Joe Hockey finds himself offside

A speech Joe Hockey delivered to economists in London this week is raising eyebrows right across Australia.

The Shadow Treasurer said: “government spending on a range of social programs including education, health, housing, subsidized transport, social safety nets and retirement benefits has reached extraordinary levels as a percentage of GDP.”

And he warned that: “an inadequate level of revenue has forced nations into levels of indebtedness that, in an age of slowing growth and ageing population, are simply unsustainable.”

Mr Hockey urged Western countries, including Australia, to look at the Asian alternative.

“The sense of government entitlement in these countries is low,” he said.

“You get what you work for.

“Your tax payments are not excessive and there is an enormous incentive to work harder and earn more if you want to.

“By western standards this highly constrained public safety net may, at times, seem brutal,” Mr Hockey admitted.

“ But it works and it is financially sustainable.

“Contrast this with what we find in Europe, the UK and the USA.

“All of them have enormous entitlement systems spanning education, health, income support, retirement benefits, unemployment benefits and so on,” the Shadow Treasurer said.

Predictably, a delighted Julia Gillard pressed Mr Hockey to say just where a Coalition government would cut welfare and other spending.

A senior colleague, Andrew Robb, quickly said that Mr Hockey had been speaking mainly about Europe.

Tony Abbott was cautious, too, in his response to his Shadow Treasurer’s ideas.

“Well, Joe was making the very obvious point that governments have got to live within their means,” Mr Abbott told reporters in Queensland.

“ Countries have got to live within their means.

“And (Mr Hockey) was making the obvious point that if you look at a country like France, they spend double on social programs as a percentage of GDP than Australia,” Mr Abbott said.

“We haven’t got there yet and it’s the job of the Coalition to ensure that we never do,” he added.

Clearly, though, Mr Hockey is no fan of Oliver Wendell Holmes, the American jurist and poet, who once said: “I like to pay taxes. With them I buy civilization.”

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Adviser banned

The Australian Securities and Investments Commission has permanently banned a former insurance broker from providing financial services.

In a statement just released ASIC said  the man  Alan Charstone, of Croydon South in Victoria, had been an authorised representative of Insurance Advisernet Australia Pty Ltd (IAA).”

The Commission added: “ASIC’s investigation found Mr Charstone engaged in dishonest and deceptive conduct between August 2009 and July 2010 in relation to business and personal insurance.

” Specifically, Mr Charstone failed to place adequate insurance cover for clients and misappropriated client funds.

“According to an initial report prepared by IAA, the conduct involved 54 clients and cost IAA a total of $58,803.68 to reinstate and/or place insurance cover for each client.

“ASIC banned Mr Charstone after finding that he had not complied with financial services laws and that there was reason to believe he would not comply with financial services law in the future.

‘It’s important brokers in the insurance industry act with honesty and integrity as they are entrusted to help consumers and small businesses make important financial decisions. Having no insurance cover or inadequate insurance cover can have a devastating impact on consumers or small businesses if something goes wrong’, ASIC Commissioner, Peter Kell, said.

IAA, which cooperated with ASIC during the investigation, has recovered $9,000 from Mr Charstone. Mr Charstone has agreed to repay to IAA, among other costs, the amount of $12,489.51 on account of funds misappropriated by him and as a contribution towards restitution owing to IAA.

ASIC commenced an investigation after it received a breach notification from IAA.

Mr Charstone has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

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Elder’s repays $5.3 million

Elders Insurance has repaid almost $5.3 million to its customers as part of a program to rectify underpayments on motor vehicle insurance claims.

The Australian Securities and Investments Commission made the announcement.

ASIC said that In September 2010, Elders admitted that it had “inadvertently underpaid” customers who had made total loss claims for vehicles which had been insured for market value.

The mistake had occurred over a long period.

“Up until September 2010, Elders’ motor vehicle insurance policy covered the cost of stamp duty on the purchase of a replacement vehicle of the same value where the insured vehicle was a total loss,” ASIC said.

Stamp duty varies from state to state but on average is about 3 per cent of the purchase price,” it added.

“ Despite this, Elders had failed to include the stamp duty amounts when paying total loss market value claims,” ASIC said.

It said the insurer had been alerted to the underpayments in August 2010  through resolution of a matter by the Financial Ombudsman.

That had led to a review and Elders had later launched a rectification program.

The insurer has now paid the outstanding amounts, and interest to eligible customers.

So far,  9,307 customers have received a total of $5,287,370 in payments, ASIC said.

Although the rectification program is now nearing completion, Elders is still working to contact around 350 former customers for whom they have no current contact details.

ASIC said those who believe they can claim, but have not heard from Elders, should contact the insurer before September 2010.

The telephone number is 1300 554 184.  The web address is motorclaims@eldersinsurance.com.au

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Closer co-operation promised on deregulation

Julia Gillard promises closer co-operation with business on the next stage of regulation reform.

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A better super payout? Here’s how, in detail

Like an extra $40,000 in your superannuation pot when you retire?

Bill Shorten, the Federal Superannuation minister, says that’s possible, for 30 year old full time workers on average wages.

Others, of course, could expect proportional improvements, depending on age and wage levels.

So what do you have to do?

Look out for the MySuper accounts, which should be available from July 1.

The idea, essentially, is to create low fee superannuation accounts, managed with excellent investment strategies.

Mr Shorten says he has had a lot of help from the superannuation industry, employers and unions, in getting this proposal ready.

But don’t take our word for it.

Here’s what Mr Shorten, himself, has to say about it.

Because this is a matter which requires very careful consideration – above all from you  – we are reproducing Mr Shorten’s statement in full.

He published it under a bold banner, declaring:-

A Better Deal for Superfund Members

And he says:-

The Gillard Government’s election commitment to deliver a better deal for superfund members is a step closer following the release of the final details of the Government’s Stronger Super reforms.

Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, said “A thirty year old worker on full-time average wages can expect up to $40,000 more in retirement when the Gillard Government’s Stronger Super reforms are implemented. For such a person this could be broadly equivalent to a 1 percentage point increase in contributions.”

The key elements of the Stronger Super reforms are:

• Creating MySuper, a new simple, low cost default superannuation product from 1 July 2013;
• Providing APRA, ASIC and the ATO with the tools they need to improve their oversight of superannuation; and
• Improving the administration and management of super accounts through our SuperStream reforms, making the processing of everyday transactions easier, cheaper and faster for members and employers.

Once fully implemented, these reforms could reduce the fees paid by members by up to 40 per cent.

“It’s in the national interest to encourage Australians to save more for their retirement. But it’s also fair the superannuation industry contributes to higher retirement savings through greater efficiency and lower fees,” Mr Shorten said.

“I’m very pleased to see the great work done by Paul Costello and the consultation panel has resulted in the majority of recommendations being agreed to by the superannuation industry. I would also like to acknowledge the strong contribution from the union movement and ACCI, who have a shared interest in ensuring the super system is as efficient and user-friendly as possible.”

Key new elements

Fees

MySuper products will have a single, diversified investment strategy. They will have to be offered at a standard set of fees generally available to all members. However, funds will be able to offer discounted administration fees to employees of particular employers, reflecting the administrative efficiencies for the fund in dealing with the employer. Any discounted fee will be reported to APRA and published by the fund. MySuper public offer funds will be able to be compared on fees.

In addition, funds will be able to offer employers with more than 500 employees a MySuper product tailored to the needs of the particular workplace including the investment strategy, member services and fees. The details of all separately tailored MySuper products will be required to be reported to APRA.

Transition

From 1 October 2013, employers must make contributions for employees, who have not chosen their fund, to a fund offering a MySuper product. All new superannuation payments will be commission free.

By 1 July 2017, funds will need to transfer the existing default balances of members to a MySuper product. This will see the orderly transition of existing billions of retirement savings to a commission free environment. However, the Government will consult further on a mechanism to allow for this period to be extended in certain, limited circumstances, recognising there may be instances where existing obligations affect a trustee’s ability to transfer balances.

“By 2017 the vast majority of super balances will be commission-free,” Mr Shorten said.

Consolidation

The Government will help superannuation funds and their members locate and consolidate multiple member accounts. New processes will see lost and inactive accounts, with balances under $1,000 and in eligible rollover funds, consolidated into the member’s current active account, unless the member opts out. This reform will reduce the amount of fees paid on multiple accounts and maximise retirement benefits.

Reporting of contributions

The Government will ensure workers get better information about when their superannuation is being paid. Employers will disclose on payslips when contributions are due to be paid. This will provide an early warning if superannuation entitlements aren’t being paid.

The use of e-commerce and data standards will enable money to be allocated to member accounts in a more timely manner and reduce the likelihood of member accounts being lost due to incomplete or incorrect information being provided to funds. The SuperStream working group will continue work on the data and e-commerce standards, with a view to having the proposed contributions and rollovers data standards available in early 2012.

The data and e-commerce standards will be mandated for superannuation funds from 1 July 2013. The Government will extend the data and e-commerce standards to large and medium sized employers from 1 July 2014.

“I’m mindful of the implementation issues this raises for small employers. We’ll continue to consult with employer groups on the feasibility of bringing small employers within this framework from 1 July 2015,” Mr Shorten said.

Further details on key design issues for Stronger Super can be found in the information pack at http://strongersuper.treasury.gov.au.

The outcomes of the Stronger Super consultation process, chaired by Mr Costello, can be found at http://strongersuper.treasury.gov.au.

Given the breadth of the Stronger Super reforms, legislation will be introduced in several tranches, over the coming months and in the first half of 2012. Consultation with stakeholders will be undertaken on each tranche of legislation.

“I expect the exposure draft legislation on the core elements of MySuper will be released in the next few weeks,” Mr Shorten said.

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Health insurance:your choices

Many Australian families will have serious decisions to make, when the Federal government’s new caps on the private health insurance premiums take effect, about mid year.

The House of Representatives has just approved measures containing the new caps, in proposed changes that the government says are all about “fairness.”

Their passage through the Senate is virtually guaranteed, as these measures have the support of both the Labor party and the Greens, who hold the balance of power in the upper house.

The concept of fairness, though, is notoriously hard to pin down – and the people hit by these changes won’t all be “the billionaires” that the Prime Minister, Julia Gillard, spoke of yesterday.

Detailed figures, on the likely impact of these measures, are not yet available.

But we can look at broad choices.

Many families will, effectively, have to pay more, when they find that the subsidy is either shaved, or removed, under the new caps.

They will then have to decide what level of private health insurance they need and what level they can afford.

The premiums for top cover, with all the options, will come at  – an increased  – top dollar price.

The phasing out, for singles, will start when incomes pass $83,000 a year.

For married couples, the comparable figure is that of combined incomes of $166,000 a year.

The subsidy will disappear altogether for singles earning more than $129,000 a year and couples earning more than $258,000.

The Opposition Leader, Tony Abbott, vowed yesterday that a Coalition government would restore the subsidy “as soon as possible” declaring that private health insurance is “in our DNA.”

The Prime Minister, Julia Gillard, taunted him, saying:”They’ve never seen a tax dollar they didn’t want to give to a billionaire if they possibly could.”

The government says the subsidy has been the fastest growing item in its budget.

That’s a key factor, as the government is promising to produce a surplus, when it introduces its next budget in May.

It expects to save $2.4 billion over three years, once the new caps apply.

It has promised to spend $165 million a year, from those savings, improving dental care for Australians on low incomes.

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Private health insurance may soon be dearer for many

The Federal government is edging closer to securing legislation that would means test the Howard government’s 30 per cent private health care rebate.

If it succeeds, the rebate would start to fade out for singles on incomes of $83,000 a year and families with combined incomes of $166,000.

It would disappear altogether for singles earning $129,000 and couples earning more than $258,000.

The Federal Health Minister, Tanya Plibersek, said this would save the Federal government $2.4 billion over three years.

The government will need the votes of at least three independents, to get this bill through the House of Representatives.

If it does, passage of this measure in the Senate would be virtually assured, as the Greens, who hold the balance of power in the upper house, support it.

The support of one independent in the lower house, Rob Oakshott, is seen as critical to the government’s chances.

Mr Oakshott has not yet declared his decision.

He is expected to do so next week.

If the measure is passed, people whose incomes are above the limits set by the government, could expect to pay more for their private health insurance.

Ms Plibersek, herself, is confident.

“Well I think that this is a very important piece of legislation and I think it will pass because of the merits of the case,” she said.

Speaking in an ABC radio interview, Ms Plibersek added “We’re talking about a fairness issue here.

“ We’re talking about people in the community – some of them on say $50,000 a year who can’t afford private health insurance themselves – subsidising the private health insurance of people including very high income earners, through the tax system.”

Ms Plibersek said Labor believes that is not fair.

“So we’re seeking to reduce the subsidy given to high income earners and remove the subsidy given to the highest income earners,” she said.

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Rates on hold – for now

The Reserve Bank has surprised many economists by leaving its marker interest rate on hold at 4.25 per cent.

Another small cut had been widely expected.

However, the Bank’s Governor, Glenn Stevens, said  a “moderate” economic expansion is occurring in the United States.

He said too that  “acute financial pressures” in Europe  had been “alleviated considerably” late last year.

Mr Stevens also said that the two rate cuts, that the bank announced late last year, had left the rates Australia’s borrowers pay close to their “medium term average.”

“With (domestic) growth expected to be close to trend and inflation close to target, the Board judged that the setting of monetary policy was appropriate for the moment,” the Reserve Bank Governor added.

The decision has, at least, postponed a looming stand off between the Federal government and Australia’s big four banks.

The Treasurer, Wayne Swan, had called on those banks to pass on any rate cut in full.

He said that  banks which did not do so would be acting to protect their “huge profitability.”

The banks might well have resisted that demand, if the Reserve Bank had cut its marker rate.

Bank executives, including Westpac’s chief, Gail Kelly, argue that the costs Australia’s banks now incur, raising funds for home and business loans, has risen as a result of the European debt crisis.

The risk of an all out confrontation between the Federal government and the banks eased when the Reserve Bank kept rates on hold.

Mr Stevens did admit that more needs to be done to bring Europe’s debt problems under control,

“Much remains to be done to put European sovereigns and banks on a sound footing, but some progress has been made,” he said.

Mr Stevens admitted, though, that financial market sentiment “remains skittish.”

He also said : “information on the Australian economy continues to suggest growth close to trend,

Mr Stevens admitted, though, that differences between sectors still persist.

“Labour market conditions softened during 2011 and the unemployment rate increased slightly in mid year, “ he said.

However unemployment had been steady over recent months.

Consumer price inflation “has declined as expected,” he added,

Mr Stevens said that had happened as fresh food prices eased, as the large rises resulting  from last year’s floods, passed.

“Year-ended CPI inflation will fall further over the next quarter or two,” he added.

“In underlying terms, inflation is around 2½ per cent,” Mr Stevens said.

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