Mark Furner (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

Mr President, may I firstly congratulate you on last week’s resounding endorsement of the position you hold here in the house today. My question is to the Minister for Superannuation and Corporate Law, Senator Sherry. Can the minister please update the Senate on the Australian superannuation system and why at this time in particular it is so important that the government take a responsible approach to economic management?

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

I thank Senator Furner. I think it is his first question. The matter of superannuation fund returns for many millions of Australians is of course very, very important and at no time more important for millions who have received fund statements which show widespread and deep negative rates of return—negative rates of return averaging approximately 6.5 per cent. What is important in this context is to understand that superannuation is a long-term form of investment, over 35 or 40 years or even longer, depending on when a person retires. So it is the long-term rate of return in a defined contribution system which is the relevant measure—over at least five to seven years, preferably 10 years.

What we do know is that, as I said, these are the deepest and most widespread negative rates of return. We have seen negative rates of return before, in 2000-01, but certainly in the 20 years of the compulsory system introduced by the former Hawke-Keating Labor government—a very important social and economic reform—these are the deepest and most widespread negative rates of return that have been seen. Nevertheless, the total pool of funds now exceeds A$1.1 trillion, the fourth largest pool of savings in this form anywhere in the world.

A good way to illustrate the importance of the long-term rate of return in superannuation is to indicate that a dollar invested 10 years ago in superannuation would now be worth $2.07 on average. That includes last year’s negative rate of return. Over the last 35 years the real rate of return, after all fees and charges, has averaged five per cent, so it is the long-term rate of return that is of critical importance.

But how has this circumstance come about? We know that in the last 12 months it has been very tough in the Australian and international equities and share markets. We have had some particularly challenging global circumstances. This has been brought about by what has been known as the subprime mortgage crisis in the United States, where there have been very significant write-downs—in fact, billions of dollars—in various investments, and these investments have unfortunately been passed around the world, particularly into Europe. As I say, it was most significant in the United States. This financial crisis is far from over. The subprime situation is flowing through to what are known as Freddie Mac and Fannie Mae—major lending institutions in the United States—as well as to a significant number of regional banks, who will be revealing the extent of their exposure to losses in the next quarter. So this major financial crisis, certainly the most significant financial crisis seen in the last decade, is far from over.

What is important in this climate of international financial crisis in the money markets is economic responsibility. With international markets down, it is very, very important we maintain a strong $22 billion surplus to take pressure off interest rates and give the Reserve Bank the room it needs to reassess monetary policy. But, of course, what we have from the former Liberal government, now sitting in opposition, is their intention to punch a major hole in that budget surplus. They are opposing measures worth over $1 billion, totalling some $6.2 billion over the forward estimates period. So in a period of major economic international financial crisis we have an irresponsible Liberal opposition, who appear not to even know there is an international financial crisis, intent on lowering our budget surplus. (Time expired)