Stephen Jones MP is the Labor Shadow Minister for Financial Services and Superannuation. He was elected to the House of Representatives in 2010, holds a law degree and was involved in the union movement before entering Parliament. He has been a leader on progressive political agendas. He recently came to prominence during debate on the Government’s proposed religious discrimination bill when he spoke about the suicide of his gay nephew and Jones’s worries for his 14-year-old son who wears high heels and make-up.
This is an edited transcript of a talk to clients of PritchittBland Communications on 27 January 2022.
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The pandemic has exposed some of the weaknesses within Australian society, whether in our labour market, the problems with insecure work, the over reliance in some sectors on workers from other countries, short-term workers, our supply chain fragility, or the lack of depth within our manufacturing capacity. The pandemic has also shone a spotlight on some of the social and economic strengths of Australia and the resilience of the Australian people. We've grown to honour and respect our healthcare system underpinned by Medicare in the public health system, run by our states.
One of the underlying strengths within our economy is that over my lifetime, we've transformed Australia from an economy that was in significant part driven by manufacturing to one that is now overwhelmingly in the services-based economy. We've also seen the strength of our financial services sector. The RBA stepped up and our regulators provided security to our financial markets, ensuring a flow of credit to the banks so credit was provided where it needed to be, albeit lots of businesses and households were reticent to take on additional debt.
We've seen a phenomenal transition. How many people pay cash today? That one shift in consumer behaviour has transformed payment networks. Mobile phone companies are now acting as financial services intermediaries but better regulation and the way we deal with them hasn't kept pace.
The strength of superannuation
Our superannuation sector has played a remarkable role as well. It's hard to think how we would have gone through that first wave of the pandemic without the support of the $3 trillion super industry. The early release scheme, while the concept wasn't wrong, was poorly administered. There are questions around how some of the money was used and there'll be a long-term cost of that. But $30 billion was released into the economy over a short period of time, which supported the retail sector. Many small businesses were paying their staff from their superannuation, which is a remarkable community response to a crisis.
The super sector provided liquidity to prop up some of the biggest companies on the stock market. The fund managers were seeing through the crisis, they weren't engaging in opportunistic behavior. And over the long haul, providing stability, through some very uncertain times as large shareholders providing security and stability within our financial markets.
But this is ironic. At the same time, we were relying on the superannuation system to provide ballast and support and battling the pandemic, there was a war going on against superannuation. At every level of the three pillars of superannuation - the inputs through the Superannuation Guarantee Levy, the preservation rules – there were some really wacky, crazy ideas, and they'll come around again. What was different this time, though, was they were being seriously considered at the highest levels of government. In the past, we've had Treasurers who have wacked them away and pointed out the nuts of some of their propositions, such as super for housing or super for domestic violence, but this time around, they were seriously being considered.
We didn’t need the war on superannuation as an institution from those responsible for its governance. It detracted from some serious policy debates that we needed around governance and capital deployments. The whole bandwidth was being directed around the existence of the system as a whole. For somebody who is deeply fascinated and engaged and passionate about the sector as a whole, I found that incredibly disappointing. I think we lost opportunities for a bunch of things that we could have done that would have made the recovery stronger.
Financial advice
I want to say something also about the train wreck in slow motion around financial advice and the administration, the regulation, the operation of financial advice in this country. I've been an active participant in the debates for over 10 years. Some of the core decisions were made 10 years ago that we need a professional financial advice service and we have never been in greater need of professional, competent financial advice. But FASEA was a train wreck. We need a fixing up of some obvious problems around recognition of prior learning and experience if somebody has 10 years of unblemished experience. We need those people in the industry, we shouldn't be putting them out the door. They’ve probably got more like 30 or 40 years of experience, not 10.
Australians have been retiring with more wealth than ever in our nation's history. I think about when my Dad retired, he retired with his last paycheck. In the period of my lifetime, people are retiring with a lot more than that. That is a phenomenal achievement. They need advice and need to ensure that their nest egg is working for them. They need advice that is appropriate to them to live a long, happy, healthy retirement.
Superannuation Guarantee must move to 12%
The announcements around the Retirement Income Covenant are absolutely the right decisions for a maturing system. But some tidy ups are needed, such as the SG going to 12%. We need more effort into the retirement phase, as much as we had for accumulation and the management of those savings. But the Covenant will fail if the advice place is not fixed.
Another thing raised with me, industry funds would like to see us relax some of the rules around intrafund advice. They say we should allow all funds to have vertically-integrated arrangements. This is not a policy announcement but I'm telling you that I'm intensely uncomfortable with a model that looks like that. Because I think problems with vertical arrangements exposed during the Hayne Royal Commission were not just subject to one part of the industry. I think that's naive to think so.
Traditional advice business models aren't working anymore except for wealthy people, so we need other business models and other modes of delivery to ensure that we get the advice piece. It's absolutely critical.
Stop the ongoing changes in regulations
The second key message is around stability and certainty. Each and every part of the financial services sector has been through a tsunami of regulatory change over the last five years. I sit down with many of the CEOs within the sector and they pull out their regulatory change logs, and they go to pages and pages and pages and pages … individual initiatives, some of them legislative, some of them administrative, some of them ASIC-driven, a lot of it APRA-driven, some of it Treasury-driven. Labor is strongly of the view that we have to let the industry digest and implement that change.
So we don't come to the May election (it will be a May election) with this secret list of things that we want to do. Important recommendations need to be digested, but that is not a signal that we want to do nothing. Because I think there is a bunch of stuff that we need to do. But it's about the way we go about it and stability and certainty are critical. You need to know, if we are going to go through changes, you're not going to wake up and read about it in The Australian Financial Review. There'll be a long period of engagement and consultation about the things that need to be done ... advice, performance benchmarks of superannuation funds … we see superannuation in the financial services sector as the answer to the problem and not the problem itself. So yes, the Superannuation Guarantee must be delivered. And we'll be pressing the Prime Minister to make a definitive statement about that.
But I think there's something else. If all we are offering is certainty and stability, that’s doing about 10% of our job. Australians want more from their government than somebody whose greatest ambition is holding the job. We want a government which is able to articulate ambition for the country to make Australia even better, even wealthier, even more secure.
What does ambition for better financial services look like?
So what would it look like if we had more ambition for a vibrant financial services sector in this country, that is the engine room for another generation of productivity and economic growth and wealth creation for Australians? There are a few crucial things that have to underpin this.
The first thing is an understanding that in 2022, financial services is both an international and a technology industry. Unless we are investing and nurturing and generating the technology skills, we are not going to have the workforce to drive the industry forward.
And the second point is understanding the importance of multilateral institutions. Capital is international and multinational; we've always understood that. Certainly those who work in the industry have always understood that Australia has been reliant on international capital markets. Yes, we have the ballast of home-based savings, but we're still highly integrated into international capital markets. Whether it's marketing our products or receiving them, whether it's dealing with cybersecurity threats, whether it's accounting for or managing the risk of carbon, whether it's dealing with transnational payment systems, we have got to be active players in multinational multilateral forums.
The third thing is that financial services should be seen as an export. We've got Australians working in every major financial capital in the world but can be doing so much more. We fly over Jakarta to go to Beijing, but we can be doing so much more in Asia and in the Pacific as well. We should celebrate the benefits of the export and deployment of Australian capital in the same way we celebrate iron ore and our farm-based products. In my lifetime, the services sector has transformed the way our labour market works. It should be as important as any of the other traded goods or services that we normally celebrate.
The fourth thing is we need transparent markets and transparent rule making, not capricious, ideological, ill-conceived regulatory changes have been the hallmark of the last three years … the opposite of stability and certainty. This thing about regulating proxy advisors, you could be forgiven for thinking that was the biggest economic challenge we had in this country. It's absolutely nuts. I think it sends the wrong signal around transparency and accountability on the to the managers of capital. Can you imagine if Labor did that, and then included within the Bill a direction on how a superannuation fund could or could not invest its funds. Forced divestment. If Labor did that, it would have been laughed at. Transparent rulemaking and engaging with industry has got to be the hallmark of stable certain, competent professional governance.
National and personal interest
We think we can be deploying superannuation funds in the interests of the members who own them but also in the national interest. And we think government has a role to play. Government has an important role to play as facilitators and bringing people together, and ensuring that, particularly in the infrastructure sector, there is deal flow in certain strategic markets. There is an important role in government working with industry to create investment opportunities, not with taxpayers money, and ensuring that the national interests and the interests of the owners can be married and deployed to the better interest of everyone.
I'm keen on working really hard to show what Labor would mean for workers, businesses, participants in the financial services sector. I don't want to wake up the day after the election and think, if only I’d just done one more meeting or done one more thing to explain things a little better. I don’t want to still have the shadow thing in front of my title.
Graham Hand is Managing Editor of Firstlinks and attended the talk as a guest of PritchittBland Communications. This is not verbatim but an edited transcript based on Graham's interpretation of Stephen Jones's presentation.