5 The Charter and Council
Role of the Charter
The Charter will provide a blueprint against which the Council would assess future superannuation policy and rule changes. For that reason, the draft Charter recommended by the Charter Group at Appendix A delineates the core objectives of super, as derived from primary and secondary sources at the time the Superannuation Guarantee was established, and subsequently. It also sets out the principles of certainty, adequacy, fairness and sustainability upon which the decisions of the Council will be based. While these principles might have been latent in the underlying thinking behind superannuation policy, the Charter will be the first time they have been expressed and used in this way.
The Charter will also outline the procedures under which policy will be referred to and assessed by the Council. Alternatively, those procedures could be spelt out in the enabling legislation so that the procedures are legally binding. This has not been necessary in the case of the Charter of Budget Honesty, upon which the Charter Group drew as guidance for the Charter.
Subsection 3(2) of the Charter of Budget Honesty Act 1998 says, in effect, that the charter is non-binding. Nonetheless, it has been a very successful piece of policy since its introduction and, among other things, is responsible for the IGRs.
Nearly all submissions and roundtable participants endorsed the Charter being legislated on the basis that this would contribute to certainty and stability. The Charter Group considers that the Charter should be enshrined in legislation and that certain procedural measures might need to be binding, but ultimately Parliament cannot be fettered and the role of the Council would have to be advisory only. There are many examples of bodies that are created by legislation, but only act in an advisory capacity (for example, the Corporations and Markets Advisory Committee (CAMAC)).
As the Charter is further developed, there are also some potential administrative law issues to be considered, such as how the Council could effectively review policy proposals put forward by a Minister.
Charter without a Council?
An alternative approach might be to establish a Charter as a policy document that guides the development of public policy, without a Council at all. This would save money and could establish a policy-making process, but would tend to be less enforceable and less credible with the community. Therefore, the Charter Group considers that the establishment of a Council will be critical to the Charter’s effectiveness in ensuring that super policy conforms to the principles set down in the Charter.
Establishing the Council
The Super Council will ensure that any future changes to superannuation are consistent with the Charter. The Council will be charged with assessing future policy against the Charter and providing a report to be tabled in Parliament.
The Council could be established as a stand-alone entity or supported by an existing relevant body.
Existing advisory bodies provide possible models for how a Council could be established. Existing bodies range from advisory panels convened at the discretion of Ministers to statutory bodies with formal functions and powers set out in legislation. Examples of bodies that fall into the former category include the Government’s Superannuation Advisory Committee and Superannuation Roundtable. Examples in the latter category include the Inspector-General of Taxation, CAMAC and the Productivity Commission.
The model of an informal advisory panel would not appear well-suited to the role envisaged for the Council, including the requirement to conduct reviews and to report regularly to Parliament. Also, the Council needs to inspire confidence among a range of stakeholders, including the general public, and form part of the institutional framework of the economy.
A more formal model would, therefore, seem an appropriate starting point. In this context, the Charter Group’s consultation process revealed broad support for the Council and Charter to be formed by legislation, rather than as an informal advisory panel.
The key features of a number of existing bodies established along more formal lines are outlined below.
Corporations and Markets Advisory Committee
CAMAC provides independent advice to the responsible Minister on the administration of corporate and financial services laws or changes to them. CAMAC is a body corporate, comprising part-time members appointed by a Minister.
The members of the Committee must have relevant commercial or professional experience and are appointed in a personal, rather than a representative, capacity. CAMAC can act on its own initiative or when requested by the Minister to make such recommendations as the Committee thinks fit within its remit.
CAMAC only makes recommendations. There is no requirement for the Minister or government to act on CAMAC’s reports.
Inspector-General of Taxation
The Inspector-General of Taxation is an independent statutory office formed to review systemic tax administration issues and to report to government with recommendations for improving tax administration for the benefit of all taxpayers.
The Inspector-General’s reports to the Government are required to be made public by the Government.
The Inspector-General cannot review taxation policy. The Board of Taxation is responsible for advising the government on specific tax policy issues.
The Inspector-General, in the conduct of his reviews, can invite submissions from the public or particular groups of taxpayers or tax professionals. The Inspector-General has strong powers to compel production of documents by tax officials and to take evidence from tax officials where this proves necessary.
The Inspector-General is appointed by the Governor-General and the office is, effectively, an arm of the Executive, reporting directly to the Government, although accountable to Parliament as an independent statutory agency.
Reserve Bank of Australia
Some submissions27 and stakeholders suggested the Reserve Bank of Australia as a possible model for the Council. While the Charter Group understands and is attracted to the analogy, it is not attracted to the idea of embedding the functions of the Council in the RBA. The RBA’s enabling legislation creates two boards: the RBA Board and the Payments System Board. The question arises whether a third board, namely the Council, could be added to the existing RBA framework.
The history, independence and status of the RBA are all attractive features of the idea as is the concept of not establishing a separate body and utilising existing infrastructure and resources. The critical weakness, however, is that the work of the Council, the issues that it would deal with and the expertise necessary to make the Council work, are all too remote from the RBA’s existing functions as outlined in section 10 of the Reserve Bank Act 1959.
Therefore, the Charter Group believes that while the RBA’s independence and other features are useful analogies, it is not a logical home for the Council.
The Productivity Commission is an independent research and advisory body on a range of economic, social and environmental issues.
The Productivity Commission’s core function is to conduct public inquiries on key policy or regulatory issues bearing on Australia’s economic performance and community wellbeing. The Commission also undertakes a variety of research at the request of government and to support its annual reporting, performance monitoring and other responsibilities.
The Commission has a key role in benchmarking and reviewing regulation, as well as advising on the competitive neutrality of government business activities.
The Charter Group recommends that the Council be independent of government.
On balance, the Charter Group favoured the model of having the Council established as a separate and independent body with the ability to obtain information and services relevant to its work from government agencies and from independent regulators such as APRA and the Australian Securities and Investments Commission (ASIC).
The Charter Group was open to the Council sharing, subject to additional funding, back office and research resources and other infrastructure with the Productivity Commission or another agency. Advantages of this approach include that it could create synergies for the work of the Council, depending on the nature and role of the existing body, as well as efficiencies through the sharing of staff and other resources.
Membership of the Council
The Charter Group regards it as critical to the success of the Council that its members be appointed in a personal, rather than a representative, capacity. This is because many organisations and industry associations have positions on issues that are in direct opposition to each other and vested interests abound. Creating a Council with members acting in a representative capacity would only serve to entrench those positions. Similar concerns were raised during the Charter Group’s consultation process; in particular that industry group representation on the Council would create a conflict of interest (however, it was felt that industry representatives could be consulted by the Council where appropriate).
There is also a dilemma in that as a person’s expertise in relation to super increases, so too does the likelihood that they will have some sort of conflict of interest or duty or both. One government body that seeks to deal with this type of issue is the Takeovers Panel. The Takeovers Panel has a small executive, a president and a large membership (currently 48 members) who can be called to act on a particular matter (three at a time) as the need arises. The pool of members is designed to ensure that three members without a conflict can always be empanelled.
The Charter Group has thought about the Takeovers Panel model, but believes that it is more suited to a dispute resolution body, as opposed to a policy-oriented review body.
A requirement that members act in a personal capacity should not be seen as a universal panacea either, but the Charter Group believes it is the better option.
The Charter Group does not propose to identify people who might be suitable for membership of the Council, but rather it proposes to identify the criteria by which members should be chosen.
The Charter Group considers that selection of Council members should be on the basis of personal merit, skills, capacity and diversity. However, the Group also sees its role in making recommendations about the appropriate size and representation on the Council as requiring a degree of specificity about the criteria for membership. In Appendix B, the Charter Group has endeavoured to communicate its views on the makeup of the Council in quasi-legislative form.
Experience with existing advisory bodies, such as the Board of Taxation or the Productivity Commission, can provide a guide to how the Council might carry out its functions.
In general, each of those bodies conducts research, publishes statistics and undertakes reviews and inquiries into issues within the scope of their functions at the direction of the government (through the responsible Minister). Reviews and inquiries are generally public in nature and are informed by consultation with the public or relevant stakeholders. In the case of the Productivity Commission, reports are required to be tabled in Parliament within a specified period of the government receiving them.
The Charter Group has expressed its view about the procedures that should be followed by the Council in the Charter in Appendix A.
Referral of issues
A fundamental issue is whether the Council should have the power to initiate its own reviews, rather than just receiving references from the government on particular matters. The Charter Group’s consultation process revealed mixed views on this issue, but the Charter Group is of the view that the Council must have the option to review all proposed changes to super policy and rules, regardless of whether the government of the day makes a formal reference.
Scope of jurisdiction
One submission28 assumed that the Charter would also apply to disallowable rules issued by, for example, APRA and ASIC (that is, their prudential standards and class orders) and their general policy guidance as well. The Charter Group believes that the Charter should not apply to the delegated legislation of regulators or their policy pronouncements for two important reasons. First, as a matter of principle, the Council should not be concerned with matters of detail, but broad systemic policy issues at the time they are proposed by government. Secondly, and more practically, this view avoids the inevitable conflict with regulators that a more detail-oriented approach would entail. The Council will get its chance to critique government policy and rule change proposals in full detail before they become law, but their implementation, once they are law, is up to government and regulators. That is not to say that the Council would be prevented from identifying and commenting on issues as it saw fit, but adding another layer of bureaucracy on top of the day-to-day work of regulators is seen as counterproductive. There is already a process for dealing with disallowable rules under the Legislative Instruments Act 2003. These are supervised by Parliament already. As for policy guidance issued by regulators, the Charter Group sees these as being very unlikely to involve matters within the scope of the Charter principles.
In assessing particular proposals, the Council would be permitted to consult publicly or selectively where appropriate (for example, to avoid signalling a possible rule change with associated behavioural consequences). Consultation could be either on a formal or an informal basis and could include such things as ‘focus groups’ as appropriate.
One submission argued that broad consultation should only occur on system-wide reforms.29 In the case of technical reforms, it considered that more targeted consultations should occur. The Charter Group believes that the Council would try to steer away from reviewing technical changes, but it might be best to see how it works in practice.
Other submissions endorsed a formal timeline and process for consultation prior to decisions being taken by government.30
One submission emphasised the need to provide reasonable notice of changes and time for comments during consultations. It argued that lawmaking in a ‘tranche’-based fashion should be discouraged and not permitted under the Charter.31 The Charter Group accepts this proposition and envisages that the Council would regard the tranche-based approach as offending against the principle of certainty, but it would, of course, be a matter for the Council to form a view on this.
Another submission proposed that the Council review legislation prior to release of exposure drafts for consultation. It said that reviews could be conducted as checks against whether objectives and potential market and consumer outcomes of proposed legislative changes would conform to the core principles outlined in the Charter.32
In carrying out its functions, the Council should have access to information and data held by relevant government agencies (including Treasury and the agencies with regulatory responsibility for superannuation).
The Council would be required to report to the Minister on specific proposals within a certain time frame. The time frame could vary depending on the complexity of the proposal, but a minimum reporting period (for example, 60 days) could be specified. The Council’s reports would usually be required to be tabled in Parliament within a specified period of being provided to government.
The Council’s assessment of a proposal would inform government policy decisions and their implementation. However, government would not be bound by the Council’s findings or recommendations. This is an important and unassailable qualification to the whole idea of a Council. Its recommendations would not be binding on governments, but would operate by way of ‘moral suasion’.
In addition to undertaking assessments of particular policy proposals, the Council would provide an annual report to Parliament on the state of the super system against the principles set out in the Charter. The annual report could include recommendations on policy matters.
The Council would have an advisory role only and would have no regulatory powers or functions. This would ensure there is no overlap between the role of the Council and the regulatory roles of ASIC, APRA and the ATO.
Transparency and conduct of meetings
One submission stressed the need for transparency in the operations of the Council.33 The Charter Group also felt that transparency was very important for the Council to be credible and effective. So much so, that the Charter Group is recommending to the Government that a certain number of meetings of the Council be accessible to the public. This is, in effect, what applies to government agencies in the United States under the so-called ‘Government in the Sunshine’ legislation introduced in 1976. There are certain exceptions for matters that would involve privacy considerations, internal personnel issues and so on, but the basic rule in the United States is that all meetings where the agency has a quorum and can make decisions are to be accessible to the public. These are called ‘open meetings’.
For example, the United States Securities and Exchange Commission conducts open meetings under this legislation and posts meeting dates and topics on its website. The meetings are also webcast.34
The Charter Group believes that the special nature and purpose of the Council make this an attractive and appropriate solution to concerns including transparency, community engagement, lack of consultation and perceived conflicts of interest. In other words, the Charter Group believes that the open meeting concept would be part of building trust and confidence in the Council.
The Charter Group accepts that the open meeting concept would necessarily slow down the pace at which a super policy or rule could be changed. However, the Charter Group is recommending that the Council, in each case, would recommend whether a lead time between a particular legislative measure being passed and it taking effect was appropriate. In the Charter Group’s view, such a requirement would be critical in breaking the nexus between super as part of the revenue-raising framework and super as a long term public/private sector partnership.35 Put another way, the Charter Group was very attracted to the idea that no change to superannuation policy should be capable of being regarded as urgent. That is not to say that the Charter Group thinks the Council should be dilatory or ponderous; far from it. The Council should be speedy and effective. However, its members will be acting as guardians of a system where Australians are being asked to have part of their savings tied up for at least 40 years. This perspective must pervade the work of the Council and its contribution to the public policy landscape.
Funding for the Council
At the public forum in Sydney, a view was expressed that the Council should be funded from mainly private sources to reduce its dependence on government. The APRA levy was suggested as a possible funding source.
The Charter Group agrees with this approach and considers that the operation of the Council should be funded from the APRA levy and the supervisory levy imposed on SMSFs. Where possible, the component of those levies attributable to the cost of running the Council should be transparent and shared as equally as possible across the sectors.
Lifespan of the Council
At the roundtable meeting in Sydney, it was suggested that the Charter should include a so-called ‘sunset clause’ where the default would be that the Council would cease to exist at the end of a particular period. Alternatively, the operation of the Council could be reviewed after a specified period to assess whether it was performing a worthwhile function, having regard to both its operating cost and underlying purpose. The Charter Group considers that a review of the Council after it has been operating for five years would be appropriate.
27 For example, SMSFOA’s submission.
28 LCA submission p. 3.
29 ACTU submission p. 5.
30 ACTU submission p. 5, AustralianSuper submission p. 3.
31 LCA submission p. 6.
32 AustralianSuper submission p. 3.
33 Women in Super submission p. 1 and p. 4.
34 See, for example, < http://www.sec.gov/news/openmeetings.shtml >
35 AustralianSuper submission p. 1.
6 Overlap with regulators and other parts of government
4 Objectives and principles of the Australian superannuation system