KGB: Arthur Sinodinos

The Assistant Treasurer tells Alan Kohler and Robert Gottliebsen: 

– His job relies on delivering Tony Abbott’s promise to make ‘no substantial adverse changes to superannuation in this first term of government’.

– He is looking at abolishing the 'Shorten tax' on super funds.

– He is concerned about union influence on super funds, and doesn’t want unions using super as a mechanism to maintain their influence as workplace unionisation declines.

– Why the Senate has shifted to the right, and why Clive Palmer should not be underestimated.

– What the Liberal Party’s approach is to interpreting revenue forecasts from Treasury.

– How the Liberal Party is slowing the political media cycle and the process of policy making in order to be more consultative and deliberative on policy.

– He doesn’t want independent contractors to be pushed into being employees, and with Bruce Billson will look at Tax Office practices around independent contracting. 

Alan Kohler: Welcome to Business Spectator, Senator Sinodinos. Thanks for coming.

Arthur Sinodinos:  Thanks, Alan and Robert. It’s great to be with you – one of my first stops in Melbourne.

AK: That’s great. Well now, obviously you were close to the Howard government, inside the Howard government, and now you’re observing a new government from a different position, but also inside it. How do the two differ and how are they the same?

AS: Well look, we’re talking about a gap of about 17 years and in some ways there are similarities. We’ve come in saying we need to do more on the budget, for example – we need to do more to ramp up microeconomic reform, structural reform – there’s some similarities there. What I notice is one of the biggest differences is the tempo of activity, in terms of media in particular – how much the beast has grown, the 24/7 beast – and how much people want you to feed the beast.

And I think one thing that Tony Abbott has deliberately done is say, look, I’m going to try and reduce the tempo again a bit, so we don’t have everybody going flat out and I also want to do something about the whole process of decision making that’s been happening in Canberra and the way that that seems to have been on fast-forward. And the result of that has been – and we’ve been on the receiving end of this in opposition when we’ve been consulting with business in particular, and not-for-profits in others – people saying let’s just slow down things for a while, you know?

AK: John Howard seemed to feed that a bit and he was always doing talkback radio. He was constantly available. It was almost a kind of constant conversation going on between John Howard and the Australian community and that does not seem to be what Tony Abbott is going to do.

AS: I think the lesson Tony has learned from the last few years is there’s been so much hype around feeding the media beast and what’s come with that is a certain amount of spin, if I can be charitable about it, and people just want you to slow down. If something needs to be done in a deliberative way, let’s do it that way, let’s consult the people. If that takes a bit longer, fine, we’ll get a better result.

In the Howard era what happened is John Howard decided to go over the heads of the press gallery in Canberra by going straight to the people through talkback radio and not only talking to the shock jocks, he was talking directly to people. He was answering their questions on radio and I think that was a very important medium for him to keep in touch. And I think you’ll find on things like that, Tony Abbott will be quite similar. I think he wants to get what people out there are really thinking as opposed to how it’s mediated through other people.

AK: Your equivalent now to when you were in the Howard Government, Peta Credlin, seems to be very much in control. The stories are that she’s controlling all the ministerial appointments and someone wants to – or her office –

AS: The staff appointments, which is what a prime minister’s office should do.

AK: Did you do that?

AS: Well, we had a government staff committee. In this government there is a staff committee as well and at the end of the day the prime minister’s office is very heavily consulted in all of that, and they have to be, because what we found in government is you have to make sure across government that the right sort of people have been put at the right job at the right levels and there has to be that quality control. So they’re actually quite similar processes. There is a lot of control in this government. There was a lot of control in ’96. Because when you first come in, you feel like you’ve got to run government the way you run a campaign.

The other lesson you learn in government is that there are things beyond your control that happen and you’ve got to have enough flexibility in the way you run things that you can turn around and deal with those. One of the mistakes Kevin Rudd made is he seemed to think every time there was a crisis, he’d drop everything else and deal with the crisis. He had all these people who’d wait for him and all the rest of it, everything would be put on hold. The lesson we learned in government, and I think Tony has learned, is you’ve got to get on with the ordinary business of government while also having the flexibility to deal with problems as they arise. And that’s the model; you have centralisation, but with flexibility, to deal with emerging crises.

AK: Well, let me ask you more broadly – is Peta Credlin very different to you? And is the office being run differently to the way you ran the office?

AS: She’s far more attractive to begin with, if I can be slightly sexist.

AK: She’s got more hair than you.

AS: Got more hair. I wasn’t the first chief of staff we had. In fact, our first chief of staff was Nicole Feeley who helped to bed down the processes. Every person who has that job will have a different style, and she’s learned from what we did well. She may have learned from what we didn’t do so well. So, if this is an improved operation, it’s because they’ve taken the lessons from our era, both good and bad. And I’ve maintained a good relationship with the office and with Tony. I’m there to help advise if they need it, but on the whole my view is they get on with their job and as long as the door is open for everybody. That was one of the things we were very keen about in the Howard era: you always keep the door open, so whether it’s members of parliament or staff, if they’ve got a problem they can come in, there’ll be someone there. Whether it’s me or someone else who’ll sit and listen. And that’s always very important to make sure because it’s so easy in Canberra. Paul Keating fell into this trap towards the end of his time in Canberra. He’d fly in and out of Canberra to go to things, but then he was based in Canberra and I don’t think he had the same feeling for where the country was at. You tend to see the country differently from Canberra and that’s why I think Tony has also said in recent times, it’s important not to be a prisoner of your desk. You’ve got to be out there actually meeting people and dealing with them on their terms.

Robert Gottliebsen: I’m going to start on superannuation with what will sound like a Dorothy Dixer question, but it’s important.

AS: Sure.

RG: I’m going to ask you whether you’re going to honour Tony Abbott’s promise to make no substantial adverse changes to superannuation in this first term of government.

AS: Let me give you a big secret. My job relies on me delivering on that promise because the message we got in opposition – and Mathias Cormann was my predecessor in this particular role and I remember him articulating it on many occasions.Tony certainly got this message whenever we were in boardrooms or talking to people out there, there was too much change going on and the lesson we took out of that is first of all we didn’t want sudden adverse, unexpected changes to superannuation. People wanted to appear to absorb what had happened and they wanted to figure out for themselves the implications and where they stood because people felt that superannuation is a long term contract, right. In theory it’s meant to be a 30 or 40 year contract and you want certainty over that period and what was happening in recent years is like in many other areas of government policy, that certainty has been taken away. So Tony was very keen to make that commitment. He made that commitment earlier this year or late last year and it’s been a commitment we’ve consistently repeated throughout, so for us that is an important commitment and it goes to areas like taxation as I think we’ve talked about before and it also goes I suppose to the way we consult in the future about changes to superannuation.

RG: Now, the Shorten tax on funds – well, we’ll just describe it as that – in pension rate is very complex. Can you make it simpler? Or have you ever thought about just abolishing it altogether?

AS: That is one of the things we are considering now, the future of that particular…

RG: Which one?

AK: Which one – abolishing it or making it simpler?

AS: The latter. The future of that particular measure. That’s what I’m saying. And we’ll have more to say about that in due course, but I do need to consult my colleagues about that. But the message we’ve had consistently on that measure is it’s very complicated to administer and there are all sorts of anomalies that can arise depending on fluctuations, right, in the relevant income and earnings.

RG: So, you’re you’re not committing to this, but you’re certainly looking at abolishing it?

AS: We are looking at that because I believe we’ve got to take into account the feedback we’re getting from the private sector and elsewhere about the complexity of the measure. And also because of the commitments we’ve made that we don’t want to disadvantage people’s superannuation.

RG: Now, to a different superannuation tack, do you agree with me that… First of all, in my view there’s discrimination between self-managed funds and the large retail or industry funds in terms of big infrastructure offerings. They go straight to either the industry funds or the retail funds or both and because you have the prospectus, the self-managed funds miss out. Do you think you can influence the Treasury and others in the state governments to perhaps to make sure that the biggest players of superannuation get a slice of that?

AS: The biggest players being now the self-managed super funds?

RG: Yes.

AS: There’s been a trend in recent years and you’ve seen this with attempts in, for example, to trade bonds on the stock exchange. There’s been this trend about, how do we get retail investors more into the frame and this is a bit analogous to all of that, so I agree with the general proposition that you’re putting that we should look a way of doing that. The issue has always been what form should that take to make it accessible? I mean the big advantage the big funds have is they’ve got big licks of capital, right, so you’re looking at different sorts of structures to encourage the mums and dads as it were to get into it. But if you’re looking for something that people are interested in investing in, infrastructure is something everybody is now talking about at various levels within government and within the private sector and I’m happy to look at that and in fact I’ve said to the self-managed super funds there are issues around that that we should maybe sit down and consult on. But at this stage I haven’t sort of commissioned any work, but I’m going around collecting people’s ideas and I encourage the self-managed super funds to come forward with ideas.

RG: Do you agree that the reason self-managed funds in Australia got to 31 per cent of the total market and 50 per cent of the pension market is that the big funds, whether they be industry funds or large corporate funds, simply didn’t provide the right products. And, when they did go sell the right products, they were too high a price. So Australians said:  blow you fellas, we’re going to do it ourselves. Good old Australian culture.  And it’s transformed our whole outlook.

AS: There are a number of factors at work. I think those factors are at work. I think post-GFC, many people were also a bit disillusioned with their returns and thought, l maybe I can do a better job if I try and do it myself. What we’re finding increasingly is that younger people taking up self-managed super funds.  There are a lot of young women, for example, who want their financial independence from day one. They want to get married, have things jointly and all the rest of it, but they do want that element of financial independence. So a lot of people are looking at how they do that and this is seen as an attractive vehicle to do it.

There are a lot of small businesses who own their property right through this mechanism.  I was part of a government that provided rollover relief on capital gains tax and the rest in ’96 because we recognised for a lot of people this was their nest egg, you know, the sorts of properties they had and the stuff that they’d invest in the business.

This is not new territory to promote people getting in to self-managed super funds.  But the point I’ve tried to make is the dilemma you see the ministerial level. To what extent are super funds — which are industry funds, big retail funds and self-managed super funds — to what extent are we comparing apples and oranges?  To what extent are they similar and to the extent that they’re similar, making sure that the rules that apply provide a level playing field?

What we’ve tried to do in the period I’ve been in the job is figure out where the apples and oranges are.  But if you’re asking me where do we sit on the role of self-managed funds in a philosophical sense, we’re supportive because it’s people taking responsibility for their own savings and for their own retirement.

AK: How do you feel about industry funds and in particular the role of unions in those funds? Where are you at in your thinking about that?

AS: Having worked for the Coalition in various guises over a long period, I’m very familiar with the debates we’ve had internally about the role of compulsory superannuation and the link of that back to the union movement. The great role that Bill Kelty played with his Australia Reconstructed in developing this vision of how the funds through their investments in effect have influence over the commanding heights of the economy.

For us there’s also been a very strong ideological element to this, which is that we don’t want the unions — who may be losing custom in the workplace — using this as a mechanism to maintain their influence in a way which is not beneficial to the system as a whole. The issue has always been not that unions should not be involved in superannuation.  It’s about the rules that govern, how those funds are disposed of, who controls those funds and is it done in a way which is in the best interests of the members,

You could say the members can always revolt if they’ve got a problem.  I’m not sure the way funds have been constituted; I’m not just talking here about industry funds.  It’s very hard when you’re part of a pooled super fund to do very much apart from walk away. 

We want more appropriate governance across the board and we want more governance along the lines of the analogy with the ASX and the sorts of corporate governance principles that they had. That’s not an attempt to attack the industry funds.  They’re a feature of the landscape.  They’re entrenched. But this is about putting everybody on all fours, as it were.

AK: So, does that mean you’re looking at applying director’s duties to superannuation fund investors?

AS: What we’ve asked for is advice on the extent to which you can do that, given the nature of superannuation and how that operates.  But we do an analogy with those sorts of corporate governance principles.

RG: Are you going to allow small enterprises to add their superannuation contribution to their BAS and then allow the employees to choose which fund they want?

AS: Look, you’ve been talking to people who’ve been talking to me. I have had representations about that, but I haven’t…

RG: But Tony actually promised it at one point.

AS: When did he? 

RG: I’m not sure.

AS: You’d better dig that out for me.

RG: Okay. Righto.

AK: Your next job relies on fulfilling Tony’s promise.

AS: That’s right. I think COSBOA have raised a similar matter with me. I haven’t had a look at its implications in terms of the flow of funds in and out of the budget, but I have heard of the proposal.

RG: Ok. You haven’t made up your mind about it yet?

AS: I haven’t had a look at it, but I’m happy to sort of receive stuff from COSBOA on that.

RG: Are you happy with the way the housing situation and gearing and and self-managed superannuation is proceeding?

AS:  Are you talking about reports about so- called property bubbles in…?

RG: Yes, but I’m also saying are you happy that the self-managed funds are going to residential property and gearing for this?  Are you happy the way that these things are being?

AS: There have been reports about so called property spruikers trying to get people into property, but people who have self-managed super funds apart from being savvy in themselves should be getting advice on the nature of their portfolios. That will help to counteract some of the superficial stuff they might get from the odd property spruiker.  So, for us, the dilemma in this area always is that we don’t want to overly regulate the area.  The ATO applies what we hope is light-touch regulation.  So, for us, it’s more putting up warning signals when we think there are trends in the broader economy that may impact on the sector. We’re not looking to be very heavy handed about controlling the funds that go into the sector and how they’re allocated across assets.

RG: I’d interpret that to mean that it’s highly unlikely that they’ll change the rules.

AS: Highly unlikely. But look, it’s like all these things. You keep a watching brief. That’s my job. But I can’t save everybody from themselves.

RG: Secondly, the art investment scheme was changed and you’ve now got to store your art.  Have you ever thought of changing it back? I haven’t got art, but if I had art in my self-managed fund, I could put it on my own wall?

AS: I don’t know much of the background to that, but anything you’ve got, Robert, send it to me and I’ll have a look at it.

RG: You haven’t seriously looked at that?

AS: No.

RG: Okay.

AK: Perhaps we can move on to the makeup of the Senate. How do you feel about the influence of Clive Palmer, in particular, but also the Independents generally?

AS: The first point to make is that on the whole the philosophical makeup of the Senate has shifted.

AK: To the right.

AS: To the right. Post July ’14 I think it will shift more to the right. I think you’ve got more people there who would be sympathetic to the sort of approach that we have as a Liberal Party and a National Party.

AK: Why do you think that’s happened?

AS: I think partly because there are a lot of people on the ground who wanted to go for people they see as genuine independents.  They’ve wanted to vote for us in the Lower House, but maybe they wanted some check in the Upper House, but they’ve gone for a check which is funnily enough characters with a certain independence, a certain almost idiosyncrasy. But that in a sense is what a right of centre party is meant to be about; you’re meant to attract those people who are, you know, prepared to look after themselves, be a bit entrepreneurial, take a risk.

Part of this is also an artefact of the way that the Senate preferencing strategies have been able to be exploited over time.But in a sense for us, it’s a much better outcome than looking at six more years of a solid Labor/ Green block where the Greens have never in their lives ever admitted they’ve made a mistake.  They can blame everybody else for whatever has happened.  They’ve never made a mistake.  They’re always right. 

If you ever ‘compromise’ (in inverted commas) with the Greens, that’s only on their part a strategy to get to concede something and then they’ll try and get you to concede something else later on.  There is never a genuine give and take.  They don’t see themselves as part of a genuine party system.  They’re right and everybody else is just wrong.

AK: But those left of centre, including the Greens and the Democrats before them, have been in control of the balance of power for a long time in Australia.

AS: But the great difference was that when the Democrats were in control, people like Meg Lees and Andrew Murray were actually prepared on issues like the GST to have a genuine debate and trade offs. That’s where I draw the analogy with the Greens.

 The Greens would never do that. The Greens will always take an absolutist position because they’re always right and you could never negotiate on things like that with them.  If there’s one reason  the asylum seeker debate got as toxic as it did, it’s because the Greens have never been prepared to compromise in that debate. One of the reasons Labor is in the mess it’s in over carbon taxes is that the Greens refused to do something in 2009, which would have delivered a version of the carbon pollution reduction scheme. 

I’m very happy that the Greens are no longer in control or potentially in control after the first of July 2014. I’m happy to sit down with these Independents.  I think we have enough people on our side with diverse life experience that they’ll be able to understand that we are on a similar wavelength.  But I’m not being Pollyanna-ish about this; I don’t underestimate Clive Palmer. 

People think, oh he’s being a bit buffoonish, or he’s a bit of a showman.  There is a lot of cunning there, there is a lot of strategy there and there are a lot of resources there.  And the guy said he would become prime minister. Well, he didn’t quite become prime minister, but gee he’s got close to having the balance of power in the Senate. We should respect the capabilities that go into that.

AK: So, if he’s got cunning and resources and so on, what direction do you think those are going to be employed in?

AS: Well, I think the first thing to understand about Clive, without giving too much about tactics away because we haven’t sat down to talk about the tactics but not at my junior level anyway.  Clive will always want to show that he’s had a victory, so you’ve always got to work from the presupposition that it’s not about climbing over the top of Clive or beating him into submission, you’ve almost got to hand him a victory, so he feels that he’s achieved something.

One of the things I learned from John Howard is sometimes it’s better to get 70 per cent or 80 per cent of a good reform than a hundred per cent of nothing.  So, you’ve got to have that capacity almost… I hate to use that crass word, trade, but you’ve got to have the capacity to understand what can I give, what can I take and where are the trade-offs? 

RG: The thing that’s happened that surprised most people has been the strength of the iron ore market in the last six months or so. Does that mean that your outcome in the future budgets is better than you thought it might have been six months ago?

AS: You’re right about the iron ore market.  It’s done much better than a lot of us were expecting at this stage. Coal doesn’t look too flash.

RG:  No. That’s right. But gas is okay.

AS:  But China is decelerating in growth, albeit to quite respectable levels, around 7 per cent or 7.5 per cent.  But what’s happened is the resources super cycle in the sense of the investment surge is coming off, so from the point of view of our economy we do face this dilemma about the other sources of growth kicking in more strongly. 

Lower interest rates and hopefully a sustainably lower dollar will help. They’ll help with housing and they’ll help with other sectors and manufacturing seems to be getting a bit of a kick-on.  The numbers recently aren’t looking too bad. Our dilemma is that we can see a bit of a trough in growth potentially coming up, where growing below trend, with unemployment edging up a bit. 

That’s why Joe Hockey has been I think trying to stress that whatever we do in terms of our budget consolidation, we have to take into account what’s happening in the state of the economy and staging our measures appropriately to deal with that.

I’m taking a conservative view on budget revenue. One of the things that Peter Costello always did was he’d take the Treasury projection and he discounted a bit when it came to revenue. If you were surprised on the upside, that was fantastic. It was like a bonus at Christmas time.  That’s great.  But you didn’t want to be too surprised on the downside, so better to be a bit conservative.

That’s the attitude we’re going to be taking and hopefully it means that commodity price forecasts and everything else will be a bit more believable in the future.  One of the really incompetent things that Labor did recently was in the May budget, they didn’t upgrade their commodity price forecast from where they were in March.  Then the big upgrade occurred in the economic statement on the eve of the election and you had this $33 billion dollar reduction in revenue. Then off the back of that you had, FBT on cars matter, you had the bank levy, you had the increases in tobacco tax, all on the eve of the election. 

We want to avoid those sorts of surprises. And the other thing we’re going to do is we’re going to restrain spending and also put in place through the commissioner board those drivers that actually reduce the urge to spend over time.  This is not about scores on the turf, but the big lesson I learned from my time in the corporate sector is that you have to keep benchmarking your own enterprise against other enterprises in the same field and elsewhere.  For the federal government, you benchmark yourself against comparative jurisdictions, whether it’s the states or overseas or comparative services provided in the private sector because the other thing we want to do in Canberra is we want to instil this mentality that every dollar has to be earned.  It’s not a free dollar, right.  It doesn’t come from the sky.  It’s generated somewhere and therefore how it’s used is very important.

AK: Is there a sense in the Coalition that Treasury has been getting it wrong and needs to be reformed in some way?

AS: There’s a sense within the Coalition that it’s surprising that for so many years now since the recovery from the global financial crisis, we seemed to have done not a good job of estimating revenue.

AK: That’s what I mean.

AS: But it’s interesting.  The revenues that Treasury itself have done haven’t raised great issues in that regard, and so to me the implication is maybe it wasn’t so much their forecasts that were wrong, it was the fact that the political arm didn’t exercise a bit of conservative judgement around those forecasts.

I think what happened is the political arm are always happy to accept the best possible forecast and spend accordingly.The Costello rule is you budget conservatively on revenue.

AK: But you shouldn’t have to as politicians have to discount Treasury’s forecasts all the time, so that they’re right.  Treasury ought to be right in the first place.

AS: Peter Costello didn’t interfere with their forecasts per se, but he always put in a bit of an adjustment just to give himself some room. That’s a good rule in a context where if Treasury were here, they would say our problem is the world economy is more volatile than it ever was before, all these structural features happening to our economy have meant that, you know, mining is a bigger part, therefore that impacts on revenue, capital gains losses still going through the system.  They can give all the reasons why you may not be able to estimate as well as before, but Labor then would go for whatever was the best estimate that they could put up and spend to there. We need to change that dynamic.

RG: Just one more thing. The taxation department has been incorrectly interpreting independent contracts and doing some pretty bad things. How do you change that so that they obey the law?

AS: When you say incorrectly interpreting …

RG: When they’ve been going to independent contractors, they’ve been saying you’re breaking the law because of this, this and this, but that wasn’t the law. The law is different to that. The Howard rules for independent contracting were very good.  They were not the rules the taxation Department were using in dealing with their independent contractors. That’s a big cultural change you have to make in taxation to make them obey the law.

AK: Do you mean taxing them as pay as you earn?

RG: Yes. They were saying you’re not an employee…

AS: Yeah. I understand. They were always trying to shift them into being employees.

RG: Yeah – and breaking the law.

AS:  Bruce Billson and I are going to look at all of that. Bruce has a job as Minister for Small Business and in consultation with him we’re happy to have a look at all of that philosophically.  We don’t want a situation where people are who want to be independent contractors are being pushed into employees. Nothing wrong with being an employee, but if you want to be an independent contractor, the government shouldn’t be trying to change your status.

I’m not accusing the Tax Office of anything. We’ll have a look at that. One little story. When we were in government, I remember spending one Sunday morning at the Lodge with John Howard when he was going through the personal services income rules himself. He called over the Tax Office because we were concerned about the implications of some changes to those rules at the time. It’s a bit in the DNA of the Liberal Party to want to try and make sure independent contractors are looked after. Happy to take that up with my colleague Bruce.

AK: Thanks for joining us, Senator.

AS: Thank you.

RG: Thank you.