpose. I understand, we all understand what the argument is about tax concessions relating to superannuation and as we've said several times, these are all matters that are being – that are under consideration – in the context of ensuring that our tax system, our transfer system, our savings system, does everything it can to incentivise Australians and Scott's three-word but very sound phrase: to work, save and invest. The Labor Party's apparently against that, or so they indicated last week. And the system, you learn from experience and you've got to adjust the system as you go along.
Now, I can probably – actually, I'll take one question and then I have to go to the party meeting but the Treasurer and the Assistant Treasurer can take more questions.
On that note I will leave you in the capable hands of my esteemed colleagues.
A question on surcharges – is this an acknowledgement that companies are potentially gouging customers? And, also, when can we expect these changes to come into effect?
They will be phased in, and with a lot of consultation and so forth, I think by July next year is the time frame. The important point is this: businesses are free to charge their customers what they like in a competitive market. There's no law that says you've got to charge so much for a hotel room or an airline flight, whatever. But if you go out there and you say there is a two, three per cent surcharge for using a credit card – for example – that carries with it, I think we would all agree, a very clear representation, which I don't think can be disclaimed, a very clear representation that the merchant is recovering the costs of you, the customer, using a card as opposed to paying in cash.
And now, the fact is that we all know, it's very widely known, that in some cases, in many cases, these surcharges are well in excess of the real cost and so this is just a matter of ensuring that the representation that merchants make is by virtue of regulation an accurate one.
So, once this change is affected, you will know if you go to a hotel to book a room or you book a flight or you buy something at a store and they say credit card surcharge is X per cent, then that is what it is costing the merchant to process your payment via a card as opposed to cash.
Now Scott can add to that and on that note I shall go and join the party room, thank you very much.
Just on that, just to give you some figures on that, the average weighted figure for interchange fees is 0.5 per cent, a surcharge fee is typically between 1 and 2 per cent for major the cards, bank cards that is, and the surcharge fee also extends beyond that to 2 to 3 per cent for some of the other cards. In some cases in particular surcharges can be upwards of 10 per cent. What the surcharge new rule will be, it will have to pass a fair dinkum test. It has to be about the fair dinkum cost of what someone is actually absorbing and passing on. So, I think it does bring that clarity to it as the PM said.
On the default super funds, what's the case for opening it up to more competition? Is it the performance of the default funds at the moment, the fees they charge?
It's simply about choice, David, and it's their money. The Murray Inquiry has made recommendations along these lines which says that if someone is working in a particular workplace, they should decide where their super goes. I mean that's a pretty important principle. And more importantly, they shouldn't be stopped, prevented as they currently are, under various agreements and awards from having their own money going to the fund where they want it to go to. Now, we recognise in making this response to the inquiry, as the Assistant Treasurer was saying, that there needs to be some tools to help people make those choices, over 60 different products that are currently available and out there. This is what we will be asking the Productivity Commission to work on, to provide a framework and to provide the tools and the assistance measures that enables people to make good choices. You've got to give them a choice and you've got to help them with those choices and that's what our response does. It is fundamentally about recognising that someone's superannuation contribution is their money, it's not the fund's money, it's not those who run the fund's money, it's the workers' money and we want to give them the choice about how their own money is being invested.
Can I just follow up on that because I think it's important to note that currently, if you're a worker then you're covered by an enterprise bargaining agreement, you are forced to take the fund that is provided for under the enterprise bargaining agreement. What we're saying is that the individuals themselves should be able to choose the fund that is right for them, that's right for their family, that's right for their circumstances and they shouldn't be constrained in that choice.
Now, some people will be perfectly happy to go with what has previously been the option, but there will be other people who, because of their own unique personal circumstances, will want to change and we think choice is really important for people when it comes to their own money in retirement.
How quickly will that change?
We have asked the Productivity Commission, we will immediately task them with actually looking at a competitive process. That is what they will be doing immediately and we believe that that can be done in a fairly expeditious manner. I will let the Productivity Commission announce the time frame in relation to that but we would see that happening right now where we can look at these issues. These are important issues for people's retirement. They deserve scrutiny and it deserves to be dealt with speedily.
What you will get from us on this is we will be leaning forward, as far as possible, on that recommendation. People need to know that with their greater choice comes greater competition, which means greater benefits for people's superannuation.
Treasurer, the Murray Inquiry said there was a systemic risk to the financial system by allowing leverage through superannuation funds, that is the one recommendation that you've rejected out of hand, not out of hand but you've rejected. What is your rationale for rejecting a fairly clear warning from Mr Murray about the risk of leverage through SMSFs in particular?
Forty-two of the forty-four recommendations have been either entirely embraced or substantively embraced and with further work to be done. This is one of those which doesn't fall into that category. At this stage it's just very early days. The evidence so far and the information that's been collected on this doesn't lead us towards that conclusion at this point. So, we will continue to monitor this extremely closely through the relevant regulators and if there is a need to go further and move on that recommendation then you can be very confident that if it crystallised into the risk or was looking to do that, as you've outlined, then the Government would act.
You're looking at a tender, presumably a national tender for default super funds. This is one of the things you're asking the Productivity Commission to do. Is your thinking there that employers don't always pick the best default funds for their workers? Or what is your thinking behind it?
The competitive process, we're not subscribing a particular framework…
Well you used the word 'tender'.
This is something that we're asking the Productivity Commission to be able to look at the competitive process, the framework that ought to be put in place and you're right, it will apply not just to industry funds but also to retail funds as well wherever there are going to be default funds. We want to make sure that the superannuation system is as efficient as possible because that will deliver the best possible outcomes for individuals in their retirement. So we're tasking the Productivity Commission with the charge of looking at this, what will be the most competitive process. We don't have a formed view of what that will be. That's why we are asking them to conduct an independent process and we will then consider their recommendations.
So on recommendations 10 and 11, because this goes to the heart of this. On recommendation 10 on improving efficiency during accumulation, this is all about choice of funds. Recommendation 11 then goes to choice of products as well. Now, what we want is Australians to exercise their choice, not for that choice to be imposed upon them by whether it's employers or unions. It should be their choice, not theirs, but there is also a role for us to play, given the objectives that we have around superannuation and that objective is well summarised by Murray and that is to ensure that people don't end up going on the pension and that they have an independence in their retirement. Now, the move towards the annuity type product, which is encouraged in the Murray report, and embraced by the Government, I think, is a positive way to try and encourage how people do these things but ultimately they can opt out of that. Ultimately they can exercise their own choice. So today's response, I think, is great news for Australians who will now have greater choice about how their hard-earned super is going to be invested. It will be invested for their purpose, for their objectives, for their family. It won't be the traded commodity of industrial bargains. It will be about them, not about unions and bosses. Thank you very much. Last one?
Can I just ask on the Harper review how do you see the recommendations from that complementing the recommendations from the Murray report?
In my comments at the outset really went to that. The Government is establishing, I think, a very strong platform for economic growth and jobs and whether it's about having a stronger financial system as we've been talking about today with greater choice and competition in that system which protect consumers and Australians or whether it's in what the Harper review brought down which has been rebooted, particularly in the discussions I had with State Treasurers on Friday, that's about ensuring greater focus on productivity at the State and Territory level and to open up the opportunities, a la what was done under the Hilmer process many years ago. So I think these are two very exciting new areas of focused activity by the Government to go on the back of the trade agreements, on the back of the fiscal consolidation, on the back of the work that will come in the months ahead on innovation. I think Australians are getting a very clear message from the Government about our economic plan and they're responding to it with increasing confidence.