Thanks very much Chris, and thank you for your work on the superannuation industry and superannuation reform.
Also, Craig Dunn and other members of the Dunn cabinet who are assembled here this morning - thank you for announcing your political ambitions in such a modest and understated way this morning. Most of us choose to do these things quietly, other than in a room of 600 people, but if you're looking for the inside knowledge as to who would be members of the Dunn cabinet, let's look at this table down here, and you'd have representation from across the industry, but the political brains trust lies there in John Brogden. So, you saw it here first when you see this new force, IFSA, in fact being the emerging new political party in Australian politics. There's never a dull day in politics.
John Brogden, thank you so much for working with the Australian Government on the challenges that we face in superannuation. Peter Maher, Peter Mason and my parliamentary colleagues and Ministerial colleagues, Anthony Albanese, Tanya Plibersek, Maxine McKew, Ursula Stephens, Jason Clare and I think my state parliamentary colleague Paul McLeay. It's good to have you here today.
Thank you to IFSA for hosting this morning's breakfast. Thank you and your members also for the substantial contribution that you've made to the development of the Government's plans for the reform of superannuation, as well as our work to strengthen Australia as a financial services centre. This is an important ambition for the nation.
IFSA is a key participant in the debate on retirement incomes policy, and we welcome IFSA's contribution to that debate.
I have come today to discuss the historic reforms to superannuation that the Government announced on Sunday, and their significance both for Australian families and for the larger economy.
There you go. John warned me to push the silver button and not the blue button. Makes you wonder what the blue button would throw up. Should we try? My ministerial colleagues live in fear of PowerPoint presentations from me. I guarantee there is a small number of slides this morning.
These are the some of the most significant reforms since the Superannuation Guarantee was established in 1992.
They will give Australians significantly more financial security in their retirement.
They will strengthen Australia's economy for the future by boosting our pool of national savings and they will ensure that Australians can look to their retirement with confidence and security in a way that people in almost no other nation are able to do.
The Government is enormously proud of these reforms, and I wish to acknowledge publically the work of Treasurer Wayne Swan and in particular Chris Bowen, the Minister for Financial Services, Superannuation and Corporate Law, for their work on these reforms.
The Government is working hard, to keep the economy strong and building better hospitals and better schools and a renewable energy future.
On the economy, the Government has acted decisively to keep Australia out of the global recession, protecting jobs and small businesses by investing in nation-building infrastructure for the future and maintaining Australia's AAA credit rating.
Over the last 18 months, Australians have faced one of the toughest global economic challenges in our lifetime. As we look back, I am proud of the success of Australia in navigating the global recession.
It is a testament to the ability of the whole community - businesses, unions, workers and government - pulling together, and the strong and decisive leadership from government economic policy.
I am proud of the Government's economic stimulus strategy and the results it has produced. I am proud of the more than 200,000 jobs that Treasury estimates have been saved as a result of that stimulus strategy, and the continued activity of the real economy in Australia in contrast to what we have seen around the world. I am proud that so many Australian businesses have kept their doors open while so many millions of businesses around the world have closed their doors. I am proud that Australia had the shallowest slowdown of all the advanced economies.
This should be a reason to be confident. It should be no cause however for complacency. Just as we worked hard to ensure our economy was the envy of the world during the downturn, we now must work hard to capitalise on this position as we move through the economic recovery phase and a return to economic growth.
That is the context for the announcements we made on Sunday and for the upcoming Budget.
First let me begin by describing the economic principles that have guided this Government's economic strategy over the last two and a half years. Through changing global economic conditions, the government has applied two consistent principles of economic management:
* Countercyclical macro-economic policy to maintain stability;
* And long microeconomic reform and investment to boost productivity and deliver sustainable long-term economic growth.
This Government's first two years have seen significant swings in global economic conditions, from the inflationary boom of 2007, through the global slump of 2008, and towards the emerging dawn of a new era of growth following the worst global recession since the Great Depression. Through these cycles, the government has maintained a conservative countercyclical fiscal policy: restraining public expenditure growth when the private economy is strong, and stepping in to protect jobs and businesses when the private economy is weak, and in the case of last year almost on its knees.
As we emerge from the global recession, the Government will continue to apply these same core economic principles.
Amid various short-term economic challenges, we have however never lost sight of our core long-term economic strategy: to reform Australia's economy and build a platform for future growth. This strategy is based on our objective of improving Australia's long-term productivity growth and participation rate.
Our productivity agenda includes major reform to infrastructure, skills, training and education, regulatory reform to create a seamless national economy, and the reform of the tax system.
To boost workforce participation, the Government has established Australia's first-ever paid parental leave scheme, coming into effect from January 2011. We've increased the childcare rebate from 30 per cent to 50 per cent to support parents' return to work, and we've also introduced a "learn or earn" compact with young Australians to make sure our kids are in either work or study.
On Sunday the Government took decisive action on a key area of microeconomic reform and one with profound macroeconomic consequences. I refer, of course, to the Government's tax reform plan.
The tax plan will;
* Keep government finances strong;
* Protect the future of the Australian economy; and
* Ensure working families and small businesses get their fair share.
These reforms will allow all Australians, including working families and small business, to share in the benefits of the resource boom. By taxing the super profits of big mining companies these reforms will:
* Offer every small business in the country a tax break by funding instant write offs for purchases of up to $5,000. That adds up to a $3,400 saving in the 1st year;
* Also providing a $700 million a year investment in nation building infrastructure such as better roads, more rail, and bigger ports - $5.6 billion over time;
* And, of course, boosting superannuation to help working families and to strengthen the economy.
The introduction of universal superannuation is among the proudest achievements of Australian Labor governments.
It is worth reviewing that history to understand the vision that underpins our universal super system. Superannuation began in Australia almost 150 years ago, with the Bank of New South Wales in 1862.
For more than a next century, superannuation was almost entirely the preserve of men in highly-paid, white collar jobs. Most Australians in their retirement could rely only upon the age pension and whatever savings they had put aside during their life.
That began to change in the late 1970s, because of visionary leadership in the Australian trade union movement. Bill Kelty and others became determined to transform super from being the privilege of a minority of Australians, to a becoming an entitlement for all. That is what it should be.
In 1979 they first won for workers a basic award entitlement to superannuation - initially in the leather trading and hide industry, then at retailer Woolworths, and gradually in other industries as well.
Super was put on the agenda for the Prices and Incomes Accord when the Hawke Government came to office in 1983. An historic breakthrough came with the 1986 National Wage Case decision, which gave award-based employees across all industries a 3 per cent productivity-based wage increase, allocated entirely to superannuation accounts. Unions supported this strongly, even though it involved the sacrifice of a real wage increases in the shorter term.
Superannuation coverage continued to grow, but the most historically important decision came in 1992, when the Keating Government established a universal superannuation entitlement for all workers, starting at 6 per cent of income and stepping up to 9 per cent by 2002. This was an extraordinary piece of policy innovation and entrepreneurship, and it is a great testimony to the far-sighted leadership of the union movement, in advancing the interests of working people, and the governments of Bob Hawke and Paul Keating.
Today, of course, superannuation is widely regarded as one of Australia's great economic reforms, but at the time those reforms weren't easy. Indeed, they met trenchant resistance from the Opposition.
When unions established industry funds for superannuation in the 1980s, politicians in the Liberal Party warned it was a conspiracy for Australia to become a socialist nation via the back door. When legislation for universal superannuation was introduced in 1992, the Opposition spokesman described the policy as "absolutely abhorrent", "bizarre" and a policy that he said "Australia does not need, and cannot afford at this time".
The Opposition promised to abolish it, and the legislation only got through the Senate narrowly with the support of the Australian Democrats, and when the Liberal Party later came to power under Mr Howard they scrapped government policies for the further increases in the Superannuation Guarantee.
During the 12 years in which the Liberals were in office, superannuation policy continued to undergo many changes, but overwhelmingly the benefits of those changes flowed to the higher income earners most able to take advantage of concessions for voluntary super contributions, and throughout this time, the Howard Government passed up the opportunity to use a long period of economic growth to strengthen the income security of Australians in their retirement.
Super makes a significant contribution to the financial security of Australian families and to our national economy.
First, the Superannuation Guarantee means that whenever they retire, Australians will have a higher income in retirement. Barely 20 years ago, only 46 per cent of full-time workers and 7 per cent of part-time workers had any superannuation arrangements at all. Now, 96 per cent of full-time workers and at least three-quarters of part time workers receive regular contributions to their superannuation funds.
Many workers now half way through their working lives have been accumulating superannuation since they entered the workforce.
Put simply, Australia's Superannuation system means more freedom and a greater sense of security for older Australians.
Under the 9 per cent Superannuation Guarantee as it stands today:
* A low-income earner on half of average weekly ordinary time earnings would expect to retire and be 80 per cent reliant on the age pension.
* For middle income earners, retirement spending will be around 70 per cent of their pre-retirement spending.
* For those on 150 per cent of average earnings, retirement spending will be around 55 per cent of pre-retirement spending.
In other words, the system that has been in place for almost two decades has come a long way for providing adequate spending in future retirement - but there is still much, much more to be done.
Super has also strengthened Australia's economy.
First, super has built a stronger Australian economy by strengthening domestic savings. We have seen exponential growth in the pool of funds created by superannuation.
This chart shows superannuation assets, held at super funds and life insurers, now total around $1 trillion. That's around 100 per cent of GDP, well above the $41.1 billion or 13 per cent of GDP they were in 1987. Treasury estimates that, 25 years from now, this savings pool will have grown further to $5 trillion, equivalent to around 120 per cent of Australia's forecast GDP of $4.2 trillion at that time.
Chart two shows that the introduction of superannuation in 1992 has helped to turn around a three decade decline in Australia's national savings.
This chart also shows that higher level of savings has helped underpin Australia's high level of investment during recent years. Australia's gross investment rate was 27 per cent of GDP between 2004 and 2008, compared with 17 per cent in the UK, 18 per cent in Germany and 20 per cent in the US.
With commodity prices rising and the resources boom resuming, investment rates in Australia will remain high and are likely to increase even further. With a larger pool of national savings we have a stronger buffer in place, reducing the Australian economy's susceptibility to swings in foreign investor sentiment.
The gap between national investment and national savings is reflected in the current account deficit and a higher level of national savings can therefore reduce our external imbalance. You see there in the chart how this has evolved over time, and that the CAD is reflected as the difference between the two.
Second, universal super is also decreasing the long-term fiscal pressures associated with the ageing of the population. Those with higher superannuation balances are able to support themselves without relying on the provision of the age pension. Indeed, analysis by the Retirement Income Modelling Taskforce in the early 1990s estimated that the Superannuation Guarantee reforms would ultimately ease pension outlay pressures on the budget by 1 per cent of GDP.
Third, superannuation savings have built a stronger and more stable financial system and financial markets. The strongest element of Australia's savings is the over $1 trillion pool of superannuation savings. This is the fourth-largest national pool of funds under management in the world. Measured relative to the size of our economy, Australia has the third largest ratio of pension assets to GDP of all the advanced economies.
That is an impressive table, when you look at it over time, the left hand bar represents 1999, the right hand bar represents 2009, the countries of course indicated underneath. There we are in terms of our proportion of pension assets to GDP up there, in the same order of magnitude heading towards what they have in Switzerland and the Netherlands. This is an important development over time.
Australia's superannuation system has created a tremendous source of national wealth and the growth of the superannuation system has helped to diversify and internationalise Australia's financial markets. As these funds grew, funds managers needed to invest in financial assets here and abroad and this added depth to our domestic markets. Demand from funds managers has played a critical role in the development and depth of the Australian share market. About $284 billion of assets of superannuation funds and life offices were invested in Australian equities alone, as at June 2009.
The development of the superannuation system has also helped to diversify the financial system, which is the essential intermediary between saving and investment in the economy. By investing in both domestic and international markets, it has provided more choice for investors, greater competition, and broader expertise in asset and risk management.
The over $1 trillion in superannuation assets complement our $2.6 trillion domestic banking system. This means that businesses are better able to borrow directly from the market through bonds to finance their investment activities, rather than relying solely on the banking system.
The past two years have demonstrated the benefits of a diversified and balanced financial system in the tumultuous events of the global financial crisis. This pool of long-term savings was a buffer for the Australian economy during the worst financial crisis the world had seen in 75 years.
In 2009, at a time when liquidity was being rapidly withdrawn across the world from markets, Australia remained an attractive place to raise capital. The availability of funds from our pool of super savings helped make it possible for Australian-listed companies to support themselves by raising $90 billion of capital last year - despite lack of confidence in global financial markets, and those companies that raised the $90 billion employ around 1.6 million Australians, highlighting the extent to which a strong super system supports jobs and growth in the economy at large. This is an important figure.
Fourth, the growth of superannuation in Australia has built a strong financial services industry in Australia, generating the potential for Australia to become a major regional financial services hub. The finance and insurance sector has become the single largest sector of our economy, generating 10.7 per cent of gross value added. Australia's expertise in funds management, risk analysis and asset markets is the envy of other countries. Australians with this financial know-how are sought across the world, as you know in this industry, and especially in financial centres like New York, London, Singapore and Hong Kong; prospectively Shanghai.
This expertise has also created the opportunity for Australia to become a major financial services hub in the Asia-Pacific region and in global markets. The Government believes that there is tremendous potential for increasing our export of financial services, and for that reason we commissioned the Johnson Report on Australia as a Financial Services Centre, which was released in January this year. The report provides valuable guidance on building on the industry's potential, and I look forward to outlining our response to his recommendations in the future.
Nevertheless, we have not yet fulfilled the vision that drove the establishment of universal superannuation some two decades ago. In three words, that vision is adequacy, fairness, and efficiency.
The first element of unfinished business is adequacy. Provision for adequate retirement incomes is one of the greatest challenges of an ageing population, a point underscored by the 2010 Intergenerational Report. As the Report noted, between now and 2050 the number of people aged 65 to 84 years will more than double and the number of people aged 85 and over will more than quadruple. There will be only 2.7 people of working age for every person aged 65 and over, compared with 5 people today. This underscores the need to prepare Australians for their retirement with an adequate level of superannuation savings.
A recent OECD analysis highlighted the scope of the task. Australia's retirement income replacement rate - that is, the amount of income Australians will have retirement as a proportion of their working income - is below the OECD average for several income categories. This is important for all Australians to note.
In addition, there is more to be done to improve the fairness of the current system. Low and middle-income earners do not have access to anything near the incentives for higher super contributions enjoyed by those on higher income earners. Currently, workers with high incomes and high marginal tax rates benefit from a low 15% tax rate on their super contributions, but lower income workers with income of less than $37,000 and tax rates of 15%, they get, in effect, no concession and workers with a marginal tax rate below 15% pay more tax on their super than on other income.
From 1 July 2012 individuals taxable incomes of up to $37,000 will receive up to $500 in matching funds applied at a 15% rate to their contributions - effectively eliminating the tax they pay on their super. This means no tax will effectively be paid on SG contributions for those with incomes up to that amount in 2012-13. This is a real reward for saving
There is also more to do to improve the efficiency of the superannuation system. Currently, many Australians pay commissions for financial products on which they receive little real advice. Financial advisers are given sales incentives to sell customers products that are not in their best interests simply because of their direct links to particular financial institutions and the real cost of advice is often not transparent to the consumers who are paying for it. Concerns about these matters have been raised for many years, but until now governments have not acted.
In short, the work of building a fair and adequate superannuation system for Australians is still incomplete. More must be done to provide an adequate level of income in retirement. More must be done to build a fair system for lower income earners, for women and other workers in part-time employment. And more must be done to make the system simpler and more efficient.
Indeed, it's not unfair to see Australia's superannuation system as a project still under construction, and while the construction has continued, more than a decade ago the foreman effectively walked off the job.
This week, the Australian Government has announced that we are back on the job: back on the job of building a superannuation system that will provide for the needs of Australian workers in their retirement; back on the job of building fairness into Australian superannuation; and back on the job of giving Australians greater security in their retirement than is possible for people in virtually any other part of the world.
That is why, last week, the Minister for Financial Services, Chris Bowen, outlined the first stage of our super reforms, with important reforms to financial advice to improve the trust and confidence of Australian retail investors in the financial planning sector.
As a result of those reforms:
* Australians will have better access to affordable financial advice.
* Commissions on superannuation will be banned.
* Financial advisers will have a new statutory fiduciary duty to act in the best interests of their clients.
* And remuneration structures for advice on retail investment products such as managed investments, superannuation and margin loans must no longer create a conflict of interest between advisers and customers.
These reforms will help ensure that Australian investors receive advice that is in their best interests, rather than being directed to products as a result of incentives or commissions offered to financial advisers. I thank IFSA for welcoming these reforms as "a win for consumers" that "will build trust between financial advisers and the community."
Following the announcement of these reforms last week, on Sunday the Government we announced the centrepiece of our super reforms. This historic package of reforms to superannuation will improve retirement incomes for all Australians and will provide increased support to low-income earners to boost their retirement savings.
The measures we announced will:
* First, enhance retirement outcomes, particularly for low-income earners and those older workers seeking to catch-up on their superannuation position;
* It'll strengthen system equity; and
* boost our national savings.
From 1 July 2013, the compulsory Superannuation Guarantee (SG) rate will be increased from 9 per cent to 12 per cent over a seven year period. The increase will be phased in from 1 July 2013 to 1 July 2019, with 0.25 percentage increases in the first two years and 0.5 percentage increases each year thereafter. This increase will provide a lasting benefit to Australian workers, including the 8.4 million working Australians currently building their superannuation. To allow businesses time to adjust and ensure adequate consideration as part of wage negotiations, a delayed start date and slow phase-in have been put in place.
Also, starting from 1 July 2012, the Government will make a contribution of up to $500 to the superannuation balances of individuals on an adjusted taxable income of up to $37,000. This also is an important reform. Taken together, the superannuation savings of 3.5 million low-income earners will be boosted by $830 million over the forward estimates, assisting those eligible to achieve higher retirement incomes.
The Government recognises that many workers want to make larger catch-up superannuation contributions as they approach retirement. This is particularly true for women who may have been out of the workforce for part of their lives and unable to build up their own super. The Government will facilitate this through extra concessions for workers with a superannuation balance under a certain threshold.
From 1 July 2012, the Government will allow workers aged 50 and over with balances below $500,000 to make up to $50,000 in concessional superannuation contributions. This doubles the cap of $25,000 which is scheduled to apply to these already workers from 1 July 2012.
To conclude, the reforms to superannuation that the Government has announced this week are the most significant reforms to superannuation since the introduction of the Superannuation Guarantee Charge in 1993. They will strengthen the financial security of Australians for decades to come.
The Government that I lead is proud this week to be building upon the most significant economic reforms of recent decades. These reforms will help working families by improving the adequacy and the fairness and the efficiency of the retirement income of millions, literally millions, of Australians and these reforms will strengthen Australia's economy for the future - adding to our national savings pool.
These reforms will also boost the financial services industry in Australia and especially in this great city of Sydney.
The Australian financial services sector is a critical domestic industry of global significance. You, as representatives of this industry, have an extraordinary opportunity before you, and that is building on the other changes to the taxation system that we have introduced in earlier budgets - I refer in particular to the polling tax - to take what is an extraordinary critical mass of talent and ability represented in this industry at home and turn it into a major export industry for Australia.
The calibre of our regulatory environment, the quality of our management, the depth of our expertise, the sheer size of pools of funds under management, means that this country and this city in particular becomes a natural take-off point to make Australia a financial services hub for wider East Asia.
You're familiar with the classical arguments: common time-zone - more or less; a great pool of languages here in this country; an extraordinary depth and breadth of the superannuation industry which is now built up over 20 years. These are great talents to draw upon, quite apart from the establishment of this country's deep global economic credentials, having come through the global economic crisis the way in which we have. These therefore are strengths to draw upon.
Your industry has these strengths to draw upon and therefore taken together provide and enormous opportunity to build this new export industry for Australia.
So, in sum, these reforms, the most significant in nearly 20 years for superannuation, are helping working families deal with the very basic task of providing for their retirement income; boosting our national savings against whatever uncertainties lie ahead for the global economy; and turning this great industry that you represent in this room today into the new export industry of Australia.
I thank you.