Minority Report by Coalition Senators
Introduction
The Coalition is broadly supportive of the Government’s
broad policy. The Coalition recognises red-tape is a concern for small business
and supports Government measures to implement a superannuation clearing house
for small business.
However, the Government has not explained why it broke its
commitments to tender the service to the private sector that Medicare has not
publicly made a business case for establishing the clearing house, and that
many operators in the superannuation sector have expressed concerns about the
anti-competitive. The Coalition is particularly concerned about this and will
discuss a number of issues associated with this.
Unintended Consequences
for the Superannuation Market
The intentions of this legislation are welcomed by the
superannuation industry and small business. The Australian Chamber of Commerce
and Industry (ACCI) told the Hearing that:
We welcome the
Government’s decision to establish a clearing house facility to assist
employers to manage their superannuation contribution obligations under choice
and which would provide a free service for small employers...We are very
supportive of reforms to simplify compliance and to expedite contributions
processing.[1]
The Investment and Financial Services Association (IFSA)
said:
We welcome the
Government’s initiative...this is a key area where the superannuation payment
obligations have been a major problem for a number of small businesses,
particularly with regard to their payroll responsibility.[2]
The support given by those in the industry is cautious and
the legislation requires further consideration and development prior to
implementation. The recommendation that the legislation be passed unamended is
inappropriate and is indicative of the Government’s refusal to consider outside
industry concerns about the legislation. When Medicare was asked about
responses to the discussion paper on this issue and what they had done to deal
with those responses:
We have not asked for
any of those documents.[3]
What we have done is
set up two working groups so we are working directly with industry and
employers so that any issues that they have can be raised...[4]
The Coalition believes that the inclusion of industry
representatives on working groups and Medicare’s refusal to consider Treasury
submissions is not a justification for disregarding their concerns. For
example, the Association of Superannuation Funds Australia (ASFA) and IFSA were
both included on Medicare’s working group, but made submissions to this inquiry
detailing how the legislation can be improved.
Similarly Coalition Senators agree with the Chair Report’s
comments on the 20 employee threshold. ACCI told the Inquiry hearing:
...this requirement to
refuse seems to suggest that, if a small employer increases in size to 20 or
more employees, payments will be refused...Apart from the complexity of
administering this gate and the technical administrative burden imposed on an
employer which is growing his or her workforce, or even one who is contemplating
a request for a job-share arrangement, it seems to directly and negatively
impact employers who might best benefit from the facility. Employers who have
seasonal workforces, which means that their workforce fluctuates from its usual
small number to 20 or more for a seasonal period, would, depending on how the
requirement to refuse is given effect, seem well advised either to not register
in the first place or to not use the facility at seasonal peak times.[5]
The Coalition supports recommendation 1 in the committee
report but would add the following.
Recommendation 1
The committee recommends that the threshold value be
monitored over the initial three year period to assess whether the threshold is
appropriate.
Anti-Competitive
Provisions in the Legislation
The principal concern of the superannuation sector and clearing
houses that are currently operating in the private sector is the
anti-competitive nature of the legislation.
Private sector superannuation clearing houses have been
operating in the sector for some time. The sector’s largest clearing house,
SuperChoice, told the inquiry that it is:
Processing this year
around 20 million contributions on behalf of 50,000 employers, 40,000 of whom
are employers with fewer than 20 employees. They account for two million-odd
employees. Overall, we project about $7.2 billion will be cleared through our
service. We estimate that that is around 20 per cent of the entire clearing
market.[6]
The superannuation fund contracts the clearing house
transactions to companies like SuperChoice, who provide their services to
employers free of charge through their chosen superannuation fund.
If the Government were to introduce its own clearing house
operator and enforce preferential regulations on that operator when compared to
currently operating clearing houses, the legislation has the potential to
seriously impact upon the business of those privately operating clearing
houses. One submission related the primary concerns of private clearing houses
in their submission:
Under the proposed
legislation, private sector clearing houses are subject to SG deadlines that
are applied quarterly. They require employers to make payments well prior to
the 28th of the month after the corresponding SG quarter, to ensure they get
the money to the superannuation fund by the 28th. The Medicare solution means
employers only need to pay Medicare by the 28th to meet their SG obligation and
Medicare can hold onto that money for a month.[7]
Westpac made the following
comment on its submission focusing on the different SG requirements:
This important
difference means that private sector clearing houses, such as Westpac’s
QuickSuper, will be forced to compete in a market distorted by the change and
no longer uniform or equitable from public and private sector participants.
This will have negative consequences for small businesses who choose to
continue to use private sector clearing houses...We recommend the legislation is
amended to ensure clearing house standards are the same across both private and
public sectors.[8]
Whilst the intentions of Medicare may be to provide a
superannuation clearing house to those employers who currently cannot access a
free service, the legislation and regulations will allow absolutely any
business with fewer than 20 employees access to the service. For instance, the
40,000 employees who use the SuperChoice clearing house will have overwhelming
incentive to switch to the Medicare clearing house due to the far less
stringent requirements for the discharge of SG payments.
The Government recently said
that the way superannuation can be strengthened is to ‘drive efficiencies,
reduce administrative costs and thus increase returns'.[9]
This is the exact opposite of what the superannuation sector will achieve by
this Bill in its current form. As IFSA states in its submission:
If the Item 3 amendment is passed as drafted, we would
be concerned about the erosion of the “level playing field” in the provision of
clearing house services. IFSA has long maintained that competition is the key
to an efficient and cost effective superannuation system, and that competition
is the key to an efficient and cost effective superannuation system, and that
competition occur on a level playing field.[10]
AFSA made similar comments in
their submission. To improve the legislation, ASFA recommends the following:
That the legislation
be amended so as to provide a path forward whereby private sector organisations
could achieve approved clearing house status. This would achieve a level
playing field. The path forward could include the establishment of operating
standards combined with regulatory oversight, as envisioned by the government’s
original statement. Importantly, this would ensure clearing houses meet certain
minimum requirements and provide a wider range of employers with the
opportunity to meet their SG obligations by contributing through a clearing
house.[11]
Such a recommendation will
encourage the use of clearing houses, and provide each clearing house with competitive
incentives to create efficiencies and implement best practice.
The majority of submissions from
the superannuation and business sectors made similar recommendations. IFSA
submitted:
All references to
‘the approved clearing house’ be changed to ‘an approved clearing house’.
Further, IFSA recommend that the definition of ‘an approved clearing house’,
which will be finalised in the forthcoming regulations, be expanded to include
a range of licensed clearing houses.[12]
ACCI made the following statement
with relation to how business would like the legislation improved:
We believe the
capacity to become an approved clearing house should be open to clearing houses
in general. This would mean that the full benefits of an efficient clearing
house system would be available to employers. Such a clearing house system
could help drive reform of the superannuation system overall in such areas as
how payments are made to funds, what sort of information is required by the
fund and interfund transactions.[13]
Coalition Senators agree with
these sentiments of the industry and recommend that similar amendments are made
to the Bill to protect competition, encourage innovation, and improve the
access and services available to all businesses.
Recommendation 2
The legislation be amended to
allow the definition of an ‘approved clearing house’ to include privately
operating clearing houses, subject to licensing and minimum standards
stipulated in the regulations.
Is Medicare an Appropriate
Clearing House Operator?
The Government has allocated $16.1 million to this project
over four years and must provide genuine reasons to taxpayers concerning why
the Prime Minister failed to meet his election promise to implement the plan
through a competitive tender process. Medicare must also demonstrate that it is
the most efficient option and whether it can provide services comparable to
what the private sector can provide.
Treasury gave evidence in the hearing to the effect that
tender documents were not produced.[14]
This contradicts evidence given on notice by Treasury to
Senate Estimates in February 2010, where Treasury responded that ‘no draft
tender document suitable for public release was prepared.’[15]
This indicates that tender documents were prepared but not released.
Medicare’s evidence to the Inquiry hearing demonstrates that
the agency has not completed a business plan to a level that would have been
required in a competitive tender process. Medicare made the following comments
to the hearing:
We do not have any
targets at this point in terms of the number of businesses which are going to
use the system.[16]
We did not go and cost
an alternative provider.[17]
We are considering
options (to accept employer payments)... We have looked at the alternatives... We
have not reached any firm decision on that and we are still talking with
industry about that.[18]
We have a wide range
of KPIs right across (Medicare). I cannot imagine we would deviate from the
normal Medicare ones. We have payment cycles of 14 days for some things as well
as other time frames. They would be quite different, and we would need to look
at the system and at what appropriate KPIs are.[19]
Upfront validation? We
do not check with the fund at that point to ensure the member details match up
when the employer sends us the payment. At this stage we are not planning to do
that sort of validation.[20]
Our intention once the
information is matched is for the money to be distributed to the super funds
immediately. The only one where we could not commit to that would be those where
there were issues with matching and some requirement for us to do some follow
up work.[21]
Private clearing houses have raised expert concern on
Medicare being awarded the contract. As SuperChoice noted:
...a significant
underestimation of the costs to build and operate an effective clearing house,
particularly in the time frame that Medicare has been given; likely poor
employer experiences as a result of rushing into operation of a functionality
based service offering, which will lead to growing employer complaints and an
increase in red tape for employers; relatively low benefits for super funds,
which will be off-set by the cost to access the clearing house; an inequitable
landscape, where 85,000 employers who employ 7.7 million employees are not
offered the same level of benefits that SME employers will access through
Medicare; and ultimately a missed opportunity to support the industry to
advance its e-commerce aspirations.[22]
The Superannuation Information Centre submitted that the
decision to send the clearing house to Medicare means that ‘there is the
serious potential for large scale economic waste'.[23]
It was additionally submitted:
Do (Medicare) really
understand the complexity and nature of what they are trying to achieve? And
the answer has to be ‘no’. [24]
It has taken years for
fund clearing service providers in the private sector to achieve and deliver
service offerings that are viable and efficient. You cannot assemble a system
like this in six months.[25]
It is also not clear if Medicare will be subject to the same
professional indemnity insurance that private clearing houses are required to
hold. SuperChoice told the hearing:
We believe that the
risks of private sector failure or fraud are not well understood by Treasury,
in part because existing clearing house providers such as us, Westpac and ADP
are reputable, well capitalised and have extensive professional indemnity
cover. They segregate duties by outsourcing payment distribution to banks,
which is a key fraud control. They house employer funds in bank-controlled
custody accounts and have not suffered any loss to date that we are aware of.[26]
Small Businesses are
ambivalent on who operates the subsidised clearing house. The Council of Small
Business Organisation was asked if they would have been concerned if the
private tender process had been completed and commented that it would not have
been a concern to them.[27]
Given the evidence
available, Medicare and Treasury have not been able to prove that Medicare can
handle the scheme at the budget provided and without risk to employee
superannuation payments. Many in the industry have legitimate concerns about
how Medicare will operate the scheme.
The Coalition has no issue with Medicare operating the
system if it is the best option and if it does not disadvantage private
industry. Medicare must be required to publicly release its business plan
addressing these concerns and demonstrating that they can deliver the service
more efficiently than the private sector. Furthermore, the Government must be
held accountable for breaking its promises.
Recommendation 3
That Medicare be required to compete for the
taxpayer-subsidised clearing house by publicly releasing its full costings and
business model.
Conclusion
As already discussed, the Coalition is broadly supportive of
the legislation, but is concerned about the lack of public tendering and the
effectiveness of Medicare as a provider. The Coalition will be seeking to
ensure that the private sector has the opportunity to compete for the
superannuation clearing house contract.
Senator Alan Eggleston Senator
David Bushby
Deputy Chair
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