Alan Eggleston (WA, Liberal Party) Share this | Hansard source

We believe this bill, the Tax Laws Amendment (2010 Measures No. 1) Bill 2010, providing for Medicare to be the clearing house for superannuation for small companies, will significantly disadvantage private organisations already in the field. It is interesting that during the 2007 election Kevin Rudd promised that the Labor government would establish a superannuation clearing house by 1 July 2009. Labor, of course, have failed to meet this promise. Prime Minister Rudd also promised that the clearing house would be contracted to the private sector. The discussion paper on the legislation issued in November 2008 also stated that the government would contract the clearing house to the private sector. However, in November 2009 the Minister for Financial Services, Superannuation and Corporate Law, Mr Bowen, announced that Medicare would be awarded the contract. In other words, there was not to be any competition. The fact that there were private companies already providing this service was ignored. The government decided that Medicare, which had no experience at all in dealing with superannuation, would be awarded the contract to provide this clearing house service.

We find that very hard to accept and understand because the private clearing houses not only have a lot of experience in this area but are obviously going to be competitively disadvantaged by Medicare coming into this market. Treasury has not been able to explain why Medicare was awarded the contract by the government. We on the coalition side feel that the government should be getting best value for money, and yet no competitive tender was issued. We find that quite hard to understand. Witnesses to the Senate inquiry on the legislation, which I was involved in, indicated that Medicare has no experience in the superannuation field and does not know what it is getting itself into. It is inadequately prepared and it has not developed a business plan to provide this service.

The government has awarded $16.1 million to Medicare to operate the clearing house over a four-year period. However, many experts in the private sector have said that the costs will inevitably blow out and that Medicare will not be able to provide the service within this budget. Private sector companies have provided these services in the market for years and have designed and implemented innovative technology to deliver low-cost services to employers and superannuation funds. We find it very hard to understand, as I said, why the private sector has not been offered the opportunity to participate in the provision of this service.

At the inquiry, the Superannuation Information Centre submitted that the decision to send the clearing house to Medicare means that there is serious potential for large-scale economic waste. They pointed out that it is not clear if Medicare will be subject to the same professional indemnity insurance that private clearing houses are required to hold. Senator Hurley has said that there was concern that the private sector might default in some way and that employees would find that their funds for superannuation had not been passed on to the superannuation funds. But, of course, if these private sector companies have indemnity insurance then that is not a matter of concern. It seems that Medicare does not have private sector indemnity insurance and it may be that the real concern is whether or not Medicare will be the defaulter and whether employees may be at greater risk if Medicare is handling this service. If in some way there is a problem meeting deadlines and so on, employees may not be covered in the way they would be were the service provided by the private sector. These are very serious concerns that we in the coalition have with this legislation and we certainly believe that more consideration should be given to it.

But basically we are really concerned about why the government has not explained the reason for breaking its commitment 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 concern about the anticompetitive nature of this decision by the government.

We really do believe that there is a very strong case for private sector superannuation clearing houses to be given the opportunity to compete for this market. The sector’s largest clearing house, SuperChoice, told the Senate inquiry that currently it is processing 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. SuperChoice said: ‘Overall we project about $7.2 billion will be cleared through our service. We estimate that it is around 20 per cent of the entire clearing market.’

The superannuation fund contracts the clearing house transactions to companies like SuperChoice who provide their services to the employers free of charge through their chosen super fund. We in the coalition believe that if the government goes ahead and introduces its own clearing house operator and enforces preferential regulations on that operator when compared to the currently operating clearing houses, the legislation has the potential to seriously impact upon the business of those privately operated clearing houses. In other words, giving this contract to Medicare may well so adversely affect some of these privately operating clearing houses that their businesses will be made non-viable.

At the inquiry which the Senate Economics Legislation Committee held, Westpac made the following comment in its submission on the different superannuation guarantee 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 business who choose to continue to use private sector clearing houses.

Westpac recommended that the legislation be amended to ensure clearing house standards are the same across both the private and public sectors.

While the intentions of Medicare may be to provide a superannuation clearing house to those employers who cannot currently access a free service, the legislation and regulations will allow absolutely any business with fewer than 20 employees access to a free service, and that is where the threat to the viability of the private superannuation clearing houses comes in. For example, the 40,000 employers who use the SuperChoice clearing house service will have an overwhelming incentive to switch to the free Medicare clearing house due to the far less stringent requirements for discharge of super guarantee payments through Medicare.

The government has recently said that the way superannuation can be strengthened is to drive efficiencies, reduce administrative costs and thus increase returns, and this is the exact opposite of what the superannuation sector will achieve by this bill in its current form if it is passed. As IFSA stated in their 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 this should occur on a level playing field. Quite obviously, if Medicare is allowed to be the sole provider and it is providing its services free of charge, there will no longer be a level playing field.

AFSA, another superannuation provider, suggested that the legislation could be improved by amending it so as to provide a path forward whereby private sector organisations could achieve approved clearing house status and that that would provide a level playing field. They said:

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 obligation by contributing through a clearing house.

We in the coalition are very disappointed that the government has broken its original commitment to put this clearing house service out to tender and can only say that it is typical of the 1930s socialist approach of the Rudd government. The government has to do everything and yet out there in the community we have these very efficient private sector superannuation clearing house operations. There is absolutely no reason why these organisations should not be given the opportunity to participate in providing superannuation clearing house services to these companies which are the target of this legislation.

Quite worryingly, Medicare’s evidence to the inquiry demonstrated that the agency has not completed a business plan to a level which would have been required in a competitive tender process, and in the course of their evidence Medicare made the following comments to the hearing. Firstly, they said:

We do not have any targets at this point in terms of the number of businesses which are going to use the system.

In other words, they have no idea how many businesses are going to use their system. Therefore one has to ask: how are they going to gear up to provide the service?

They said that they did not go and cost an alternative provider. They said: ‘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 the industry about that.’ Medicare said:

We have a wide range of KPIs … 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.

This may mean that they miss the deadlines for the payment of super into the super funds if they stick to their existing 14-day time frames for payments.

Then there is the question of upfront validation. Medicare said:

We do not check with the fund at that point to ensure the member details match up when the employer sends us a payment. … At this stage we are not planning to do that sort of validation.

One has to wonder what sorts of standards private Medicare will have in acting as a clearing house for superannuation and whether the slack approach, the apparently vague approach, demonstrated by these statements of Medicare—that indicate they have not really come to grips with the requirements of providing superannuation by time deadlines—is going to mean that the employees are going to be disadvantaged by the vagueness of the Medicare operation.

Private clearing houses also have raised concern about Medicare being awarded this contract, on exactly these grounds. SuperChoice said:

… a significant underestimation of the costs to build and operate an effective clearing house, particularly in the time frame that Medicare has been given—

is a matter of concern. They continued that there will be:

… 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 offset 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.

The Superannuation Information Centre submitted that the decision to send the clearing house to Medicare means there is a serious potential for large-scale economic waste.

In conclusion, I say that, given the evidence available, Medicare and Treasury have not been able to prove that Medicare can handle the scheme at the budget provided without risk to employee superannuation payments. Many in this industry have legitimate concerns about how Medicare will operate the scheme. I think that leads to the conclusion that this is bad legislation which needs to be amended to provide choice to employers rather than forcing them to use the Medicare system.