COMMONWEALTH OF AUSTRALIA Official Committee Hansard · Resources portfolio and the Treasury portfolio. The proposed program for today’s business has been circulated. The committee

COMMONWEALTH OF AUSTRALIA

Official Committee Hansard

SENATE ECONOMICS LEGISLATION COMMITTEE

Consideration of Additional Estimates

WEDNESDAY, 12 FEBRUARY 2003

CANBERRA

BY AUTHORITY OF THE SENATE

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Wednesday, 12 February 2003 SENATE—Legislation E 1

ECONOMICS

SENATE

ECONOMICS LEGISLATION COMMITTEE

Wednesday, 12 February 2003

Members: Senator Brandis (Chair), Senator Jacinta Collins (Deputy Chair), Senators Chapman, Murray, Watson and Webber

Senators in attendance: Senators Brandis, Carr, Campbell, Chapman, Collins, Conroy, Lundy, Murray, Sherry, Webber, and Watson

Committee met at 9.00 a.m. INDUSTRY, TOURISM AND RESOURCES PORTFOLIO

Consideration resumed from 21 November 2002

In Attendance Senator Minchin, Minister for Finance and Administration

Department of Industry, Tourism and Resources Departmental Executive

Mr Mark Paterson, Secretary Mr Tim Mackey, Deputy Secretary Mr John Ryan, Deputy Secretary Ms Patricia Scott, Deputy Secretary

Departmental Outcomes and Outputs Mr David Baussmann, Manager, R&D Tax Concession, AusIndustry Ms Tricia Berman, General Manager, Innovation Branch, Innovation Division Ms Vicki Brown, General Manager, International and Energy Best Practice Branch, Energy

and Environment Division Mr Antony Brugger, General Manager, Policy, Office of Small Business Ms Chris Butler, Manager, Business Development, AusIndustry Ms Trish Cattell, Financial Analysis and Data Modelling, Innovation Programs,

AusIndustry Mr Peter Chesworth, Director, Markets Section, Office of Small Business Mr Drew Clarke, Executive General Manager, AusIndustry Mr Peter Clarke, General Manager, Automotive and Engineering Branch, Manufacturing

Engineering and Construction Division Mr Robert Crick, Head of Division, Analytical Division Mr John Dean, General Manager, TCF and Construction Branch, Manufacturing

Engineering and Construction Division Dr Russell Edwards, NSW State Manager, AusIndustry Ms Cherie Ellison, Manager, Strategic Coordination and Support, Resources Division Mr Malcolm Farrow, Head of Division, Energy and Environment Division Mr David Gallagher, Manager, BIF/COMET Programs, AusIndustry Dr Michael Green, Director, Space Licensing and Safety Office Mr Paul Griffin, A/g General Manager, Business Entry Point, e-Business Division Dr Jason Hajinakitas, Group Manager, Regulated Drugs and Chemicals, AGAL

E 2 SENATE—Legislation Wednesday, 12 February 2003

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Ms Kerri Hartland, A/g Head of Division, Innovation Division Mr John Hartwell, Head of Division, Resources Division Mr Chris Hyman, Manager, Strategic Support, Energy and Environment Division Ms Carolyn Jenkins, Manager, R&D Section, Innovation Division Ms Marie Johnson, Head of Division, e-Business Division Mr Barry Jones, Executive General Manager, Industry Attraction, Invest Australia Ms Patricia Kelly, Head of Division, Tourism Division Mr Mike Lawson, General Manager, Space and Aerospace Branch, Manufacturing

Engineering and Construction Division Mr Terry Lowndes, Head of Division, Industry Policy Division Mr David Luchetti, Manager, Venture Capital Programs, AusIndustry Mr Rob McKeon, General Manager, Industry Collaboration Branch, Manufacturing

Engineering and Construction Division Mr Ken Miley, General Manager, Trade and International Branch, Industry Policy Division Ms Janet Murphy, General Manager, Tourism Market Access Branch, Tourism Division Mr Kevin Noonan, General Manager, Industry Online Branch, e-Business Division Mr Kevin O’Brien, General Manager, Energy Market Reform Branch, Energy and

Environment Division Mr Brad Page, General Manager, Innovation Programs, AusIndustry Ms Chrys Papadopoulos, General Manager, Safety, Taxation and Projects Branch,

Resources Division Mr Steve Payne, General Manager, Greenhouse and Environment Policy Branch, Energy

and Environment Division Mr Bill Peel, Deputy Executive General Manager, AusIndustry Ms Anne Pellegrino, Australian Government Analytical Laboratories Mr Craig Pennifold, General Manager, Pharmaceuticals and Biotechnology Branch,

Innovation Division Mr Ken Pettifer, Head of Division, Manufacturing Engineering and Construction Division Dr Peter Robins, Director, Bureau of Tourism Research Ms Kerry Rooney, General Manager, Business Development Group, Tourism Division Ms Elisabeth Selby, Markets Section, Office of Small Business Mr Paul Sexton, General Manager, Industry Programs, AusIndustry Mr Stuart Smith, General Manager, Minerals and Fuels Branch, Resources Division Dr Terry Spencer, Deputy Australian Government Analyst, AGAL Ms Lynne Thomson, Manager, Innovation Access Programs, AusIndustry Ms Louise Vickery, Manager, Energy Efficiency Best Practice Program, Energy and

Environment Division Mr Garry Wall, General Manager, Domestic Energy Policy Branch, Energy and

Environment Division Ms Sue Weston, Head of Division, Office of Small Business Ms Margaret Wilson, Manager, Small Business and Tourism, AusIndustry Ms Janice Wykes, General Manager, Strategy, Office of Small Business Ms Judi Zielke, Manager, R&D Start Program, AusIndustry Ms Ditta Zizi, Manager, Innovation Awareness, Access and Coordination, Innovation

Division


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Corporate Issues Mr Philip Noonan, Head of Division, Corporate Division Dr Joe Hlubucek, General Manager, Ministerial and Coordination Group, Corporate

Division Mr Chris Dainer, Chief Financial Officer, Corporate Division Mr Graeme Holt, Deputy Chief Financial Officer, Corporate Division Mr Warren Fletcher, Manager, Budget Coordination, Corporate Division Ms Aneela Hakim, Departmental Budget Officer, Corporate Division Mr Peter Waddell, Administered Budget Officer, Corporate Division Mr Krishan Singh, Manager, Portfolio Coordination Unit, Ministerial and Coordination

Group, Corporate Division IP Australia

Dr Ian Heath, Director General Geoscience Australia

Dr Neil Williams, Chief Executive Officer Dr Trevor Powell, Deputy CEO and Chief of Petroleum and Marine Division Mr Tony Robinson, General Manager, Corporate

Australian Tourist Commission Mr Ken Boundy, Managing Director Mr John Hopwood, Executive General Manager, Corporate Services Ms Marie Kelly, Executive General Manager, Public Affairs

National Standards Commission Mr Bryce Thornton, Manager, Corporate Services Mr Ivan Donaldson, Executive Director, Australian Building Codes Board Office CHAIR—I declare open this public hearing of the Senate Economics Legislation

Committee. On 12 December 2002 the Senate referred the following documents to the committee for examination: particulars of proposed additional expenditure in respect of the year ending on 30 June 2003; particulars of certain proposed additional expenditure in respect of the year ending on 30 June 2003; statement of savings expected in annual appropriations made by act No.43 of 2002 and act No.44 of 2002; and the final budget outcome, 2001-2002. In addition, on 6 February 2003 the Senate referred the issues from the Advance to the Finance Minister as a final charge for the year ending 30 June 2002.

Today, the committee will examine these documents in respect of the Industry, Tourism and Resources portfolio and the Treasury portfolio. The proposed program for today’s business has been circulated. The committee has organised the recording and rebroadcasting of its public proceedings in accordance with the rules contained in the order of the Senate of 31 August 1999 concerning the broadcasting of committee hearings. I remind officers that the Senate has resolved that there are no areas in connection with the expenditure of public funds where any person has a discretion to withhold details of explanations from the parliament or its committees unless the parliament has expressly provided otherwise. I also direct witnesses’ attention to the resolutions agreed to by the Senate on 23 February 1988 concerning the conduct of Senate committees, in particular those resolutions dealing with the protection of witnesses. Resolution No. 9 reads:

A chairman of a committee shall take care to ensure that all questions put to witnesses are relevant to the committee’s inquiry and that the information sought by those questions is necessary for the purpose of that inquiry. Where a member of a committee requests discussion of a ruling of the chairman on this


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matter, the committee shall deliberate in private session and determine whether any question which is the subject of the ruling is to be permitted.

Resolution No.10 provides: Where a witness objects to answering any question put to the witness on any ground, including the

ground that the question is not relevant or that the answer may incriminate the witness, the witness shall be invited to state the ground upon which objection to answering the question is taken. Unless the committee determines immediately that the question should not be pressed, the committee shall then consider in private session whether it will insist upon an answer to the question, having regard to the relevance of the question to the committee’s inquiry and the importance to the inquiry of the information sought by the question. If the committee determines that it requires an answer to the question, the witness shall be informed of that determination and the reasons for the determination, and shall be required to answer the question only in private session unless the committee determines that it is essential to the committee’s inquiry that the question be answered in public session. Where a witness declines to answer a question to which a committee has required an answer, the committee shall report the facts to the Senate.

I also remind officers that an officer shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to the minister. Witnesses should note that the evidence given to the committee is protected by parliamentary privilege. I also remind them that the giving of false or misleading evidence to the committee may constitute a contempt of the Senate.

The committee has resolved that the date for the receipt of written responses to questions taken on notice is 30 days from the completion of this round of hearings—that, is, Friday, 28 March 2003. The committee will prepare a report on its examination of the additional estimates. The report will be tabled in the Senate on or before 19 March 2003.

I welcome to the table Senator Minchin, the Minister representing the Minister for Industry, Tourism and Resources, and officers of the Department of Industry, Tourism and Resources. Minister, do you wish to make an opening statement?

Senator Minchin—I would like to say that yesterday I was appalled by the abuse of officials of the Department of Finance and Administration during the examination of the department of finance’s additional estimates and I would hope very much that there will be no repeat of that sort of behaviour during this estimates hearing today.

CHAIR—We will commence with general questions before proceeding to outcome 1.

Senator GEORGE CAMPBELL—I will try, Minister, to be a model of—

Senator Minchin—I am sure you will, Senator Campbell.

Senator GEORGE CAMPBELL—Sometimes, it is difficult with you, but with the officers always.

Senator Minchin—I do not mind if you abuse me, Senator Campbell. That is okay.

Senator JACINTA COLLINS—We have got you now!

Senator Minchin—Just leave these guys alone.

Senator GEORGE CAMPBELL—This question may be best addressed to Mr Dainer. In the additional budget appropriations there is an additional amount of $9.67 million. Can you outline for us what this additional money is for, which programs it is allocated to? I think that is the additional money sought.

Mr Dainer—Do you want me to give you a summary of the additional estimates changes?

Senator GEORGE CAMPBELL—Yes.


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Mr Dainer—For departmental expenses, the additional estimates variations are about 3.7 per cent additional. That is made up of an increase in the departmental appropriation from $193.65 million to $199.53 million—that is, three per cent—plus there is an increase of about eight per cent in external revenue estimates. On administered expenses, the additional estimates variation is: from the PBS, $1.245 billion to $1.517 billion. That is an increase of 22 per cent. That is split across a number of appropriations and also non-appropriation items. There is reduction in outcome 1, bill 1, which is our industry assistance appropriation, of $49.786 million, from $279 million to $229 million—an 18 per cent reduction. There is no change to outcome 1, bill 2.

Outcome 1 special appropriations have increased from $347 million to $498 million—an increase of 44 per cent. The non-appropriation, non-cash item, ASIS, has gone from $400 million to $566 million—an increase of 42 per cent. I will go through and explain the basis of these variations, if you like, when I finish the summary. Special accounts have not changed. The outcome 2, bill 1, appropriation, which is our innovation related appropriation, has gone up two per cent, from $196 million to $200 million. As I said, the overall impact of that is to go from $1.245 billion to $1.517 billion. Administered capital appropriations have not changed.

As to the make-up of the administered expense variations, there were three measures: assistance for shale oil, $25.7 million additional; for ethanol, $26.002 million additional; and for the additional drought assistance program an additional $14 million. These measures totalled $65.7 million in appropriations. There is a number of transfers affecting that appropriation. An amount of $300,000 is coming out of the TCF SIP for some administrative costs. There is $675,000 dollars going into the approp for TCF development. That is essentially an accounting issue where we have been required by the ANAO to reflect departmental grants in administered programs, so they are being transferred over. That is also the case for tourism operations, which is going the other way; that is $472,000.

Two departmental programs are now being reflected in ‘administered’: one is regional tourism, $3.055 million; the other is the Small Business Enterprise Culture Program, $5.4 million. There are a number of rephases affecting this appropriation—$6 million is being carried over for the Asia Pacific Space Centre, $906,000 for the business incubators program and $160,000 for the Small Business Enterprise Culture Program. There is a reprofile from this year to next and the following years for the Fishing Hall of Fame of $2.8 million. There is also an additional non-cash item of $2 million for Syntroleum depreciation. We are also moving TCF SIP out of the annual approp into a special appropriation. Following discussions with the Department of Finance and Administration, it was determined that it was more appropriately a special appropriation and not an annual approp. That means that $130.1 million comes out of that appropriation. The overall impact of that is a reduction of $49.7 million in that appropriation.

The special appropriations are increasing by $151 million, from $347 million to $498 million, because EPICS has been reinstated. The underspend in EPICS last year has been carried over, there has been an adjustment upwards in the petroleum royalties of $9.5 million and TCF SIP is now recognised as a special appropriation.

In outcome 2, bill 1, the changes are a carryover of $822,000 for the Biotech Innovation Fund and an addition of $2.437 million to the Industry Innovation Program as well as a transfer of $540,000 for grants under the Innovation Awareness Program from departmental expenses to administered expenses. Also going to administered expenses is the non-appropriation, non-cash measure for ACIS for the utilities, and that was an increase of $5


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million. The reason for the increase in that non-appropriation, non-cash item, the ACIS item, from $400 million to $566 million included the $5 million for the utilities measure but also the fact that we are now recognising in the books the uncapped component of the ACIS program to make it consistent with our financial statements. Impacting through additional estimates there were measures totalling $82 million, all of which I have mentioned. All the adjustments totalled $27.9 million and the ACIS uncapped adjustment of $161 million.

On departmental expenses, there is an increase from $193.655 million to $199.53 million. That is an increase of just under four per cent. That includes additions for the additional drought assistance program of $6.5 million, a transfer payment to Centrelink, $1.3 million in departmental funding for EPICS and $300,000 for TCF SIP administration. On the impact of the transfers that I spoke about, tourism operations are $472,000, and the transfers out of departmental expenses of the Regional Tourism Program, Small Business Assistance Program and TCF development total $9 million. Impacting on this is funding for Invest Australia from Austrade of $5.647 million, of which $400,000 is also from NOIE. There are also some adjustments to our expense appropriation for capital use charge of $800,000, parameters of $82,000, and for agency banking of $446,000.

Senator GEORGE CAMPBELL—Thank you, Mr Dainer. What is the value of the uncapped ACIS utilities? Was it $800 million?

Mr Dainer—It may be a little bit different to that, but I think it is about $845 million over the five years.

Mr Peel—The utilities measure was $5 million. The total ACIS uncapped value for the life of the scheme is $885 million based on current estimates.

Senator GEORGE CAMPBELL—Will that uncapped portion flow through into the new ACIS or son of ACIS or whatever it is going to be called?

Mr Peel—I think that is a question for other people to answer.

Mr Pettifer—There is an uncapped portion of the new ACIS scheme. The exact figure I will ask my colleague to indicate.

Mr P. Clarke—The value of the uncapped portion is related to the value of sales of the vehicles produced in Australia. Based on figures provided by the car manufacturers, the estimate for the five-year period between 2006 and 2010 was $722 million and then in the final period between 2011 and 2015 it was $461 million. The value of the duty-free allowance is tied to the tariff, so there would be a step down but there is also underlying growth.

Senator GEORGE CAMPBELL—And that is still uncapped.

Mr P. Clarke—Yes.

Senator GEORGE CAMPBELL—What is the impact of shifting the TCF SIP scheme from an annual appropriation to a special appropriation?

Mr Dainer—It is not subject to the annual appropriation bills. The funding is drawn as a result of TCF having its own legislation.

Senator GEORGE CAMPBELL—Why has it been determined prudent to do it at this point in time?

Mr Dainer—I think the answer to that is that it should have been done from the start. So what we are trying to do is get it correct.

Senator GEORGE CAMPBELL—But in terms of the actual program itself it has no overall impact?


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Mr Dainer—No.

Senator GEORGE CAMPBELL—The moneys are the same.

Mr Dainer—Yes.

Senator GEORGE CAMPBELL—Is the budget rephasing a new process that has been adopted, or is this something that always happened that we did not know about and we have just been told about?

Mr Dainer—What do you mean by ‘budget rephasing’?

Senator GEORGE CAMPBELL—The rephasing.

Mr Dainer—That has been called many things over the last 20 years—re-profiling, carryover and all sorts of things. It is a normal process to go through a rephasing exercise every year, and that is essentially what you will find going through additional estimates: adjustments for underspends or whatever it might be in previous years, bringing forward money and having it appropriated in the following year.

Senator GEORGE CAMPBELL—Does this allow you to divert moneys out of one program into another?

Mr Dainer—A rephasing is essentially a carryover of funding from a prior year for the same program.

Senator GEORGE CAMPBELL—Prior to the introduction of accrual budgeting, you could not divert funding from one program to another, could you?

Mr Dainer—Programs were appropriated on a line basis prior to accrual budgeting, but it is not necessarily the fact that it is accrual budgeting that changed that. We now have outcome appropriations which lump all the programs together, and they are appropriated on an aggregate basis. That is not necessarily an accrual budgeting issue.

Senator GEORGE CAMPBELL—Can you tell us why there has been such a significant change from the 2003-04 financial year? Seven million dollars appears to be shifted out of the department’s spending and in 2004-05 an extra $700,000 appears to be shifted back.

Mr Dainer—For which program?

Senator GEORGE CAMPBELL—I think it is the overall impact of it.

Mr Dainer—Administered expenses or departmental expenses?

Senator GEORGE CAMPBELL—That is a good question. It is under ‘Rephasing of annual administrative expense appropriations’.

Mr Dainer—Are you talking about the $7.888 million—the savings for movements of funding between years?

Senator GEORGE CAMPBELL—Yes, I think so.

Mr Dainer—That is the rephasings from last year to this year.

Senator GEORGE CAMPBELL—Why is there a significant shift in 2003-04 and then an extra in 2004-05?

Mr Dainer—That is not what I just mentioned. I am struggling to know what you are talking about.

Senator GEORGE CAMPBELL—I will come back to that, Mr Dainer. The chart I have on the bottom of my paper is from the Finance and Administration portfolio, so I will get the other bit of paper with those figures.


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In the portfolio statements it says that Invest Australia will cease operating, I think, as an executive agency. What is the basis for that decision, Mr Paterson?

Mr Paterson—A decision was taken to create Invest Australia as a division of the department rather than as an executive agency to better integrate the activities of Invest Australia. The original plan had been to create an executive agency. That decision was reversed and a division within the department was created in lieu. It does not have any financial consequences, and it was not done for financial reasons. It was to better integrate the activities of Invest Australia within the broader portfolio.

Senator GEORGE CAMPBELL—Does it have any consequences for staffing?

Mr Paterson—No. At the time of the remodelled Invest Australia, some staff were staff of Austrade and some were staff of the department. They are now all staff of the department.

Senator GEORGE CAMPBELL—Can you explain to me what the $82.5 million of drought assistance over three years comprises? Could you also explain to me how this department is involved in drought assistance?

Mr Paterson—It is drought assistance for small businesses. It is a new measure. The breakdown of the $82.5 is $70 million in interest rate subsidy assistance for small businesses affected by drought and $12.5 million over three years as payments to Centrelink to administer the program.

Senator GEORGE CAMPBELL—So it is administered through Centrelink?

Mr Paterson—Yes. It is essentially delivered through Centrelink.

Senator GEORGE CAMPBELL—Are these grants?

Mr Paterson—They are interest rate subsidies. I can get some further detail in relation to the breakdown of them if you wish.

Senator GEORGE CAMPBELL—Thank you.

Ms Weston—Your question is: what is the nature of the interest rate subsidies?

Senator GEORGE CAMPBELL—Yes. Are they grants or loans? What is the nature of the actual assistance for small business?

Ms Weston—It would be a grant to them, as I understand it.

Senator GEORGE CAMPBELL—Why over a three-year period? I hope nobody is predicting that the drought is going to last another three years.

Ms Weston—You can apply for a grant while an area is EC—exceptional circumstances— declared. Exceptional circumstances last for about two years, so it will enable anyone during that period to apply.

Senator GEORGE CAMPBELL—What would be the average value of these grants to individual small businesses?

Ms Weston—The maximum is $5,000 a year for two years.

Senator GEORGE CAMPBELL—Are there criteria for qualification for this?

Ms Weston—Yes, there are. Centrelink have that information available on their web site and through their call centre.

Senator GEORGE CAMPBELL—That is all on that issue. What is the innovation awareness program? Is this a separate program from the Innovation Access Program?


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Ms Berman—Yes, it is. It is called the National Innovation Awareness Strategy, which may create some confusion because the word ‘program’ is not in its title. It is $35 million over five years and its delivery is through three different departments: our department; the department of education and also the department of communications. The smallest aspect is done by the department of communications through Questacon, a slightly larger amount by the department of education in relation to particularly science awareness and our department has a special focus on innovation awareness.

Senator GEORGE CAMPBELL—Is this the program we discussed at the June estimates which was paying for the overseas visits?

Ms Berman—No, it is not.

Senator GEORGE CAMPBELL—Which program is that?

Ms Berman—That is the Innovation Access Program.

Senator GEORGE CAMPBELL—What does the innovation awareness program do again?

Ms Berman—The innovation awareness program aims to enhance awareness, particularly in students, small businesses and the broader community of the benefits of innovation to our country, our competitiveness, the production of tradeable goods and services. It builds on some work that has been done previously through the Science and Technology Awareness Program. It is picking up additional work such as promoting young entrepreneurs. There is a council that provides advice on what sorts of activities will result in increased awareness across the community.

Senator GEORGE CAMPBELL—There has been $2 million of funding transferred from departmental to administrative. Why is that?

Ms Berman—The program, when it was set up, was allocated departmental funding. Quite a large component of what is done is given out as competitive grants, so it is appropriate to transfer it into administrative rather than leave it as departmental.

Senator GEORGE CAMPBELL—Who makes the decisions in respect of the granting of those grants? Is that done by the council?

Ms Berman—To date, no. The granting processes that were followed last year set up independent committees, on which were both departmental and external representatives. It picked up the process that had been used in previous years where one or two rounds a year were announced, applications were called and grants were given in a competitive process.

Senator GEORGE CAMPBELL—Can you give us a feel for the types of projects that are being given grants?

Ms Berman—Yes. There is some difficulty in that there was a transfer, as you appreciate, last year of responsibility from our department to the department of education. A lot of the grants that were given out last year were to schools or groups of schools to undertake curriculum development and that sort of activity. I am not at liberty to give much information because it is really within the other department. In addition, there were some grants which focused on innovation type activities. An example that I recall is the assistance to small businesses marketing the benefits of innovation practice in small business. This came out of some work the department did with one of the industry associations. We developed some CD-ROMs and other materials, some of which are on the Internet, and it was taking that to regional areas in Australia and having workshops with small businesses to help them to appreciate how they could improve their outcomes through adopting innovation practices.


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Senator GEORGE CAMPBELL—Is there any coordination of these programs across the three departments?

Ms Berman—There is coordination of all of the BAA across more than three departments because there are regular quarterly reports provided on implementation and spending, memoranda of understanding in relation to aspects of programs where departments share responsibilities, and constant dialogue. It is constantly part of our vision to make sure that we are not duplicating and are informing each other where we are up to in relation to grants so that there is not, for example, the same group being funded by two different departments.

Senator GEORGE CAMPBELL—Ms Berman, is the Innovation Access Program still alive and kicking?

Ms Berman—Indeed it is.

Senator GEORGE CAMPBELL—We are having difficulty finding it on your web site. It seems to have disappeared off the web site for some reason or other.

Ms Berman—The Innovation Access Program?

Mr Peel—Have you checked the AusIndustry web site, Senator?


Mr Peel—I am sure it is there, but I will check it when I get back to the office. We are still delivering the program.

Senator GEORGE CAMPBELL—You told me once before that something was on the web site and it was not.

Mr Peel—The program continues for about another three years, so it is alive and kicking. I believe it is on the web site.

Senator GEORGE CAMPBELL—Mr Paterson, the portfolio statements show an increase of 67 staff. Where are those staff from? The last time we were here we were talking about 161 staff being cut in the department.

Mr Dainer—The increase is about five per cent over what was estimated in May for the budget. There are a couple of contributors to that. There has been a small amount of growth in most of the divisions—a couple here and there. There was an increase of a bit under 20 for the Invest Australia function. The reason for that is that the Austrade people came in. There has also been an increase of five in the Australian Building Codes Board. They are sort of smaller changes across the board, plus that large Invest Australia increase.

Senator GEORGE CAMPBELL—Did that original proposal to reduce by 161 staff ever occur or never occur? Is this 67 on top of the low level or on top of the original figure?

Mr Dainer—The low level.

Senator GEORGE CAMPBELL—So the 161 were cut and then another 67 have been brought in on top of that?

Mr Dainer—That is an estimate of the ASL utilisation for this year, so they might not necessarily be on deck yet.

Senator GEORGE CAMPBELL—Did we ever get a final figure for the actual number of staff that were reduced? I think your estimate was 161, but you said that there would be no forced redundancies; it would be voluntary. Did we ever get down to the full 161?

Mr Paterson—We used no redundancy arrangements at all in the adjustment to staffing levels as part of that process. My recollection of the final number was that it ended up in the


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vicinity of 120—I think 121 was the number. But we are dealing with ASL, so there were some variations in some people moving to part time and some people moving to leave without pay. We will have constant adjustments in staffing levels because of people going on extended leave, maternity leave and a whole range of other things. We used all of those flexibilities associated with people going on different forms of leave as part of the adjustment process.

Senator GEORGE CAMPBELL—But the strength of the department was reduced by approximately 120?

Mr Paterson—I think 121 was the number.

Mr Dainer—I think it was around that.

Mr Paterson—I can get some further detail if the absolute number is material.

Senator GEORGE CAMPBELL—No, it is not.

Mr Paterson—We used all of the flexibilities available to us to adjust the numbers to meet the appropriation to ensure that we continued to deliver the programs we were funded to deliver, but we did not go down the path of using redundancy arrangements as part of that process.

Senator GEORGE CAMPBELL—So basically it went down by 120 and it has now gone up by about 67—as a result, presumably, of these changes.

Mr Paterson—Yes, but, as we identified earlier, the largest group within that is the group within Invest Australia, which would otherwise have gone into an executive agency and now shows up in the departmental numbers.

Senator GEORGE CAMPBELL—Page 16 of the portfolio additional estimates statements shows for the ethanol production subsidy an additional $26 million in 2002-03 and an additional $7 million in 2003-04. Do you know where the subsidy will go?

Mr Hartwell—The announcement by the government on 12 September 2002 was of a production subsidy of 38.1c per litre. The subsidy is provided through contracts with fuel ethanol producers. At this point in time, ITR has entered into contracts to provide the subsidy to Manildra Energy Australia Pty Ltd and CSR Distilleries Operations Pty Ltd.

Senator GEORGE CAMPBELL—And how much of the $33 million will go to Manildra?

Mr Hartwell—At this point we could not give you a precise figure on that. It would be based on the ethanol production of Manildra. They are a significant producer of ethanol so you can expect that it would be a large amount.

Senator GEORGE CAMPBELL—There are basically only two companies involved. You must have some idea what the break-up is between the two companies.

Mr Hartwell—We can provide you with figures up to this point. I believe the amount of the subsidy that has been expended prior to this point in time is around $11 million. Of that, I might ask my colleague here if he has a break-up between the two companies that have received it.

Mr Smith—I do not have a break-up with me, but I can tell you the vast majority is going to Manildra at the moment. I would estimate that it is probably in the order of 90 per cent of the amount that has been expended so far.

Senator GEORGE CAMPBELL—Would your expectation be that that would continue for the two years of this program?


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Mr Smith—Yes, it is, because most of the Manildra product goes to fuel ethanol, whereas most of the CSR product goes to industrial purposes.

Mr Hartwell—I should point out, Senator, that you said the program would last for two years. The announcement by the government back in September 2002 said it would last for one year.

Senator GEORGE CAMPBELL—The appropriations have funding for a two-year period.

Mr Hartwell—It does spread over two fiscal years; that is right.

Senator GEORGE CAMPBELL—I have some questions about the National Infrastructure and Engineering Forum. Were you involved with this action agenda, Mr Pettifer?

Mr Pettifer—Yes. This is one of the action agendas that falls within my division. People from my division worked closely with the industry in shaping that particular action agenda.

Senator GEORGE CAMPBELL—Is it fair to say that this action agenda is probably one of the most advanced action agendas there is?

Mr Pettifer—Many of the action agendas are well advanced. We would regard about eight of them as having been implemented at this particular time. We think it is quite a good action agenda. We think that the National Infrastructure and Engineering Forum, which was formed to lead the implementation of the action agenda, has done a very good job. They have produced some good products.

Senator GEORGE CAMPBELL—I have seen some of the products. What do you attribute that to? What has been a feature of the operation of this action agenda that has led to these positive outcomes?

Mr Pettifer—I think a lot of it has to be attributed to the leadership that the industry has actually taken in taking on the recommendations, pushing them forward and identifying the particular needs that the industry had. I think Alan Broome, who has been closely associated with it, has put a lot of energy into it and that has been very positive.

Senator GEORGE CAMPBELL—How is the implementation phase of the action agenda going?

Mr Pettifer—It is well advanced. I think most of the recommendations have been implemented. There are some questions about where to go from here in terms of how we continue to pursue some of the activities that NIEF has been engaging in.

Senator GEORGE CAMPBELL—Have all of the recommendations been successfully implemented?

Mr Pettifer—I do not have the detail in front of me—perhaps Mr Dean does. The essential answer to your question is that yes, there is one area in which there looks like there is still an outstanding action. It is in relation to a joint industry-government responsibility.

Mr Dean—There were six major recommendations for the action agenda and the report shows that, basically, satisfactory progress has been made on all of them.

Senator GEORGE CAMPBELL—My understanding is that NIEF will run out of funding this month. Has there been any discussion with the department about ongoing funding to ensure this action agenda continues?


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Mr Pettifer—Perhaps I am best able to answer that. We have had discussions with NIEF. We are looking at what might be the best way to take the thing forward. Some of what NIEF has been doing has close parallels with ISONET and with some of the other activities in the department. We are working our way through whether or not we might be best rolling some of those activities into that particular area of activity in the department. I do not see a lot of scope to actually provide new funding for NIEF. In fact, we made it very clear to NIEF at the start that we were able to provide a little bit of seed funding and then it was up to it to raise the remaining funding from industry. It did do some of that, but it is true to say that, at this point in time, it has pretty much exhausted that initial set of resources.

Senator GEORGE CAMPBELL—How much funding does it actually require to continue functioning properly?

Mr Pettifer—I do not have a precise figure for that. It would depend on exactly what activity it pursued going forward. At the moment, there is an executive officer, who is funded, and there has been some funding to produce various publications, which you may have seen. I do not have an exact budget figure in front of me on that—we have not had one from NIEF either—so I really cannot answer that question.

Senator GEORGE CAMPBELL—I have seen some of its publications. Obviously there is a substantial focus not just on getting a share of project work which will be carried out in Australia but on getting involved in some export activities. It has actually tried to broaden the spectrum of activities it is involved in, which seems to be a fairly positive contribution.

It seems to me to be somewhat strange, if the government funds these initial activities, setting up these action agendas to create a certain set of circumstances such as has been achieved here—I am more familiar with this one than I am with some of the others, some of which might be just as effective—and then all of a sudden they cease operating because of a lack of capacity to obtain ongoing funding. It seems to me that they are a bit contradictory and that there is a weakness in the program if that is allowed to occur. I can see the circumstances where we might want to take funding from them if they are not performing adequately, but if they are being effective it would seem somewhat strange that they would wither on the vine for want of funding. I understand from what has been said to me that they are not huge sums of money. The figure quoted to me was about a million a year to keep the thing operating at the level at which it has been operating so far.

Mr Pettifer—I should make a couple of points. First of all, in relation to the sorts of things that NIEF has been pursuing, I did indicate that we were looking at how we might be able to take some of those initiatives forward in another way and we are still looking at that. I do not think it is correct to characterise it as just letting it go because we are still working our way through those particular issues. More generally in relation to action agendas—and there are now 29 of these—they often do not require much government funding and a lot of it is really about catalysing and facilitating industry, setting some directions, and industry then moving forward with those directions or making some changes that do not require any program money as such. In my own mind, there is not a clear link between a successful action agenda and a level of funding. In some cases they will require a little bit of funding to get some things done and I think that has been provided.

Senator GEORGE CAMPBELL—I understand the point you are making. Maybe the door is not slammed shut on NIEF at this stage. It would seem to me to be a tragedy if it were slammed shut, given the quality of the work they have been doing. I think I have asked you this question before and never really got a clear answer concerning the linkages that exist between these various action agendas. There does not seem to be any mechanism for linking


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of some action agendas with the work of others. They will not all be compatible, that is understandable, but obviously some of them will be. For example, concerning the action agenda for building and construction, there has to be some capability with what they are doing and what NIEF is doing. I do not know whether there is ever any attempt to bring these groups together.

Mr Pettifer—We do a bit of that. We do have an area within my division that is responsible for coordinating action agendas and we are in the process of completing a review of the action agendas that we have in place at the moment. Through that group there is a capacity to share some experiences and learning across the various action agendas and the people in that area are involved, as new action agendas are established, in helping set some directions, sharing experiences and those sorts of things. There is also a report put out on action agendas which Mr McKeon has, which runs through some of the key outcomes and those sorts of things. I understand the point. I think there are some actions in play to try to share that learning.

Senator GEORGE CAMPBELL—I do not think we have ever seen that publication. Who do you put these out to? You keep pulling them out of your bag when we ask you questions, but we never seem to see them on the way through.

Mr McKeon—We released this report in March last year. It has been on our web site and it has been distributed fairly widely to most people who have been involved in action agendas and interested parties.

Senator GEORGE CAMPBELL—We are not on the list of interested parties?

Mr Paterson—We are certainly happy to put you on the list.

Senator GEORGE CAMPBELL—Thank you, Mr Paterson. That would be helpful. One final question: when are you likely to finalise the position with NIEF in terms of integration of some of these programs into the department’s activities?

Mr Pettifer—We are scheduling a meeting with them within the next month or so and following that meeting the way we are going to take things forward should be reasonably clear. So we are certainly aware of the issue and are seeking to do something about it.

Senator GEORGE CAMPBELL—While you and Mr Dean are there, I would like to deal with a couple of TCF issues. In April last year, Coogi spent $892,876 of a SIP grant on a luxury US showroom on Rodeo Drive which was never occupied. Are you aware of that?

Mr Dean—I do not have a lot of information here on that, but I do not think it would be correct to say that SIP money was spent on such a thing, because it would not be eligible expenditure.

Senator GEORGE CAMPBELL—I understand what is eligible expenditure and what is not. I am asking whether you are aware that they spent this amount of money on a showroom on Rodeo Drive that was never occupied.

Mr Peel—No, I am not aware of that. It would not be eligible expenditure, as Mr Dean points out, but I would be happy look into the matter and provide some further advice later.

Senator GEORGE CAMPBELL—As you are aware, the company went bust, leaving $3.7 million owed to employees. Was the department not aware of the financial state of the company when these SIP grants were made? Do you take into account the financial operations of companies before you make the grants?

Mr Peel—Grants are dependent on audited financial statements, so we do look at the audited financial statements before grants are approved.


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Senator GEORGE CAMPBELL—How could something like this presumably slip through the net?

Mr Peel—I am sorry, but I am just not familiar with the case. I do not want to stray into areas that I do not know anything about lest I say something inappropriate.

Senator GEORGE CAMPBELL—Who does the audited statements, Mr Peel? Are they independently audited or do you rely on the—

Mr Peel—They are audited by CPA accountants. We require audited statements from them.

Senator GEORGE CAMPBELL—Who are removed from the company.

Mr Peel—Yes, I believe so.

Senator GEORGE CAMPBELL—Do you know when the audited statement for Coogi was done?

Mr Peel—No. As I said, I am unfortunately just not familiar with the case, so I will have to check that for you.

Senator GEORGE CAMPBELL—Can you take that on notice?

Mr Peel—Yes.

Senator GEORGE CAMPBELL—I wonder, Minister, how that sits with your statement in a press release of 9 December 1999:

The scheme has been designed to reward higher performing firms which are prepared to invest and innovate.

Senator Minchin—I have not been following this intimately, I am sorry, Senator Campbell.

Senator GEORGE CAMPBELL—You are doing the figures for the budget?

Senator Minchin—That’s it, mate, I am working hard on the budget here.

Senator GEORGE CAMPBELL—How much are you ripping out of this department?

Senator Minchin—We have got to support the defence forces, Senator Campbell.

Senator GEORGE CAMPBELL—We have got a reasonable idea where money is going to; it is where it is coming from that is worrying me. Given that you are not familiar with this case, Mr Peel, can I ask you to take that question on notice?

Mr Peel—Certainly.

Senator GEORGE CAMPBELL—We might come back to this issue at a later hearing. According to the portfolio statements, there has been $26 million in underspending on SIP since it began. Can you elaborate on why that underspend has taken place?

Mr Peel—It is simply that companies are not submitting claims to the value that was anticipated. So that underspend has been carried forward to future years.

Senator GEORGE CAMPBELL—Does this have anything to do with the change in the regulations that was introduced?

Mr Peel—No, I would not think so.

Senator GEORGE CAMPBELL—That restriction has not led to the underspend?

Mr Peel—We do not believe so.


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Senator GEORGE CAMPBELL—You do not believe so, but have you really got any evidence one way or the other?

Mr Dean—The changes that have made to the scheme since it was conceived have generally had the effect of loosening the eligibility, with one or two exceptions where there was a concern that companies that were not intended to be in the scheme might be able to get in. I think that the way the scheme was initially conceived the spend was based on data provided by companies, and I think we discussed at an earlier hearing that companies projected that they were going to spend a great deal more than they have. That has led to the situation where the spend for the first year of the scheme was not as high as anticipated. But that was based on the information that was provided by the companies in the scheme.

Senator GEORGE CAMPBELL—I just wondered whether you had any evidence that the tightening had actually led to a lessening of the spend or was it simply that the companies have put in excessive bids, maximum bids or ambit bids?

Mr Dean—I think there was a mistaken view at the start of the scheme that somehow companies would protect their claims from modulation if they overestimated what they were going to claim. So I think companies were probably optimistic to start with and probably their own plans have changed over time. But I would say that, in my view, many of the amendments that have been made to the scheme are designed to loosen access, not tighten it.

Senator GEORGE CAMPBELL—The one that was announced by the minister at the estimates hearing was certainly there to tighten the scheme. There was a glaring deficiency in terms of the companies that were able to qualify.

Mr Dean—I think the amendment you are referring to had the effect of defining what a textile was to ensure that non-textile products were not in the scheme, which of course was never the intention—

Senator GEORGE CAMPBELL—in the first place.

Mr Dean—Yes.

Senator GEORGE CAMPBELL—Have any complaints been received by the department about the underspend?

Mr Dean—I would not say there have been complaints. We have had discussions with the industry about what that means and what their plans are, and the industry is obviously interested in the fact that not all of the moneys that were appropriated last year were spent. But I would not say that anyone has complained.

Senator GEORGE CAMPBELL—Mr Dainer referred earlier to the change in the allocation of this money: it is now what you call a ‘special appropriation’. I presume that means that the money is there; it is in a separate pot for the life of the scheme. Hopefully, the Minister for Finance and Administration cannot get his hands on it and spend it in the Gulf or wherever else he wants to spend it. What happens with this allocation if it is not spent over the period for which it has been allocated?

Mr Peel—The underspends are carried forward to the final year of the scheme. So the underspend is always available there for companies to access if they put in claims up to the original value of the scheme. If they do not put in the claims to that value by the time the scheme comes to an end, the money would be essentially returned to consolidated revenue. But it does all stay there for the life of the scheme and continues to be accessible to the participants in the scheme.


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Senator GEORGE CAMPBELL—Is there a time line for when applications have to be in?

Mr Peel—There is a time line each year for applications. I could stand corrected on this but I think it is before April, after the end of the financial year. So the financial year comes to an end, and companies claim for the previous financial year before 1 April.

Senator GEORGE CAMPBELL—Is there any cap on the amount of money that can be allocated in any financial year?

Mr Peel—Yes. In the budget statements that are before you today there is an amount of $130 million for 2002-03; $135 million for 2003-04; $135 million for 2004-05; and, currently, $129.6 million for the last year of this scheme. Any underspends in each of those years, as I said, are carried forward to the final year so that companies continue to have the ability to access those funds.

Senator GEORGE CAMPBELL—But if, for example, in the next financial year you get claims that go beyond the annual amount allocated, is there a capacity for you to service those claims?

Mr Peel—In that case the modulation arrangements for the schemes would apply. So that if we have claims that exceed the amount of money available, or look as if they will exceed the amount of money available, we effectively stockpile the claims until the end of the period and then apply a modulation factor based on the value of the claims against the amount of money available.

Senator GEORGE CAMPBELL—How do you manage this in such a way that, at the end of the period, you are not left with a pot of money that is not expended because the claims have dropped off for whatever reason?

Mr Peel—I do not think I would look at it that way. The idea is that the government has provided a certain amount of money that is available to the industry for particular activities. It remains there for the whole period of the scheme. The intention is to make sure that the money is available to industry, not necessarily to spend it all. If the companies do not put in the claims, they do not have the demand for the amount of funds there, that is returned to consolidated revenue.

Senator GEORGE CAMPBELL—I suppose the question I am posing to you is that there may well be a situation, given the nature of this industry, where the demand could be higher in the earlier years and lower in the latter years.

Mr Peel—That has not been the situation to date. As we indicated, we had an underspend in the first year, which has been carried forward, and so far this year we are tracking under pro-rata, under where we expected to be. So the evidence so far is the other way.

Senator GEORGE CAMPBELL—But it possibly could be, given whatever the outcome of the review is.

Mr Peel—It could be. But the scheme is of course limited by the amount that the government appropriated to us, so we cannot spend any more than we have been given.

Senator GEORGE CAMPBELL—I am not arguing that point. I am merely asking whether there is flexibility year on year in terms of the amount of allocation. There is obviously no lower limit, but there is obviously an upper limit based on what you believe the claims may be in any given year.

Mr Peel—Yes, there is an upper limit each year.


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Senator GEORGE CAMPBELL—You conducted a review into SIP within the department, didn’t you?

Mr Pettifer—We did.

Senator GEORGE CAMPBELL—Are you concerned at the admission in the report that the review could not be conducted properly because of a lack of departmental statistical information and ABS data?

Mr Pettifer—It is true that a lot of the data is fairly historic, but officers spent quite a lot of time talking to individual firms within the industry. Of course, we have a pretty good feel for the way of things through our AusIndustry links as well.

Senator GEORGE CAMPBELL—Why is there a deficiency in the data in this area? It is a fairly significant industry and a fairly significant amount of government money is being spent on it.

Mr Dean—It is a difficult issue. There are probably a number of reasons, but one of the difficulties that applies not just to this sector but across other sectors as well is that the basic definition of industries is changing. What was clearly, say, a manufacturing operation making shirts 10 or 15 years ago can often be providing services in other things now. Actually getting consistency of data is a problem. There is probably somewhat of an issue in the frequency with which ABS collects the data. It is always a difficult issue to get meaningful data on sectors, especially when large parts of them might be characterised by outwork and other structural issues like that.

Senator GEORGE CAMPBELL—Have you had discussions with the ABS about the nature of the data that is being collected?

Mr Dean—I believe we have regular discussions with ABS. We have an outposted officer in our department, so there is regular feedback on ABS data and how we use and access it.

Senator GEORGE CAMPBELL—This obviously has to be of some concern. Presumably the Productivity Commission will be using ABS data. If you are saying that the data is inadequate—

Mr Dean—I am not sure if ‘inadequate’ was the word that was used. I am not sure that it inhibited the review in any significant way. I think that what the team was doing was simply pointing out that it makes it difficult to get a full grasp on what is happening within sectors when there is no ABS data to underpin them.

Senator GEORGE CAMPBELL—But that is essentially the point that I am making. If you are not able to do it in your review, how do we expect the Productivity Commission or the National Audit Office to perform any more effectively? What is the relationship between your review, the National Audit Office audit of the program and the forthcoming Productivity Commission inquiry?

Mr Dean—I think we should be clear that the SIP review was essentially about whether the scheme was working. While it would be nice to have accurate data about the industry, it was really an administrative review on whether the scheme needed modifications. I am not sure that ABS data is the central issue there. Mr Peel, do you want to comment on the ANAO audit?

Mr Peel—I am not familiar with an ANAO audit of TCF SIP, Senator. I know it is on their agenda.

Senator GEORGE CAMPBELL—It is one of the issues that is listed for priority, I think.


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Mr Peel—It is planned—it hasn’t commenced. They still need to talk to us about the terms of reference for their audit. But, as Mr Dean is implying, I think it will be more about the management of the scheme by AusIndustry than the policy issues connected with the scheme.

Senator GEORGE CAMPBELL—But don’t you see a relationship between these three inquiries?

Mr Pettifer—The Productivity Commission inquiry is certainly aware of the review and they were provided with the review document. They are certainly having discussions with us. They may be able to do some special data runs through ABS or something to get more up-to-date data. I imagine they will pursue those particular avenues.

Mr Dean—That inquiry is about what the policy settings are post-2005. The review and audit have been about whether the scheme as it is at the moment is being efficiently and effectively run.

Senator GEORGE CAMPBELL—But, presumably, if the Productivity Commission is looking at the issue of ongoing assistance, or not, to this industry then what is going to be germane to its inquiry is whether or not this scheme has achieved the outcomes it sought to achieve, which were about modernisation of the industry and getting the technology into the industry.

Mr Dean—That is the link.

Senator GEORGE CAMPBELL—This inquiry is saying that the data was not sufficient or adequate to be able to make those sorts of value judgments.

Mr Dean—Again, the TCF review was an internal one and its question was not about broad policy issues. The question it sought to answer was: was the original scheme design, which was intended to increase capital investment and spend on innovation, still appropriate and was it working? The review found that it was. I accept your point but the internal inquiry is slightly different.

Senator GEORGE CAMPBELL—What concerns me is the statement under 2.3.3 which reads: Likewise, statistics from the Australian Bureau of Statistics are not yet available for the time period covered by this Program. This makes it difficult to determine whether the TCF (SIP) Scheme has had a demonstrable quantitative impact on the amount of expenditure on new plant and equipment and R&D/product development by the TCF industry since its implementation.

Mr Dean—I think that is referring to the lag in data collection because it is quite normal through ABS processes. They do things very thoroughly so that what they produce will reflect what was happening 12 to 18 months prior. The review is simply saying that, given that the review was conducted in the first year of the scheme, it was too early to know whether it had been successful in that aggregate way that ABS collects.

Senator GEORGE CAMPBELL—You are confident that the ABS will be able to provide appropriate statistics for the upcoming review.

Mr Pettifer—That is something for the Productivity Commission. I understand they have the capacity to do special runs and those sorts of things. I am not an expert in that area. It is a question you probably need to ask them.

Senator GEORGE CAMPBELL—Presumably, they would be interested in this material also.

Mr Pettifer—Yes.


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Senator GEORGE CAMPBELL—Do you talk to them?

Mr Pettifer—Yes, we do. They have a copy of that report and we will have further discussions with them.

Senator GEORGE CAMPBELL—You said ANAO have not started their audit yet; is that correct? I understood Mr Peel to say that the ANAO audit has not commenced yet.

Mr Peel—No, it has not commenced yet. It is on their work plan and we are expecting them to talk to us soon about the terms of reference, but it has not started as yet.

Senator GEORGE CAMPBELL—Do you know when the Productivity Commission is likely to commence its review this year?

Mr Pettifer—The review commenced late last year in November. The submissions to the review are due by 7 March and a position paper is due in April. The final report is due at the end of July.

Senator GEORGE CAMPBELL—Where is the $700,000 of TCF market development program funding that has been moved from departmental to administrative funding going to be spent? Why is it being moved?

Mr Pettifer—Mr Dainer explained earlier that it was simply a budgetary administrative cleaning up of the accounts because it is grant money and is most appropriately treated as administered, rather than departmental. I think that was the rationale for that. A fair bit of it will be spent this year. I have not got the exact figures in front of me at the moment, but there were contracts entered into under that program and the moneys are meeting our obligations under those contracts for payment. I am not sure I can say much more about that other than, if you wanted a list of the particular activities that were being funded, I think we could provide that.

Senator GEORGE CAMPBELL—Can you provide that to us?

Mr Pettifer—Yes.

Senator GEORGE CAMPBELL—How many staff are employed in the TCF branch of the department?

Mr Dean—There are two areas of TCF activity. One is in AusIndustry—the implementation of the SIP scheme and the related programs.

Mr Peel—In AusIndustry we have approximately 20 staff looking after TCF issues.

Mr Dean—We have approximately six in the TCF policy area and four assisting in the post-2005 review.

Senator GEORGE CAMPBELL—That is 10.

Mr Dean—Yes.

Senator GEORGE CAMPBELL—Presumably those 20 in the AusIndustry area will be there for the life of the SIP program?

Mr Peel—Yes.

Senator GEORGE CAMPBELL—What about the people in the policy area? Are the four people working on the review short-term?

Mr Dean—They are departmental officers, but I would expect that once the inquiry is completed and we have done the work associated with that it will not be necessary to have that group working on that activity any longer.


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Mr Peel—I should clarify that the 20 are not just on TCF SIP. There are another couple of TCF programs that AusIndustry manages and there are about three staff involved in those. So there are around 17 or 18 on TCF SIP.

Senator GEORGE CAMPBELL—Ms Berman, it is the innovation awareness program that is not on your web site. Is there any reason for that?

Ms Berman—There is not. As you mentioned, you were concerned that the previous program was not mentioned on the web site and you are now advising that the awareness one is not there. There must be some technical fault, I think.

Mr Peel—It might depend on where you are looking. If you are looking on the AusIndustry web site, we do not actually manage that program so it would not be on the AusIndustry web site. It is more likely to be on the department’s web site or the Backing Australia’s Ability web site.

Ms Berman—The web site known as Backing Australia’s Ability identifies every program that came in in 2001, then it flips across to the relevant department that manages the program. It should be there, and it was there the last time I had a look, but I will certainly take on notice your concern, because it is not good that information on the innovation awareness program is not available on the web site.

Senator GEORGE CAMPBELL—I was just laughing at Mr Peel’s comment, because we heard that quite often in a recent inquiry I did on small business: ‘It just depends on where you are looking.’ Whether you can actually find the information is another matter. It seems to be a common complaint. So we are not suffering any more than others.

Mr Peel—If we could have one web site with everything on it for the whole of the government—

Senator GEORGE CAMPBELL—Have you put that proposal forward?

Ms Berman—It may be that the call on it is so great that not everybody can get on at once.

Senator GEORGE CAMPBELL—We will take that comment tongue in cheek. The Strategic Investment Program and the Methanex project: Mr Jones, how many of the 150 positions to be created by this project will be held by Australian citizens?

Mr Jones—The positions created by the Methanex project—I do not know. I do not think we have that information.

Senator GEORGE CAMPBELL—The internal company documents, which are outlined in the Trade and Assistance Review 2001-02, show that a number of the 150 full-time positions to be created during the project’s operations will be filled by experienced overseas staff.

Mr Jones—That would be normal for a project of this type—they would bring in some specialised management people from overseas, given that this is an overseas company involved with the project. They may require some specialised technical experts from their company headquarters or from other projects around the world. That would be normal for a project of this type. I would not imagine that the bulk of the work force would be from overseas, particularly in the operations phase of the project. Most people employed, I imagine, would be Australians.

Senator GEORGE CAMPBELL—Would that not be one of the criteria that you look at when you consider funding these projects?

Mr Jones—The proportion of the work force that comes from overseas?


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Senator GEORGE CAMPBELL—No, the proportion of the jobs being created in Australia for Australians.

Mr Jones—We look at the number of jobs that are created in Australia certainly as one of the criteria. The benefits to Australia largely flow from the jobs being here rather than where the people come from to fill those jobs. As I said, in all cases, I would imagine, the bulk of the jobs would be filled by Australians rather than by people from overseas.

Senator GEORGE CAMPBELL—All I am trying to get a handle on is how many out of the 150 full-time jobs are going to be occupied by local people.

Mr Jones—As I said, I do not have that information. We could do some further inquiries, but it would be speculation at this stage. It would depend on things like local labour market conditions at the time and whether they could find the skilled personnel necessary in Australia to fill those jobs.

Mr Hartwell—Recently there were some discussions with Methanex and they did indicate, without putting any specifics on it, that most of the 150 jobs which will be created in the operational phase of the Methanex project would be sourced from Australia.

Senator GEORGE CAMPBELL—Can you take that on notice and have some discussions with companies to see if you can find out what the percentage is going to be?

Mr Hartwell—Certainly.

Senator GEORGE CAMPBELL—I understand there has been a proposal to set up a primary industries automation action agenda. That has been proposed by AEEMA and the AIG. Has this been agreed to?

Mr McKeon—So far they have not made a formal submission about that action agenda, although we have had some indications that they were thinking of it.

Senator GEORGE CAMPBELL—Have they raised with the department about also involving state governments in this process?

Mr McKeon—If it was an action agenda, that would often be the process which would happen in the action agenda. We have not had a lot of discussions with them on this. They have indicated some interest in it, but have not got down to specifics.

Senator GEORGE CAMPBELL—So there have only been informal discussions at this stage?

Mr McKeon—That is right.

Senator GEORGE CAMPBELL—Would the department look favourably upon it?

Mr McKeon—That will depend on the precise nature of the proposal.

Senator GEORGE CAMPBELL—I have a document that is an executive summary of a proposal by AEEMA and the Ai Group that sets out the proposition, some key considerations and conclusions. Have you seen this document?

Mr McKeon—I have not seen that document yet. They have not formally submitted that to us yet.

Senator GEORGE CAMPBELL—What do you mean by ‘formally’?

Mr McKeon—Normally, in March we start a process of identifying new action agendas, where we would go out and talk to other departments, industry associations et cetera to see what particular action agendas they have. It is at that stage that we would expect to see this considered against other proposals for action agendas. It would be evaluated in that context.


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Senator GEORGE CAMPBELL—If they have not submitted it, they have not submitted it. What is the process for selecting the board members for these various action agendas?

Mr McKeon—The process is that, basically, we get opinions from the industry and from across a whole range of skills. We try to get a balance of skills within the leadership group, so we do not want them all to have the same skills or all to have as their favourite one particular issue; we try to broaden it. It normally would involve discussions with the industry association, with a whole lot of interested people who are going to be involved in the action agenda. Then the process is that that is submitted to the minister for approval.

Senator GEORGE CAMPBELL—Is there any attempt, for example, to get a balance on the boards between employer and employee representatives?

Mr Pettifer—As Mr McKeon explained, there is a desire to adequately represent on the action agendas the sorts of issues that are going to be considered. I do not think there is a conscious process of trying to balance employee and employer representatives on the action agenda groups. Really, it is about trying to get some leadership talent on these things and people who are prepared to put a bit of their own time and energy into moving things forward.

Senator GEORGE CAMPBELL—Are there any board members on any of the action agendas who represent the employees in particular industry sectors? I know the government has a veto on trade union representation.

Mr McKeon—A number of action agendas have had union members on the leadership group.

Senator GEORGE CAMPBELL—Which ones were those?

Mr Pettifer—Automotive, and textiles, clothing and footwear were a couple. Supermarket to Asia is another that comes to mind.

Mr McKeon—I cannot find my complete list; I do not know whether I have it here.

Mr Pettifer—Unions have at least been consulted as part of developing the action agendas in relation to automotive; forest and wood products; Supermarket to Asia; national food industry strategy; textiles, clothing and footwear; and leather.

Senator GEORGE CAMPBELL—When were those action agendas established?

Mr McKeon—Action agendas in general?

Senator GEORGE CAMPBELL—The ones just mentioned by Mr Pettifer.

Mr McKeon—Most of those were established early on in the action agenda process, except for the National Food Industry Strategy, which was conducted last year. The automotive, forest and wood products and textiles, clothing and leather were earlier action agendas.

Senator GEORGE CAMPBELL—Mr Pettifer, can you give us a figure for the number of employee representatives that are sitting on action agenda boards?

Mr Pettifer—Across all of the action agendas now?


Mr Pettifer—I cannot give you that figure off the top of my head.

Senator GEORGE CAMPBELL—Can you take it on notice?

Mr Pettifer—It would not be a large number, I suspect, but I am happy to take that on notice.


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Senator GEORGE CAMPBELL—Could you give us the number and what that represents as a percentage of the total number of people sitting on boards? On average, how many board members are there in these action agendas? Is there a set figure or does it vary?

Mr McKeon—There is not a set figure. It does vary. We typically aim for about 10, 11 or 12 on the boards.

Senator GEORGE CAMPBELL—And are there selection criteria? Do you have formal selection criteria written down?

Mr McKeon—There are no formal selection criteria. It is basically about trying to identify those people who really are interested in driving their industry forward. Having a mix of skills is the sort of selection criterion we apply.

Mr Pettifer—It is probably worth saying that, while they might not be an employee representative as such, the members of these boards are all concerned about business issues and issues relating to training and workplace reforms, flexibility and all those sorts of things get considered. So it is not that they are ignored.

Senator GEORGE CAMPBELL—Are there any guidelines set down for these board members with respect to attendance or what you require from them performance-wise or do you just throw them in a room and say, ‘Go for your life’?

Mr Pettifer—There are no formal guidelines as such, but they are coming to the table with a clear task and normally the practice would be to set a timetable of work and allocate some responsibilities and that sort of thing, so that sort of process goes on.

Senator GEORGE CAMPBELL—How do other people in the industry access these board members? Do the action agendas have a web site? Is the membership of the action agenda publicised in the industry?

Mr McKeon—Yes, we do have a web site on which all action agendas are listed and which provides information about their various states of development. Any major reports that they complete are published there and information about the leadership group of the individual action agendas is also published on that web site.

Senator GEORGE CAMPBELL—So the web site contains the names of all the board members on the various action agendas?

Mr McKeon—Yes.

Senator GEORGE CAMPBELL—Does it say how they can be contacted?

Mr McKeon—Normally the contact officer would be someone who is on the secretariat, and if people wanted to get in contact with them we could arrange it through that mechanism.

Mr Pettifer—These people are normally pretty well known within their industry sectors anyway because, as I said before, one of the things we like is those people who stand out a little bit in terms of their leadership qualities and so they are normally reasonably well known amongst their peers.

Senator GEORGE CAMPBELL—How many women are on these action agenda boards?

Mr Pettifer—We do not have that number. We could count them if you like and give you a figure, but I do not have that number in front of me.

Senator GEORGE CAMPBELL—Could you take that on notice? Also, could you take on notice which action agenda boards have women on them?

Mr McKeon—Yes, we will take that on notice.


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Senator GEORGE CAMPBELL—Minister, I have a couple of questions for you about your chief-of-staff, Mr Schneemann. When did Mr Schneemann first indicate his intention to resign to take up a position with Medicines Australia?

Senator Minchin—I am curious about the relevance of the career of my former chief-of-staff in relation to these estimates, but I will answer questions that I deem to be appropriate or not utterly irrelevant. What was your first question?

Senator GEORGE CAMPBELL—When did he communicate to you his intention to resign as your chief-of-staff to take up a position at Medicines Australia?

Senator Minchin—My recollection is that he indicated to me late last year—I guess it was December—that he had been approached by Medicines Australia amongst others to see whether he had any interest in the vacant position of chief executive of that organisation. We had a discussion about it and I indicated to him that he ought to consider that career opportunity seriously, given the length of service he had given to the government.

Senator GEORGE CAMPBELL—When did his resignation take effect?

Senator Minchin—I think it was 31 January, from recollection.

Senator GEORGE CAMPBELL—Were there any safeguards put in place in your office or in the department to ensure that any sensitive information that was available to Mr Schneemann was appropriately safeguarded?

Senator Minchin—I trust Mr Schneemann and his integrity absolutely. I have no reason to doubt that he would operate with great integrity at all times and would be conscious of the legal arrangements that apply in relation to former advisers to ministers in their post-parliamentary or post-ministerial careers.

Senator GEORGE CAMPBELL—I am quite sure you would have high regard for him, otherwise you would not have employed him as your chief-of-staff for five years—I think that was the period.

Senator Minchin—Correct.

Senator GEORGE CAMPBELL—But that is not really the question I am asking. I am not intimating any mistrust of Mr Schneemann. I am asking whether or not there have been any safeguards put in place, particularly after the Wooldridge affair, to ensure that those types of events do not occur again. For example, was there a date on which Mr Schneemann’s email accounts and computer system log-in were disabled?

Senator Minchin—With any staffer that leaves—as you know, there is a reasonable turnover of staff in ministers’ offices—the normal protocols apply. Obviously, from the date of the termination of their employment, all access to all government facilities ceases. I am satisfied that that was certainly the case in the case of Mr Schneemann.

Senator GEORGE CAMPBELL—Mr Paterson, have there been any meetings between representatives of the department and Mr Schneemann since that resignation from Senator Minchin’s staff?

Mr Paterson—I cannot answer that emphatically, but none that I am aware of.

Senator GEORGE CAMPBELL—Is anyone aware of any meetings that have been held?

Mr Paterson—Was your question about prior to his departure?

Senator GEORGE CAMPBELL—No, since his departure.


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Mr Pennifold—I can confirm that Mr Schneemann was amongst a delegation of people that met with the industry minister on Monday afternoon of this week.

Mr Paterson—Senator, I thought your question was in relation to any meetings between the announcement of his appointment and his resignation.

Senator GEORGE CAMPBELL—No, it was from the start of the period when he took up office with Medicines Australia. Was that a general discussion about the state of the pharmaceutical industry?

Mr Pennifold—Yes, it was.

ACTING CHAIR (Senator Watson)—The committee will break until 11 o’clock.

Proceedings suspended from 10.41 a.m. to 11.01 a.m. Senator GEORGE CAMPBELL—Mr Dainer, I would like to come back to the budget

rephasing questions which I was asking earlier on. What confused us was that the table I have is actually from an answer to a question on notice from the Department of Finance and Administration. They said that for outcome 1 there was in this department rephasing of $8.8 million in 2001-02, $8.816 million in 2002-03, $7 million in 2003-04 and then minus $700,000 in 2004-05. I will go back to the questions I asked earlier. Firstly, why is there such a significant change between 2003-04 and 2004-05? This may have been because they were only projections. What specific programs have been affected by this rephasing? I was told during the break that you have not even seen this document.

Mr Dainer—I have not seen that document.

Senator GEORGE CAMPBELL—Are you aware of it, Minister?

Senator Minchin—Do you mean the Department of Finance and Administration answer to the question on notice?


Senator Minchin—No, I do not think I have laid eyes on it.

Senator GEORGE CAMPBELL—Apparently it sets out this rephasing of annual administrative expense appropriations for all departments.

Mr Dainer—At what point? Is that as reflected in additional estimates?

Senator GEORGE CAMPBELL—It does not say in the document which I have. It is from the supplementary estimates hearings.

Mr Dainer—Is it for variations which are going through this additional estimates process?

Senator GEORGE CAMPBELL—It is the 2002-03 budget rephasing from 2001-02, so I presume it is the total rephasing.

Mr Dainer—Is that from 2001-02?

Senator GEORGE CAMPBELL—It is from 2001-02 to 2004-05.

Mr Dainer—Can I have a look at the document?

Senator GEORGE CAMPBELL—Yes, sure.

Senator Minchin—Presumably that is just a summary of those rephasings that were announced in the last budget.

Mr Dainer—Can you give me a little time to see if I can reconcile what is here?


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Senator GEORGE CAMPBELL—Sure. While Mr Dainer is doing that, I have some questions about the relationship of the department with the National Association of Testing Authorities. Who is the appropriate officer to refer those to?

Mr Paterson—Ken Miley.

Senator GEORGE CAMPBELL—Mr Miley, can you advise us what pieces of legislation cover the operation of NATA and the quality assurance of Australian laboratories?

Mr Miley—There is no legislation as such. The National Association of Testing Authorities is a private organisation, and it is incorporated as a company with liability limited by guarantee.

Senator GEORGE CAMPBELL—How is its quality assurance measured?

Mr Miley—Its activities are governed by its rules. The association is a body which is governed by its council, which incorporates representation from governments and also from the disciplines that are covered by the authority. The members themselves are generally the laboratories that are accredited by NATA. It is an organisation which maintains its reputation in the market by continual review by its council membership.

Senator GEORGE CAMPBELL—Is it fair to say that it is self-regulating?

Mr Miley—Yes, in a sense. It is self-regulating, and its concern is to maintain its reputation. To a large extent, the activities of the association are carried out by volunteers in the sense that the assessors that are sent out by the association to laboratories are not employees and are not remunerated directly. They come from the discipline or industry that the laboratory works in. It is a form of peer review which is supervised by the staff of NATA, the management and the board.

Senator GEORGE CAMPBELL—What constitutes the board of NATA?

Mr Miley—I cannot say definitely that the rules dictate any particular membership, but the membership of the board—and I was a member of the board until quite recently, and the department by tradition has had a member on the board—now to some extent comprises people who own or manage laboratories. The head of the National Measurement Laboratory, which is an organ of the CSIRO, is also a member. The chief executive officer of NATA is a member. The majority would come from the laboratory industry—pathology, non-destructive testing and that sort of thing.

Senator GEORGE CAMPBELL—Does the department provide any financial or logistical support to the NATA board?

Mr Miley—Yes, to NATA itself under a program for which I do not recall the exact nomenclature but which is broadly termed as assistance to industry infrastructure bodies. That is not exactly correct, but I can check the name. There are grants in aid provided to NATA for its national interest and international activities. I suppose the government’s main interest in the activities of NATA is to maintain the reputation of certification in Australia for the purposes of trade. A grant in aid is also provided under that program to Standards Australia, again largely directed towards supporting their international activities.

Senator GEORGE CAMPBELL—Mr Miley, I think you said just a few moments ago that you were no longer on the board. Who now represents the department on the NATA board?

Mr Miley—I resigned from the board, and we expect that at the next board meeting another officer of the department will be coopted to the board. I was coopted to replace a


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previous occupant of the position from the department. There has been a certain amount of turnover.

Senator GEORGE CAMPBELL—How long were you on the board?

Mr Miley—I was on the board from approximately May-June of last year.

Senator GEORGE CAMPBELL—Does the department consider it important to maintain that relationship with NATA?

Mr Miley—The relationship between the Commonwealth and NATA is described in a memorandum of understanding, and I think that is the base document and the base expression of the relationship. The membership of the board of NATA has been in existence for a long time. It certainly provided, and provides, the department with a window on what is going on in NATA. It allows a more intimate relationship, but it also has some dangers. That is the reason I resigned and another officer is taking up the board membership. I administer the grant in aid, which is this disbursement of money to NATA, and we perceived that there was a possibility of a conflict of interest in the sense that there is a contract between NATA and the Commonwealth that I administer and that I was also on the board of NATA, seeking on the other side of that contract to avoid that problem. I have left the board and an officer who does not have those responsibilities and has had no connection with those functions within the department will take up the board membership.

Senator GEORGE CAMPBELL—During your period on the NATA board were you aware or made aware of, or was the department aware of, a number of complaints raised with NATA over the past 15 months in relation to alleged fraud in the testing of equipment by a company called Pilbara Non-Destructive Testing?

Mr Miley—Yes, I was.

Senator GEORGE CAMPBELL—Was the minister made aware of these complaints?

Mr Miley—He was made aware through a letter sent to him by the complainant.

Senator GEORGE CAMPBELL—Do you know when he was first informed of the allegations?

Mr Miley—I would have to check the exact date, but I think it was about the middle of last year, in July or August last year.

Senator GEORGE CAMPBELL—And you say that his initial information was from the complainant.

Mr Miley—Yes.

Senator GEORGE CAMPBELL—As a result of the minister receiving the complaint, did he seek a briefing about the matter from you or from the department?

Mr Miley—He referred the letter to the department, and I wrote to NATA and sought clarification of the issues. The subsequent correspondence with the complainant was from the department. So the minister referred the matter to the department to deal with in the first instance.

Senator GEORGE CAMPBELL—Can I have a copy of the letter that you sent to NATA and any response from NATA to your letter?

Mr Miley—I am not sure. We might have to take advice.

Mr Paterson—Can we take that on notice, Senator? I do not anticipate that there would be an issue, but if there is a reason for not providing it we will come back to you.


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Senator GEORGE CAMPBELL—Okay. Have there been any further discussions with NATA other than that correspondence?

Mr Miley—Yes. They responded and I raised some further issues. The matter was discussed in the board. Subsequent to that, the board initiated a further review of the examination of those complaints. Late last year that review was considered by the board. The board came to its conclusions about the complaints, informed the complainant of the outcome and offered the complainant a briefing, which the complainant has now participated in.

Senator GEORGE CAMPBELL—Was the complainant advised in writing of the considerations of the board and the outcomes of the board’s review?

Mr Miley—The letter from the chief executive of NATA indicated the conclusions of the board and offered the briefing.

Senator GEORGE CAMPBELL—Did NATA make available any written documentation to the complainant in respect of the inquiries it undertook on this matter?

Mr Miley—As far as I know, apart from correspondence with him, no. But there have been a number of items of correspondence. In the latest item of correspondence there has been considerable exposition of why certain conclusions were reached. But of the base documentation, which is largely documents of the laboratory that was under examination, documents of their commercial transactions were not made available.

Senator GEORGE CAMPBELL—Does the NATA board keep minutes of its meetings?

Mr Miley—Yes.

Senator GEORGE CAMPBELL—Are these public documents?

Mr Miley—I understand they are available to the council, which is the governing body.

Senator GEORGE CAMPBELL—On notice, could you provide us with the minutes of the meetings of the NATA board relating to this particular issue.

Mr Paterson—We will take it on notice.

Senator GEORGE CAMPBELL—Were any penalties or sanctions applied to PNDT as a result of the internal NATA review?

Mr Miley—Yes.

Senator GEORGE CAMPBELL—What were those penalties or sanctions?

Mr Miley—In essence, they were placed on a much more regular cycle of reassessment. The common cycle, as I understand it, is approximately biennial. I want to clarify that this is a single laboratory of PNDT. PNDT is a large organisation. Its reputation is under examination here, but it is a single laboratory of PNDT—the Melbourne laboratory—which was subject to these complaints. It was placed on a cycle of six-monthly reassessment. The costs of reassessment are to its account. So there are costs involved in doing it.

Senator GEORGE CAMPBELL—Have the circumstances that occurred with the testing been discussed within the department?

Mr Miley—Yes.

Senator GEORGE CAMPBELL—Has the department taken any action in respect of the matter?

Mr Miley—The department took the action of corresponding with NATA. The memorandum of understanding between the Commonwealth and NATA provides that NATA


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will respond to any concerns expressed by the Commonwealth—the Commonwealth is much broader than our department, but in this case it was our department—and that they will provide feedback on the outcome of those concerns. That is the only capacity the department has. The department has no regulatory role in relation to NATA and there are no provisions for penalties or discipline. I hasten to say that I am not implying that there would be a need for that in this case.

Senator GEORGE CAMPBELL—I am presuming that you would have a pretty strong power of persuasion.

Mr Miley—They have certainly responded fairly readily and thoroughly in this case, which is the only case that I have been involved with.

Senator GEORGE CAMPBELL—Is there concern in the department about the allegations and, I suppose more importantly, the consequences for industrial safety if those allegations were in fact correct?

Mr Miley—I suppose that, if the allegations had proven to be as adverse as was being asserted, there would have been concerns, yes. But, in my view, the examination that occurred has led to a view that there was no threat to public safety in any of the events that were reported by the complainant.

Senator GEORGE CAMPBELL—So there was no threat to public safety in the alleged falsification of records that equipment had been tested when it had not been tested? Was the equipment retested?

Mr Miley—The particular item of equipment that you are talking about I understand was taken out of service.

Senator GEORGE CAMPBELL—It was taken out of service after the complaint was made?

Mr Miley—Yes.

Senator GEORGE CAMPBELL—I understand that there were two areas: an alleged false report of a magnetic particle test on piping and an alleged falsified report on testing on metal casting of a ship onloader—a crane that was destined for use in a West Australian coal mine.

Mr Miley—There were wheels that had come from that, yes.

Senator GEORGE CAMPBELL—But you are confident and NATA is confident that there were no potential safety issues involved during the period between when the test took place, or did not take place, and when the equipment was taken out of use?

Mr Miley—Yes, that is my reading of the conclusions.

Senator GEORGE CAMPBELL—What period was that?

Mr Miley—Sorry, which period?

Senator GEORGE CAMPBELL—The period from when the alleged tests were supposed to have been undertaken to when the equipment was taken out of use or decommissioned.

Mr Miley—There were three events, not two. There was a calibration test of a piece of equipment which was incorrectly documented. That was the most serious adverse finding of the NATA board. In relation to the two other events, which were the magnetic particle testing of welds on some sections of pipe and the ultrasonic testing of some cast iron wheels, the conclusion was that there was no improper behaviour and no threat to public safety


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consequent from either of those. The piece of equipment that was taken out of service was a permanent magnet. That is quite separate from those other two events. The investigation has consistently revealed that, from the time of that calibration test to the time it was removed from service, it was not used. So its use could not have had any impact—it was not used in any test that could have been false.

Senator GEORGE CAMPBELL—Has the NATA board considered or has the department encouraged NATA to do any checking of any other reports by either this company or other companies with respect to any potential falsification?

Mr Miley—There was one other complaint, which came through the department. That went to NATA for investigation, and it has been investigated. That is all I can say.

Senator GEORGE CAMPBELL—That is currently under investigation?

Mr Miley—The investigation has concluded.

Senator GEORGE CAMPBELL—Does it relate to the falsification of documents?

Mr Miley—I would have to refresh my memory as to whether it could be categorised in that way. It was not at all related to non-destructive testing; it was a different testing discipline.

Senator GEORGE CAMPBELL—Could you also take on notice to provide us with copies of the minutes of the NATA board’s considerations of that issue?

Mr Miley—Sure.

Senator GEORGE CAMPBELL—Are you aware of whether NATA itself has done any checking with these laboratories with respect to their testing reporting? Was there any random checking as a result of the experience here and NATA’s second experience that you talked about?

Mr Miley—In terms of extraordinary examination of laboratories, NATA relies to a large extent on the provision of complaints. It has a regular assessment and accreditation program for anyone who is accredited with NATA, where a team goes in and examines the laboratory for accreditation on whatever tests they are seeking accreditation for. That has been NATA’s modus operandi throughout its history—although perhaps I am not an expert on its history, not having been there for very long. But they go back to about 1947, I think, when NATA began. Over the last year, NATA has brought into play a procedure whereby a more independent member of staff or someone who does not come from that particular assessment discipline oversees the investigation of complaints to ensure that the process is as forensic as possible, that assumptions are not made—that sort of thing—and that it is done on a completely objective basis.

Senator GEORGE CAMPBELL—Are you or the department aware of whether or not the Victorian workplace safety authority has been involved in the investigation process?

Mr Miley—I am not aware that it has had any involvement, no.

Senator GEORGE CAMPBELL—Has the department or NATA alerted or advised the appropriate Victorian authorities that the allegations were made?

Mr Miley—NATA has not advised any authorities.

Senator GEORGE CAMPBELL—Who have they advised?

Mr Miley—They have advised the laboratory of the outcome of their investigation and the complainant, because the complainant provided useful information.


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Senator GEORGE CAMPBELL—Mr Miley, do you believe that NATA has the necessary financial resources to undertake a full review and investigation of all industrial equipment that may be defective, if these allegations are proved to be correct?

Mr Miley—That is a question I could not answer. You would have to direct that question to NATA. I am not sure of the scope of what you are suggesting they should do.

Senator GEORGE CAMPBELL—I am asking whether NATA has the resources available to it to check on the activities of all these laboratories that are part of the group to ensure that they are meeting quality standards.

Mr Miley—It charges those laboratories on a fee for service basis. NATA is in surplus, in the sense that not only is it solvent but it made a profit last year. In that sense, it is not in any sort of financial straits. In the view of its board, I am sure it would regard its activities as being adequate for the purpose of proper accreditation of laboratories.

Senator GEORGE CAMPBELL—NATA’s web site says the company is independently evaluated on a regular basis by its international counterparts to ensure its operations remain in line with international practices. Who are these international counterparts that evaluate NATA, and do they evaluate each of the laboratories?

Mr Miley—Again, I would be out of my depth on the detail of how that assessment is carried out. ILAC, the International Laboratory Accreditation Cooperation, is the body that NATA is a member of and takes an active role in. They are shortly to be subjected to that examination.

Senator GEORGE CAMPBELL—Does that include an examination of the individual laboratories?

Mr Miley—I presume they would look at some cases. I cannot tell you the detail of how that accreditation is carried out. I would have to seek that information from ILAC.

Senator GEORGE CAMPBELL—I have one final question for Mr Miley: has the minister been informed of the outcome of the NATA investigations into this alleged incident?

Mr Miley—He has, and quite recently.

Senator GEORGE CAMPBELL—Was that information given in writing?

Mr Miley—Yes.

Senator GEORGE CAMPBELL—Can you take on notice, Mr Paterson, whether or not we can get a copy of that letter? I understand the sensitivities there.

Mr Miley—It is a brief, yes.

Mr Paterson—I will take it on notice, but I expect that the answer would be no. Certainly, the correspondence that might be provided from the minister to the complainant is something that is likely to be tabled; it would be uncommon for a brief, given that it provides advice.

Senator GEORGE CAMPBELL—I suppose I am differentiating between what might have been a brief or what might have been a letter to the minister saying that procedures had been completed and this was the finding. I think it does not quite fall in the brief category. Can you understand the point I am making?

Mr Miley—We shall see.

Senator GEORGE CAMPBELL—Thank you, Mr Miley. Mr Dainer, did you work that out?


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Mr Dainer—I will have to take this on notice. I am not quite sure of the timing of how this information has been prepared. I am sure there is an explanation for it. For instance, if you are talking about rephasings from 2001-02 to out years, you would not have a number in the 2001-02 year. That is an issue. This may relate to a prior year’s rephasings into out years, but I am happy to take that on notice and talk to Finance about it.

Senator GEORGE CAMPBELL—Okay, thank you. The minister is sitting here. Perhaps he can explain it to you. I am sure he is about as enlightened as I am about how those figures got there.

Senator Minchin—That seems about right.

Senator GEORGE CAMPBELL—Dr Edwards, are you concerned that the number of pooled development funds, PDFs, declined for the first time last year?

Dr Edwards—It is always worrying to see numbers go down but, given the state of the venture capital market and the investment market, it is probably not surprising. There has also been a number of PDFs that have not raised capital over that period that have chosen to wind up, and I think that has contributed to those figures. They were never active and they have chosen, for commercial reasons, to wind up. That has contributed to it as well.

Senator GEORGE CAMPBELL—Are there any other reasons why there has been a significant decline? I think $48 million raised in 2001-02, which is about a third of what was raised the previous year, is a significant decline in a short period of time.

Dr Edwards—It is, but our feeling is that it just reflects the investment market and the venture capital market at the time. We have no evidence for any other reason for that.

Senator GEORGE CAMPBELL—Have the IIFs impacted on this area?

Dr Edwards—I would not have thought so. I have no direct evidence. I look after the IIFs from a delivery point of view, as well as the PDFs. I have no evidence that indicates that that is the case.

Senator GEORGE CAMPBELL—Are they suffering a similar experience? Is there decline in activity in the IIFs?

Mr D. Clarke—The IIF portfolio has some distinct differences from PDFs, given their early stage focus. The round 1 IIFs are pretty much all fully committed in terms of investments that they are going to make, and the round 2 funds are still proceeding to make investments. It is certainly true that they have slowed down in the IT dotcom sector, but the round 2 IIFs are still proceeding in an as expected manner.

Senator GEORGE CAMPBELL—In the annual report of the PDF board the chairman noted that, of the 12 companies whose PDF registration was revoked, the majority had it revoked at their request. Can you outline the reasons for revoking the registration of each of the other companies?

Dr Edwards—From memory, there was only one where there was a revocation that was not at the request of the company. That was the one we discussed at the last estimates hearing. It was where the board, after extensive discussions with the company and having taken extensive legal advice from the Australian Government Solicitor, believed that the fund was in breach of the act.

Senator GEORGE CAMPBELL—So it was only the one company?

Dr Edwards—I will confirm that, but my understanding is that the only revocation that has not been at the request of the PDF has been that one company.


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Senator GEORGE CAMPBELL—Would you check it out, because I am curious as to why he used the term ‘majority’.

Dr Edwards—It is the majority.

Senator GEORGE CAMPBELL—It certainly is. It is an absolute majority, an overwhelming majority; but I think the word might have been used for other purposes than that.

Dr Edwards—There was no intent behind the word; it was just a word I chose at the time.

Senator GEORGE CAMPBELL—I will take your word for it.

Senator LUNDY—Following the passage of legislation relating to the VCLP, I understand that the PDF Registration Board will be taking up the management of that program. Can you provide an update of that activity?

Dr Edwards—Yes. We have application forms available and information material on our web site. We have had discussions with Invest Australia about the international marketing, just to get a feel for where that is up to. Next week Invest Australia will be reporting on their activities in that area to the PDF board, just to give the board some comfort. There is a discussion scheduled with the PDF board next week on what activities we need to raise awareness a little bit further in Australia. You will be aware that a number of the intermediaries and venture capital companies have been doing quite a good job in that area for us to date.

Senator LUNDY—You have anticipated my next questions: what activities are taking place? What sort of global promotion of the changes are planned, particularly in light of the current and ongoing downturn? What is the difficulty in getting those funds fully subscribed? It sounds like I will need to come back to those issues in the budget session and see how they are developing then. What was the response following the passage of the legislation generally? Are you able to reflect on that? I presume it was very positive.

Dr Edwards—Yes. There was a lot of positive comment in the press, and we have seen lots of positive comment at this stage.

Senator LUNDY—Is the department itself a contact point for interested participants in that program?

Dr Edwards—Yes, we do provide information. It is referred through our hotline, our web site and other channels that we have to enter the department.

Senator LUNDY—You mentioned before other organisations, like the Venture Capital Association, which are involved in that promotion and spreading the word, if you like. What sort of activities is the department engaging in perhaps jointly with that association to help promote the program?

Dr Edwards—We are actually having a discussion at the board meeting next week about some of the domestic things that we can get involved in. Our marketing team, at the request of the board, is giving some thought to that, but we have not crystallised a domestic approach yet, other than dissemination through our offices.

Senator LUNDY—I have a couple of questions now about the National Australian Technology Showcase. How many members does the National Australian Technology Showcase have?

Ms Butler—Just to give a bit background, the National Australian Technology Showcase is an initiative of the Commonwealth government and four state governments: New South


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Wales, Queensland, the ACT and Victoria. At the moment, I am not quite sure of the exact numbers, but well over 300 technologies are listed on the showcase.

Senator LUNDY—What is the Commonwealth’s financial contribution to the showcase?

Ms Butler—The Commonwealth’s financial contribution to the showcase is a $100,000 grant, which is used for promotional purposes and international marketing.

Senator LUNDY—What did the state governments contribute?

Ms Butler—The state governments actually fund the showcase through payments to the service provider for logging the technologies onto the site. There is a payment per technology—I cannot remember what that figure is—which they contribute. Basically, the state governments fund the cost of running the infrastructure of the showcase.

Senator LUNDY—Who is engaged to do that?

Ms Butler—The service provider is the New South Wales government.

Senator LUNDY—I presume they pay for themselves.

Ms Butler—In fact, they do.

Senator LUNDY—I have had a quick look at the web site, and the selection criteria seem quite involved. A panel or board makes the selections. Is there an appeals system associated with that if people apply and are rejected?

Ms Butler—The model for delivery of the showcase is a system of selection process, which is documented, and each jurisdiction applies that selection process to their jurisdiction. So they tailor the selection to suit their jurisdiction based on the model and the intellectual property developed by the New South Wales government. It is difficult to respond to your question without having to go back and check each jurisdiction’s arrangements. I can take that on notice.

Senator LUNDY—The web site shows the selection criteria of 10 quite broad guidelines. It certainly does not make a distinction between jurisdictions.

Ms Butler—That is correct. The selection criteria are the same criteria across the showcase. The selection process that sits behind those criteria may be tailored. Each technology applicant is assessed against those same criteria.

Senator LUNDY—Sorry, I misunderstood that. Can you take on notice how many members there are from each state and who they are? I presume there is no secret about that. I suspect they would want to promote themselves like mad. I could not find on the web site who was a member of the showcase. Of course, that might be due to my inadequate web-surfing skills.

Ms Butler—There is a button on the web site called members, and all the technologies are listed there and would have their jurisdictions listed under that. I can certainly provide you with that information.

Senator LUNDY—I can get to members, but it has a member login and I cannot see any other information. It does not matter, I am sure you will get it to me.

Ms Butler—I will indeed.

Senator LUNDY—Finally, why is it only some states? Is it purely up to them? Is it in train to get Western Australia and the Northern Territory involved? What is happening there?

Ms Butler—The genesis of the National Australian Technology Showcase is the result of an Olympic Business Roundtable initiative which was originally sponsored by the New South


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Wales government. They approached the Commonwealth with a view to having it as a Commonwealth initiative. The New South Wales government and the Commonwealth were keen to look at the program as a value-adding proposition. It is something that we would like the jurisdictions to sign up to because they see the benefits in participating in the program. That said, we then had Queensland, Victoria and the Australian Capital Territory governments sign up. We had an expression of interest from the Western Australian government last month, and we will be pursuing that. We are still in open dialogue with the other jurisdictions.

Senator LUNDY—What relationship does it have with Invest Australia or other strategies to promote Australian capability overseas?

Ms Butler—There is a national management committee of the National Australian Technology Showcase and Austrade are a member of that national management committee. We actively engage with them on the international promotions and seek to partner with them for most of the promotions that we undertake. We also have active dialogue with Invest Australia.

Senator LUNDY—Is that how the $100,000 will be spent—tapping into Austrade initiatives overseas and, in particular, promoting the technologies contained within the member companies?

Ms Butler—Yes.

Senator LUNDY—Could you also provide me with details about what international events the showcase has participated in and the associated costs with each initiative? Provide as much detail as you can.

Ms Butler—We can do that.

Senator LUNDY—And, finally, with those international initiatives, can you tell me what contribution member companies have to make—whether they have to provide a stand or staff and airfares to get to that particular event?

Ms Butler—Yes, we can provide that information.

Senator GEORGE CAMPBELL—I have a table in front of me provided by the minister which shows that less than $800,000 has been spent on COMET in each month of this financial year. If that trend were to continue, it would appear that the COMET program would spend only about $6 million over the 2002-03 financial year, which is well under the $11.65 million that has been budgeted. Can you explain why there is an apparent underspending in this area?

Dr Edwards—It is not an area of great concern for us at the moment because there is only $300,000 approximately that is not committed in this year. So, while we may not have paid the companies, we owe the companies a significant amount of money this year. We are currently going back and verifying with every company how much they are likely to spend this year, but at this stage there is only just over $300,000 not committed to be paid this year.

Senator GEORGE CAMPBELL—Your expectation is that there will be a flood of funds in the last two or three months?

Dr Edwards—Our expectation is that we will spend the money that we have available.

Senator GEORGE CAMPBELL—The full $11.65 million?

Dr Edwards—Yes, and note that we are going back and asking companies now to tell us again exactly what their requirements are for the second half of the year. That may have some bearing on it.


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Senator GEORGE CAMPBELL—Does this indicate that the department does not have the money available to it?

Dr Edwards—No. As you get later in any financial year end, the agreements you enter into have less of a fiscal impact in the current year and, as we approach the year, by the time we make the approval and enter into a contract, the impact tends to be in the following financial year.

Senator GEORGE CAMPBELL—So the expectation is that this chart will suddenly take off?

Dr Edwards—That is what we are working very hard to achieve; that is our job.

Senator GEORGE CAMPBELL—I suppose we can only test that when we come back to the next estimates. In the IR&D board’s annual report, page 28, there is a table which sets out Commonwealth budgeted expenditure. It shows the figures for 2001-02 through to 2004-05. It shows a drop in the allocation from $11.65 million this year to $7.65 million in 2003-04 and 2004-05. Does this correspond with the original figures in Backing Australia’s Ability?

Mr D. Clarke—This was the item we discussed at some length at the previous hearing, where the profile that was announced in BAA was subsequently modified and the large peak was smoothed over a number of years.

Senator GEORGE CAMPBELL—The double year, yes.

Mr D. Clarke—Yes, so that double year was smoothed out. The number you see in the board’s report reflects that smoothing out. The gross dollars are the same as announced in BAA but the annual profile was changed.

Senator GEORGE CAMPBELL—What does that mean in terms of the common advisories?

Mr D. Clarke—As we discussed last time, the adviser network was adjusted to reflect this funding profile. We have now completed that adjustment and we are now operating with the equivalent of 10 full-time advisers—11 individuals—two of whom are part time.

Senator GEORGE CAMPBELL—So it will continue on with the 10?

Mr D. Clarke—Correct, and we believe the 10-adviser network is tailored to that forecast expenditure in the program over the next few years.

Senator GEORGE CAMPBELL—This is the $40 million allocated?

Dr Edwards—That was the funding allocated in BAA, yes.

Senator GEORGE CAMPBELL—And there have been no cuts to that funding?

Dr Edwards—None at all.

Senator GEORGE CAMPBELL—While we are on the issue of Backing Australia’s Ability, I presume you are aware of an article by the minister that appeared in the December issue of AiG magazine?

Mr D. Clarke—Can I have a bit more information, please?

Senator GEORGE CAMPBELL—You have not read your own minister’s musings?

Mr D. Clarke—I read a lot of information. You might refresh my memory on that particular one.

Senator GEORGE CAMPBELL—The article appeared in the AiG magazine in December. My information has it that the minister sought it, rather than being invited, so it


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must have been something of some importance that he wanted to get out amongst the business community. I am surprised that you are not aware of it. In that article he did say that he believed that an economic downturn is inevitable. Do you support that view, Minister?

Senator Minchin—So this was Minister Macfarlane speaking when, or writing where?

Senator GEORGE CAMPBELL—This was in an article he wrote in the AiG magazine in December last year.

Senator Minchin—I think in MYEFO the Treasurer and I did indicate that we expected growth to be somewhat lower this calendar year than it was last calendar year as a result of the effects of the drought, which we estimate will take anything up to three-quarters of a per cent off growth, and international uncertainty. So Mr Macfarlane has said nothing that contradicts what the government has been saying at least since the time of MYEFO.

Senator GEORGE CAMPBELL—So he would have been using a cabinet analysis as the basis for his comments?

Senator Minchin—He could have simply relied on the MYEFO documentation, which was publicly released. The Treasury documents authorised and released by us indicate that sort of reduction in growth as a result of the drought and international uncertainty.

Senator GEORGE CAMPBELL—So those issues you just referred to are what he returned to as: A serious combination of external and internal factors ... likely to ... seriously test our economic resilience.

Senator Minchin—I think we can take it that he was referring to the drought and continuing slow growth with our major partners—the US, Japan and Europe.

Senator GEORGE CAMPBELL—I suppose the big sixty-four dollar question will be the extent of the downturn.

Senator Minchin—I think we forecast around three per cent growth throughout this year, which would still put us, I think, at the top of the OECD table; as I say, that is down from about 3.75 per cent. It is still a pretty good growth rate relative to other first world nations but, obviously, affected by those two factors in particular.

Senator GEORGE CAMPBELL—In that article I referred to, the minister indicated that he would be conducting a review of Backing Australia’s Ability. Was it the department or was it the minister who initiated this proposed review?

Mr D. Clarke—I will ask my policy colleagues to respond to that question.

Ms Berman—In relation to your question about the comment made in the AiG magazine, as you are aware the government is constantly evaluating and reviewing the effectiveness of the programs and policies it has in place. I think the Prime Minister advised late last year in an address to CEDA that he would be looking at mapping the science and innovation activities in Australia, and that process has commenced. Of course, part of that will be looking at the BAA programs and at the broader context of how various elements of the innovation system are interacting with each other, decision making bodies, institutions, linkages. I think that is what we are referring to here.

Senator GEORGE CAMPBELL—I thought it was a bit more than that in the article. Did the minister initiate it?

Ms Berman—That was initiated by the Prime Minister. Minister Nelson has prime carriage in consultation, particularly with this department and our minister.


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Senator GEORGE CAMPBELL—But Minister Macfarlane specifically stated in that article that there would be a review of Backing Australia’s Ability.

Ms Berman—I think that is covered by what I have just said in terms of looking at the broad context of innovation. Backing Australia’s Ability has been the major policy initiative by the government in recent times in that area, and that will be looked at in the context of the mapping exercise that only commenced at the end of last year.

Senator GEORGE CAMPBELL—I would expect that all departments were doing that with all of their programs on an ongoing basis. The inference in this article was that more than just mapping was occurring across the range of programs. The suggestion that there would be a ‘son’ of Backing Australia’s Ability gave a clear inference that they were looking at a change of direction in some areas. You are saying that that is not the case?

Ms Berman—No, I am being very clear with what was announced in terms of what the Prime Minister advised. He made it very clear, in his discussion on the innovation area as one of the priorities, that he was looking to see what the next steps might be. The first exercise was the mapping exercise which has commenced.

Senator GEORGE CAMPBELL—So you have had no specific direction from your minister to undertake any specific review of Backing Australia’s Ability as such, other than what has been announced by the Prime Minister?

Ms Berman—That is correct.

Mr Paterson—Given that outcome 2 is Enhanced social and economic benefits through a strengthened national system of innovation, the focus on innovation and policy settings in relation to innovation are things that engage us all on a regular basis. So, it needs to be seen in a broad context of having a fundamental focus on innovation.

Senator GEORGE CAMPBELL—I would expect that to be the case. But the distinction I am drawing is the difference between what you would normally do to ensure the program is meeting its projected targets—whatever your colleague and you are doing—and the inference that was certainly in this article of something new and different. When you use terms like ‘the son of Backing Australia’s Ability’, the natural inclination is to think that this is a change of direction—maybe not totally but in some areas—which I did not understand to be what the Prime Minister and Minister McGauran were talking about for that matter back in September of last year. I am trying to get to whether or not this is something over and above that in terms of the policy direction of the government. I think Ms Berman is saying that it is not—that it is just a general monitoring and measuring of the effectiveness of these programs. I hope in the process you cull half of them, because I think the reason we get so confused is that there are so many of them with similar names that we do not know what we are looking for in the end on the web site.

Ms Berman—We appreciate that. The mapping exercise is more than just the monitoring and evaluation we do, because it is looking at the whole system. If we monitor individual programs, we are not necessarily looking at overlap, complementarity—whether institutions are linking with the industry and so on. It is a broader context we are looking at than the usual analysis of programs and monitoring as we go forward.

Senator GEORGE CAMPBELL—What is the time frame for this?

Ms Berman—The mapping exercise commenced about December last year. It is expected that there will be a report prepared mid to late this year. We are contributing significantly, as are other agencies, and there is consultation with state and territory governments as well.


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Senator GEORGE CAMPBELL—Is there consultation with industry groups?

Ms Berman—That will be part of the process, yes.

Senator GEORGE CAMPBELL—Given that our understanding is that only about 15 per cent of the funding for Backing Australia’s Ability has been spent at this time, how do you to an effective review of many of these programs, some of which I do not think have even kicked in yet?

Ms Berman—I do not have the whole list in front of me but, as you would be aware, many of the programs were continuation and perhaps enhancement of existing programs. You would understand that the implementation commenced in July 2001, so we are 18 months into the new programs. I think programs such as COMET had commenced and there is no question that they are showing significant outcomes. The equity raised, for example, in that program has grown over time, because, as you would appreciate, it takes nine, 10 or 12 months for the building of the skills needed in these small firms to start to have an impact on investors. We are picking up results there.

With the tax concession program we will not really be in a position to see the impact of the offset plus the premium until about the middle of this year when the first results come out, because there is a delay, as you would be aware, in registration and impact of pick up. But that is pretty true across most programs, so the middle of this year will pick up, in many cases. I am trying to think of some other programs. There are the cooperative research centres, which we not look after. There is a review of that happening at the moment—there was enhanced funding for that program. There is the National Innovation Awareness Strategy and the Innovation Access program which we talked about earlier, and I can give you some details on the web site; it is up, and able to be found.

We have to keep it in balance that we are reviewing and evaluating, but you cannot expect a turnaround in a very short time, particularly when you are working with firms who are being provided with support, perhaps in a staged fashion. It is not untrue to say that the evaluation reports we get are giving us information perhaps 12 months previous, rather than on what is happening on the stage at the moment.

Senator GEORGE CAMPBELL—My concern is: why do a review at this time when only 15 per cent of the money has been spent? Most of the funding is back-ended. It is supposed to be an integrated program, so obviously you have to look at all the elements and measure the totality of it rather than the individual segments. They are all supposed to fit together in terms of the outcome. How do you do that successfully when a lot of the programs have not even kicked in yet? And the point that you make, which I think was made earlier on about this SIP review, is how do you do it in the first year of the program anyway, because you have a lag and the information will be dated?

Ms Berman—The BAA program was for five years. We are 18 months into it and there is considerable time to go.

Senator GEORGE CAMPBELL—But I understand there has still only been 15 per cent of the money expended.

Ms Berman—Across different programs it is different quantums. By the end of this year we will be more informed about the process that is taking place now, and that will reduce to probably 2½ years out—we are half way through it approximately—so I think it is appropriate planning to start looking at it. There could be other impediments, other areas that need attention, that we should be starting early and picking up and responding to.


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Senator GEORGE CAMPBELL—I understand the point you are making, and you may already have done this work within the department as part of this process, but are you able to give me—and I am going to ask you to take it on notice—a breakdown of where each of the programs are currently at, and what monies have been expended on each of those programs under Backing Australia’s Ability?

Ms Berman—We certainly can provide you with the expenditure to this time—if we can take it on notice, I cannot read it out to you now—and advise you of the extent of implementation, if that is what you are meaning.

Senator GEORGE CAMPBELL—I would ask you to take those on notice.

Ms Berman—Certainly.

Senator GEORGE CAMPBELL—I would ask you to take them on notice. I have just a couple of quick questions to you, Mr Clarke, about the IR&D Board. In the board’s annual report it talks about the R&D Start program, the funding and so forth. Can you clarify for me what the minister meant when he issued revised ministerial directions in February 2002 which included the statement about the ‘comparative assessment of merit of application’. What does that mean in the context of this program?

Mr D. Clarke—That direction formalised the process whereby the board, in assessing the Start applications in front of it, can look at them relatively: ‘This one is superior to that one.’ It was really a clarification of the structure. The previous wording could have implied that there was some sort of absolute test, which was not logically sustainable. So it formalised the process of comparative assessment against the merit criteria.

Senator GEORGE CAMPBELL—And this was in the context of it being a competitive bidding environment?

Mr D. Clarke—Yes.

Senator GEORGE CAMPBELL—So that is what that refers to?

Mr D. Clarke—It was a clean-up of the administrative language used in describing the basis for comparative merit assessment.

Senator GEORGE CAMPBELL—Was this direction given after the minister became aware that the program was running out of money?

Mr D. Clarke—The statement was in February. Is the direction dated February?


Mr D. Clarke—It is certainly a fact that the direction was tabled and became public after the minister was advised about it. The two exercises were happening in parallel and were essentially unrelated. There was an administrative process about comparative assessment and there was another administrative process about the financial management.

Senator GEORGE CAMPBELL—I have some questions on resources. Mr Hartwell, can you tell us on what date the department received the application from ChevronTexaco to renew the retention lease for the Gorgon gas field?

Mr Hartwell—Certainly. At the moment there is an application from the operator of the Gorgon gas fields—that is, ChevronTexaco—for a retention lease in relation to those leases. That is presently under consideration between us, being a part of the joint authority which considers such matters under the Petroleum (Submerged Lands) Act, and the relevant minister from Western Australia.


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Senator GEORGE CAMPBELL—When did you receive the application?

Mr Hartwell—I cannot remember the precise date, but it was probably late last year.

Senator GEORGE CAMPBELL—When is the retention lease due to expire?

Mr Hartwell—I cannot provide that precise date, but it is sometime this year.

Senator GEORGE CAMPBELL—Can you take both those questions on notice?

Mr Hartwell—Certainly.

Senator GEORGE CAMPBELL—When did the department receive an objection from Multiplex to the renewal of this retention lease?

Mr Hartwell—Again, there has been communication from Multiplex but I cannot recall the precise date. The communication was along the lines that they believed that they did have a viable project which could use the gas from the Gorgon leases, and that is a factor that will obviously be taken into consideration in deliberations between the two governments.

Senator GEORGE CAMPBELL—Is there a legislative process which dictates the process the department has to follow for both the retention lease renewal and the objections?

Mr Hartwell—Yes. The process is set out under the Petroleum (Submerged Lands) Act. There are a number of guidelines which cascade down from the Petroleum (Submerged Lands) Act in consideration of retention leases.

Senator GEORGE CAMPBELL—I presume that you have not made a decision yet on the objection by Multiplex.

Mr Hartwell—That is correct.

Senator GEORGE CAMPBELL—When is that likely to be made?

Mr Hartwell—That is in the hands of the two ministers involved, but there is a date that we will advise you of by which that retention lease would have to be renewed or not renewed.

Senator GEORGE CAMPBELL—Has the department been advised by the Western Australian government regarding their decision on both the retention licence renewal and the objection?

Mr Hartwell—The relevant Western Australian minister has written to the Minister for Industry, Tourism and Resources.

Senator GEORGE CAMPBELL—If the objection was lodged in June last year, has an inordinate amount of time been taken to deal with it?

Mr Hartwell—You portray it as an objection. I think it is more to the point that they have made a submission on whether the retention lease should be maintained. The decision period relates to when the existing release expires.

Senator GEORGE CAMPBELL—Is it your view or the department’s view that the objector has a valid case?

Mr Hartwell—We are making no judgment on that at this point in time. That will ultimately be a decision of the ministers involved. The process is that the Western Australian minister will make a recommendation to the federal minister and the decision will be made accordingly.

Senator GEORGE CAMPBELL—And that will relate to both the renewal for ChevronTexaco and the objection by Multiplex.


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Mr Hartwell—It will relate to the renewal application by ChevronTexaco, but the views of Multiplex will be taken into account in that decision.

Senator GEORGE CAMPBELL—Has the department or the minister been approached by ChevronTexaco for any form of assistance—for example, financial assistance or tax concessions?

Mr Hartwell—Not that I am aware of.

Senator GEORGE CAMPBELL—Presumably you are not aware whether they have committed to any form of assistance.

Mr Hartwell—That is correct.

Senator GEORGE CAMPBELL—Does the department have a responsibility or regulatory obligation in respect of the proposed sale of Exxon Mobil’s 21 per cent share of a joint venture in the Cooper Basin—Eromanga—or what is known as Delhi Petroleum?

Mr Hartwell—No. In that sense our jurisdiction under the Petroleum (Submerged Lands) Act relates to our responsibilities offshore, which is from three nautical miles out to our exclusive economic zone. While there might be some interest in broader developments in oil and gas in Australia, we do not have a legislative jurisdiction or responsibility in relation to that issue.

Senator GEORGE CAMPBELL—Not even in relation to transfer of titles and so forth? Is that a state government responsibility?

Mr Hartwell—That is a state government responsibility.

Senator GEORGE CAMPBELL—Does the department have a view or a policy that recognises the potential problems that ownership concentration poses for the gas industry?

Mr Hartwell—That is an issue that is taken into account in the formulation of overall policies affecting the development of the Australian hydrocarbon industry. If you are asking whether we have a specific view, certainly concentration and competition policy issues are important and there are other regulatory bodies in the Australian context who look at that.

Senator GEORGE CAMPBELL—In your long-term strategic plan do you take into consideration ownership concentration issues when you are issuing leases or releasing land for exploitation?

Mr Hartwell—When we are on the trail of long-term strategic plan, certainly in terms of the administrative and regulatory regime for the oil and gas industry, we would hope to provide the most effective and efficient framework that we could, but in essence the industry is in the hands of private and commercial companies. In that sense, we do not have a broad vision or a plan that would suggest that we are looking at a particular outcome merely to provide a framework which would enable companies to do business.

Senator GEORGE CAMPBELL—Under the current process for exploration, do large companies have the capacity to sit on or lock up potentially viable resources?

Mr Hartwell—No, there are guidelines, if you are referring back to the retention leases. They are along the lines that, if they believe they do have a commercial resource but there is no immediate market for that resource—and that timeframe is normally 15 years—then they can apply for a retention lease. If it is the view of the governments involved that that is a valid position then the decision will be made in relation to that issue.

Senator GEORGE CAMPBELL—Presumably, if you think those resources are currently viable you would not make the decision.


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Mr Hartwell—If there is a demonstrated market, and that needs to meet all the commercial criteria, it certainly would be a factor which would come to bear on whether that retention lease would be maintained.

Senator GEORGE CAMPBELL—Does the department have a view about the possibility of Santos successfully purchasing Exxon Mobil’s 21 per cent in the Cooper Basin?

Mr Hartwell—No, we do not have a specific view on that.

Senator GEORGE CAMPBELL—Does it concern you that that would give Santos 81 per cent of the assets in the area?

Mr Hartwell—That is an issue which is more appropriately considered by the competition policy bodies. Provided it meets all the criteria, we do not have a specific difficulty with that.

Senator GEORGE CAMPBELL—Who are the members of the government’s energy task force?

Mr Ryan—The members of the task force are the officials that represent the ministers who form the ministerial oversight committee on energy. That means that the officials come from the Department of the Prime Minister and Cabinet, the Department of Transport and Regional Services, the Department of Industry, Tourism and Resources, and Environment Australia.

Senator GEORGE CAMPBELL—Do these individuals float or are specific individuals allocated from each of those departments?

Mr Ryan—There are specific individuals. The membership is usually at the deputy secretary level. I would normally be in attendance, for instance, for our department, but the task force is actually meeting this morning, so I am not there and someone else is attending in my place. I think that is the arrangement that works with other departments as well.

Senator GEORGE CAMPBELL—Mr Ryan, can you provide us with the names of the nominees from each of those departments on the task force?

Mr Ryan—I could probably do that now. The names are David Borthwick from the Department of the Prime Minister and Cabinet, me from ITR, Lynelle Briggs from the Department of Transport and Regional Services, and Conall O’Connell from Environment Australia.

Senator GEORGE CAMPBELL—Who chairs it—PM&C?

Mr Ryan—PM&C.

Senator GEORGE CAMPBELL—How often does the task force meet, apart from this morning?

Mr Ryan—There is not a set schedule. The secretariat that has been formed—and each of the departments has provided staff to that—is working on papers and bringing it forward. There are two other members on it that I should have mentioned: Greg Smith is from Treasury and Howard Bamsey is from the Australian Greenhouse Office.

Senator GEORGE CAMPBELL—Are any external people on it or is it purely a departmental task force?

Mr Ryan—They are officials.

Senator GEORGE CAMPBELL—Are there any other departmental staff who have been coopted to work specifically with the task force? Who is providing the secretarial backup?

Mr Ryan—Each of the departments has provided staff.


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Senator GEORGE CAMPBELL—Are there specific staff that each department has allocated to work on the task force, in a secretarial sense? What level would these people be?

Mr Ryan—There is a range of levels: a number of non-SES officers and a number of SES officers.

Senator GEORGE CAMPBELL—Have there been any consultants engaged on behalf of the task force?

Mr Ryan—No, not that I am aware of.

Senator GEORGE CAMPBELL—Is there a set of objectives in writing for the task force? What would the task force like to achieve?

Mr Ryan—The task force has a set of tasks that it wants to provide to the ministerial oversight committee on energy.

Senator GEORGE CAMPBELL—This is the Parer report, is it?

Mr Ryan—The oversight committee is looking at energy more generally. If you refer to the Prime Minister’s statement which he gave in the CEDA address, in which he listed the nine priorities for the government, this was one of the priorities. Within that context, the task force is looking at a series of energy issues. Parer is part of that consideration.

Senator GEORGE CAMPBELL—What other issues are part of that consideration?

Mr Ryan—Essentially, it is our general approach to major energy issues. What the task force is really looking at is the degree to which we have a coordinated and coherent approach across portfolios. While individual portfolios may have responsibility for particular activities, and this portfolio has responsibility for Parer, it is trying to make sure it is all coordinated so you see the linkages between Treasury, Environment Australia, Transport and ourselves.

Senator GEORGE CAMPBELL—Is there a time line on the work of the task force?

Mr Ryan—No. It has not been absolutely determined what the time frame is. I think that will become clearer from the first meeting of the ministers.

Senator GEORGE CAMPBELL—Perhaps we might leave it there.

Mr Hartwell—Perhaps I can clarify an answer that I gave to a question that was asked by Senator Campbell earlier on when I think I answered that I was not aware. That was the question along the lines of whether the Gorgon joint venture had approached the government for any support. I am informed by my Invest Australia colleagues that the Gorgon joint venture did approach the strategic investment coordinator regarding possible support for a previous proposal to develop Gorgon but that that proposal lapsed, and it was some time ago now. Certainly it is correct that ChevronTexaco or the Gorgon joint venture have not approached the government for assistance in relation to their current proposals to develop the Gorgon joint venture.

Senator GEORGE CAMPBELL—Thank you for that. There may be some questions we want to put on notice.

CHAIR—So, subject to questions on notice, does that conclude your examination of officers of the department?


Mr Paterson—There are some questions that were raised by Senator Campbell this morning that we have answers to and could provide to Senator Campbell now, if that suits you. He asked some questions in relation to a TCF company, Coogi, and we are able to


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respond to that question. You also had some questions with respect to action agendas, Senator Campbell, which we can clarify now rather than consume resources later, if that is satisfactory.

Senator GEORGE CAMPBELL—Yes, that is fine.

Mr Paterson—We will deal with the questions that you raised in relation to Coogi first.

Mr Sexton—We are unable to disclose the particular details of any grant, application or claim under the TCF SIP scheme. However, if I can speak generally, I can confirm that we are fairly confident that we have not allowed any claims for leasing or fit-out of a building for the purposes of the applicant operating a retail outlet.

Senator GEORGE CAMPBELL—I asked some other questions about when these audits occurred.

Mr Sexton—Again, that goes to the details of the particular customer in question, which I cannot speak about. However, I can say that in relation to claims for the program year 2001-01 we would have sighted financial documentation for those companies up to a year earlier than that date, and we would have satisfied ourselves at that time that those companies would have been solvent at that time. Given that, there would be no reason why we would at the time a claim was made be in a position to reject that claim.

Mr Paterson—You asked a question in relation to the TCF market development program grantees, and we have some detailed information for you on that.

Mr Pettifer—Rather than take up time by reading all through these, I could just table this document. It has the names of the grantees.

Senator GEORGE CAMPBELL—Is that the break-up of the $700,000?

Mr Pettifer—Yes.

Senator GEORGE CAMPBELL—Yes, that is fine; you can table that.

Mr Pettifer—The other question you raised was in relation to action agendas. You asked about representatives of employees and women representatives on leadership groups. The answer is that there are 27 action agendas which actually have leadership groups. There are 29 action agendas overall, and two of them have still not got leadership groups formed. Of those, a total of 417 members are on those leadership groups. On these groups there are 50 women and nine employee or union representatives. I can give you this information; I will pass it across. One of the employee or union representatives is a woman. I have also got the names of the action agendas that those representatives are associated with. I can read them out, if you like, or I can table them.

Senator GEORGE CAMPBELL—I am happy for you to table them. I will have a look at them a bit later.

CHAIR—Mr Paterson, does that deal with the outstanding questions?

Mr Paterson—It does.

CHAIR—I thank the officers from the Department of Industry, Tourism and Resources. After lunch we will proceed, as per the published program, with the Australian Government Analytical Laboratories.

Proceedings suspended from 12.33 p.m. to 1.35 p.m.


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Australian Government Analytical Laboratories Senator CARR—Mr Crick, can you tell me whether or not the recommendations of the

Mercer review of the laboratories have been adopted?

Mr Crick—The recommendations of the Mercer review are being worked through. The review was, of course, looking at AGAL’s business model and what might be a suitable model for a sustainable future for AGAL. It made certain recommendations of which the key one was that AGAL should be linked to a national measurement institute, as you know. The government has that under consideration and a lot of work is being done on both that aspect and the broader issues of restructuring AGAL in order to position it better for a sustainable future, which was the underlying issue in the Mercer review.

Senator CARR—The Mercer review highlighted significant change in the operations of AGAL so I wonder if I can get some further information from you. You talk of the establishment of a consolidated measurement authority. Is that what it was called?

Mr Crick—Yes, it was called a national measurement institute in the Mercer review, not that he invented that concept: that had been put forward by the Chief Scientist as a possibility.

Senator CARR—Is the proposal under consideration consistent with the Mercer recommendations?

Mr Crick—I cannot recall offhand the specifics of the Mercer recommendations but the general concept of Mercer—the general thrust of his approach—was that a better critical mass could be formed across the physical, chemical and biological measurement services if the three relevant institutions were brought together. Certainly that proposal is being considered.

Senator CARR—Is it right that the final report of the AGAL strategic review was completed in December 2000?

Mr Crick—You are probably in a better position to say than I, if it is on the front cover you have there.

Senator CARR—That is right. I will just make sure that I have got the right one, that is all.

Mr Crick—That probably is the right one.

Senator CARR—Why has it taken so long to actually work through these recommendations?

Mr Crick—Many of the thrusts of the Mercer review were addressed fairly quickly. I think there was some consternation on the part of people that it was not made public straight away, and there was an expectation that there would be some sort of formal government response to it, which of course was never the intention, and that expectation was not necessarily warranted. But the concept of a national measurement institute has been worked through and worked up from around that time.

Senator CARR—That still does not explain why it has taken so long to actually get a decision.

Mr Crick—It is a fairly complex issue when you are looking at bringing together different statutory bodies and different agencies and combining functions, and there are a lot of loose ends to tie up. There are a lot of other issues relating to the thrust of Mercer relevant to AGAL’s future which have been addressed and have been implemented.

Senator CARR—But in particular you would be proposing to establish a new measurement institute, presumably within the CSIRO.


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Mr Crick—Presumably within where government makes a decision. I do not think that is necessarily a foregone conclusion. It is a matter for government as to how it wants to constitute a new measurement institute—if indeed it wants to constitute one—and then where it would be placed.

Senator CARR—Why wouldn’t it be in the CSIRO?

Mr Crick—It could be within either a science or an industry portfolio. There are very good reasons why it would be in an industry portfolio. I think there are probably reasons why it could be in a science portfolio.

Senator CARR—All the other scientific agencies are in science. Why wouldn’t this be?

Mr Crick—It is not necessarily a scientific agency as such. It is an agency that does some applied research and provides a wide range of services to industry, as indeed the constituent bodies now do in their own right.

Senator CARR—A major point particular to AGAL is that it provides analytical advice, does it not, to laboratories and especially to the Federal Police?

Mr Crick—No, AGAL provides a range of services relating to chemical and biological measurement to a range of clients. It has a projected turnover this year of some $35 million. The services to the Federal Police are about three per cent of that.

Senator CARR—When can we expect a decision on the measurement institute?

Mr Crick—That is a matter within government.

Senator CARR—Has there been a recommendation forwarded to government by the department?

Mr Crick—There is a proposal that has been worked up by the department, and that is before government at the moment.

Senator CARR—Senator Minchin, are you able to assist me with this: how long do you think it would take for there to be a decision by government on the proposed measurement institute as recommended in the Mercer report?

Senator Minchin—No, I cannot help you; I am not sure what stage it is at. It is obviously in the hands of Minister Macfarlane. Presumably at some stage it will be scheduled for cabinet, but I am not aware of the timetable. I am sorry, I cannot enlighten you.

Senator CARR—Are you able to help me, Mr Paterson?

Mr Paterson—It is before government. I cannot say with confidence the timing of that decision.

Senator CARR—Has it reached the cabinet submission stage yet? Have you prepared a cabinet submission on it?

Mr Paterson—Any proposal that has financial consequences, as this one does, needs to be considered in that context. That is where the consideration has been given in the past and that is where the consideration currently is.

Senator CARR—Where is it in the pipeline? Is it at the end or the beginning of the pipeline? Is it likely to go to cabinet within the next three months, for instance?

Senator Minchin—It is not normal for officers or ministers to be able to indicate whether something has reached the point of being a cabinet submission or the stage, if there was such a submission, it was at. I do not think we can enlighten you on that.


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Senator CARR—Are you able to indicate the likely time line as to when there will be a decision made by government on the Mercer recommendations concerning the establishment of a measurement institute?

Senator Minchin—I’m not. I do not know if any of the other officers can.

Senator CARR—I will ask you to take that on notice and let me know when you have had time to think about it. You have indicated that the Federal Police are a significant client of the Government Analytical Laboratories. The annual report suggests they are. Would that be a fair description, Mr Crick?

Mr Crick—I do not recall anything in the annual report which suggests that. Our financial reports internally usually point out the top three or four clients, of which the Australian Federal Police are one. As I said, our projected income from the AFP this year is about $1.2 million. I did not actually say that; I said it was about three per cent of total, which is about $1.2 million of a $35 million or $36 million projected income.

Senator CARR—How much of that $35 million is to be derived from direct appropriations through your department?

Mr Crick—About $9.3 million.

Senator CARR—The loss of the AFP’s money would be quite significant for AGAL, would it not?

Mr Crick—That is half implying that there is a risk of that. There isn’t any risk of losing AFP money, but it is 3.3 per cent, to be precise, of our revenue.

Senator CARR—I went down to talk to the Federal Police the other day and they informed me that they have suspended payments on their contract with AGAL. Can you explain to me why that is the case?

Mr Crick—Payments coming in from the Australian Federal Police fall into three major categories. One is core services where we do a lot of analytical work of their drug seizures, one is tactical comparisons where we are making comparisons of different seizures for the purposes of prosecution and the third is some work under the National Heroin Signature Program. There has been some suspension of payments for the last four months under the National Heroin Signature Program but not under the other programs. On an annual basis, the National Heroin Signature Program is probably about 24 per cent of the income coming in from the Australian Federal Police, and only four months of that have been suspended. That adds up to about $80,000. So far they have suspended four months of payment under that program—totalling about $80,000 out of a projected annual income of $1.2 million.

Senator CARR—Why did they suspend payment?

Mr Crick—They were concerned that the rate of progress of doing some of the analysis under that program was slower than they were expecting.

Senator CARR—What do you say to that?

Mr Crick—We are negotiating with them. Bear in mind, Senator, that under that program AGAL has chemically analysed some 1,500 samples. In fact, it has analysed every sample over 25 grams that the AFP have given us since 1997 and created a database with those 1,500 samples—and that is ascribing to them a chemical signature under what is called signature 1 in the program. The slowness of progress has been going beyond that to do more detailed analysis to ascribe a signature 2 profile to these samples. Some 200 have been completed. We have negotiated with the Federal Police that we have some procedures in place and some


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actions taking place at the moment to create a team of people across AGAL who can continue this work to their satisfaction so that those payments can resume as soon as possible.

Senator CARR—When do you expect the matter to be resolved?

Mr Crick—We would hope that progress could be resolved in some weeks, but that depends on getting the right people and the right talents together, and we are confident of doing that.

Senator CARR—What—new appointments?

Mr Crick—No, we have got together a team of staff who already exist in AGAL to start to address the issue to supplement the work that has been done so far within the relevant sections.

Senator CARR—Will they be from the consultancy group Kelly Scientific Resources?

Mr Crick—No, there is no new staff being brought in specifically for this exercise. We are drawing on staff we have from across our research and development section, our national analytical reference laboratory section, the sports drug section and some of the other organic laboratories to produce the right talents that can start to address this issue as a matter of urgency.

Senator CARR—How many of those staff will be from Kelly Scientific Resources?

Mr Crick—I do not know. It depends on where the talent is and where the expertise is. It is current staff.

Senator CARR—I want to know how many of those current staff that appear on AGAL’s flow charts are in fact employed as consultants although they hold managerial positions within the laboratory.

Mr Crick—Have we moved off this profiling exercise?

Senator CARR—The two are related. If you are talking about reallocation of existing staff, I am interested to know how many of those that you are going to put together in this new team were in fact employees of an outside body, a non-government body, namely Kelly Scientific Resources.

Mr Crick—The team is being put together at the moment. A committee predominantly made up of section leaders—APS staff—is making an assessment of some of the outcomes that we can deliver in the short term and the scientific skills needed to deliver those outcomes, and then that final team will be put together.

Senator CARR—You said that they are predominantly APS staff. What is the bit that is not predominant?

Mr Crick—This is a moving feast. There is flexibility in getting a cross-organisation team together. Certainly I know off the top of my head that the leaders in that committee are APS staff. I cannot say for sure whether somebody is going to be consulted or brought in or that an opinion might be expressed that might come from—

Senator CARR—It is a bit early—is that what you are telling me?

Mr Crick—It is a bit early to make that final determination.

Senator CARR—As a separate question, could you please identify the number of Kelly Scientific Resources staff currently engaged in AGAL and the positions they hold within the laboratories.

Mr Crick—I presume that is to be taken on notice.


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Senator CARR—You can take that on notice—I do not expect you to have that at the top of your head. In particular, could you tell me about those who hold management positions?

Mr Crick—That depends on what you mean by management positions, but there has been an issue about the senior managers that has caused some grief amongst some of the staff representatives. This is a matter that has been before the Industrial Relations Commission. The commissioner was quite relaxed about the fact that, at this stage of introducing a new structure, three of the four senior positions were likely to be Kelly contract people.

Senator CARR—Three of four?

Mr Crick—Three of the seven, sorry. Three of the seven positions were likely to be Kelly contract staff. He did not see that as an obstacle to going ahead.

Senator CARR—That is terrific—we will perhaps go to the commission in a few moments. But, of the three persons that are Kelly staff, are we talking here about group managers?

Mr Crick—The three are group managers.

Senator CARR—What sort of money will they be paid?

Mr Crick—That is a matter for Kelly contract services. We contract with Kelly and Kelly pay them.

Senator CARR—Presumably they will be paid the same as their equivalent group managers—the APS officers?

Mr Crick—I think not, necessarily.

Senator CARR—Would it be significantly less? There will be a saving to the taxpayer in this arrangement, will there?

Mr Crick—I think it is fair to say that the particular skills and talents needed, at least in the short to medium term, to introduce the new operating model in AGAL and turn around its financial trends from a downward to an upward position were not readily available within AGAL. For those skills you pay a premium in the marketplace.

Senator CARR—In the case of the three positions you have identified, can you on notice explain to me precisely what skills were not available in the Australian Public Service that required the employment of contractors to fill these management positions?

Mr Crick—I am happy to do that, Senator. One comment that might be helpful to you, though, is that of course these jobs were all advertised in the national press, so they were open to anybody to apply.

Senator CARR—Were they put through the Commonwealth Gazette?

Mr Crick—The Kelly contract jobs were not precisely in the government Gazette but, as I have pointed out to people who I have had this discussion with, when you put anything in the government Gazette and you want to ensure that somebody is going to read it you put it in the newspaper as well.

Senator CARR—That is true.

Mr Crick—The fact that they were in the national press satisfied our need to make sure that we got the best skills.

Senator CARR—You would expect that, if they are APS positions and you are asking people in the APS to apply for them, they would be through the normal APS processes as well, wouldn’t they?


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Mr Crick—We gave an undertaking—and this was quite explicit—that if an APS person was the preferred candidate he or she would be employed as an APS person.

Senator CARR—And they would be required to resign from the APS?

Mr Crick—No, they would be employed as an APS person.

Senator CARR—Can you explain to me how their rates of pay would differ from the APS?

Mr Crick—I would take that on notice, because there might be some issues of confidentiality and commercial-in-confidence.

Senator CARR—If these are management positions in a public agency, then I think we are entitled to know what we are paying them.

Mr Crick—Let me take it on notice.

Senator CARR—It has been put to me that this is a way of getting around the APS and that you can actually offer people a lot more money by employing them as contractors, even though they are management positions. Is there any truth to that?

Mr Crick—No. I think the realisation within AGAL is that some 75 per cent of our revenue is at risk in the marketplace. So we have some 55 per cent of our staff only as contractors—let me just check that figure to make sure that I have the right way around—

Senator CARR—Sorry, how many?

Mr Crick—Forty-five per cent of our staff are contractors, and 55 per cent are APS staff. We only have an assured income of about a third of our revenue; therefore, it is considered to be a sensible business risk to have a certain proportion of staff as contractors in order to be able to respond to the market.

Senator CARR—Does most of AGAL’s revenue come from other government departments or private firms?

Mr Crick—Most of the revenue comes from private firms.

Senator CARR—Could you give me a breakdown of that, please?

Mr Crick—About 51 per cent comes from industry generally—

Senator CARR—They are not government agencies?

Mr Crick—No, they are dinky-di industry. About 22 per cent comes from other government agencies—but a large proportion of that is still at risk in the marketplace because government agencies now shop around—and about 27 per cent comes from appropriation.

Senator CARR—So basically 49 per cent comes from the public sector and 51 per cent from the private sector.

Mr Crick—And some of that 49 per cent is at risk.

Senator CARR—The government might want to put money at risk too.

Mr Crick—The government does, if you look at the proportion of APS staff we have.

Senator CARR—What percentage of analysts or scientists at AGAL are employed on contracts through Kelly Scientific Resources?

Mr Crick—Sorry, Senator, I missed the first part of that.

Senator CARR—You have told me that 45 per cent of the total number of employees at the laboratories are contractors. How many of the scientists are contractors?


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Mr Crick—I would have take that on notice.

Senator CARR—While you are doing that, could you show me how it has changed over the last three years?

Mr Crick—Yes.

Senator CARR—Are the staff who are employed through Kelly able to draw upon the normal APS superannuation and other rights and entitlements of the Public Service?

Mr Crick—No. As contract staff they have their own superannuation arrangements.

Senator CARR—Is there any attempt to actually avoid the APS conditions of service?

Mr Crick—No, those are the conditions under which we negotiate the agreement.

Senator CARR—Negotiate the agreement with whom?

Mr Crick—With Kelly, the supplier.

Senator CARR—That is with the private contractor?

Mr Crick—Yes.

Senator CARR—Not with the Public Service employees?

Mr Crick—No. Kelly contract services is a private contractor.

Senator CARR—In the employment of these contractors, are you satisfied that the Public Service Act has been followed on all accounts?

Mr Crick—Yes, although there is an issue with the Public Service Act to do with predominantly employing APS people in an organisation. The issue has come up in relation to employment of group managers—whether that was in breach of the Public Service Act. This argument was put on two occasions before the Industrial Relations Commission, and on neither occasion did they accept the argument or act in accordance with it. The unions and AGAL have now signed a formal agreement acknowledging that the group managers should be appointed and that three of them would be contractors.

Senator CARR—They should be appointed by whom?

Mr Crick—That they should go ahead and take up their positions in the new structure. That agreement also acknowledges that a number of them will be contractors for the next one to two years.

Senator CARR—And then what will happen to them?

Mr Crick—We will review the need to do that at the end of that period.

Senator CARR—So you have no commitment to employ them as APS staff at the end of the two-year period?

Mr Crick—There is no forward commitment at this stage, looking two years ahead, no.

Senator CARR—And how many of them are there? You said three of the seven group managers would be contractors. Would it still be three of the seven?

Mr Crick—Three of the seven were expected to be Kelly contractors, and four of the seven on this top echelon would be APS staff. As it turned out, one of those positions was not able to be filled because the calibre of the applicants did not meet our requirements, so we have somebody in that position on an acting basis for three months.

Senator CARR—So do you anticipate then that two of the seven will be Kelly staff?

Mr Crick—No, three of the seven will be Kelly staff. That is fixed.


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Senator CARR—You have signed the contracts?

Mr Crick—Yes. Those positions are in place. They came into effect on 3 February.

Senator CARR—So what is the point of the review at the end of two years?

Mr Crick—The agreement we reached with the unions was that we would go ahead and make these appointments and there would be a review over the next one to two years of what the future needs of AGAL might be in terms of APS staff or contract staff for senior managers.

Senator CARR—Could you please tell me how much money has been paid to Kelly Scientific Resources over last three years? Are you able to do that?

Mr Crick—Yes, certainly.

Senator CARR—Also, can you tell me what services were involved to attract that money? Thank you. How much are you paying them at the moment, by the way? Can you tell me that figure for this year?

Mr Crick—To Kelly?

Senator CARR—Yes.

Mr Crick—No, I do not have that figure. Let me say that we are not talking necessarily exclusively about Kelly contract people, because there are some other agencies that provide specialised staff.

Senator CARR—These are private sector agencies?

Mr Crick—Yes. I think that, over the year, we would expect the APS staff bill to be about $11.5 million and the contract staff bill to be about $7.8 million.

Senator CARR—How much of that $7.8 million goes to Kelly?

Mr Crick—I do not know that offhand.

Senator CARR—Give me a breakdown of the $7.8 million. Obviously, the issue of the payment of individuals is a matter of some consternation. As you have indicated, there has been quite a bitter industrial dispute at the laboratories. It has been put to me that some of these persons who have been offered appointments are being offered $50,000 above the APS rates. Can you confirm that figure?

Mr Crick—The senior Kelly appointments?

Senator CARR—Yes.

Mr Crick—I think that probably gets picked up in a question I took on notice earlier.

Senator CARR—No, I asked you how much individuals get. I am now asking you a different question. Can you confirm that the rates would in many cases be $50,000 above the normal APS rates?

Mr Crick—Let me take that on notice, because I am not quite sure what normal APS rates would mean and I do not know what the precise figures are.

Senator CARR—The average moneys paid to the scientists that you employ under the APS.

Mr Crick—We employ scientists from very junior grades up to senior grades.

Senator CARR—At the senior grades, are you intending to pay Kelly contract scientists $50,000 more than the moneys paid to government scientists?


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Mr Crick—I do not know the precise number on that. I would prefer to take that on notice.

Senator CARR—Can you confirm that some of the salaries in fact will be $240,000?

Mr Crick—That is a furphy that has been put around. I can absolutely say that that is a furphy.

Senator CARR—That is an exaggeration?

Mr Crick—It is an absolutely huge exaggeration.

Senator CARR—So it is only $200,000, is it?

Mr Crick—Let me not be drawn, otherwise we will end up getting right down to a—

Senator CARR—Can you tell me the salary ranges?

Mr Crick—I do not know the precise figures. I do know that, when I have seen that figure in excess of $200,000 put in documentation before, it has been confirmed that it is grossly wrong.

Senator CARR—What I would ask for then is the salary ranges that are being paid.

Mr Crick—I will take that on notice.

Senator CARR—Can you indicate to me whether or not there has been a deficit in the laboratories’ budget in the last five months in terms of the budget projections?

Mr Crick—In terms of the budget projections, there has been a small deficit in the first five months—or in the first six months, we can say now. The actuals have rendered a slightly bigger deficit, so the laboratory is operating on about a $1 million deficit at the moment, year to date.

Senator CARR—If you are operating on a deficit of that dimension, how is it possible to find the extra money for these contractors?

Mr Crick—I think that is perhaps heading off in not quite the best direction. The real issue is that the underlying financial arrangements in AGAL were recognised quite some years back as not sustainable. Hence, a different structure or operating model, as we have called it, was developed. The old structure was characterised by specialist laboratories and geographical units. The new structure is characterised by market segments and client focus, which most businesses have to adopt to stay in a competitive market. With that new structure, we are confident that we will be able to anticipate the market better, respond to the market better, respond to clients’ needs better and turn around that deficit. The deficit is not in any way significantly contributed to or affected by the employment of some senior staff.

Senator CARR—Does it reflect on the current management of the laboratories?

Mr Crick—I think it reflects more on the structure of the organisation, some complex reporting lines and accountability lines, and inability to utilise its equipment and its staff to meet market demands and to respond quickly to the market. The new structure, with better business models and systems and a focus on the market, will address those sorts of issues.

Senator CARR—If you are $1 million down six months into the year, I would have thought that was a significant amount of money on a budget of $18 million up to that time.

Mr Crick—It needs managing. We have had a six-month delay in bringing in this market focused structure, which has contributed to the delay in addressing those issues. That is regrettable. The main contributor to the deficit and to the forward-looking deficit is a reduction in revenue and a significant increase in a couple of cost areas.


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Senator CARR—So the police suspending payment on their contracts is quite serious?

Mr Crick—So far, that has only been $80,000.

Senator CARR—What other areas of reduction in revenue have there been?

Mr Crick—I cannot be specific, but we have set up a new laboratory on dioxins, for example, which is, I think, the only laboratory in Australia that is doing dioxin analysis. Its income has not developed as quickly as the budget anticipated, so there has been some slowness in getting revenue there. We compete in the marketplace for contracts, even under the National Residue Survey, and we have been outcompeted a couple of times on those contracts. Revenue losses have occurred there, but in other areas we have increased revenue. It is a balance of negatives and positives.

Senator CARR—Have you got a budget for 2002-03 yet?

Mr Crick—We have always had a budget for 2002-03, and it is constantly revised and tweaked. Part of the difficulty in being able to be sure about the budget is, of course, the difficulties of coming up with sound market figures under the current structure and with the current business systems.

Senator CARR—Of course you must have a budget; how would you know you are in deficit otherwise. But my point is: is it in a form that you could provide to the committee?

Mr Crick—Yes, the budget itself is in a form that can be provided to the committee.

Senator CARR—Can I have a copy of that, please.

Mr Crick—Yes, Senator.

Senator CARR—Thank you. Have you approved a business plan?

Mr Crick—The draft business plan that was produced for 2002-03 was based on the new operating model, or the new structure, because the expectation, after extensive consultation with staff and unions, was that it would be introduced on 1 July 2002. Unfortunately, it took till 3 February 2003 to introduce that, so the business plan that was based on that model remains in draft form but has enough substantial elements in it to give directions to people as to what we want to achieve this year.

Senator CARR—Can you provide me with a copy of the business plan, or would you say it does not really exist?

Mr Crick—The draft business plan for 2002-03 has not been finalised. It may be in a form that therefore does not give you an accurate picture of what is going on in AGAL, since it was based on the new model that did not come into effect. But I am happy to supply a copy of that to you.

Senator CARR—Yes, please. It seems to me that the former—

Mr Paterson—Senator, I have one point on that. Given the nature of AGAL’s business, in a number of its areas of endeavour it is a competing commercial business. These are public hearings, and I think that the documents that we table are public documents.

CHAIR—The practice of this committee and other estimates committees has been to protect commercially sensitive or confidential information.

Mr Paterson—I flag that in relation to the business plan so that it can be recognised as such.


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CHAIR—I am not aware of a procedure whereby, in response to a question like that, a document is provided to the committee on a confidential basis. Perhaps I am wrong about that.

Senator CARR—It is a statement of fact. You cannot provide estimates committees with in camera documents.

CHAIR—That is what I thought. So I think the request would have to be declined on the basis that commercial-in-confidence answers, which might reveal commercially confidential material, will not be compelled.

Senator CARR—I draw the witnesses’ attention to the Auditor-General’s statements on these matters. There is a long-running debate about the question of commercial-in-confidence. Before rejecting my request for the documents, I would urge you to read these statements because, clearly, these are matters which we would have to pursue through the chamber.

Mr Paterson—Could we offer to table the document that gives the elements of Senator Carr’s questions, but if there is commercial-in-confidence information that would indicate pricing or the like—

Senator CARR—Why don’t you have a look at it, Mr Paterson. We do not want to be silly about it; but, equally, I am always sensitive to departments not providing legitimate information to the parliament.

Mr Paterson—We recognise that. Two-thirds of this business competes in the open marketplace with at-risk business.

Senator CARR—Can it be fairly said that the executive management structure of AGAL was effectively abolished in March or April last year?

Mr Crick—No, that would not be a fair comment at all. I think there might be some confusion there that the formal executive committee of AGAL has not met for some time but the managers holding those positions have been expected to be effective managers and to fulfil those duties as much as they have ever done.

Senator CARR—Fair enough. I would expect that that would be the case: that the managers still in their jobs would be managing. But the executive management structure has ceased to exist since March last year or has the executive committee met since March last year?

Mr Crick—There is an important distinction here. The executive management structure did not cease to exist. It was fully operational. There was a gap in meetings of the executive committee, and that was part of the process of trying to work through from the old structure to the new structure.

Senator CARR—When was the last time that the executive committee met?

Mr Crick—The new structure is in place now and the senior managers have already had one meeting under the new management team. I do not know when the executive committee under the old structure last met but it was some months prior to the new structure coming into effect.

Senator CARR—Would it be fair to say that it was in March or April last year?

Mr Crick—It was probably about that time, yes.

Senator CARR—That is my point. When was the first meeting of the new executive group, however you describe it—the new structured group?


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Mr Crick—The new management team met on 5 February and had a day’s meeting to map out its priorities.

Senator CARR—So between March or April last year and 5 February this year how many executive committee or group or team—or whatever you want to call them—meetings occurred?

Mr Crick—I do not think there were any formal meetings of the so-called executive committee but the important point is that the executive structure stayed in place and the lines of communication and accountability stayed in place. I met several times with the general manager as part of an overseeing committee and making sure that the broader direction of AGAL was—

Senator CARR—The old executive committee involved the state executives, the directors at each state level, did it not?

Mr Crick—Yes.

Senator CARR—And did the state directors come together during the period from March 2002 to February 2003?

Mr Crick—No, not in a formal executive committee sense, but certainly communication still goes on.

Senator CARR—I have no doubt that a lot of communication goes on—and it appears that a good deal of it ends up in the Industrial Relations Commission. I am surprised, in terms of the management of an important government instrumentality, that there could be such a breakdown.

Mr Crick—Well, you describe it as a breakdown. The lines of communication and accountability did not change at all.

Senator CARR—No, not legally.

Mr Crick—And not in practice.

Senator CARR—What has been the level of staff turnover at AGAL in the last 18 months?

Mr Crick—I do not know; I will have to take that on notice.

Senator CARR—Thank you. Could you tell me the number of officers who have left and what their positions were?

Mr Crick—Yes. I will take that on notice.

Senator CARR—A petition expressing concern over the management style of the general manager of AGAL has been signed by 80 staff at the laboratories in Sydney. Are you familiar with that petition?

Mr Crick—I am aware that it has been alleged that there is such a petition. I have seen a draft of it; I have not seen the petition itself. There were a couple of attempts to present that to the Industrial Relations Commission, but the commissioner declined to receive it. So I am only taking it on good faith that it does exist.

Senator CARR—Are you aware that a number of current and former staff have provided complaints directly to you about the management issues identified in that petition?

Mr Crick—I think that is a reference to an issue that came up in front of the Industrial Relations Commission, where there was a proposal that some present and past staff put their issues forward and their names would be put to me for some response. The undertaking I gave in front of the commission—which I carefully documented and circulated to staff soon


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afterwards, repeating the commissioner’s words—is that I would consider the information put to me and make a judgment as to what executive action might be appropriate. As it turned out, the information that came forward consisted of names of only past employees. There were no names of current employees at all, notwithstanding the fact that that still gets put around as being the case. The names of the past employees and their comments about what their complaints were had obviously been gathered up by somebody. In accordance with my undertaking in front of the commission—and strictly in accordance with that undertaking—I made an assessment of those issues and decided on a course of action which the commissioner was not unhappy with.

Senator CARR—Are you satisfied that all necessary action has been taken?

Mr Crick—I am satisfied that necessary actions are being taken to address a wide range of issues in AGAL, including matters raised in front of the Industrial Relations Commission.

Senator CARR—Let us have a look at some of them. Firstly, the profiling program of the Forensic Drug Laboratory: is there a proposal to establish or put in place a lead scientist position?

Mr Crick—There is, indeed.

Senator CARR—What is the value of the salary that is being offered?

Mr Crick—That has not been negotiated because a new recruitment process has just started.

Senator CARR—Was there an old one?

Mr Crick—There was an old, but it fell over, unfortunately.

Senator CARR—Why did it fall over?

Mr Crick—It fell over because the preferred candidate was concerned over what he perceived to be interference in the process and problems that he would confront that would not allow him to do the job effectively.

Senator CARR—Let us go to some of those matters. What was the salary that was being offered?

Mr Crick—I do not have that information to hand.

Senator CARR—Can you take that on notice?

Mr Crick—I will take that on notice.

Senator CARR—I presume the job was advertised.

Mr Crick—The job was nationally advertised, and a very rigorous selection process was set up.

Senator CARR—We will come to that. Was the issue of salary indicated at any point?

Mr Crick—One has to assume that it was at the appropriate time, because the preferred candidate had in fact indicated that he would accept the job on the conditions that had been offered to him.

Senator CARR—I would like to know what the salary offer was, given that it is no longer on the table.

Mr Crick—Let me take that on notice.

Senator CARR—I would like to know how it compares with the salary of the scientist that formerly headed up the Forensic Drug Laboratory.


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Mr Crick—There is still a scientist that heads up the Forensic Drug Laboratory.

Senator CARR—I would like to know the comparisons. Can you confirm that the position was originally advertised as a contract position but the staff were later told that, if current AGAL staff applied, the position would be filled under the APS?

Mr Crick—The position was advertised as a contract position, and staff were told right from the outset that, if an APS officer were successful in securing appointment to that position, arrangements would be made to ensure that that officer would in no way be disentitled, nor would there be any adverse implications for his or her conditions of service. We subsequently refined that explicitly to say that that person would be automatically employed under the normal APS status with an appropriate top-up of remuneration, possibly through an AWA.

Senator CARR—Would you be able to tell me what that top-up figure was?

Mr Crick—We did not get to that stage.

Senator CARR—Did the selection procedures follow the normal APS requirements?

Mr Crick—That is a good question. Since it was a Kelly contract, there was no obligation on us to follow normal APS employment procedures. As it turned out, we meticulously did so, in recognition of some concerns in the organisation about fairness in the selection. We went to great lengths to ensure that the selection criteria drawn up for that job were explicitly benchmarked against selection criteria in comparable organisations—ANSTO and CSIRO— for comparable jobs. We also set up a committee to select the candidates. The undertaking there was to ensure that there was a person on that committee of eminent scientific standing in the community who could act, as it were, as an independent voice to make sure that the right scientific assessments were being made. Both those elements applied rigorously to the selection process for the lead scientist.

Senator CARR—So you are saying there was rigorous application of APS requirements?

Mr Crick—It was in fact an APS standard with more to it, if you like.

Senator CARR—Let us look at that. Were discussions held with staff of the Australian Federal Police concerning the creation of the new position?

Mr Crick—Absolutely. It is a program that is funded by the AFP. In fact, if you look at the National Heroin Signature Program, which we have been doing since 1998-99, it has been funded at about $300,000 a year.

Senator CARR—You are saying it is reasonable that you should talk to the Federal Police about the position, as they are paying the bill?

Mr Crick—But the new program that the lead scientist position was set up to lead is a $1.2 million a year program compared to a $300,000 program, so it encompassed not only a lot of new research into new techniques but also management and leadership of a large team. In consultation with the principal client, it was decided that we needed a lead scientist to take on those added responsibilities.

Senator CARR—Were there discussions with the AFP about suitable candidates?

Mr Crick—No. The position was advertised nationally. People put in applications. There was a fairly rigorous process whereby five people were selected for the short list, and they went through the interview process that I described before.

Senator CARR—There were three persons on the selection panel—is that right?


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Mr Crick—There were four, in effect.

Senator CARR—Who was the fourth?

Mr Crick—Who were the three?

Senator CARR—Let us go through it. There was the group manager, who was an employee of Kelly Scientific Resources—is that true?

Mr Crick—That is true—the group manager of Regulated Drugs and Chemicals, who was the relevant group manager.

Senator CARR—But he is a contractor?

Mr Crick—Yes, he is a contractor.

Senator CARR—There was Dr Chris Lennard from the AFP—and who were the other two?

Mr Crick—The other two were Professor Brynn Hibbert, who is the professor of chemistry at the Australian National University, and a person by the name of Ms Sharne Callaghan, who is the account manager at Kelly Scientific Resources.

Senator CARR—Okay. So we have two Kelly Scientific Resources personnel, one member of the Federal Police and one professor from the UNSW. Where was the Australian Public Service involvement in that?

Mr Crick—There was no need for the Australian Public Service to be involved at that stage. I took it upon myself to act as though I were the Public Service delegate in the circumstances. The papers came to me through the general manager, so there were two senior Public Service people who scrutinised the outcome of that process and made the final decision.

Senator CARR—I thought you told me before that you were rigorous in your application of the APS standards.

Mr Crick—I modelled it on the APS process.

Senator CARR—So it is normal APS process to appoint managers of laboratories and other government instrumentalities by having four persons on the selection panel, all of whom are outside the APS?

Mr Crick—I think the issue is that being a Kelly contract person there was no need to go through the normal APS procedures. In order to establish absolutely objectively that there was rigorous equity and fairness in this process, we set up a procedure that was parallel to, modelled on, the APS procedures inasmuch as we had selection criteria that were clearly established and a selection process that was transparent and open.

Senator CARR—Can you confirm that Dr Lennard actually approached two scientists to apply for the position—Dr Adam McCluskey from the University of Newcastle and Dr Michael Collins, a Sydney based scientist.

Mr Crick—I cannot confirm that precisely. I do know that Dr Chris Lennard spoke to Adam McCluskey about the job and encouraged him to consider applying. It is not an abnormal practice in organisations that you would want to ensure that you have the best names put forward. So you point out jobs to people, encourage them to apply. There is nothing secret or conspiratorial about that.


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Senator CARR—I appreciate the point you make, but how does it fit with the normal merit protection procedures of the Australian Public Service to have a member of the interviewing panel recruiting candidates for the job?

Mr Crick—He was not recruiting candidates. I have been asked to apply for a job; I did not get it, but obviously they wanted to see what I looked like compared to other people. They obviously did not think I looked as good as other people. It is nothing abnormal to ask somebody to apply for a job.

Senator CARR—You do not see anything improper about that?

Mr Crick—Absolutely not.

Senator CARR—Can you confirm that one of the applications was in fact a late application?

Mr Crick—In fact two of the applications were late applications. Two candidates each asked, within the closing date, if they could have an extension of time to put in their applications and that was granted in both cases.

Senator CARR—I see. Of the two persons that were approached by the AFP representative—

Mr Crick—I do not know whether the AFP approached two people.

Senator CARR—All right. It was put to me that, of the two persons who were approached by the AFP representative, one person was actually offered the position but then declined it, and the position was finally offered to the second person.

Mr Crick—I do not know the premise of that. All I know is that there were constant accusations and allegations that one person was going to get the job because he had been approached by the Federal Police. When that turned out not to be the case, suddenly allegations started to appear about a second person. So I think the whole thing is somewhat of a misrepresentation.

Senator CARR—I will put it to you bluntly. I understand you have charged and suspended a member of the AGAL staff, Dr Zoran Skopec, for interfering with the merit selection process.

Mr Crick—We have not charged him. There is a process relating to code of conduct that is being undertaken at the moment, but I think that in fairness to him and the process that should be regarded as sub judice.

Senator CARR—It is not sub judice because it is not before a court. I would like to know from you what due process has been followed in this instance.

CHAIR—Senator Carr, I think you cannot fairly ask that question, but I think it is fair, in view of the fact that a process is actually or potentially being engaged in in respect of a named individual, that questions concerning allegations about that named individual should not be pursued.

Senator CARR—Thank you for your advice, but what I would like to know is: what processes have been undertaken by the department regarding the suspension of a senior public servant? I think I am entitled to know what you are doing in that regard.

Mr Mackey—I would like to say something at this point. I would like to support what the chair has said. In this case, allegations have been made about the possible breach of the code of conduct and an initial investigation is taking place. In my view—and of course I seek the views of the committee on this—it is inappropriate to name both the person who is being


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investigated, and/or the person who is conducting the investigation, before that investigation is complete.

Senator CARR—I do not think it is a particular secret within the laboratories. These matters have been subject to considerable debate before the Industrial Relations Commission and they are the subject of a bitter industrial dispute. One officer has been suspended. He has not been charged—you have confirmed that. I would now like to know on what APS arrangement you can rely to suspend an officer and not charge him and for how long you intend to suspend him.

Mr Crick—Let me answer that in general terms to see whether that meets your needs. Allegations came from outside the organisation that raised serious questions for us as to whether there may have been a breach of the code of conduct. There are procedures set out explicitly in the Public Service Act and the regulations and then adopted by the department in more detail as to what should be followed in such a case to ensure that natural justice is adhered to. Those procedures have been followed absolutely meticulously. Any actions and steps that have been taken so far have been strictly in accordance with procedures provided for in the Public Service Act.

Senator CARR—In terms of the Public Service Act, what opportunity have you provided to Mr Skopek to answer the allegations that you have made against him—without charge— and upon which you have acted to suspend him?

Mr Crick—I had an interview with Mr Skopek on 17 December, I recall, where I put the allegations to him. I put to him the issues to do with whether there should be a suspension process. I allowed him to respond. I made a decision at the time. He was provided with a letter within the next 24 or 36 hours which detailed these on paper. His solicitor has written to us seeking more information and we have responded to that. They have asked for an extension of time to come back with more information. So the process has been meticulously followed in accordance with procedures set out in the Public Service Act and regulations and in departmental policy.

Senator CARR—Mr Paterson. have there been other representations on this matter from other members of parliament to your minister?

Mr Paterson—I am aware of correspondence from the individual who has been named by others to his local member.

Senator CARR—What I would like to know is: have there been any representations made by members of parliament to your minister?

Mr Paterson—I just indicated that I am aware that the named individual’s local member has written.

Senator CARR—I am sorry, I did not appreciate that that was what you were saying. I thought you were saying that Mr Skopek had in fact written to his local member.

Mr Paterson—I do not know whether he has or has not. I am saying that I am aware that his—

Senator CARR—I misheard your answer. Who is his local member?

Mr Paterson—Brendan Nelson.

Senator CARR—I take it that Dr Nelson has written to Mr Macfarlane on this matter.

Mr Paterson—That is what I just indicated.

Senator CARR—Has he supported the case?


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CHAIR—I think there are privacy issues here, Senator Carr. The questions concern what may have passed in private correspondence in relation to an individual case or the case of a named individual. I do not really think it is the practice of the committee to allow questions which might allow private matters of that kind to be publicly aired.

Senator Minchin—I do not think it is appropriate for departmental officials to be called upon to describe in any detail correspondence from one minister, albeit in his capacity as the local member, to another minister. I do not think that is appropriate.

Senator CARR—That is fair enough. I am not asking for detail. I just want to know whether or not there was support.

Senator Minchin—That is going to the detail of the letter.

Senator CARR—All I am saying, Minister, is that I do not think I am alone on this matter. I would suspect that any reasonable person reviewing these facts would have very serious concerns about the way the department is operating.

CHAIR—That is a matter of opinion.

Senator Minchin—It is a wild assertion and it is unfair to these officers. And I do not think you can say anything about what Dr Nelson has done.

Senator CARR—I do not know what Dr Nelson has said. I would be surprised, though, knowing Dr Nelson, if he found this set of events satisfactory.

CHAIR—That is conjecture.

Senator CARR—Yes, it is conjecture.

Senator Minchin—You ask Dr Nelson. It is not appropriate for these officers to comment on a letter from another minister.

Senator CARR—Yes, I will, do not worry. I am going round to the education hearing tomorrow morning.

CHAIR—Have you finished your questioning, Senator Carr?

Senator CARR—Yes, and thank you very much for your patience.

Mr Mackey—I think one point that has not become clear in this discussion is that, pending finalisation of the investigation, the individual has been suspended but on full pay.

Senator CARR—I am pleased to hear that they are on full pay. I do not think that changes his sense of injustice about what has occurred.

Senator Minchin—Nor does it change the fact that these officers have said to you before this committee that they have followed the appropriate procedures to the letter. I think that should be noted.

CHAIR—As there are no further questions to officers of the Australian Government Analytical Laboratories, thank you to Mr Crick and Mr Mackey.

[2.37 p.m.]

Office of Small Business Senator CONROY—Are you aware of a study by CPA Australia which says that 10 per

cent of small businesses have to wait 60 days for payment by big business? I think it was Certified Practising Accountants Australia that did it.

Ms Weston—I am not sure that I am aware of that particular survey. I could be corrected on that.


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Senator CONROY—It suggested that something like 120,000 small businesses were being squeezed because big business was holding back on making payments. Are you aware that when big businesses hold back on making payments it creates a cash flow squeeze for small business in terms of their GST liability?

Ms Weston—My understanding is that some 86 per cent of small businesses are operating on a cash basis of accounting for GST. That means they do not have to pay GST until they get the actual cash in their hand. So I would not say it was the GST issue that was of significance there.

Senator CONROY—I will make sure these 120,000 businesses know that that is what you think. So you do not believe there are any problems being created whatsoever because of late payments?

Ms Weston—Senator, as I understand it, you clarified that question by saying that late payment was causing a problem in relation to GST.

Senator CONROY—It is compounding the problem of the GST for small businesses.

Ms Weston—Can you then repeat that question with the word ‘compounding’ in it?

Senator CONROY—No. I am happy to ask you both questions, because the answer is still the same: it is a cash flow issue that is compounded by the GST—

CHAIR—Ms Weston will give the answer. You ask the questions; let the witnesses give the answers.

Senator CONROY—If you just chair the committee and stop telling me—

CHAIR—I will chair the committee and protect the witnesses, and I will not allow a repetition of the behaviour yesterday. Senator Conroy, ask your questions.

Senator CONROY—and stop instructing me how to ask my questions, which is beyond your standing order powers—

CHAIR—Ask any questions you like within the standing orders and subject to my rulings, but do not attribute answers to witnesses. Witnesses will give their own answers.

Senator CONROY—Do not instruct me on how to ask my questions. That is beyond the powers of the chair. I appreciate that you have acknowledged that you cannot, so I will go back to asking my question. Are you aware that up to 120,000 small businesses are complaining about the late payments of big business and they are saying this is compounding and is on top of the cash flow squeeze caused by the GST?

Ms Weston—I am aware that late payment by big business is an issue for small business.

Senator CONROY—You are not familiar with the survey, though?

Ms Weston—There has been some information in the marketplace about that issue. I cannot actually attribute it to the CPA. That is my problem there. In relation to GST, though, I was trying to say that a large portion—86 per cent or so—of small businesses operate on a cash basis for GST, so they do not actually have to pay any GST owing until they get the cash in the door.

Senator CONROY—I understand that point that you were making. This is talking about 10 per cent, which would fall within the 14 per cent not covered by your answer.

Ms Weston—If they are operating on an accruals basis—and that is probably an issue between them and their accountant.

Senator CONROY—So there are 120,000 small businesses—


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Ms Weston—I do not have that information.

Senator CONROY—that are inside probably the 14 per cent that is outside your 86 per cent. So there are a lot of small businesses outside the 86 per cent you are talking about. I am only talking about the 120,000 who have identified this as an issue. That is not a question. I was just explaining that that is who I am talking about and that is who identified themselves. Are you aware that the President of the National Federation of Independent Business, Mr John Farrell, has said ‘Big business bastardry is endemic, and the federal government is supporting it’?

Ms Weston—No, I am not.

Senator CONROY—I think it was in yesterday’s paper.

Ms Weston—I was aware that there were newspaper articles yesterday. I cannot recall seeing that name as I glanced through those.

Senator CONROY—Have you considered any options for how to assist small businesses that face a cash flow squeeze as a result of late payment by big business? Has your office looked at that at all?

Ms Scott—OSB looks at a variety of issues from time to time. We keep a watchful eye on cash flow issues and a variety of other issues. Our thinking is the subject of advice to the minister, so I do not think it would be appropriate to go through the matters we look at in detail.

Senator CONROY—I did not ask you what information you had recommended to the minister—I agree with you on that matter; it is completely appropriate for you to say what you said—but whether you had considered it. That does not mean that, on everything you consider, you make a recommendation or give advice to the government. I think I am well within my bounds to ask you whether your office has considered it.

Ms Scott—I can repeat my answer. We look at issues from time to time.

Senator CONROY—Have you looked at this issue?

Ms Scott—We have looked at cash flow, we have looked at public liability, we have looked at a whole range of issues. One of the issues we have looked at is cash flow.

Senator CONROY—I asked about late payment. Have you looked at the issue of late payment?

Ms Scott—We looked at a variety of issues, including a number of the ones you mentioned.

Senator CONROY—I will ask you again: have you looked at the issue of late payment by big business?

Ms Scott—I can only repeat my previous answer: we have looked at a variety of issues, including a number of the ones you have mentioned.

Senator CONROY—If a small business were listening into us right now, they would be struggling to understand your answer. I am not sure why you are so reticent to say yes or no. If the answer is no, then just say no or say, ‘We are happy to look at it.’ If the answer is yes, then say yes.

Ms Scott—I am happy to go through the responsibilities of the Office of Small Business if that would help clarify your understanding.


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Senator CONROY—I have asked you a very simple question. The work you do is not a state secret. I am entitled, under the processes of the Senate, to ask you how Commonwealth government expenditure is spent. I am asking you: have you expended any resources looking at the issue of late payments by big business in relation to small business, which is what your office is in charge of?

Ms Scott—We have looked at this issue and a variety of others. We have apparently had discussions with the ACCC from time to time, but we canvass really the whole plethora of issues that relate to small business.

Senator CONROY—I would assume so; that is why your office has been created. My office is regularly contacted by small businesses that raise this with me. Given the debate—and obviously the CPA survey came out last year—has the small business community raised it with you in the last few months?

Ms Scott—We have had it raised with us in some of the roundtable discussions, but we have had a variety of other issues raised as well.

Senator CONROY—I know. I am only focused on this one at the moment; I will move on to some other issues in a minute. It has been raised with me at roundtable discussions that I have been at, so I was wondering if it had been raised with you. I would be concerned if they were only raising it with me and were not actually raising it with your office. That is the only reason I was asking, because of course they tell me that they do. I wanted to verify that they actually were.

Ms Scott—I think I have answered the question, Senator.

Senator CONROY—Yes, I appreciate that. Do you believe that it is an issue that needs to be addressed? Do you feel that the small business complaints about it are legitimate?

Ms Scott—I think I would have to know which particular claim you are referring to.

Senator CONROY—I am not allowed to ask about any individual claim; that is against the rules of parliament et cetera.

Ms Scott—Senator, maybe you should be more specific about the particular complaint that you wish us to—

Senator CONROY—You said that complaints had been raised with you about this issue.

Ms Scott—No, I think I said that concerns had been raised in relation to—

Senator CONROY—I will rephrase the question. Given that concerns have been raised with you, do you believe that the concerns are justified?

Ms Scott—I am trying to get a good sense of how to broach this topic. If people raise concerns with us, we try to pass them on to the appropriate area. For example, as I said earlier, we have had discussions with the ACCC. Concerns raised with us are normally quite general in nature; they do not go to a specific firm or sector.

Senator CONROY—Sure. Panel beaters, for example, is one that is consistently raised with me. I am hoping it is consistently raised with you. I wondered whether the ACCC or you had any thoughts on it that you might like to share with the parliament.

Ms Scott—Certainly I am able to say that the panel beaters have been consistent in their concerns.


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Ms Weston—Certainly there has been a number of roundtables in the industry hosted by the ACCC. I understand there is some work being done in the ACCC, who are looking at that issue.

Senator CONROY—I will happily now take it up with the ACCC. I presume they will come back to you and let you know what they think and perhaps, depending on what they say, you may follow up on it down the track. I also wanted to talk about the Small Business Answers program. I was wondering whether you could tell me what criteria are used to decide which applicants will receive funding under the Small Business Answers program.

Mr Peel—Yes. The applicant eligibility criteria cover organisations that deliver or intend to deliver advisory services. The organisations must be incorporated legal entities. These organisations can include but are not limited to area consultative committees, business enterprise centres, community organisations, universities and TAFEs, and industry associations.

Senator CONROY—Has a final decision been made as to which applicants will be granted funding through the program?

Mr Peel—Yes, it has.

Senator CONROY—Has there been a press release on it yet?

Mr Peel—Yes. The minister made an announcement on 17 December, and the details are on the AusIndustry web site.

Senator CONROY—Would you have a copy handy at all? If you do not, that is okay.

Mr Peel—I have a list.

Senator CONROY—Could we get a copy for the committee?

CHAIR—Are you tabling that document, Mr Peel?

Senator CONROY—If it has writing or anything like that on it—

Mr Peel—I have written my notes on it, Senator.

CHAIR—Perhaps you could provide a photocopy later on in the afternoon.

Senator CONROY—If it has your personal notes on it, I would not expect you to copy that one. As I do not have it in front of me, I have some basic questions that I hope you might be able to help me with. How many grants were awarded?

Mr Peel—There were 45.

Senator CONROY—Could you give me a geographic breakdown?

Mr Peel—Do you want a breakdown by state, Senator?

Senator CONROY—Yes.

Mr Peel—There were 14 for New South Wales; 17 for Victoria; nine for Queensland; seven for Western Australia; four for South Australia; two for Tasmania; and two for the Northern Territory.

Senator CONROY—Who received the two for the Northern Territory?

Mr Peel—I am sorry. If I said 17 for Victoria I should have said seven.

Senator CONROY—I was beginning to think that Victoria had done particularly well.

Mr Peel—It was my mistake.


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Senator CONROY—I am very disappointed for my home state. Who received the two for the Northern Territory?

Mr Peel—The Business Enterprise Centre in Darwin south and the Business Enterprise Centre in Darwin north.

Senator CONROY—What about the two for Tasmania?

Mr Peel—The BEC in Mersey and the North Midlands Business Association.

Senator CONROY—What about the four in South Australia?

Mr Peel—The South Central ACC; the Barossa Riverland Mid North ACC; the Limestone Coast Regional Development Board; and the Northern Regional Development Board.

Senator CONROY—Who received the seven in Western Australia?

Mr Peel—The Kimberley ACC; the Goldfields Esperance ACC; the Wheatbelt ACC; the Mid West Gascoyne ACC; the South-West ACC Inc.; the Great Southern ACC; and the Hedland Business Information Centre.

Senator CONROY—I know that this came from another program, that there was a change in the nature of the programs.

Mr Peel—Yes. There was a Small Business Assistance Officer program.

Senator CONROY—How many of these are being returned to the same organisation, effectively? If you do not have the information handy, that is fine. I am just interested to know how many of the 45 grants went to organisations that had previously received funds from the former program.

Mr Peel—There were 32.

Mr D. Clarke—On the breakdown of the 45 grants, 32 were won by ACCs, eight by BECs and five by other classes of organisations.

Senator CONROY—You read my mind, thank you. You saved yourselves a fair bit of work, I suspect, in having to dig it all out, because you had already done it. That is great. Are these one-year or three-year funding grants?

Mr Peel—They are two-year funding grants, with an option for an 18-month extension.

Senator CONROY—Who is the option exercisable by? Is it by you or by them?

Mr Peel—By the Commonwealth—it is a mechanism to ensure that their proceedings are correct.

Senator CONROY—What sort of information do they have to provide back to you? What sort of accountability is there?

Mr Peel—There is a regular reporting framework that they have to comply with there. I think they need to provide us with six-monthly reports on their activities and we have state and regional offices of AusIndustry which will maintain close links with the various centres.

Senator CONROY—Thank you. The next issue I want to go to is that of the privacy rules. How are we going with the education campaign for small business to comply with the privacy rules? Could you run me through what it consists of and that sort of thing?

Ms Scott—As you would be aware, the privacy campaign is part of the work of the Office of the Privacy Commissioner within the Attorney-General’s portfolio.

Senator CONROY—So are they coordinating it with you?


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Ms Scott—We have had very good contact with the Privacy Commissioner; I suppose we could say that we have been in contact with them every three or four weeks, in one way or another. In terms of detail, I think it would probably be best that you direct your questions to the Attorney-General’s portfolio.

Senator CONROY—I understand that they produced a brochure called the Privacy checklist for small business. Were you involved in producing that?

Ms Scott—I am pleased to say that they did consult us on that and we provided them with some assistance. Again, if you have any detailed questions about content, I think it would be better to direct them to that office.

Senator CONROY—Okay. I understand that there is reference to the brochure in your December 2002 newsletter.

Ms Weston—That is likely to be the case. We were trying to make sure that that information got out to the small business community.

Senator CONROY—Do you know what the distribution network was that the Privacy Commissioner was planning on using? I would have thought that they would have, if you like, contracted this out for you to distribute for them given that I am sure you have a much greater network in terms of small business than the Privacy Commissioner has.

Ms Scott—We certainly were cooperating with them and we used our newsletter as one means of getting the information out. In terms of what other devices they were using and how many different sources or organisations they were using, I think those questions are better referred to them—I simply do not know the answer.

Senator CONROY—Did you give them any advice on the best way to get it out to small business?

Ms Weston—They certainly asked for our help in terms of who were the sort of people that they should be contacting. We did give them details, as I recall, of industry associations. We also worked with them for the state small business associations and helped them with that.

Senator CONROY—Do you know if OSB or the Privacy Commissioner are planning on running any public seminars to inform small business about this?

Ms Weston—I am not sure what the Privacy Commissioner now plans to do.

Senator CONROY—You are not planning on running any?

Ms Scott—I am able to add to my earlier answer. We did assist them. We are just checking whether we did actually cover some of their material on our BEP, Business Entry Point, online service.

Ms Weston—I understand that we are linked to their web site from our web site.

Senator CONROY—Do you run seminars at all?

Ms Weston—It is not something we do.

Senator CONROY—I know that you are running a very small unit; I am very conscious of that. So, as a rule, you have not run small business seminars on any particular issue, never mind privacy?

Ms Weston—It is not something we do.

Senator CONROY—I will chase up the Privacy Commissioner on this, but do you know how many small businesses would have directly received that brochure, the Privacy checklist for small business?


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Ms Weston—I cannot tell you that.

Senator CONROY—I will take up those issues with the Privacy Commissioner. Recently, the Financial Services Consumer Policy Centre at the University of New South Wales published a report entitled Small business banking: options for reform. The report found that small business paid surprisingly high bank fees, with one restaurant paying bank fees and charges of $120 per week. Are you familiar with that report?

Ms Weston—I have seen an early draft of that report.

Senator CONROY—Are you receiving expressions of concern about the level of bank fees?

Ms Scott—We get some ministerials—letters from members of the general public—but I do not think we can give the figure breakdowns today.

Senator CONROY—I was just asking if you did; I was not asking for quantum. Do you have any advice to offer small business owners who are being slugged with these bank fees?

Ms Scott—You have probably heard the Treasurer from time to time encouraging people to shop around and try to get the best deal they can.

Senator CONROY—Have you looked at a booklet or a brochure at all on this issue, or is it not an issue for you?

Mr Paterson—Ms Scott offered earlier to identify the role of the Office of Small Business. It may be useful to go through that, because it is not an advisory unit; it is not a seminar producer. It is a small unit that looks at issues of concern and provides policy advice to government. Some of the questions seem to be premised on the basis that it might have a have a role which is different from the role it has. We may be other to avoid questions to and fro if we identify the role of the unit.

Senator CONROY—I have had a briefing in the past; I appreciate that. I am just trying to ascertain what they do and do not do in a slightly different way from the way you are suggesting. These are issues that are arising out there in the small business community that they are talking to me about. I am just trying to find out if they are talking to the OSB about them and, more importantly, whether the OSB is responding. As you correctly say, some of this is not within its remit. I would be hoping the minister—and it is not Senator Minchin— would be flexible enough to say, ‘This issue is running really hot. Can you guys have a look at it?’ That is really what I am trying to ascertain. I know that the minister was invited to a forum in Sydney when this report was released. He unfortunately could not come, so I was wondering if any work was being done on it.

Ms Scott—Minister Hockey issued a press release on 8 January where he outlined discussions he has had with the Australian Bankers Association. If it would be helpful, we would be happy to table that or go through the content with you.

Senator CONROY—If it is on your web site, I will just pull it down. So he has been consulting the Bankers Association. Has he consulted any small business organisations?

Ms Scott—This is in response to comments he has heard in roundtables. Really, the press release is about the minister’s desire to see if he can improve the accessibility of information that banks make available to the general public and small business so that people are able to effectively shop around. That relates back to my earlier comment about people using their purchasing power to get the best product that suits them.


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Senator CONROY—Do you think an individual small business has a lot of purchasing power with a bank? They are the four mainstays of the stock exchange and some of the largest organisations in the country.

Senator Minchin—Chair, these questions that go to personal opinions of officers are really asking too much of officers.

CHAIR—I have been listening to each of the questions.

Senator Minchin—The senator can rephrase it, but I think it is expecting too much to ask personal opinions.

Senator CONROY—If I am giving the impression I am asking for personal opinions, I apologise. I am actually seeking to get the view of the OSB.

CHAIR—That is the way I had understood those questions. I am not responsible for their phrasing, but I will treat them as being an expression of the position of the OSB on these issues.

Ms Scott—I do not have the consumer data in front of me. I would be happy to have a look at what is available. Over the course of financial deregulation, we can see that Australian businesses and individuals have been quite able to change banks—to go from credit unions to banks, from banks to credit unions, from building societies to banks. They have been remarkably mobile in their purchasing habits.

Senator CONROY—The survey shows that remarkably little shopping around takes place, from my recollection—I have not looked at this for a couple of months; I was at the roundtable where it was released. The disappointing aspect that came through this report was that small business felt so frustrated that there was no point in shopping around or, to use the banks’ phraseology, they have so many ‘hooks’ in the individual small business that it is quite difficult to shop around. That was what the research said. If you have not seen the final copy, I will not ask you to comment on it. Do you think you might be able to track down a final copy? I am sure it is on their web site.

Ms Weston—Yes; I would be happy to pursue that.

Senator CONROY—Another survey was conducted by Macquarie Research Equities, which found that some 70 per cent of SME owners were very or somewhat dissatisfied with the quality and service given by their bank. Are you familiar with that report?

Ms Scott—If you are going to ask us about banking policy, we will probably refer you to the Treasury portfolio. We see a very large volume of reports and studies from time to time. My recollection is not going to be so good that I can tell you whether I can remember one individual study from all the others I have seen. I am aware this is an issue. I have referred you to the press release of the minister. I do not think I can answer questions for the Treasury portfolio.

Senator CONROY—The funny thing about small business is that it stretches across all portfolios, like almost everything that different government departments do. For example, privacy is an issue that the Attorney-General’s Department has more responsibility for, but you have been in consultation with the Privacy Commissioner. I am just a little confused when you suggest to me that, as you do not have direct portfolio responsibility for these other issues, I should go and talk to somebody else. I am trying to talk to somebody who I am hoping deals with small business and knows how the different policies impact on small business. I am hoping you can give me a small business perspective, rather than saying, ‘Go and talk to the Treasurer, who is in charge of looking after the banks.’


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Ms Scott—Maybe you will find comfort in the minister’s press release.

Senator CONROY—I doubt that!

Ms Scott—He says: Australia’s small businesses will welcome the positive response from the Australian Bankers’ Association to the challenge for banks to provide more easily understood information.

The Australian Bankers’ Association will work to help small businesses better understand and compare the many different banking products.

This will allow small business to more easily find the best deal to suit their needs.

Australia’s 1.1 million small businesses don’t always have the time or resources to spend on these activities. They need easy access to information on the multitude of banking products available ...

And it goes on.

Senator CONROY—I am sure that has given a great deal of comfort to small businesses in Australia. You may or may not be aware that last year the Bankers Association announced a minimum level of banking service—a bank account—for all Australians. The government and a lot of people said it was a good thing. The ACCC said very recently that it was a bad thing because it was not the best available product. This was being championed by the ABA, and the ACCC said that it was not good enough. Are you familiar with that event? I appreciate that it is outside your portfolio but, as someone who probably has a bank account, I thought you might have noticed.

Ms Scott—I do recall the press story.

Senator CONROY—The point I am making is that the ABA had a bit of a try-on in terms of pretending that they were looking after their retail consumers and the ACCC basically blew the whistle on them and knocked it over. The ABA saying they are willing to help small business does not fill me with excitement. Quite frankly, I am sure that it does not fill a lot of small businesses with excitement. I can take that up with the minister directly. That is all I have on banks.

Ms Scott—I can give you more information about the privacy material, privacy articles on business entry point from 3 December until 21 December last year. Also, it has links to the Privacy Commission site and also to the OSB site, but there was no direct link from BEP to the actual pamphlet that you referred to. This can be accessed from the Privacy Commissioner’s site.

Senator CONROY—Thank you. What was the date of that press release you were just referring to?

Ms Weston—It is 8 January.

Ms Scott—It is on the department of industry’s web site.

Senator CONROY—I am just looking at Mr Hockey’s web site. Did you mention earlier that there was a press release on 17 December?

Ms Weston—The press release on the answers program was released by the minister on 17 December.

Senator CONROY—Thanks very much. I want to talk about microbusinesses for a moment. I understand that there have been calls for a summit on microbusinesses. Are you familiar with those calls?


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Ms Scott—There is going to be a meeting about home based businesses that Minister Hockey has called for. It is going to be in March this year.

Ms Weston—On 6 March.

Senator CONROY—You have anticipated my next question. Who will be invited to that? Are you coordinating that, as the minister has called it?

Ms Scott—Yes, we are.

Senator CONROY—Where will that be held and how are you determining the—

Ms Scott—It is going to be here in Parliament House.

Senator CONROY—Excellent.

Ms Scott—I do not think I can give you the room number, but we might be able to find out who the speakers are.

Ms Weston—I will be able to find that.

Ms Scott—This is an initiative of Mr Hockey’s in response to one of the issues coming out of a roundtable discussion last year, where there has been a growing trend for people to set up businesses and for them to operate out of their homes. In some states, this is easier said than done. Some local government are more accommodating than others. We were looking at the issue in terms of the impediments to home based businesses. Ms Weston can go through some of the speakers that will be at that.

Senator CONROY—So it is a seminar.

Ms Weston—It is a seminar format. We are approaching providing information to government at this stage and sharing knowledge that we have. Obviously, that minister is going to speak. We are having some state and local government people. Particularly, there has been some work done in Queensland on local government good practice with home based business type regulation, so we will have a look at that. Queensland and Western Australian state people will be coming to have a chat as well some people from the Local Government Association. We have done a bit of research on some of the issues for home based businesspeople and have picked out a couple of those that were coming up quite frequently. We are having a speaker on taxation and home based businesses, insurance and home based businesses and looking at telecommunications. We are going to have some experiences of some real home based businesspersons who will come and help with that discussion.

Senator CONROY—Is that agenda a public document? Are you able to provide it to the committee at this stage, or is it still in draft form?

Ms Weston—I do not have a good enough one to give you at the moment. I will check on that. We have sent drafts out to some of the people who will be speaking.

Senator CONROY—So it is not a roundtable per se. Is it by invitation, or can people just come along? Are people being brought together and, therefore, if they are being invited to come to something hosted by the government, they pay for their own accommodation or air fare or whatever? What are the arrangements?

Ms Weston—We are inviting people to come. As I said, there is a focus on people in the government who might have anything to do with home based businesses, and there are state governments as well with some industry associations. At the last National Small Business Forum, the Managing Director of the Micro Business Network, Ms Barbara Gabogrecan, asked Minister Hockey to host the seminar.


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Senator CONROY—She has been advocating for it extensively. Yes, I am familiar with her.

Ms Weston—I am sure. She will be attending along with some other key representatives.

Senator CONROY—So how many microbusiness owners or representatives will be present?

Ms Weston—I do not have the full details. I expect there to be some 40 to 60 people there. Some of those will be representatives and, as I said, some home based businesspeople will speak.

Senator CONROY—Okay, but you are anticipating that mainly local government representatives and state government representatives would be the people listening?

Ms Weston—At this stage, yes. We are about raising some awareness of what the issue is to see where to progress to from there, but certainly I am hoping to obtain some of the speeches and so on and have them available. We are also talking about other ways to get the information out to other people to share, perhaps through putting it on the Internet or on the web site or whatever.

Senator CONROY—Is it invitation only? Would I or someone from my office be able to attend?

Ms Weston—It is invitation only at this stage, yes. There are a limited number of seats in Parliament House.

Senator CONROY—I have always experienced that; Senator Brandis noted that too.

Ms Scott—I am pleased to say that the BEP web site syndicates information from the web site operated by Ms Barbara Gabogrecan, so we have a nice link operating there already. The BEP web site also has information on the three levels of government. The reason why we are running with a strong government theme is that that is what the organisation itself has nominated to us as one of the impediments—the red tape that they have to encounter when dealing with the three levels of government, particularly local government.

Senator CONROY—Is it possible to webcast the seminar as we are being webcast now? Believe it or not, people are sitting there in front of their computers. You, Ms Weston, are on camera right now.

Ms Weston—Senator, you are well ahead of yourself. We are actually investigating the cost of webcasting at least Minister Hockey’s speech through the BEP, but we have not formalised that at any stretch. So your thoughts have already been thought elsewhere.

Senator CONROY—I hope that Mr Hockey is able to see his way to webcasting not only his own speech but perhaps the entire seminar. For those microbusinesses that were not lucky enough to score an invite, I am sure that would be very useful—given that by definition someone with a home business will have a computer and they can tune in.

Ms Weston—That is part of the reason why we are thinking of that.

Senator CONROY—Are you only investigating webcasting the minister’s speech or are you looking at what it would cost to webcast the entire seminar?

Ms Weston—We are looking at the costs in particular and at the feasibility.

Senator CONROY—I believe all of the committee rooms have the same sort of camera network.


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Ms Scott—We are actually having a few issues with the availability of rooms. We have been bumped out of the room we thought we were going to have. I think we were going to have the Main Committee room.

Senator CONROY—Where have they stuck you now?

Ms Scott—We are not too sure which room we have, but the question we are exploring is: can we do it? There is certainly a willingness to do it because—

Senator CONROY—I just think it would be a great initiative. You are running a good seminar and a good program and, by definition, people would be able to log on and get in through your web site or the Parliament House web site.

Ms Scott—We would be happy to inform your office of our success with this endeavour.

Senator CONROY—Yes, please do. I would be interested in finding out how we go. I think that is all I have on small business.

Senator LUNDY—Do you have any statistics on the number of home based businesses which were affected by bushfires, not just here in Canberra but around the country?

Ms Weston—I do not have that with me.

Senator LUNDY—Is that something that you are looking at?

Ms Weston—It is probably something we could obtain for you from state governments— the ACT government and perhaps the Victorian government. I do not have that readily to hand.

Senator LUNDY—Are there any programs for assistance for home based businesses run through your area?

Ms Scott—The Department of Transport and Regional Services has an agreement between the Commonwealth and the states on national disaster relief assistance. There are three categories of Commonwealth assistance: assistance to individuals, assistance to businesses which have lost assets and assistance to communities—but I am not too sure about how broad that last category becomes. So if a business has actually lost assets then it will be eligible for assistance. BEP also has information on its web site on bushfire relief at the three levels of government; so that might be a useful first source of information for you, Senator.

Senator LUNDY—Thank you.

CHAIR—Are there any further questions? There being none, I thank the officers from the Office of Small Business. I invite to the table officers from the Australian Tourist Commission and ask Senator Chapman to take the chair.

[3.22 p.m.]

Australian Tourist Commission ACTING CHAIR (Senator CHAPMAN)—I welcome the officers from the Australian

Tourist Commission and from the department. We are now on output 1.2, Policy advice. Are there any questions?

Senator LUNDY—I would first like to turn to the issue of bushfires in the ACT, New South Wales, Queensland and Victoria. What data does the department have on the impact of these fires in relation to tourism? We have heard anecdotally this week from a number of institutions in Canberra that tourism has declined and there have been cancellations as a result of the fires and the media attention paid to those devastating instances.


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Ms Kelly—The ACT government has been to see Minister Hockey and has detailed some of the impacts of the bushfires on the tourism industry. There are two impacts. Firstly, there is the impact on operators who rely on nature tourism and have been affected by the bushfires and, secondly, there is the impact on perceptions: people believe that Canberra is not open for business and that there are problems with water, sewerage and power; whereas in reality the national institutions and most of Canberra’s attractions have not been directly affected.

Senator LUNDY—Has the department ever provided tourism assistance to areas affected by fire previously? I understand there are two examples of that so could you please outline what assistance was provided.

Ms Kelly—Following the bushfires that affected the Blue Mountains and the Shoalhaven region last summer, the Commonwealth provided half a million dollars to each of those regions. That was funding to be matched by state government funding and was primarily for marketing campaigns and recovery measures.

Senator LUNDY—Was that out of a specific fund or program, or was it one-off funding? How was it found in your budget?

Ms Kelly—We do not have specific funding in the Tourism Division or the department for that kind of assistance. But last year we did have programs that were designed to assist the industry recover after the Ansett collapse. Not all of the funds under those programs were spent, which allowed us to offset the request for bushfire assistance against some unspent program funds that we did have. This year we do not have the same unspent program funds in the Tourism Division.

Senator LUNDY—Is there any potential source that can be identified, either in unspent funds or in anticipation, hopefully, of a budget increase for the department, that might be able to help out in these areas?

Ms Kelly—I think the minister mentioned in answer to a question in parliament this week that he was to talk to See Australia. In fact, he has spoken to See Australia and See Australia are looking at what they can do within the funding provided to them for domestic tourism marketing to assist in getting out the message that both drought—they are already working in the drought area—and bushfire affected areas are, largely, still open for tourism business. On the broader question, Patricia Scott mentioned the national disaster relief arrangements. Our understanding is that the ACT government will be putting a broad submission to the federal government for assistance for recovery from bushfire damage and that there may be a tourism component in that. That would be considered under those national disaster relief arrangements.

Senator LUNDY—I know Minister Hockey has been extremely forthcoming after approaches from local Canberra representatives and the ACT government on these issues, but is it reasonable to think that a similar amount to that provided to the Blue Mountains and the Shoalhaven may be forthcoming for areas currently affected by bushfires?

Ms Kelly—I really cannot give you an answer on that, because it is not in the hands of this portfolio and, as I said, it is likely to be considered as part of a broader request.

Senator LUNDY—So it is not likely to come through the same channels as that former assistance?

Ms Kelly—No.

Senator LUNDY—Has Minister Hockey formally ruled that out?


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Ms Kelly—Minister Hockey has told the ACT Treasurer that he does not have a source of funds to directly assist with bushfire relief for tourism marketing campaigns.

Senator LUNDY—Was that said in the context of this current financial year, or did it also mean for the next financial year?

Ms Kelly—It would apply to both financial years. There are no funds available to us. The only tourism program that the department runs is the Regional Tourism Program, which will open for applications in a couple of weeks. That money will become available in July. There is a little less than a million dollars available under that program this year, and the guidelines for that program are likely to be announced in the next couple of days. That is my understanding. That is the only program that we have that could be used, but it is a fairly small program and the current guidelines are not geared towards disaster recovery.

Senator LUNDY—While we are on the point, how much is allocated in this current financial year to the Regional Tourism Program? Is there anything or does it start in the next financial year?

Ms Kelly—No, in the current financial year. I think the figure is $2.1 million, but Bill Peel from AusIndustry could confirm that.

Mr Peel—Funds for this financial year have been allocated and just over $2 million was made available. Ms Kelly spoke about another $900,000, which is available for the next round of the program. That is likely to be announced in the next week or two.

Senator LUNDY—That is part of this financial year’s allocation?

Mr Peel—That is the 2003-04 allocation.

Senator LUNDY—That is next year’s allocation.

Mr Peel—As Ms Kelly said, the money is available from 1 July.

Senator LUNDY—What about the year after that?

Mr Peel—The year after that we will have just under $2 million for granting programs. It is the same for the following year as well.

Senator LUNDY—Why does 2003-04 drop down to $0.9 million when the other years are all up around the $2 million mark?

Mr Peel—It is just the way the appropriation has been spread across the financial years.

Senator LUNDY—You have not been oversubscribed and had to pull money forward into this year?

Mr Peel—There has been money brought forward from previous years, which has made this year significantly larger than next year. Money frees up further down the track.

Senator LUNDY—Of the money you mentioned from the regional services departments—

Ms Kelly—The national disaster relief arrangements?

Senator LUNDY—Yes. Currently, is there any program under that system that could make money available for tourism recovery or would guidelines have to be changed?

Ms Kelly—The guidelines currently envisage assisting individuals in personal hardship, businesses that have lost assets or public assets that are destroyed. So the guidelines that sit there do not envisage assisting marketing campaigns. However, I understand that there is some discretion around these matters. I understand that the Prime Minister did invite the


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Chief Minister to come forward with the package of assistance that he required and that it would be given consideration.

Senator LUNDY—I will probably pursue that in more detail with that department. Colleagues of mine have met with Minister Hockey and, as I said, he has been very forthcoming. He said that he will do whatever he can, effectively, within his capacity to move quickly and provide infrastructure. I am not quite sure what he meant by that. I do not know if you are able to elaborate further on what he has placed on the public record. I am particularly interested in what Minister Hockey has put in place now to consult with governments or representatives from affected areas. The ACT is quite well represented by the assembly, of course, and that dialogue has started. But what about other regional areas which have their own regional council structures? What degree of formality will there be for the consultation that is occurring or will occur?

Ms Kelly—The minister is in fact travelling to Jindabyne and north-eastern Victoria tomorrow and Friday to get some sense of the impact on the tourism industry in those areas. I also understand that the Canberra Tourism and Events Corporation, in collaboration with industry here, is actually doing a survey to provide some data about the impact of the downturn on Canberra. So we are trying to monitor fairly closely what the impact is in those areas.

Senator LUNDY—So you will be having a look at that data and using that information to help inform your decision?

Ms Kelly—We will use that for any policy response.

Senator LUNDY—I recall a news bulletin which I think was quite graphic in demonstrating the impact on Thredbo village and the Snowy Mountains region. Apart from Minister Hockey’s visit, has there been any other formal contact with representatives of that community about tourism as yet?

Ms Kelly—There was a meeting of a range of tourism operators in Jindabyne last week. We did have an officer at that meeting and that officer is here. So we have sent somebody down to talk to the operators and those affected in the Jindabyne area. We have not been to north-west Victoria where, of course, there are still fires going and the situation is still more of an emergency one.

Senator LUNDY—You mentioned before that, as far as the national disaster relief processes go, there may be scope for negotiation there for tourism recovery. Does that apply also to the New South Wales government negotiating on behalf of tourism operators in the Kosciuszko National Park? Is the same kind of process going to apply to other areas affected? What is their process? They will be looking at the Blue Mountains and South Coast precedents and will think that it is just about dealing with you when in fact there is a whole heap of bureaucratic or organisational infrastructure around the national disaster relief process.

Ms Kelly—In general, domestic tourism marketing is an issue that the states deal with and the Commonwealth deals largely with the international tourism marketing. But the arrangements are the same. The criteria that we have that are set down under NDRA would not cover marketing per se. They would potentially cover assistance with rebuilding of public asset infrastructure that could be important to tourism and assistance for tourism businesses that have lost assets. I think in disaster situations the state governments are always in a position where they can seek assistance, outside those strict guidelines, from the Commonwealth, and that can be considered.


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Senator LUNDY—Bushfire is just one of the many scars that we end up with in Australia. Drought is another. I guess the same series of questions applies to severely drought affected areas. I take it from your answers that there is no scope outside what you have already described for areas affected by severe drought, as far as tourism recovery goes.

Ms Kelly—My colleagues in the Office of Small Business I think have already mentioned that there are some provisions available to small businesses who are in severely drought affected areas, which would include tourism businesses, but other than that, no. Minister Hockey did a tour of drought affected areas in New South Wales, again to try to publicise the fact that they were open for business. We have also been liaising with See Australia, who have got Ernie Dingo to do a community service advertisement about seeing Australia and getting out there into the areas where we have had drought, making the point that they are open for business. To date, that has been aired, as I understand it, on Channel 7. See Australia is, as I think you know, a company which is supported by Commonwealth—and to some extent in the past—state government funding. We provided it with an amount of $8 million over four years in last year’s budget.

Senator LUNDY—I was going to ask you about that. What are the opportunities, as per Minister Hockey’s announcement, that See Australia are looking at, particularly with reference to Ernie Dingo and promoting those destinations? Is it just the ad campaign at this stage or are you looking at something more comprehensive?

Ms Kelly—At the moment, See Australia have gone away to look at what they might be able to do. The only thing that I am aware of that they have mentioned is looking at advertisements using Ernie Dingo, but they have gone away this week and we will be talking to them next week when they will come back to us with a bit of an outline of what they think could be done. That is really being looked at at the moment.

Senator LUNDY—What is their budget for that project?

Ms Kelly—I think, until the last week or 10 days, they have not had a specific budget for that project. It is money that would need to be found outside of the budgeting they have done to date. It is not a question I can answer at the moment.

Senator LUNDY—Would that have to be found within their $8 million?

Ms Kelly—Within their $8 million. They do have other sources of funding, including significant private sector sponsorship. To some extent, the states and territories in the past have contributed to See Australia, although currently they are not contributors. So they do have other potential sources of funding.

Senator LUNDY—Is there any scope for the government to increase the contribution to See Australia, either now in the face of this situation or indeed in the forthcoming budget?

Ms Kelly—We have had no further funds provided to us other than the $8 million in the last budget.

Senator LUNDY—So that would be up to the government?

Ms Kelly—That would be a matter for the government.

Senator LUNDY—Minister, is the government considering increasing the tourism budget for the purposes of initiatives for tourism recovery or, indeed, for specific promotion campaigns that are more generic, like the See Australia campaign, to try and assist with tourism recovery?

Senator Minchin—All I can give you is what you might call the cliched answer. The government, in preparation of this year’s budget, will consider all its expenditure—its current


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expenditure, its expenditure priorities and bids from ministers—and set them in a whole-of-government context as to what demands are placed upon us and where the priorities lie. As you know, there are any number of demands placed upon the government. The tourism industry always wants more money—we understand that. The Prime Minister and the Treasurer have indicated that defence and national security will be high priorities and that all other bids will be considered subordinate to that. In the ERC process, we will take account of the state of the economy, the state of the nation’s finances and the expected financial outcomes without change over the next few years and then look at bids from ministers. Minister Hockey, as you know, is going through a green paper/white paper process. It will be a matter for the cabinet as to what comes out of the budget process.

Senator LUNDY—Thank you, Minister, for that cliched answer. Can you tell me about the progress of the tourism green paper?

Mr Paterson—The answer that I provided today is the same one that we provided when we were last before you.

Senator LUNDY—That is so disappointing. I thought you said last time that it was going to be out in late January?

Mr Paterson—No, I made no such commitment, but I did indicate on the last occasion that scheduling of the matter for cabinet consideration had not occurred, and the answer remains the same.

Senator LUNDY—I got the end of January from somewhere, because it was October, then December, then January. So it is really in the hands of cabinet now, I take it, and will be up to their timing. Is that correct?

Mr Paterson—That is correct.

Senator LUNDY—Are you able to say if the current international situation, and the prospect of war in Iraq, is affecting that green paper in any way? I do not just mean in terms of timing consideration in cabinet but the issues of substance in that paper.

Mr Paterson—That would go to matters of policy advice that may or may not be included in that paper, and I cannot go there.

Senator LUNDY—Are we ever going to see a white paper on the future of tourism?

Mr Paterson—That would be my expectation.

Senator LUNDY—There has been considerable speculation in the industry that the Ansett levy will be left in place to pay for initiatives. Can you tell me whether that option is being left open?

Senator Minchin—My understanding is that the government’s clear enunciated position is that we would terminate the Ansett levy as soon as possible. That is still our position. I think Mr Anderson reaffirmed that quite recently.

Senator LUNDY—What does ‘as soon as possible’ mean? Can you be a little more specific? Are there any conditions under which you would be able to do that?

Senator Minchin—I am not the expert—maybe someone else here is—but it relates to the administration of Ansett and the current court proceedings in relation to the payments to former employees, the question of how much is available for former employees from other sources and, therefore, how long the government has to continue to collect the levy in order to meet its obligations to those employees. That is the gist of it. Those matters are still before the courts, I think.


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Mr Paterson—The operation of that arrangement is managed by the Department of Transport and Regional Services.

Senator LUNDY—One more question on that: what plans have been made to implement the government commitment to return money raised by the tourism industry in the event that it is not needed to pay for workers’ entitlements? Is returning that money to tourism per se under consideration—which would mean it is potentially under the auspices of this department to then either distribute or expend the money in a way that benefits tourism?

Senator Minchin—Yes. The position of the government is, obviously, that we want to terminate the levy as soon as possible and we want to meet our obligations to the former employees. Should there be any surplus after meeting those obligations and from collecting the levy—hopefully, if we can get the timing right and terminate the levy in time, there will not be a surplus—we gave an election undertaking that we would return those funds to the community and ‘in particular to the tourism industry’. We have not got to the point of knowing whether there will be.

Senator LUNDY—Yes. Minister Hockey is quoted again this morning, saying effectively that, which is why I think it is quite reasonable to bring the question to Tourism.

Senator Minchin—Yes, but we do not yet know whether there will be any funds available. It is a bit difficult to talk about plans to spend something that may not materialise.

Senator LUNDY—But it would make sense to plan for it in anticipation just in case it does happen and there is an opportunity there. I think the department would be appropriately opportunistic in planning ahead in that way.

Senator Minchin—I am sure the department has, at any point in time, a range of options it could present to the government if the government had moneys available for tourism. That would not take very long at all, I am sure.

Senator LUNDY—I am not aware if there have been any public statements or speculation by either the minister or the tourism industry about what a good use of the money would be. I do not know if you can enlighten me, but I am sure you follow the issues. Have there been any helpful suggestions from the tourism industry as to what you may be able to spend that money on?

Mr Paterson—There are always helpful suggestions and as many creative ideas about ways to spend money as there is money available. Obviously, there has been a very widespread consultation as part of the lead-up to the development of the announced tourism green paper, and many of those ideas have no doubt been put forward in that context.

Senator LUNDY—I note from page 33 of the department’s annual report 2001-02 that the department has been working ‘with several special interest tourism sectors to facilitate industry development’ in those areas: ecotourism, wine tourism, Indigenous tourism and marine tourism. Can you give me some idea of what the department has done with each of those sectors? I am very conscious of time and I hope to conclude at four o’clock, so if you could be brief that would be helpful.

Ms Kelly—In the current year, the focus has been on implementation of the national wine tourism strategy. The Winemakers Federation of Australia received a $70,000 grant in 1997, through which it developed a national wine tourism strategy. In November 2001, it was announced that there would be a $450,000 commitment over three years for the implementation of that strategy, which has come from the tourism portfolio. Work is under way at the moment. That money has been made available in a series of grants to the


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Winemakers Federation, and they have employed various people to get under way the implementation of that national wine tourism strategy.

The other area of activity in the current year has been that we provide secretariat support for the Indigenous Tourism Leadership Group, which is a group of tourism industry leaders, both Indigenous and non-Indigenous, that are putting together a strategy for the growth of Indigenous tourism, which is an area where we believe there is strong demand and perhaps supply is not adequate. They will be delivering a strategy, or some options, to government before the end of the financial year, I understand.

Senator LUNDY—You have anticipated my next question, which is: what are you planning to do with Indigenous tourism—preparing a strategy, putting together a paper? I understand that there is a working group, as you mentioned. Do you have any thoughts so far on how such an initiative would be funded?

Ms Kelly—I guess there are two options there. Certainly it is an issue that we have received submissions to the green paper on. So it could be taken up in that context. If not, then the normal route would be that an options paper would come to government and, if it required new expenditure, we would put up a new policy proposal to be considered in the budget process.

Senator LUNDY—Can you please provide me with the names of the members of the Indigenous Tourism Leadership Group?

Ms Kelly—I can. I do not have them with me. Can I respond on notice?

Senator LUNDY—Yes. What about ecotourism and marine tourism? Are there any specific sector initiatives occurring there?

Ms Rooney—We provided $130,000 towards the International Year of Ecotourism last year. That assisted with the holding of a major ecotourism conference in Cairns. There were a range of initiatives that the Ecotourism Association of Australia ran with as well.

Senator LUNDY—Is there ongoing funding for that, or was it a one-off initiative for ecotourism?

Ms Rooney—No, that was one-off.

Senator LUNDY—Do you monitor the statistics of ecotourism to assess whether or not that was a particularly astute expenditure of $130,000?

Ms Rooney—Do we monitor the performance of the sector?

Senator LUNDY—Yes.

Ms Rooney—There would be statistics available on the sector, but I do not have those with me.

Senator LUNDY—When you implement a special sector strategy like that and invest in it, what kind of follow-up do you have? How do the results of your findings inform your investment in other special interest tourism areas?

Ms Rooney—In the case of ecotourism, it was a declared International Year of Ecotourism. It was an opportunity for the government to provide a bit of impetus to support that activity—

Senator LUNDY—Harnessing the moment, rather than a structural boost to the sector?

Ms Rooney—It was not structural assistance in any way. It was more about awareness raising, about the value of the sector to the Australian economy and about the range of operators and product that they have to offer.


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Senator LUNDY—Thank you. What about marine tourism?

Ms Rooney—Marine tourism is an area where we have not really done a lot of work. We are involved in the Great Barrier Reef Marine Park and we contribute policy advice through a tourism and reef advisory council there. Most of the work that we do at the Commonwealth level would be oversighting some of the activities of the sector through that area.

Senator LUNDY—So there has not been any significant investment in the form of the ecotourism investment?

Ms Rooney—Assistance was provided for remediation of the Great Barrier Reef to remove crown-of-thorns starfish from areas where there is major tourism activity.

Senator LUNDY—That is a bit unusual for a tourism package, isn’t it? I know they do a huge amount of damage, but it just strikes me as a slightly unusual way to spend money.

Ms Rooney—It was a joint initiative between the Environment portfolio, through the Great Barrier Reef Marine Park, and the Tourism portfolio. The objective was twofold, but it was a priority for the tourism industry on the reef, and the focus has certainly been on removing the starfish from the areas of most value to tourism operations.

Senator LUNDY—It is certainly a worthy thing to do.

Ms Rooney—Yes.

Senator LUNDY—Moving on, I would like to ask some questions about the importance to Australia of the Middle East as a source of tourists. Have you any information about how we have targeted tourism from the Middle East? Have any programs targeted Iraq? If so, what is the status of those programs now?

Mr Boundy—The latest actual statistics show 52,000 visitors came from the Middle East up until the 11 months to November last year. Whilst it is a promising market, it is one of the lower priorities for us. At times like this, it tends to be de-emphasised in promotional activity. We do not have any permanent staff in the area. It tends to be serviced from our regional office in the United Kingdom.

Senator LUNDY—What was the statistical trend looking like not only up to recent events but also prior to September 11? What was the trend line of tourism coming from that area?

Mr Boundy—There was modest growth in the five years prior to S11. Like a lot of other source markets, it has been very flat since then, and that is likely to continue in the short term.

Senator LUNDY—Do you monitor travel advice issued by other governments about Australia, so you can incorporate that information into your statistics about how many people are coming here?

Mr Boundy—We do monitor that quite actively. One of the roles that the ATC can play is to provide accurate and timely information to industry.

Senator LUNDY—So at any point in time you can tell tourism operators which countries around the world are telling their citizens not to come here, or that we are on high alert, or that it is safe or whatever?

Mr Boundy—Yes. Our web site, which is actively used, contains up-to-date information on that.

Senator LUNDY—Just to clarify: that is what other countries are saying about us, not just what we are saying about other countries?

Mr Boundy—Exactly.


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Senator LUNDY—Have we had any programs in the last five years or so that have targeted Iraq as a source of inbound tourism?

Mr Boundy—No.

Senator LUNDY—As I understand it, a number of industry groups have indicated that targeting that market is difficult because of perpetual visa problems, and obviously the heightened security issues are a part of that. Is that an issue that you have had to address or become involved in?

Mr Boundy—We appreciate that security and safety underpins tourism. Accordingly, we work with DIMIA quite actively to try to remove visa constraints where there are opportunities to do so, and there has been good evidence of improvements from certain countries in the last 12 to 18 months.

Senator LUNDY—I know the Middle East is not the only area affected by this issue. Are there any regions in Australia that are particularly affected by the decline in tourism from the Middle East?

Mr Boundy—There were a lot of high-spending tourists from the Middle East who tended to go to Queensland when it was very hot and come for quite a length of time, and that certainly has dropped.

Senator LUNDY—Is it possible to put a figure on the decrease in tourism from the Middle East in recent times, specifically in relation to the current crisis and pending conflict but also more generally?

Mr Boundy—We do not see any decline from that region that is higher than the decline from other regions, for example. Accordingly, it would be impossible to try to quantify any reductions.

Senator LUNDY—Okay. I note from your web site that overall visitor numbers fell by about 2.6 per cent last year—is that correct?

Mr Boundy—In calendar year 2001, that was correct. We are anticipating that in calendar year 2002 it is likely to be down by only about 0.7 per cent.

Senator LUNDY—And apparently there were falls in traditionally more stronger markets like Japan, North America and New Zealand, areas I know you have invested a lot in. Do you have an explanation for that—do you think travel advice has been a part of that fall? What is your informed opinion?

Mr Boundy—In our experience the biggest thing that drives travel are the economies in the source markets—and of course there have been some depressed economies around the world. The second big factor is the aviation environment. Airlines have been capacity managing much more tightly, and we have had fewer seats into the country. I guess the third thing is global uncertainty.

Senator LUNDY—Has the reduction in the number of flights and airlines had an impact, as far as you can tell?

Mr Boundy—I believe that it is one of the contributing factors to travel. Of course, it could be a circuitous argument: demand is down, therefore we need fewer seats. But this industry has been led by good capacity.

Senator LUNDY—I am going to have to place the rest of my questions on notice. I only have a few, and they are along these lines. It might be an appropriate time to have a break, because I know Senator Conroy is expected to come back up for the next part of the program.


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ACTING CHAIR—That completes the Australian Tourist Commission section, as there are no further questions. We will have a short break.

Senator Minchin—Mr Acting Chair, Mr Paterson just wants to say something.

Mr Paterson—Whilst we still have a quorum, there was an issue that was raised by Senator George Campbell earlier today in relation to rephasings of administrative expenses. He indicated that he had some material from the Department of Finance and Public Administration that was supplied in answer to a question on notice with respect to this portfolio. There appears to have been some transposition errors in the development of that question. They were not rephasings from 2001-02 into the 2002-03 budget but in fact rephasings from 2000-01 into the 2001-02 budget. So the premise upon which the question was raised was flawed. We are happy, if they are a separate issue that Senator George Campbell wants to raise with us, to respond to a specific question put, but the premise upon which he based the original question contained an error in transposition from the formal answer to the question on notice. It is something we took on notice and said we would endeavour to respond to today. They are not rephasings from 2001-02 to 2002-03.

Senator Minchin—Mr Acting Chair, as I understand it, the committee has finished with the industry portfolio?

ACTING CHAIR—Indeed we have, so all the officers are excused. Thank you for your attendance.

Proceedings suspended from 4.04 p.m. to 4.21 p.m.


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TREASURY PORTFOLIO In Attendance

Senator Ian Campbell, Parliamentary Secretary to the Treasurer.

Australian Office of Financial Management Outcome 1

Mr Michael Allen, Chief Executive Officer Mr Peter McCray, Deputy Chief Executive Officer Mr Paul Ferris Mr Pat Raccosta, Chief Financial Officer Mr Andrew Johnson, Manager, Portfolio Research Unit Mr Michael Bath Mr John Fleming

Australian Securities & Investments Commission Outcome 1

Mr Mark Adams, Director, Research & Policy Support Ms Kate Harvey, Director, Office of Public Affairs Mr Sean Hughes, Director, Regulatory Operations Mr Carlos Iglesias, Executive Director, Infrastructure Mr Ian Johnston, Acting Commissioner Mr Peter Kell, Executive Director, Consumer Protection Mr David Knott, Chairman Mr Andrew Larcos, Government Relations Adviser Ms Pam McAlister, Director, Legal & Technical Operations Mr Greg Pound, Chief Accountant Ms Jan Redfern, Deputy Executive Director, Enforcement Mr Malcolm Rodgers, Executive Director, Policy & Markets Mr Peter Wood, Executive Director, Enforcement

Australian Accounting Standards Board Mr Keith Alfredson

Financial Reporting Council Mr Jeff Lucy Mr Mike Kooymans

Department of the Treasury Outcome 3 - Markets

Dr Ken Henry, Secretary Mr Jim Murphy, Executive Director, Markets Group Mr Nigel Ray, General Manager, Financial System Division Mr Godwin Grech, General Manager, Competition and Consumer Policy Division Mr David Parker, General Manager, Strategy and Group Services Division Mr Mike Rawstron, General Manager, Corporate Governance Division Mr Andrew Sellars, Manager, Corporate Governance Division Ms Kerstin Wijeyewardene, Manager, Corporate Governance Division Mr Scott Rogers, Corporate Governance Division


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Mr Chris Legg, General Manager, Foreign Investment Policy Division Mr Peter Martin, Australian Government Actuary

Outcome 1 - Macroeconomic Dr Martin Parkinson, Executive Director, Macroeconomic Group Mr David Gruen, Specialist Adviser - Macroeconomic Dr Jim Hagan, General Manager, Domestic Economy Division Mr Steve Morling, Specialist Adviser (Forecasting), Domestic Economy Division Dr Steven Kennedy, Manager, Economics Unit, Domestic Economy Division Mr Nicholas Stoney, Manager, Economics Unit, Domestic Economy Division Mr Damien Dunn, Manager, Economics Unit, Domestic Economy Division Ms Ruth Gabbitas, Manager, Modelling Unit, Domestic Economy Division Mr Graeme Davis, General Manager, Macroeconomic Policy Division Mr Colin Johnson, A/g General Manager, International Economy Division Mr Stephen Miners, A/g General Manager, International Finance Division Mr Jonathon Kirkby, Manager, Development Banks Unit, International Finance Division Mr Adam McKissack, Manager, International Monetary Fund Unit, International Finance

Division Ms Karen Taylor, International Finance Division Ms Kate Dooley, International Finance Division

Outcome 2.2 - Revenue Mr Greg Smith, Executive Director, Revenue Group Mr Paul McCullough, General Manager, Individuals and Entities Tax Division Mr David Martine, General Manager, International Tax and Treaties Division Mr Peter Mullins, General Manager, Business Income Division Mr John Lonsdale, General Manager, Tax Analysis Division Mr Patrick Colmer, General Manager, Indirect Tax Division Mr Roger Brake, General Manager, Superannuation, Retirement and Savings Division Mr Gerry Antioch, General Manager, Board of Taxation Secretariat Mr Phil Gallagher, Manager, Tax Analysis Division Mr Trevor Thomas, Manager, Superannuation, Retirement and Savings Division

Outcome 2.1 - Fiscal Mr Richard Murray, Executive Director, Fiscal Group Mr Blair Comley, General Manager, Debt Management Review Team Mr Steve French, General Manager, Budget Policy Division Ms Maryanne Mrakovcic, General Manager, Budget Policy Division Ms Jan Harris, General Manager, Commonwealth State Relations Division Mr David Tune, General Manager, Fiscal and Social Policy Division Mr Paul Roe, Manager, Budget Policy Division Mr Geoff Francis, Manager, Fiscal and Social Policy Division Ms Laurene Edsor, Manager, Commonwealth State Relations Division Mr Joseph Castellino, Commonwealth State Relations Division

Australian Competition and Consumer Commission Outcome 1

Mr Brian Cassidy, Chief Executive Officer Mr David Smith, Executive General Manager, Compliance Division


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Mr Joe Dimasi, Executive General Manager, Regulatory Affairs Division Mr Lee Hollis, General Manager, Enforcement Co-ordination Branch Mr Robert Antich, General Manager, Compliance Strategies Branch Mr Mark Pearson, General Manager, Mergers and Asset Sales Branch Mr Paul Palisi, Acting General Manager, Adjudication Branch Ms Helen Lu, General Manager, Corporate Management Branch Ms Marlene McClelland, Director, Finance and Services Lin Enright, Director, Public Relations

National Competition Council Outcome 1

Ms Deborah Cope, Acting Executive Director Mr Ross Campbell, Director

Australian Bureau of Statistics Outcome 1

Mr Dennis Trewin, Australian Statistician Mr Rob Edwards, Deputy Australian Statistician, Economic Statistics Group Mr Graeme Hope, First Assistant Statistician, Corporate Services Division

Takeovers Panel Corporations and Markets Advisory Committee Outcome 1

Mr John Kluver Productivity Commission Outcome 1

Mr Robert Kerr, Head of Office Mr Garth Pitkethl, First Assistant Commissioner

Australian Taxation Office Outcome 1

Mr Michael Carmody, Commissioner of Taxation Mr Kevin Fitzpatrick, First Assistant Commissioner, Aggressive Tax Planning Mr Neil Mann, Deputy Commissioner, Small Business Ms Alison Lendon, Assistant Commissioner, Personal Tax Mr David Diment, Assistant Commissioner, Personal Tax Ms Erin Holland, Deputy Commissioner, Operations Mr Murray Crowe, Assistant Commissioner, Operations Mr Gregory Topping, Assistant Commissioner, Operations Mr Barrie Russell, Deputy Commissioner, GST Mr Bruce Quigley, Deputy Chief Counsel, GST Ms Tracy Nicholson, Assistant Commissioner, GST Mr Mark Jackson, Deputy Commissioner, Superannuation Lesley East, Assistant Deputy Commissioner, Superannuation Mr Paul Duffus, Deputy Commissioner, Excise

Australian Prudential Regulation Authority Outcome 1

Mr Graeme Thompson, Chief Executive Officer Mr Tom Karp, Executive General Manager, Diversified Institutions Division


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Mr Brandon Khoo, Executive General Manager, Specialised Institutions Division Mr Charles Littrell, Executive General Manager, Policy, Research and Consulting Dr Darryl Roberts, General Manager, Rehabilitation and Enforcement

Australian Securities and Investments Commission CHAIR—I call the committee to order and welcome officers of the Australian Securities

and Investments Commission. Do you want to make an opening statement?

Mr Johnston—Yes. We appear today before the committee at an interesting time in the world of financial services. We are 11 months into the FSRA transition period and at a time where we have seen various surveys and publications dealing with financial advisers, not least of which is our own ASIC and ACA ‘shadow shopping’ survey. These surveys have highlighted less than ideal performance by sections of the financial services industry.

Looking first at the FSRA transition rates, we find that the industry has moved slowly so far. ASIC had anticipated that the flow of applications would gather pace from March this year, and that looks like being the case. So far we have had 600 or so licence applications, which is fewer than we had anticipated by this time, but is in line with our expectations of the overall trend.

Our message to the industry on this has been consistent: do not delay too long in the transitioning and run the risk of being out of the market by the end of the transition period. There are two key factors that impact on the transition rates. Firstly, there is the usual inertia, to perhaps be expected when there are no incentives to move early. This has meant that many participants have adopted a ‘wait and see’ approach. The second factor that we are aware of through our frequent consultations with the industry is that industry generally is taking time to prepare for the new regime. In many cases businesses are changing structures, remuneration practices and their approach to compliance, to be able to meet the tougher requirements of FSRA.

This brings me to the issue of the past few days—undertaking the ‘quality of advice’ survey of financial advisers, also known as the ‘shadow shopping’ survey. The results of this are very disappointing and must act as a wake-up call to the industry. Too many advisers put their own interests ahead of those of their clients. Too many advisers failed to produce plans meeting their own industry standards, and some of these did not meet the requirements of the law. This is the third such exercise run jointly with the ACA by ASIC’s consumer protection area. While the results are better than the first survey, the industry has not progressed quickly enough to be assured of a high degree of consumer confidence, never mind regulator confidence.

The financial advisory industry receives much attention from ASIC. Other recent ASIC actions, such as our work on high-commission-paying schemes, other work that we already have under way on institutionally owned financial planning firms, and our compliance visits generally, bear out the fact that the industry needs to build on the work it has already done on improving professionalism and raising its standards.

There are of course intersecting issues between the introduction of FSRA and our findings in the ‘shadow shopping’ exercise. The new act does have higher standards. Issues such as disclosure of commissions, giving appropriate advice and properly documenting that advice are better dealt with under the new law, and FSRA makes the breach of many of the relevant provisions an offence, allowing for tougher penalties for noncompliance.

I might add that many of the concerning outcomes of the ‘shadow shopping’ report go to matters that we have addressed in our FSRA policy proposal paper on advice and disclosure.


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This paper was issued late last year and closes for comment later this month. Our proposals— which indicate, among other things, ASIC’s preferred policy approach to what constitutes appropriate advice—will include reference to such practices as switching clients and replacement products and the need to disclose to the client any lost benefits that this may entail, any costs to be incurred as a result of the switch and, importantly, any additional remuneration that the adviser will receive following that switch of product. We will be interested in the responses that we receive to these proposals.

Peter Kell, our Executive Director of Consumer Protection, will be happy to talk about the findings of the project, and I will be pleased to deal with the consequent actions by ASIC and our supervision of the industry generally. What we can say is that we are already implementing a package of actions to address the shortcomings that we found in our survey, including breaches of the law. Yesterday we announced a compliance campaign targeting the stockbroking sector, which performed poorly. We are meeting with all firms who have planners who fell into the very poor category, and several others, to ensure that weaknesses in supervision and compliance are addressed. There is significant compliance action already under way in relation to one licensee, and we are looking at a project to lift communication standards and further work in consumer education. These actions build on a number of matters that ASIC has already done and a number of matters already under way.

As the committee is aware, ASIC has banned in excess of 60 advisers in the last two years and jailed 10 others. Perusal of the ASIC web site in the past day or two would have shown a number of recent actions in the financial services sector, ranging from banning advisers through to preventing unauthorised early release of superannuation and also preventing an unauthorised insurer from operating in this country. It has been a busy time and I expect it is about to get busier. We are happy to answer any of the committee’s questions.

CHAIR—Thank you, Mr Johnston. I did indicate that I would give Senator Chapman the call first.

Senator CHAPMAN—Thank you. It might be appropriate to direct this question to you, Mr Kell. Can you give us an update on ASIC’s investigations and dealings in relation to Nigerian money scams?

Mr Kell—Yes. What I can confirm for the committee is that late last year ASIC did, I think for the first time, initiate legal action against an adviser who unfortunately had placed around a quarter of a million dollars of his client’s money into a Nigerian letter scam. I am sure that the committee finds that as hard to believe as we did at the time, but we have commenced proceedings and those are currently on foot. It appears, unfortunately, that we are not going to be able to retrieve that money, but obviously we will hopefully be taking appropriate administrative and possibly follow-up criminal action against the individual concerned. So it is an area where we are continuing to warn consumers and pursuing any links from Australia. I would have to say that we were surprised at the nature of that link, but we have jumped on it as quickly as possible.

Senator CHAPMAN—Given that an adviser apparently got sucked into such a scam, do you think the message is getting through to the community as to the nature of these scams?

Mr Kell—I suppose in one sense it is reassuring that very few of the complaints we get about Nigerian letter scams actually come from people who have lost any money. We do get a lot of complaints, but they are typically from people who are outraged at the fact that they have received these rather ludicrous offers. To our knowledge, this was the first matter for some time where any significant amount of money had been sent overseas.


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Senator WATSON—The Senate superannuation committee has previously commented on the need to streamline the roles of ASIC and APRA. For example, a report on supervision of consumer protection, tabled in August 2001, called for much better coordination of certain industry sectors and the adoption of a more holistic approach. Given the recent statements by APRA and action by you, what more can be done to develop a holistic approach, because in the public eye there is a lot of confusion between your two roles?

Mr Johnston—Perhaps the best way to tackle that would be if I start with what has already done. ASIC and APRA of course do different jobs. We regulate many of the same market participants but with a different approach, because there are two distinctly different jobs that we do. There are provisions in our acts, respectively, which provide for us to release information from one agency to the other where we come across information in the course of our investigations or compliance visits that we think would be relevant to the other agency in fulfilling its responsibilities. There are formal exchanges of information where we believe there may be some regulatory benefit, or that regulatory action should be taken by the other agency.

As far as communication between agencies is concerned, we have regular liaison meetings; we have liaison officers in each agency who ensure that communication flows between us. We have meetings at various levels within the organisation. We have a memorandum of understanding which governs those meetings. At lower levels of the organisation there is frequent contact. At what you might call executive level there are quarterly liaison meetings. At the commission or APRA board level there are also regular meetings which are provided for in the memorandum of understanding. There is a fair amount of information that flows between us. I would not be able to give you an idea of the magnitude other than to say that there would rarely be a day go by that ASIC and APRA are not speaking to each other about an issue. That does not mean that the industry and the people that we regulate understand the distinction as well perhaps as they might. We have put information on our web site, in our communications and in the regular liaison visits that we have the industry. We try to help them understand the distinction between the two jobs that we do.

There are also a number of joint actions that we undertake—for example, there have been two or three financial institutions which APRA and ASIC have looked at concurrently. Where we can, we try to coordinate the approach to the institution involved; but that is not always possible, because we do different jobs and are looking for and at different things. APRA might be looking at the solvency of an institution: we might be looking at the selling practices and disclosure of the same institution, at the same time. That generally means we are looking at different things. So, because of the fundamentally different things that we do, we will not always go in there together and sit down across the table with executives together to talk about issues.

Senator WATSON—That does not seem to be a very satisfactory approach. On these important issues, I would have thought that organisations such as yours and APRA should be speaking with one voice, and that one person should be going in to address the number of issues rather than making two or three visits at different intervals.

Mr Johnston—With respect, I do not think that is always possible.

Senator WATSON—I know it is a defect in the act, but I am wondering whether the act is working as it was intended, or whether there might be an alternative approach. I am perhaps suggesting a more holistic approach to this issue, because APRA has been making a lot of statements as if it were carrying out responsibilities that are yours. Somebody has not fully


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understood their role or is stepping further maybe than they should. So I raise this whole question of the need for a holistic approach. The demarcation lines are certainly very blurred.

Mr Johnston—I do not think it is possible for us to prevent APRA conducting any studies or making any comments on issues that are within its jurisdiction. We see the work that they do and they see the work that we do, and we talk about that. But fundamentally we do different jobs. At the edges, those things tend to come together. There will always be some blurring at the edges, but the central role that we perform is quite different. Prudential regulation is different from conduct regulation.

Senator WATSON—Did ASIC take note of the report of the Senate Select Committee on Superannuation on the choice bill, which was tabled last year? In it the committee considered: ... it would be appropriate for ASIC to have a role in auditing the financial planning sector by monitoring the financial plans and Statements of Advice provided by financial planners to consumers ...

It seems that your first foray into this area was to conduct a survey in conjunction with the ACA. Why didn’t you follow the advice that we suggested? We suggested that your organisation monitor some of the ‘financial plans and Statements of Advice provided by financial planners to consumers,’ which is your role.

Mr Johnston—It is not our first foray into the area. That was the third shadow shopping exercise that has been conducted over six years. Whether we should audit plans, the law provides that the licensee is ultimately responsible for the advice given by authorised representatives. There is therefore an obligation on the licensee of the representative to have compliance procedures in place, and those compliance procedures should involve an auditing of a number of plans to make sure that they meet the legal requirements. In rough figures, we conduct somewhere around 150 compliance visits per year on planners. It is certainly not possible for us to audit the large number of financial plans that are prepared across the industry on an annual basis—that would be hundreds of thousands of plans. But we do conduct compliance visits on licensees and advisers—as I say, we probably do about 150 a year. On top of that, we have campaigns that we conduct where we target specific issues that we think are problems within the industry. I mentioned two of those in my opening statement. We are conducting a number of them at any one time. They will go from looking at the commission paying practices through looking at disclosure and at the quality of advice given. I do not think it is practicable for ASIC to audit hundreds of thousands of financial plans, and I do not think it would be a good use of our resources.

Senator WATSON—Shouldn’t you be testing them to make sure they do what they say?

Mr Johnston—We do. I was just about to come to that. In the work that we do where we conduct compliance visits, depending on the nature of the visit, we often review client files and will often go as far as interviewing clients themselves to check whether or not what the adviser has told us about matters they have disclosed gels with the experience of the client. I also think that the shadow shopping survey is a very valid way of carrying out that role. Our experience is that there is rarely a better way to find out about the quality of plans than actually sending real people in there and getting real plans. When members of my staff go in as a regulator, they make an assessment about whether the plan is meeting requirements, if that is what we are looking at. In fact, shadow shopping is a very good tool that we use in finding out what actually happens and what advice is actually given to people by using their own circumstances by paying for the plans and having them come back, and then by having them assessed.

Senator WATSON—As a result of your audits into these 150 financial planners, did that show results significantly different from the survey that you and ACA produced?


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Mr Johnston—The findings of the survey are broadly consistent with what we have found. I have to emphasise that, of those 150 or so compliance visits, I am not always looking at the quality of the financial plan. The visits often look at specific things like are the disclosure mechanisms working, are the planners providing the documentation they are supposed to provide. There might be specific things that we are looking at. So it is certainly not the case that in all of those visits we are looking at the quality of the plan. This particular exercise is looking at quality, but there is nothing that really jumped out at us, except perhaps the fact that so many advisers did not provide an advisory services guide, which is a bad breach of the law and yet such an easy one to fix.

Senator WATSON—In relation to the ACA and ASIC report, are you going to take any action, such as counselling, against those financial planners that were giving inappropriate advice?

Mr Johnston—Yes. We have a program of work in follow-up.

Senator WATSON—It was not a real life situation. People were asked to prepare plans, weren’t they, but money was not really being invested? That is why I used the word ‘counselling’.

Mr Johnston—Mr Kell might talk about the process. In fact, it was a real life situation.

Mr Kell—The consumers who visited the planners were selected so that they would represent the client base of the industry in terms of age, location and the amount of money they had to invest. They were then sent to planners who would be representative of the structure of the industry: bank planners, planners from life insurers and small individual planners. They were not briefed up to ask anything they would not ask if they were visiting a planner for themselves; they were simply instructed to ask for a comprehensive plan. Those plans were then gathered and assessed by an expert panel. That allowed us to identify areas of strength and weakness in the industry. In effect, it is a very useful way of allowing us to target our resources at those areas that really need our attention.

We announced, as Mr Johnston said, that we will be commencing a campaign targeting the stockbroking sector, because they performed particularly poorly. We will be meeting with those firms whose planners fell into the ‘very poor’ category. We will be looking at some of the issues where planners generally performed poorly. Many planners let themselves down on the communication issue, so we are going to be targeting that as well. In effect it is an audit in its own way—and quite a rigorous audit—by both ASIC and industry experts that allows us to look at those areas of the industry that most need attention.

Senator WATSON—The government’s measures to introduce a licensing regime, which will be fully operational from March next year, will obviously lead to better advice. Given that members of Certified Practising Accountants Australia had, on average, higher scores than other financial planners, is there any message in this? Will this licensing regime for financial planners lead to better advice; and, if so, how and why?

Mr Johnston—I think the message in that goes to educational standards. I do not think it goes quite so much to the job that people do but to the educational standards that they meet. It would be fair to say that CPAs are joining the regime with higher professional and educational standards than many other planners. That was one of the encouraging things that came out of the shadow shopping exercise. The results you refer to are correct. The other thing it showed up was that people who had higher qualifications generally did better and gave better advice.

Senator CONROY—What sorts of qualifications do you mean?


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Mr Johnston—The certified financial planner designation, for example, which is higher than the basic requirement that people have to meet to be in the industry, is an internationally recognised designation that planners can attain by undertaking further study. Planners with those qualifications tended to do better. That indicates to us that the approach we have taken on policy statement 146—actually requiring people to meet an educational competency standard—is starting to bite. The flip side of the findings was that the length of time planners had been in the industry was no guarantee of getting a better plan. Some of those people who had been in the industry a long time and had not had to meet policy statement 146 type requirements—for example, stockbrokers—were not producing good plans. It indicates to us that we have taken the right approach in terms of the need for competency and educational standards as well as making sure that those standards are current, because in policy statement 146, you might remember, we said that if you qualified or did your training prior to 1995 you needed to top it up to be up to date. I think this exercise bears out the approach that we took there. The better the educational standard of the planner, generally the better the plan.

Senator WATSON—The committee recommended that it might be appropriate for a special independent financial advisory service to be established within ASIC so that consumers contemplating making choices, say, in superannuation can access independent financial guidance. That would have to be fairly generalised—or they could go to ASIC.

Mr Kell—I could probably respond to that in two ways. Firstly, we would point to the fact that we do provide extensive consumer education on planning issues. I carry a copy of Don’t Kiss Your Money Goodbye on me at all times. We have now distributed in the order of 500,000 of those booklets over 10 years.

Senator CONROY—I am a bit worried about you now, Mr Kell!

Mr Kell—We think that provides quite detailed information about how to select financial advice, the sorts of questions you should be asking, traps that you should be aware of. We have a lot of information in booklets such as that and also on our web site. As for establishing a financial advisory service within ASIC, I am not sure that that has been considered or would be regarded necessarily as ASIC’s role.

Senator WATSON—It would have to be of a generalised nature, because you could not be expected to do detailed plans which would compete with the industry, but there is the fact that it would be only a phone call away.

Mr Johnston—It is not something that we took on board following on the issue of the report, I have to say.

Senator WATSON—Is ASIC happy about the way the Financial Industry Complaints Service is working? What sort of relationship do you have with them?

Mr Kell—We have a very close working relationship with the Financial Industry Complaints Service. It is the complaints scheme which will end up dealing with most of the entities that will be licensed under FSR, so it is a very important scheme. We regularly communicate with them about the issues that they have to deal with and the improvements that they may have to make to their service. We had extensive dialogue with them about the sorts of changes that they had to make to ensure that they were compliant with FSR. That included some extensions to their coverage. We have been having those sorts of discussions with all dispute resolution schemes.

I would also note that, as is required by ASIC as part of our approval of such schemes, FICS has recently undertaken an independent review where they called for submissions from members of the public and industry members from all around the country. That review has


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now been completed, and I understand the results will be out quite soon. So it is a body that, as a result of ASIC’s requirements, is subject to regular, independent scrutiny. So we are pleased to see that the opportunity was given to both consumers and industry members to look at what reforms they might like to see with FICS as well. We will be interested to see what recommendations come out of that in the near future.

Senator WATSON—Do they go directly to the Director of Public Prosecutions or through you for consideration of prosecution?

Mr Kell—FICS generally deal with complaints up to a ceiling. The ceiling is $100,000 for the financial planning industry and $250,000 for the life insurance industry. So FICS are designed very much as an alternative scheme. If any of the complaints they receive indicate a systemic problem in the industry they must refer that to ASIC. If any of the complaints that they receive indicate serious misconduct they must also immediately refer that to ASIC. Those requirements were also put in place as part of the approval process. I would have to say that they are now working quite well. We were not pleased with FICS’s referral practices about two or so years ago, but since we have spoken to them they have dramatically improved their referral processes and we now are getting regular and quite useful referrals from them on the more serious matters that they come across.

Senator SHERRY—Why do Australian consumers go to financial planners?

Mr Johnston—That is an interesting question. They go there to obtain advice, but that is only one of the sources that people go to to obtain financial advice.

Senator SHERRY—Why don’t consumers invest in these products directly themselves rather than go to a financial planner?

Mr Johnston—I am not sure that I can answer in terms of the attitudes of people.

Senator Ian Campbell—Many consumers do not have a choice. They get stuck into a scheme by an employer and they have no choice at all. That is the truth.

Senator CONROY—You are flogging a dead horse, mate.

Senator SHERRY—I am sorry. I think the parliamentary secretary interrupted.

Senator Ian Campbell—I think a parliamentary secretary is allowed to answer a question that is asked but not directed at anybody.

Senator CONROY—Not if it does not answer the question.

Senator Ian Campbell—A lot of people do not go to financial planners for a joke.

Senator SHERRY—Mr Johnston had started to respond, Mr Chairman.

CHAIR—Order! Senator Campbell can intervene and respond to any question he chooses. Have you finished, Senator Campbell?

Senator Ian Campbell—For now.

Senator CONROY—As long as that applies in both directions.

CHAIR—Mr Johnston, do you want to go on?

Mr Johnston—We have not done any work that indicates what prompts people to visit a planner or to go to any other source of advice. That is not work we have done.

Senator SHERRY—You mentioned earlier that there are literally hundreds of thousands of plans in a year that are entered into. Would it be because consumers themselves are not financially literate enough to make those decisions and that they rely on a planner for advice?


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Mr Johnston—We would say that the standard of financial literacy needs to be lifted. As Mr Kell said, we devote resources to consumer education. We produce guides and access through our web site, giving people tips on where they should go for advice, how to go about it, the sorts of questions they should ask and telling them to make sure that they see someone who is licensed.

One of the things that came out of the shadow shopping exercise was that if the people who were shopping for the plans had in fact taken the advice that was in publications such as Don’t kiss your money goodbye, the results would have been better. As Mr Kell said, we did not prime the people up as to how they should approach the interview. So, yes, the standard of financial literacy could be lifted. But, as I said, planners are only one of a number of sources that people go to for advice.

Senator SHERRY—But do you believe that it is realistic to expect an education campaign focused on consumers to lift financial literacy standards such that they would not need to go to a planner?

Mr Johnston—I do not know that it would be possible to do that or not.

Senator SHERRY—Do you think it likely that it could be possible? Is there any country in the world where there has been an education campaign run so that consumers do not need to go to planners, or at least some consumers do not need to go to planners, to seek advice?

Mr Johnston—It depends on their needs. There are many people who transact on the Stock Exchange who believe that they do not need to get advice. They simply put out an order to a broker asking them to buy whatever number of shares in whatever company it may be.

Senator Ian Campbell—That is a bit scary, isn’t it?

Mr Johnston—There are people who do that.

Senator Ian Campbell—Making their own decisions based on their own information. That is very scary!

Mr Johnston—There are people who feel that they need to go somewhere for advice. Our interest is in making sure that, if anyone is giving advice, they are properly regulated and properly qualified.

Senator SHERRY—Do you have any observations to make about planners who operate substantially in terms of the remuneration they receive on commissions?

Mr Johnston—Mr Kell, you might talk about the finding.

Mr Kell—The finding from our survey was that planners who rely solely on commissions as a form of remuneration—and, based on our survey, roughly one in five planners falls into that category—provide advice of a significantly lower quality.

Senator SHERRY—So there is a conflict of interest: plan versus commission, remuneration to the person recommending the plan?

Mr Kell—It would certainly appear from the survey that the conflict of interest issue is a real one, and we feel that the potential for conflict of interest coming from commissions in too many instances is translating into a real conflict of interest. That is why we are focusing a lot of attention on disclosure in this area and on compliance campaigns in this area to make sure that sort of problem is minimised.

Senator SHERRY—You mentioned disclosure. On the issue of disclosure of commission, do you think that consumers understand the impact of a one per cent commission—let us take


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an example which is quite common—on a superannuation product? Do you think consumers understand the impact of that?

Mr Kell—I am sure that you are aware of surveys which indicate that there are some consumers who do not have that understanding. Then there are obviously a lot of people who do have a better understanding of what commission might deliver. It is a mixed bag out there. One of our roles, however, is to make sure that commissions are disclosed, because we think that that will certainly put pressure on the industry to deal with the conflict of interest issue up-front and will allow consumers to make a judgment, as far as is possible, about whether the advice is influenced by that commission. As we said, in some instances not all consumers have that understanding.

Senator SHERRY—Presumably the consumer is going to the adviser for advice on a product, whatever that product may be, on its quality and likely return. They are going to the adviser and—more often than not, I think—they act on the advice of the adviser because, in at least some instances, they do not feel equipped to make that decision themselves. So, where a consumer has gone to seek advice on the quality of a product, how does disclosure of commission resolve the problem of the fundamental dilemma and what I believe to be the fundamental conflict of interest between the adviser recommending a product, which the consumer often will take, and the commission that an adviser might receive on that particular product?

Mr Johnston—I think the commission is only one element of disclosure—

Senator SHERRY—I understand that, but I am focusing on the issue of the commission at this point in time.

Mr Johnston—If you permit me, I will just expand a little because I think it places the commission in context. The requirement in the law is that the person who goes to the adviser for advice has to be given advice that is appropriate to their needs. So when they go to their adviser and say either, ‘Advise me about this product,’ or, ‘I have X dollars; please give me advice on what I should do with it,’ under the FSRA there are three requirements that need to be met by the planner in respect of giving the advice. The planner needs to make a proper assessment of what the needs of the client are. The planner then has to carry out what you might call research or thinking to come up with the right sorts of products to recommend to the person. The adviser then has to give appropriate advice to the client, making sure that those products are appropriate to the person. We can come back to compliance with that in a minute.

Late last year we issued our policy proposal paper to give the industry guidance on how they meet those obligations. We have said, for example, that when you are undertaking the client needs analysis you need to look at things like risk tolerance and income or capital growth et cetera. When you get to the other end of the scale, looking at the appropriateness of the advice, you need to consider whether the product that you are recommending really is appropriate for that person, especially if you are trying to switch them from one product to another. You need to consider and disclose whether that is going to result in increased cost to the person and whether there are any benefits they are losing through being taken out of an existing product and put into another. So underpinning all of this are the facts that, firstly, the advice must be appropriate and, secondly, the commission that the adviser would receive has to be specifically disclosed, in dollar amounts where possible, along with any other benefits they might receive.

Senator SHERRY—I have here, at least as dot points, the conclusions of the survey that has just been completed and released publicly. One of the conclusions is that high-cost


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investments were frequently recommended without justification, while no planner recommended a low-cost superannuation fund—not one. These are low-cost superannuation funds which, by and large, do not have commissions attached to them.

Mr Johnston—And in no way would I defend the fact that that is how the industry has behaved. I was outlining guidance that we have given in our policy proposal paper under FSRA. The gist of many of the provisions that are covered in FSRA is already there in the current law, although it is tougher in FSRA. But I would not be defending at all the behaviour of planners who—

Senator SHERRY—I am not suggesting you would, but doesn’t this highlight what I would argue is a fundamental conflict of interest, at least on superannuation products where a planner is involved in recommending them? Not one of the planners you surveyed recommended a low-cost superannuation fund, one of the ones that do not have the commissions.

Mr Johnston—Yes, that is true.

Senator CONROY—How many financial planners that are registered or licensed so far— from your general knowledge—are tied directly to one company?

Mr Johnston—I would not know off the top of my head—

Senator CONROY—I am talking about a percentage.

Mr Johnston—It depends how you measure it. The majority of planners giving advice are representatives of an upstream manufacturer. That is if you work by number of representatives. If you work by number of firms, there are a number of boutique—for want of a better term—firms growing up that are not aligned with a product manufacturer. But the majority of plans that are produced would be related to an upstream manufacturer.

Senator CONROY—There are the multi-agents, if I can use what is probably now an old-fashioned term, who have arrangements where they can recommend from a suite from all the different ones. But they are a dying breed. It would be fair to say that they actually did not want the FSRA, because they believed it would bring them back under the direct control of the individual manufacturer, to borrow your phrase. I know what they are telling me is going to happen to them, but do you have any belief that those multi-agents will still be likely to survive under the new regime, or is it more likely there will be a consolidation in the industry around manufacturers?

Mr Johnston—I think it is going to change at both ends. As I said, there is strong evidence of an increasing number of boutique planning firms opening up who are not aligned with a product manufacturer.

Senator CONROY—Would they service a particular claim base—

Mr Johnston—I do not know.

Senator CONROY—like particular wealth management?

Mr Johnston—Some of them are at the ‘fee for service’ end of the market. The fact that the people who are aligned with an upstream manufacturer, especially in the financial planning sector, generally still have access to the products of various companies—and one of the things that we are concerned about is to make sure that the right product has been recommended and not just an in-house product; if there is a better product from another—


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Senator CONROY—What is the nature of the contractual relationship for, say, an AMP— I am not trying to pick on any company here at all—distributor? Are they allowed to recommend a Colonial First State product?

Mr Johnston—Yes. If we are talking in financial planning circles, what will generally happen is that—I will not use AMP as an example because it might be misleading—XYZ institution might own all of, or part of, a financial planning licensed business. Generally it is the case that that licensee, even though it is owned upstream, will have the suite of products available. Research will be carried out by the firm or contracted in from elsewhere, and a range of products will be available. The market has tended to demand that that happen. Gone are the days, I think, where you simply had tied agents and tied representatives only able to offer one product. There is a little bit of that left, but by and large they have to offer—

Senator CONROY—What are the remuneration arrangements? Just for the simplicity of my own brain, I will use real examples, but they are not real examples in terms of actual cases I am aware of.

Mr Johnston—A typical example.

Senator CONROY—Does an AMP financial planner get an equivalent level of remuneration if they recommend Colonial First State?

Mr Johnston—If you go to the individual planner level—

Senator CONROY—That is what most people will be doing.

Mr Johnston—Yes—then they will probably be in the position that they would be paid higher commission for recommending, let us call it, in-house product, as opposed to external product. We kicked off what we call a campaign a few months ago that looks at that issue; it will probably be finished by March. What we are specifically looking at is the financial planning arms of a number of institutions, checking whether or not there is disclosure of the different commission levels that are paid to the adviser for recommending in-house product as opposed to external product. It is an issue that we are well aware of. It is certainly legal, but it just needs to be disclosed. And the advice also needs to be appropriate to the client.

Senator CONROY—To follow up on Senator Sherry’s point, an AMP financial planner will receive a higher commission for recommending an in-house product, a slightly lower commission for recommending, say, Colonial First State product and no commission for the sort of superannuation products to which Senator Sherry refers, and you believe that the simple disclosure of that will protect the consumer?

Mr Johnston—Not only the disclosure. In our policy proposal paper I have referred to— which is out for comment just now; it is not a settled policy—one of the things we have said is that, in considering whether the product is appropriate for the client, you need to consider whether or not there is a cheaper product that is appropriate to meet the client’s needs as well. That is policy guidance we have given that is not yet in place.

Senator CONROY—That is not the law, though. The law does not require it.

Mr Johnston—The policy is our interpretation of the law. The law requires that appropriate advice be given. We have said, ‘If you want to meet your legal requirements to meet that advice, we think you need to take these things into account.’ We think we are setting a tough standard there, and we are waiting to see what sort of feedback we get.

Senator Ian Campbell—My understanding is that if they were to offer those three products—the XYZ product, which has a higher commission than the ABC product, and then


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the low-cost product—if they do not disclose the comparative commissions, there is a penalty. It is an offence, isn’t it?

Mr Johnston—Yes. If the three products are there and they do not fully disclose the commission, it is an offence under the act. Our guidance is that you need to consider whether there is a cheaper product. We also go on to say that if you are in a position whereby you are not allowed to offer the most appropriate product for the person—and that might be because it is not on the approved list that the licensee has—you have to tell the client, ‘I cannot help you. I will send you some place else.’

Senator SHERRY—On that point, when the Financial Planning Association appeared before the Senate Select Committee on Superannuation we asked them, on notice, if they could inform the committee if there was any financial planner—and I think there are 16,000 at last count—who had either an industry or corporate funded public offer fund on their product list. The answer was one. There was one. Why is this the case?

Mr Johnston—I cannot speak for the industry.

Senator SHERRY—Do you see the dilemma? A person goes to a planner for advice on a superannuation product. We know there is only one out of the 16,000 planners in Australia that has either a public offer corporate or an industry fund on their list—only one. The consumer will struggle to find any planner that has that as a product on their recommended list, won’t they?

Mr Johnston—I do not think that it is our job as a regulator to get into the merits of one fund as compared to another.

Senator SHERRY—I am not suggesting that at this point in time anyway, but do you see the dilemma a consumer is in? They would have to visit 15,999 planners before they found one that had on their product list that the planner could offer advice about a public offer corporate or industry fund which—surprise, surprise—happen to be the lower cost products.

Senator Ian Campbell—Isn’t part of the answer that it is how the industry funds choose to distribute their product? I have not spoken to them about how they do that, but I am an observer of business programs, as probably you and Senator Conroy are—it is part of our job—and I tend to notice that the industry funds are marketing to employers whereas many of the other funds are marketing to employees. They have obviously made a decision that it suits their business model better to get employers to be attracted to the product. I think that is part of the answer.

Senator CONROY—I think you made the point that you had not actually chatted to the industry funds on this.

Senator Ian Campbell—It is just that, anecdotally, they seem to advertise to employers, not employees.

Senator CONROY—I can only encourage you to chat to them because, as a former superannuation officer for an industry fund, I did not spend my time advocating to employers at all. I would have discussions with employers about payments and those sorts of things, but I spent my time advocating to the individual employees. So I can only encourage you to have a chat with them.

Senator Ian Campbell—But, if you look at their marketing, they do not advertise to consumers generally. Yes, clearly you as a member of an industry fund—

Senator CONROY—My fund was a public offer fund—


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Senator Ian Campbell—would naturally go to employees within that industry. You would probably go to others as well, but if you look at industry fund advertising, as someone who watches television and reads industry magazines—

Senator CONROY—Do you have a plasma TV to watch?

Senator Ian Campbell—No, unfortunately. But I see that the industry funds do tend to advertise to employers. If employers pick up a particular fund and then make it compulsory for their employees to be a member of it, you can actually see the logic behind that. So I think that is probably part of the answer.

Senator SHERRY—Mr Johnston, if a planner does not have on their list of products either a public offer corporate—and there are some of those—and/or an industry fund, how does the consumer get advice from the planner that they go to on those particular products?

Mr Johnston—It is true that if it is not on their list they are unlikely to get that advice.

Senator SHERRY—Yes, that is right.

Mr Johnston—There are various reasons for that. One is that a planner will generally only be covered by the PI cover of the firm if they recommend within the approved list. As to the merits of those approved lists, I do not think that is something that we can really get involved with.

Senator SHERRY—I am not going to that, but isn’t it true that in a significant number of cases in respect of superannuation the products kept on the planners’ lists are those that have a commission attached to them?

Mr Johnston—That would generally be the case, yes.

Senator SHERRY—Have you read the APRA survey of superannuation funds that was released last week?

Mr Johnston—The one which talks about expenses and returns?

Senator SHERRY—Yes, expenses versus returns. Are you aware of the general conclusion that the retail products, which are the products the planners have on their lists, are the lower return, higher cost products because they have commission? Why do the planners just have those products on their lists—lists that contain exclusively, except for one planner in Australia, the lower return, higher cost products?

Mr Johnston—I cannot speak for the individual licensees as to why they have those products on their lists. I did see the APRA report of course. I noted its conclusions. I also noted, though, that they tend to average the return of the funds, which I do think for many of the public offer funds is not the right approach in averaging them, because some of them are structured so differently.

Senator SHERRY—We are dealing with an average; I accept that. I have some issues that I would take up with APRA about an average of retail funds and how you would break that down. But the fact is that for the products the planners are recommending, which they keep on their lists, the average return is lower and the average cost is higher, and the costs that APRA surveyed did not include the commission. They were higher fee products, even without the commission.

Mr Johnston—I can only agree with your interpretation of the report. That is the conclusion the report reached.

Senator WATSON—An average is fairly meaningless in terms of the high-cost, low-cost type of products. They have such a diverse range.


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Senator Ian Campbell—Nick Sherry is right; one per cent makes a big difference when you cash in at 55.

Senator WATSON—Anyway, we have some questions for APRA on that.

Senator CONROY—You are at pains to assure us that under FSR—excuse me going back to my example—if the AMP adviser has a Colonial First State product on their list and it is a question of declaring that, I will get more because I have recommended in-house and Colonial First State. But the other products are not on the list, the sorts of products that Senator Sherry is talking about. The FSR does nothing about ensuring that the individual who is seeking the advice is not advised that there is a lower cost product than just on that person’s list.

Mr Johnston—I think I lost you part way through, Senator.

Senator CONROY—I am trying to follow up the point Senator Sherry has made. How does the consumer find out that there is a lower cost product that is not on the list?

Mr Johnston—They will not understand from the adviser in most cases.

Senator CONROY—And does FSR require them to say that there is a lower cost product available?

Mr Johnston—I do not believe it would require them to say that. Policy guidance that we have given has said that, if the adviser is recommending a number of products, some of which are lower cost and some of which are lower commission, they need to make that clear and if the adviser is not able to provide appropriate advice to the client because they have a limited list available to them—an example we have given in the policy proposal paper, which is an example at the extreme end, is that a bank teller would not be able to give someone appropriate advice on how to invest $200,000 in a high-growth investment; the teller would be obliged to say, ‘I can’t give you that advice, you need to speak to someone else’—there is certainly that requirement.

Senator CONROY—The issue here is that the Financial Services Reform Act is fundamentally a piece of consumer protection legislation. I am trying to establish how this consumer is being protected under the FSR if there is no requirement for the best possible product to be recommended or at least notified to the client.

Mr Johnston—In an ideal situation that would be good, but I think that would be very difficult to achieve because there may be products of which the adviser has never heard and products completely beyond their contemplation that might be better for that person.

Senator CONROY—I would have thought that part of the training for financial planners is to be trained in a range of products. Back to my AMP person, I know that AMP provides extensive training to its financial planners. Do Colonial First State run training seminars in Colonial First State products for AMP advisers? Are those training programs open? Do they train each other’s trainers?

Mr Johnston—I do not know how that works, Senator, but it would be the case that anybody who produces a product—a product manufacturer; let us call them that, regardless of who it is—will generally provide information, backup and service to the people who distribute their products. If that is product manufacturer A and they are distributed in part by institution C, there would be material available in terms of the product.

Senator CONROY—There is a difference between material and training. I accept that they would not just send them the application form; they would send them a bit of supporting literature, I am sure.

Mr Johnston—It is the licensee who is responsible for the training.


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Senator MURRAY—If I intercede here it might be of assistance. Much of what you are discussing is the provision of product range.

Senator CONROY—Actually, I am discussing the lack of provision—

Senator MURRAY—No, from high cost to low cost, which is not available.

Senator MURRAY—This area has been widely covered in competition law in terms of vertical integration on the goods side. I will use the liquor industry as an example. Where you had a vertically integrated situation where the manufacturer owned the retailer, they were confining the range which was available to the consumer. So the way in which legislators worldwide dealt with it was to require the retailer to carry an appropriate range; they would actually specify that you must have so many beers and so on. The problem we have with the FSR—and it is not a problem that we dealt with through the committee because we spent weeks on the damn thing—

Senator CONROY—A lifetime.

Senator MURRAY—The problem we have is that the act does not specify range.

CHAIR—But you mentioned before, Mr Johnston, that there is an obligation to provide appropriate advice. I would have thought that implicit in that would be a requirement that the adviser would be sufficiently familiar with the range of products so as to make an informed choice as to the advice that is offered.

Mr Johnston—Yes, there is. But, if you go back to the starting point, the adviser has to be sufficiently aware of the individual circumstances and needs of the client. That is the starting point. We would say, for example, that if the right advice to someone was, ‘You should pay off your mortgage with the windfall that has come your way rather than invest in products,’ then that is the advice that should be given to the person. There are planners who do that, and that advice was given to me at one stage—‘You are better paying off your mortgage than you are investing.’ I do not think the position is so black that it is only advice based on commission selling that is taking place in the marketplace.

Senator SHERRY—What about where the financial product is compulsory a la superannuation in this country—for employees, anyway?

Mr Johnston—What are you asking me, though, Senator?

Senator SHERRY—You are talking about the planner possibly saying, ‘Pay off your house.’ But there is a compulsory contribution into superannuation.

Mr Johnston—It depends, as I said, on the needs of the client and why they are going there for advice. Where I was heading with the point that Senator Brandis was making is that the advice has to be appropriate, but it has to be appropriate not just based on product but based on the needs of the client.

CHAIR—It has to be appropriate on both sides of the equation; on the consumer side and on the product side.

Mr Johnston—Exactly.

Mr Rodgers—What we say in the policy statement about this—and it is important to distinguish between appropriate advice on the one side and absolute best advice on the other—is that the current law as we understand it requires you to balance the recommendations that you make to the client with a thorough and researched understanding of the needs of that client. We distinguish that from saying that that puts on you on every occasion an obligation to explore the entire universe of products and pick the one single


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absolute best product. There is a practical limitation on that, which I think the law takes into account, because it does require some work to be done by disclosure and it does require other work to be done in the requirement for appropriate advice, which is to balance what you are recommending or suggesting people do with the needs of the person. It is not an obligation, at least as we read it, to produce absolute best advice in every case.

Senator MURRAY—But surely Senator Sherry’s point is that if you do not ask the right question of the consumer and say to them, for example, ‘Are you interested in a low-cost product; is your main motivation paying as little as possible?’ then you will not have to provide the product. If I understand you correctly, that is where you were going.

Mr Rodgers—That is true. We make the point in the policy statement that you have an obligation in the planning situation to make all the inquiries that enable you to understand as much as possible about the needs of the client. We cover situations where, for example, the client does not give you the information, because sometimes that is the case—sometimes clients do not want to give to planners what they see as very personal information. We say that you have to handle that situation by saying, ‘Given that you have not told me the things I think I need to know to match you up with an appropriate product, you need to be aware that I am relying on the information you give me as well.’ We begin where we think the law begins—that is, by saying that you have a positive obligation to make those inquiries before you make any recommendations to people.

Senator Ian Campbell—I want to ask Senator Conroy whether, in his own experience of industry funds, they do actually seek to distribute through financial planners.

Senator CONROY—I obviously have not worked for the fund since 1996, and there have been some fairly substantial changes in the industry since then. I am not aware of any fund that has a relationship like that, but I have not been directly involved for at least seven years.

CHAIR—Mr Rodgers, I wanted to explore with you for a second this distinction you draw between the best advice and appropriate advice. It seems to me that another way of approaching that might be to say that appropriate advice for a given client implies the most appropriate advice. I appreciate there are matters of degree and matters of judgment, but I am not sure how satisfactory it is to suggest appropriate advice is less than the best advice, because I think appropriate advice means the most appropriate advice and that probably is the best advice in the circumstances.

Mr Rodgers—Again I stress the point that Mr Johnston has already made. We have a policy proposal out there that we are calling for comments on, and those comments are due with us in the next couple of weeks.

Mr Johnston—Just to make sure that everyone understands, the law requires appropriate advice—that is the term that is used in the act, and we can expand on that in the policy paper.

CHAIR—I understand.

Mr Rodgers—And we are trying to address the situation. The key message that we have is that you are trying to match an individual person’s needs as expressed to you as a planner. You have an obligation to ask that. There is a thought process that we are trying to encourage. For example, if you have a client who says, ‘Generally I am conservative. I am looking for long-term capital growth. This is really a long-term savings issue for me,’ you have to look at what kinds of products fit into that category. Then, as you get to nominating individual products, we are saying the obligation does not extend to recommending every possible product that might fit. Provided the products you recommend are chosen on the basis of your researched understanding of the client’s needs, that meets the ‘appropriate’ standard in the


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law. There may be a product that you have not heard of that may be a better product. However, you can recommend products that you know without being at risk of an allegation that you should have recommended the best product.

Senator CONROY—What training requirements do you put on financial planners or would you expect under your definition? Surely there is some training requirement for them to maintain some knowledge of products other than those on their list that they receive a commission from. If they have never bothered to look at one of the low-cost funds that Senator Sherry is talking about, then they can simply say, ‘I’ve never heard of it. I didn’t know this existed. I didn’t know there were these low-cost products.’ Is that a defence, as far as you are concerned, under your policy statement and under the law?

Mr Rodgers—It is not a policy statement yet; this is the issue that we are currently debating. We would want to administer the law. Knowing that there are a very large number of financial products on the market, it is not really reasonable to start from a position where, before you give a person a recommendation, you should know about every one of those products.

Senator CONROY—It is not a defence either to say, ‘I only know about these five products, and I happen to get commission from them all.’

Mr Rodgers—I think that is the area where we need to rely on disclosure to do at least some of the work as well.

Senator CONROY—But you can disclose only what is on your list. We are talking about, to use Senator Murray’s phrase, the range. To give you an example, even the government’s flawed choice legislation recognised this is an inherent problem, and it required a menu of five different types of products to be available and provided by the employer. The government’s flawed legislation is perhaps a model to borrow from. That is where together Senator Sherry, I and even Senator Murray may nod our heads and think that that is a fair dinkum attempt to make planners provide the best advice. Your policy statement is saying that you need to be able to consider options out of all of these when talking to your clients. You do not have to know every single low-cost fund that Senator Sherry talked about, but you are under an obligation to provide some information to the client that they exist. I am suggesting a template that is out of the government’s very own legislation, as flawed as that legislation is. Maybe this is for you to reach in and have a look at. I cannot see some of the major companies in this country being excited about it, because they go to a lot of trouble to make sure it is in the interests of their planners to sell their products.

Mr Johnston—I do not know whether this helps or hinders us, but an adviser of course would only be able to recommend product that was within the terms of the licence that is able to be sold. For example, if we were talking about an industry fund, if the industry fund did not have an arrangement with the licensee, you would not expect an adviser to stray beyond the bounds of the products he had been authorised to sell, for all sorts of legal reasons. They have to be trained in and competent to advise in respect of policy.

Senator CONROY—I did ask you what you thought the future structure of the industry was going to be as a result of the changes. I can only agree with you, remembering the people who phoned me many years ago who said, ‘Do you realise that FSR gets us back under the thumb of the major players in the industry when we have spent 20 years getting out.’ I, not just as someone who is potentially self-interested, was prepared to go with FSR. But I did ask you that point. I agree with your conclusion that there are large legal impediments as well as significant self-interest reasons not to recommend other than a very close-knit set of products.


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Mr Johnston—My honest view as a regulator is that FSRA will improve standards in the industry.

Senator CONROY—You would have to hope, given how low the standards are on your own survey, that we would pick up more than 30 per cent. I think the 30 per cent range was good or very good. I do not think it was even 30 per cent.

Senator SHERRY—It was 27 per cent.

Senator CONROY—The 27 per cent range was good or very good. Let us hope that FSR can lift that. The dream of FSR that Minister Hockey and Senator Ian Campbell champion— and we all championed because it went through bipartisanly—is that, as a consumer protection bill, it will ensure consumers get the best possible deal.

Senator Ian Campbell—Can I just make one point. Senator Conroy is right: it was a policy move that got very good support from the Democrats and the Labor Party. But in 1997 when we started writing the policy, which was called CLERP 6, all of us heard from people who had never been licensed before who could go out and hang up a shingle. They all said, ‘This is a really good idea, but’. So we got all these objections from people. In many respects we had to drag the industry kicking and screaming, and anyone who has been around it for as long as the people in this room have knows it is an enormous policy leap to get to where we are. It is a huge job for ASIC between now and midnight or five o’clock on November 11— what are we going to make it?

Mr Johnston—It will depend.

Senator Ian Campbell—The point should be made, because I have probably heard every single excuse why we should delay FSRA or that, as everyone says, it is great in principle. Like motherhood, it is great, but. The objection of multiagencies is that they are going to be sucked under the big banks. My experience is the same as Ian’s. You are going to see the industry change in a number of ways, and we all want it to. We want to see people who give dodgy—to use your favourite word, Senator Conroy—advice out of the industry. We all want to ensure that, if someone goes to see a financial planner, they are given advice—and ultimately the most important thing—by competent people who do know the products and do understand the importance of giving people advice which will primarily give them a better living standard when they retire, but obviously there are a number of other financial goals.

So that is the goal, and I think that for all but a few political points around the edges—for example, over choice, which I understand all the politics on—there is significant unanimity about this. We are keen to see that. The point that Senator Conroy makes about people saying that the FSRA is a way of centralising and aggregating and getting the big banks to have control is certainly a complaint I have heard, but I have heard as many complaints about the problems of the FSRA regime from the banks and from many of the other larger financial providers. I think that some of the smaller people try to paint it as a conspiracy. The point I am trying to make is that it is very hard to bring in a regime that licenses all of these people and that does it with a high degree of integrity, which I have confidence that ASIC is doing. Can we improve the regime? I am sure we can. I listen very closely to the advice I get from ASIC on how the process is going—the quality of the training, the quality of the licensing process and what we can do to improve it. I think this policy proposal is a very good next step.

Senator MURRAY—But, Parliamentary Secretary, isn’t the point being made by Senator Sherry that part of the disclosure regime should also be what range, what stock, of product you have and in what respect it is limited, that at least you should be able to advise the


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consumer? To use the liquor industry example again, no-one expects to go into a liquor store and have all the products of all 1,400 wine producers there. But if they had none you would go to the licensing authority and say, ‘Take away their licence; they are not providing the service for which they are licensed.’ That was my understanding of Senator Sherry’s point, and I think it is a good point.

Mr Johnston—I think the part of the law and our policy which is trying to do that piece of work is a requirement on an adviser that if they are unable to give appropriate advice—in other words, if they are not able to match the needs of the client with the right product—they in fact should say so. They should say, ‘I do not have the type of product that is best for you or most appropriate for you’—perhaps I should not have used the word ‘most’ there, Senator Brandis—‘in these circumstances.’

CHAIR—I was going to ask that very thing, Mr Johnston. It seems to me that the problem lies in the licensing because, if a person is limited by the terms of their licence and an adviser is of the view that among the products they are licensed to offer there is a product that will do—if I can use a colloquialism—they would be inclined to offer that even though they might have a mental reservation that, beyond the terms of their licence, there might be another product in the market that might be better. Is that appropriate advice or not?

Senator Ian Campbell—Can I ask another question that is along the same line.

CHAIR—Yes.

Senator Ian Campbell—It may not be on the minds of the members of the Labor Party, but, for example, should authorised licensees or authorised representatives, financial planners, be required to say to their clients, ‘You should know that there are industry funds that charge very low commissions’? Should there be a legal requirement that they are required to say to their customers who are buying superannuation that there are these industry funds?

Senator CONROY—I think the point that Senator Brandis is trying to make is that he believes there is currently that requirement, and he is seeking to know whether or not ASIC agrees.

CHAIR—Mr Johnston, you have heard the discussion. Do you want to comment?

Senator CONROY—Yes, feel free to join in at any time you like.

Mr Johnston—I might read from my policy proposal paper, Mr Chairman. We say in the policy proposal paper, addressing this specific issue: ‘The legislation does not require that personal advice be ideal, perfect or best. To comply with the legislation, personal advice needs to be appropriate.’

CHAIR—Who wrote this? Did you write this? This is your gloss on what the legislation means?

Mr Johnston—This is ASIC’s policy proposal. I personally did not write the words or they would have come to me earlier.

CHAIR—You leave your corporate emanation.

Mr Johnston—No. This is guidance to the industry on which we are seeking feedback and, depending on the final position we come to, it will become settled ASIC policy. We say further: ‘In our view, this means that it needs to demonstrate a reasonable match between the client’s circumstances and the options available, including those available other than through the adviser. This is supported by the fact that both the client inquiries and subject matter requirements contain a reasonableness element—that is, it is an objective test.’


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So we do say that they need to be a reasonable match to get at least to the appropriate standard but that that match has to be between the client’s circumstances and the options available, including those available other than through the adviser. I think that also goes to the point I was making earlier that the better planners—and the better planners do this—might well say to you, ‘My best advice to you is to pay off your mortgage first and then come and see me.’ When we did the ‘shadow shopping’ exercise—and Mr Kell might need to refer to this—we did not focus on the individual products recommended as much as on getting a comprehensive financial plan that was actually in the interests of the client.

Mr Kell—Where the plans fell into the ‘poor’ or ‘very poor’ categories—where plans failed—it was primarily because the strategy that the planners were recommending was inappropriate, before you even got to the particular product. I suppose we would see that as a more serious deficiency and something we would need to address more urgently.

Senator WATSON—The very poor products were those that were associated with a trail commission.

Mr Kell—With poor advice and a trail commission?

Senator WATSON—Yes. Were the poorer performing products generally associated—

Mr Kell—We did not look at the performance of—

Senator WATSON—So you did not distinguish between commissions—between a transparent, up-front commission and a trail commission?

Mr Kell—Perhaps I should clarify: we did not look at the performance of products in this survey. This was a survey about the quality of advice. The correlation in relation to commission that I mentioned earlier was that those planners who provided advice and whose remuneration was solely commission based typically provided lower quality advice than those planners who relied on fees or a mixture of fees and commissions.

Senator WATSON—The point I was making was: in those poorer performing funds, were those planners who were rewarded not with an up-front commission but with a trail commission generally at the bottom rung of the poorer performing funds?

Mr Kell—We have not looked at the trail commission issue.

Senator WATSON—You did not analyse the difference between the commissions?

Mr Kell—I think we can mine this survey for some further information, but I am not sure that we will necessarily be able to look at the issue of the performance of the products. Again, I would emphasise that this is about the quality of the actual advice first and foremost.

Senator SHERRY—I want to talk about the issue of exit fees. Exit fees are not prohibited in Australia. I am not talking about an exit fee that covers the administrative cost of a transfer but a very substantial financial penalty. Given what Mr Rodgers in particular has outlined, how could a planner recommend any product with a substantial exit fee, which effectively imposes such a barrier to leaving the product if the consumer changes their mind? How would that be possible?

Mr Johnston—I think that exit fees, or fees generally, are just one of the things that the planner would need to take into account in framing their advice. They would need to take into account the risk profile, the sort of return they are seeking, the likely performance—and fees would be one element—

Senator SHERRY—I understand that, but in this case if you look at the exit fees—and, fortunately, they apply in only a small minority of superannuation products—how could a


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planner recommend a product that effectively provides a barrier to ever leaving that product? The consumer would just say, ‘I am not going to pay a $5,000 or $10,000 exit penalty to leave the product if circumstances change.’ It seems to me that it is impossible, given what you have outlined, for a planner to recommend a product with such a barrier to exit.

Mr Johnston—It might well be the case that that product should not be recommended. On the other hand—and I am only hypothesising—it may be that the overall fee structure of the fund means that, even though there is an exit fee, it may still be a better recommendation because generally the fees are lower. But I am hypothesising.

Senator Ian Campbell—Senator Sherry, are you now opposed to putting people into funds they are not allowed to leave?

Senator SHERRY—I am opposed to exit fees—and commissions, for that matter.

Senator Ian Campbell—You want to make it compulsory for people to exit!

Senator CONROY—I want to come to one point that Mr Johnston made, which I suspect is possibly almost as strong an interest in terms of what makes up the suite of products that planners offer. I think the commission issue is a very substantial one and clearly there is a degree of conflict there. You mentioned the PI issue and offerings outside your absolute specific licensee. Do you think there is a real disincentive? I think everyone in this room is conscious of the difficulties in the insurance industry, how hard it is to get cheap PI and the sort of problem that is there. There is a very obvious disincentive to including items on the suite that you are not insured for.

Mr Johnston—Yes, that has raised a number of issues.

Senator CONROY—Particularly at the moment, that issue is red hot. Everyone is saying they cannot get PI.

Mr Johnston—Yes, a lot of people are saying they cannot get PI. It is a requirement of their licence that a licensee has PI. While we hear the anecdotal claims to which you have just referred, when we actually go out and have a look at the industry, we find that in fact they are getting insurance.

Senator CONROY—But is it insurance to sell all products or just insurance to sell within a particular suite?

Mr Johnston—I was going to come to that. It tends not to be limiting in terms of what we would call the normal financial services products that people need. The areas where advisers are finding it difficult to get PI cover, understandably, are those that carry the greatest risk of the adviser being sued. That tends to be on such things as agricultural schemes.

Senator CONROY—And margin lending?

Mr Johnston—Yes, the things that we would say are more at the edges of what should be recommended in any event. But, for the mainstream financial services products, we have not seen evidence of people not being able to get PI cover unless there was something within their practice—where, perhaps, they had a very bad record of being sued by clients. As to whether or not it limits the choices available to consumers, I do not think it does, because I think that the PI industry is following the risk. Therefore, those advisers who tend to give good advice and have good track records are able to get PI cover for a wide enough range of financial products.

Senator CONROY—It is the multiagencies in particular that are saying they are having trouble getting PI.


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Mr Johnston—I can only say that we regularly deal with a broad range of licensees and industry participants and we do not often have to take action against people for not having PI cover because, generally, they are able to get it.

Senator CONROY—So you do not believe the PI issue is limiting in any way?

Mr Johnston—I am not aware of it being limiting. There may be some things that I do not know about.

Senator SHERRY—Is ASIC aware of any instance where the Financial Planning Association has expelled a member for a breach of its code of ethics or rules of professional conduct?

Mr Johnston—That is honestly not something that is within my knowledge.

Senator SHERRY—Could you investigate the matter? My understanding is that they have not ever expelled anyone.

Mr Johnston—I would be surprised if someone was still a member of the industry if they had been prosecuted by us.

Senator SHERRY—They would more than likely be in jail, wouldn’t they?

Mr Johnston—Yes.

Senator SHERRY—They could not keep up their subscription, so I do not think it would be necessary to expel them in those circumstances. Could you take that on notice. Just briefly, some of the conclusions of the recent survey, at least, are that 27 per cent of the plans surveyed were rated as poor or very poor and some 24 rated as borderline. If we took it as just a 27 per cent figure at poor or very poor, we are not talking about a small minority here, are we? We are talking about a very substantial minority.

Mr Johnston—We find the results extremely disappointing and the industry needs to work hard to lift its game.

Senator SHERRY—There has been some discussion about choice; I do not really want to have a big debate about it. You are aware of the government’s proposed choice legislation, aren’t you?

Mr Johnston—We are aware that the government has proposals for choice.

Senator SHERRY—It is likely that, given that proposal, more people will turn to financial planners for advice, is it not?

Mr Johnston—I think that is a hypothesis that could well be supported, but I do not know that that would be the case.

Senator SHERRY—Let me suggest why, and then you might like to comment. There are nine million superannuation fund members in Australia. It is compulsory for employees. We know that 92 per cent of employees in this country are covered by compulsory superannuation. They are required to make a choice of a fund. They are required to consider that and take action. We do know that at least some people might be concerned and not believe they have sufficient information to make that choice. It would seem to me to be reasonable to argue that at least some people are going to go to a planner for advice about what to do.

Mr Johnston—Certainly.

Senator SHERRY—You would agree with that?

Mr Johnston—Yes.


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Senator SHERRY—In your examination of issues, did you have a look at the churning, or misselling, in the United Kingdom?

Mr Johnston—Yes, we did. It was not as part of the shadow shopping exercise.

Senator SHERRY—I understand that.

Mr Johnston—But we are acutely aware of the situation there. I have been in touch with the FSA, and they with us, on a number of occasions. We have looked at the patterns of behaviour in the UK. We have looked at what the regime was there at that time. We are acutely aware of the issues in the UK.

Senator SHERRY—Are you aware that they have just concluded the compensation for the misselling, which was superannuation misselling by planners?

Mr Johnston—Yes, and it was an extremely large amount of money that the industry had to pay.

Senator SHERRY—Are you aware of the amount of money that had to be—

Mr Johnston—It was some billions of pounds.

Senator SHERRY—It was �� ELOOLRQ�� (IIHFWLYHO\�� WKDW� UHSUHVHQted the degree of misselling by planners in a choice superannuation environment—a pension fund environment in the case of the UK.

Mr Johnston—Yes, it did. I do not think it is directly comparable to the Australian circumstance, however. I think that the position in the UK as far as the law was concerned was nowhere near as advanced as it is in Australia.

Senator SHERRY—In what respect?

Mr Johnston—They did not have an FSRA type environment.

Senator SHERRY—That is right.

Mr Johnston—They did not have the same requirements in terms of knowing your client et cetera. I would say also that the industry probably was not as aware of its obligations at that time in the UK.

Senator SHERRY—Literally millions of consumers, to make a choice, invariably went to a financial planner. According to your own survey—if this is the behaviour, the human response—we know that at least at the present time 27 of the plans surveyed were rated as poor or very poor, some 24 per cent were rated as borderline. No planner recommended a low-cost superannuation fund. Do you see some dangers?

Mr Johnston—We see that there are some issues that will arise for us as a regulator with the introduction of choice, but we did begin working some time ago on making sure that we would be prepared for that. If choice were to be introduced do I think that we as a regulator would be able to do the job? Yes, I do. But we are only part of the introduction of choice. Employer and employee education is with the tax office; I believe they are being funded for that. That is not our responsibility. But we have looked at the UK experience. Frankly, in the UK the FSA have had a look at us on several occasions and are moving down more of an FSRA path, believing that that is the right type of regulation to have in their industry.

Senator MURRAY—Did you charge them a commission?

Senator Ian Campbell—An up-front fee.

Senator MURRAY—Disclosed.


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Senator SHERRY—Mr Johnston, there have been substantial changes, and I think substantial improvements, to the regulatory structure of financial products in the United Kingdom, in large part because of misselling. Does it surprise you that you can find no-one in the UK that now recommends choice of pension funds as a policy approach?

Mr Johnston—I am not aware that that is the case.

Senator SHERRY—You have not made inquiries about whether people, given the reforms made in the United Kingdom, now recommend that this should be a policy approach?

Mr Johnston—Our discussion with the FSA has been more about what were the circumstances that gave rise to the misselling, which lessons did they learn from it et cetera. It has been more a regulatory focus than a policy focus, as you would expect.

Senator SHERRY—I spent a week and a half in the UK and saw literally hundreds of people, including people who were advocates of choice some years ago. No-one will touch choice with a barge pole in the UK now—not even the planners will touch it.

Mr Johnston—I think the experience there was very bad.

Senator SHERRY—Yes.

Mr Johnston—So it has left that sort of impression. But we have approached it from a regulatory rather than a policy standpoint.

Senator CONROY—Why don’t you tell us what you really think about choice?

Senator SHERRY—One of the fundamental differences between Australia and the UK, of course, is—Mr Johnston, I hope you are aware of this—that in Australia superannuation is compulsory for employees, and therefore 92 per cent of them have superannuation, subject to the cut-off point; whereas, in the UK you are looking at between 40 and 50 per cent of the population who have a pension fund—that is, a superannuation fund. So it is effectively a much larger proportion of the population covered by a superannuation pension in this country.

CHAIR—I think Senator Ian Campbell wants to make an observation.

Senator Ian Campbell—I was just going to suggest that we look closer to home, in Western Australia, where we have had choice for at least a couple of years and see whether Mr Johnson has any experience of similar misselling, or churning, type behaviour or any complaints coming out of Western Australia as a result of the introduction of choice in Western Australia.

Mr Johnston—I will say two things. Our policy development has had one eye on choice. It would not be fair to represent that our policy development on these types of issues is not in full contemplation of choice, but we have had one eye on choice in developing the work that we do as to what we think a disclosure and a conduct regime should look like. In terms of the work that we do, we are aware that there is choice in the marketplace, as Senator Ian Campbell has said, in the superannuation environment in Western Australia, and there is obviously complete choice available to people with their non-superannuation investments, so—

Senator SHERRY—And there is choice available—full choice—in post retirement products too, is there not, after you retire in this country?

Mr Johnston—Yes. The work that we do is in fact partially in a choice environment. Have we noticed any greater incidence of misselling in Western Australia than elsewhere? Generally no. The only exception I would make to that—which has nothing to do with the choice environment—is in the agricultural schemes.


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Senator SHERRY—Just on that issue, can you observe whether fees and charges have been driven down as a result of choice?

Mr Johnston—In Western Australia?

Senator SHERRY—Competition has been unleashed; have fees and charges come down?

Mr Johnston—I think the people Western Australia are having access to the same products as the rest of us are. I do not think there is a Western Australia market for financial products.

Senator SHERRY—But have the costs of those products come down or gone up? Do you have any information? This is often claimed.

Mr Johnston—I do not have any data.

Senator SHERRY—Do you have any observation to make about why it is that where choice exists in postretirement products the survey showed that the fees, charges and commissions are roughly double, on average, the fees, charges and commissions in a preretirement environment, where choice is much more limited?

Mr Johnston—No, I do not have any observations on that.

Senator SHERRY—Can you assure—

CHAIR—Senator Sherry—

Senator SHERRY—I have one last question. From your observations and experience, could you assure the committee that in a choice environment fees, charges and commissions will in fact come down?

Mr Johnston—I cannot assure the committee of that. ASIC will do its job in regulating the industry. We have nothing to say about the level of fees and charges.

CHAIR—One way or the other.

Mr Johnston—Up or down.

Senator CONROY—Even APRA were prepared to have a crack at that—I mean, really.

Senator WATSON—With nine million members of superannuation funds and 24 million accounts, a portability-choice environment surely would bring the cost to the member down in the process of amalgamating accounts. There does seem to be a demand out there for a portability-choice type model to enable these accounts to be consolidated.

Mr Kell—The portability issue is again not one that ASIC regulates, so I am not sure we are equipped to answer that.

Senator WATSON—Who is going to regulate portability then?

Mr Johnston—It depends on what you mean by regulate? If you are talking about in a policy sense and how it should be offered, that is first of all a government matter, then an APRA matter. It depends on what you mean by regulating.

Senator WATSON—It would be APRA if it is oversight. I use that as an example as people are saying the cost to members will not come down. I make the observation that, if a person has six accounts, each attracting fees and charges with nominal amounts in them, obviously the cost to the member must come down, if they are able to bring those accounts together.

Senator SHERRY—If all other things remain the same.


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Mr Johnston—I can see the arguments there. I am trying to stay away from policy matters in terms of fees and choice and how it might well be introduced or not and stick to how we would regulate it, if it is.

CHAIR—Are you saying, Mr Johnston, that you just do not have the data to be able to offer an observation as to—

Mr Johnston—We certainly do not have the data. We do not keep fees down.

Senator SHERRY—Mr Johnston, you could make an observation about the law, if you are aware of it. Are you aware that certainly the considerable majority of members of a superannuation fund can transfer and consolidate their moneys if they wish? Isn’t it logical that the most significant impediment—other than defined benefit transfers which are technically much more difficult—to transferring and consolidating would be an exit fee?

Mr Johnston—That would be an impediment, but whether it is the most significant impediment, I do not know.

Senator SHERRY—It would be an impediment. If you are in two or three funds, wanted to transfer out of a fund and were being charged thousands of dollars in exit fees, it would be a significant impediment to doing it.

Mr Johnston—It may be an impediment, depending on the other things you need to take into account.

Senator WATSON—Nowadays, fixed fees are generally associated with the older products. Isn’t that right?

Mr Johnston—It is certainly not the case that all funds have exit fees. I would think they would be the minority.

Senator SHERRY—Senator Watson is suggesting that—

CHAIR—Order, Senator Sherry! Senator Watson has the call. Senator Watson, complete your question and we will have it answered.

Senator WATSON—The point that I am making is that generally the higher exit fees are associated with the much older type products.

Mr Kell—Typically, the more punitive exit fees are associated with the older style life insurance products. That is correct.

Senator SHERRY—Do they still exist?

Mr Kell—Quite a lot of people who are still in them purchased them a decade or two ago.

Senator CONROY—I took mine out a few years ago. I want to ask a question about one of the issues that we have been discussing which was identified in your survey. If a financial planner recommends to a client that they change the product and the outcome for the client is the same in terms of future return and benefit cost and those sorts of things but the planner receives a commission for going to the new product, is that in breach of any part of the Financial Services Reform Act?

Mr Johnston—If I go back to our policy paper that we discussed earlier, we give that as a specific example of where a planner would need to demonstrate why that was in the interests of the client. It would be our view that it would be inappropriate advice to move a client from one product to another if everything else was equal and the only change was that the planner got some commission.

Mr Kell—And that the consumer incurred higher costs.


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Senator CONROY—Why?

CHAIR—Sorry Senator Conroy, can I jump in there. I do not follow that myself. If the features of the products were identical, the only difference being that there were different providers, why would it be inappropriate advice to recommend one over the other if the features are the same?

Mr Johnston—It is hard to see how it would be in the interests of the client to move them from one product into another and therefore probably incur a fee in doing so.

CHAIR—That observation would not apply to the initial selection of a product.

Mr Johnston—If all other things were equal and there was no increase in cost, and the planner declared the commission that the planner received, that would be okay. But, if there was no other benefit and there was a cost in doing so, we would not believe that that was appropriate advice.

Senator CONROY—You added a point that I did not include. I wanted to keep it to a specific example that there was no extra cost to be moved across.

Mr Johnston—If there is no extra cost, the adviser is giving some advice to the client, the adviser says, ‘Here is why I think this is in your interest,’ and the client agrees to change knowing that the adviser is going to receive a commission, that is okay.

Senator CONROY—That would commonly be described as churning.

Mr Johnston—It would be described as a churn to move someone into a product for the purpose of gaining some commission.

Senator CONROY—Generating a commission for the adviser.

Mr Johnston—Generally, though, we would think of churning—there is no definition of a churn—as moving the client for no good reason into something else.

CHAIR—Isn’t there a definition of churning in securities law?

Mr Johnston—Yes, but that is a different thing.

CHAIR—It is the same concept, though, isn’t it? It is the creation of essentially confected transactions.

Mr Johnston—Mr Rodgers is nodding vigorously.

Mr Rodgers—Yes, there is a definition, but—

Senator CONROY—Have you ever convicted anybody of churning? Have you even brought charges against anybody for it? I hope Senator Brandis is right. I just want to know of a case.

Mr Rodgers—On at least one occasion—and my recollection is dim here, so I would not ask you to rely completely on this—we have taken action against a licensee who was a stockbroker on what is the classic securities definition of churning. In this case they had discretion to trade on behalf of the client. They simply kept moving the client from product to product for the purpose of earning the fee that they charged for that transaction and there was a direct cost to the client.

Senator CONROY—There were losses incurred in that instance.

Mr Rodgers—Yes; by the client.

Senator CONROY—I think it was quite a famous case. It was probably a front-pager at the time. It was a Western Australian case.


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Mr Kell—That was the Victorian one you were talking about.

Mr Rodgers—I had another state in mind.

Senator CONROY—There was a Western Australian one.

Mr Johnston—There has been more than one, Senator, where we have taken action against people for inappropriate advice.

Senator CONROY—But they came to light on the basis that there were actually losses incurred because of the action. What I am talking about is where the consumers get an equivalent outcome but there is a commission involved for the adviser.

Mr Johnston—If that advice is given, then the statement of advice has to include a statement as to why the existing product is thought to be unsuitable now. The statement of advice has to say what, if any, additional costs would be incurred by the investor and list any benefits that would be lost by moving. All of those things would have to be disclosed.

CHAIR—And the third includes the extra commission to the adviser.

Mr Johnston—Yes, it must also include the commission and any benefits that might be lost because of the move. So any costs incurred, any benefits lost by moving and why the existing product is no longer appropriate have to be included. Our position is that an adviser has to put all of that in a statement of advice if they are going to move someone.

Senator SHERRY—In practice, wouldn’t it be very difficult? Let me give you an example. There are two different providers of a superannuation product each with a slightly different investment mix—one is, say, 55 per cent equities, 45 per cent bonds-cash and the other product is the other way around—and there is different commission. I would have thought it would be quite easy for the planner to justify the higher commission product on the basis that there is a slightly different investment mix that they recommend to a client.

Mr Johnston—These are all questions of degree—that is quite right. What we say the law requires is that the adviser demonstrate why it is in the interest of the client to move them. As to whether it would be easy for them to sell a story based on a different investment mix or a different risk profile, yes, that may be the case. Frankly, it might be very hard for us to ever prove that that is a churn that is not in the interests of the client.

CHAIR—And it is an objective test anyway, isn’t it?

Senator SHERRY—That is right. Given that the consumer goes to the adviser for advice, because often they have a limited financial knowledge, how would they know to complain?

Mr Johnston—If the investment mix has changed, then that advice would have to be given to the client to actually make the change.

Senator SHERRY—Yes, I understand that, but how would they know there is something wrong to complain about?

Mr Johnston—The statement of advice would have to say why the recommendation has been made to—

Senator SHERRY—Yes, I understand that, but if it was poor advice that should not have been given how would they know it is poor advice? They would have got the advice, they would have got the information, but how does a consumer who is not informed know that they have got poor advice so that they can then complain?

CHAIR—That is a feature of any such transaction in which there is asymmetrical information.


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Senator Ian Campbell—I think I have the answer, and that is that ASIC do not just rely on complaints to do this surveillance. They have done thorough surveillance outside that. They will be doing random—

CHAIR—And you will detect a pattern, will you?

Mr Johnston—The patterns that we detect could in fact result in what we call campaign actions that we take. I will not go into any detail, but I will give as an example the campaign that I mentioned before whereby we looked at high commission paying schemes which tended to be in the agricultural sector. We did not start off by saying that we would look at agricultural schemes; we started off with a hypothesis which said that, if there are funds paying commissions that are way over the market, there may well be poor advice and mis-selling to people in those schemes. So that was the starting hypothesis. And then we would go and look at files, and in that case we interviewed over 100 investors.

CHAIR—Just out of interest, Mr Johnston, when ASIC ends up taking action, is that more commonly a consequence of observing a pattern of empirical data like that or is it more commonly a consequence of a particular complaint?

Mr Johnston—It is hard to say that. What I can say is that in the financial services directorate, whereby we look at the compliance of the industry and look at conduct, we do not actually take enforcement action in the majority of cases. When we identify a breach of the law, we refer that to Mr Wood. At any one time, probably 50 per cent of my resources would be responding to complaints and 50 per cent would be working on proactive campaign type activity.

Senator SHERRY—This was the last issue that I was drawing to in this area of the survey and some issues relating to superannuation choice. If superannuation choice were to pass, we discussed whether or not there would be an additional number of consumers—it may be hundreds of thousands; it may be millions—who would actually go to a planner for advice. Given the survey that has just been released and the apparent widespread noncompliance in a range of areas at the present time, and given what I would argue will be a significant increase in the demand and workload on planners for advice in a superannuation choice environment, does ASIC have any intention or plans to change the way in which it supervises planners?

Mr Johnston—The first observation I would make is that if choice were to be introduced it would be introduced in a post-FSRA environment by the time one got through any transition periods. I have no knowledge of the status of the legislation or what the timetable would be, but I imagine it would be a post-FSRA environment. I think that means that it would be introduced at a time when the law might have had a chance to bite more. The law has not had the chance to bite yet. There are not enough planners or industry participants to meet all the requirements of FSRA at this stage, and it does raise the bar. So I think that the law—

Senator CONROY—How many of the ones that you looked at in your survey were already licensed?

Mr Johnston—At the time the survey was done, none. So they were all under the old law. I think that the law needs to be given time to bite and that the law itself will do some work in raising the standards. The second issue then goes to how we will do our job. ASIC was provided with additional funding to cope with the introduction of FSRA, and I am fortunate that most of that funding goes into my directorate and also into the enforcement directorate. We are gearing up our resources to meet the number of licences that we have to issue and,


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therefore, the number of surveillances that we will have to conduct on those licensees and the number of prosecutions that might well result from those surveillances.

So our surveillance program and our compliance program will be more based on the number of licensees in the marketplace and the job that they do, but choice is one of those things that tells us that we need to do this type of work, the ‘shadow shopping’ work, and continue with an extensive compliance campaign on financial planners to make sure that they are up to the job. I think we will be, but it is a question of making sure that they are.

Senator SHERRY—Is it intended that there will be another survey at an appropriate time—it might be a year after the act has been in force—to see whether things have actually got any better?

Mr Kell—We envisage conducting another survey some time after FSRA has been fully implemented, but we do not have a firm date yet.

Mr Johnston—I suggest that it would need to be a suitable enough period after the act had had a chance to work; otherwise it would not tell us anything.

Senator SHERRY—Have you any idea what that period might be—a year, 18 months or two years?

Mr Johnston—I would say from 18 months or so to two years.

Senator SHERRY—I do not have any other questions on the survey, although I have got quite a few questions to ASIC on other issues.

Senator CONROY—I want to talk to you about the teeth that will be used to ‘bite’, as you have described it. I want to run through some of the common weaknesses that you have found. Could you tell me which part of the FSR would be directly applicable to them and how it would be applicable to them?

Mr Johnston—Yes.

Senator CONROY—The survey says about push-button plans: Planners used templates or standard plans without adapting them enough to fit the client. Several planners even got the client’s basic details wrong. Many plans weren’t easy to read and were ‘padded’ with reams of non-individualised generic information.

Which part of FSR will protect the consumer against this behaviour?

Mr Johnston—The push-button plan issue, as it is referred to, is an interesting one because on the one hand it is completely appropriate that licensees supervise the conduct of their advisers by making sure that they have common information.

Senator CONROY—Standardised information.

Mr Johnston—Yes. The part of FSRA that deals with that is the part that says that the advice has to be appropriate to the client. Correct me if I am wrong, but I think it is an offence to breach that part.

Mr Kell—We are happy to run through some of the key deficiencies that we identified and outline how the penalties increase under FSR, if that might help.


Mr Kell—Looking at the summary on page 5, we have outlined, as part of the study, some of the deficiencies that we thought were found too often in plans. Up front we have noted that around 14 per cent of planners failed to provide an advisory services guide. At the moment, that is currently a licence condition, and under FSR that becomes an offence with a maximum


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penalty of a $10,000 fine or two years jail, so the penalty does increase there. There is a set of issues there that go to appropriate advice, including ‘failing to show how the recommended strategy and action was appropriate for the client’ and ignoring key client requirements, and potentially that might also include switching clients from one investment to the other in an inappropriate fashion. At the moment, inappropriate advice is grounds for compensation, and under FSR it becomes an offence with a maximum penalty of $20,000 or five years jail.

The issue of failure to provide adequate information to the consumer and failing to explain the basis of advice might be captured under a defective statement of advice. Obviously there is no statement of advice requirement at the moment, but under FSR the penalty for a defective statement of advice is a fine of up to $10,000 or two years jail. So several of the deficiencies that we have identified fall under those broad areas.

Senator CONROY—Thanks. We have talked about churning already, and I know you made a reference to it in the survey. I am concerned about ensuring that there is a specific part of the FSR Act that will protect consumers against what has been demonstrated overseas as a fairly substantial issue—and evidence of it turned up in your survey. It is a particularly pernicious activity by planners, just moving people in and out of funds. I am not confident that the law as it stands will protect consumers. I welcome Senator Ian Campbell’s indication that improvements could be made depending on certain circumstances evolving.

Senator Ian Campbell—If you read Arthur Levitt’s book that was released just before Christmas and you are familiar with general stockbroking culture, churning is a concern.

Senator CONROY—It is endemic in the stockbroking industry. You made the point that stockbrokers in particular come off badly in your survey, churning being one of the main reasons, I think.

Mr Johnston—Stockbrokers will be the subject of a follow-up complaints campaign, and inappropriate advice is now an offence under the act.

Senator CONROY—Will you be charging any of them under the FSR Act?

Mr Johnston—We first of all need evidence of criminal conduct before we can charge someone. Bear in mind that this exercise was conducted at a time when the FSR Act was not in operation.

Senator CONROY—But it should not be too hard for you to detect this. Again this comes back to some of those old arguments about whether your job is to educate and get people to comply or whether your job is to enforce the law.

Mr Johnston—We have banned 60-odd in the past couple of years and we have sent 10 of them to jail.

Senator CONROY—Stockbrokers?

Mr Johnston—It includes stockbrokers.

Senator CONROY—I am particularly focused on the stockbroking area, where—and Senator Ian Campbell has drawn attention to the fact—churning is a part of the culture.

Senator Ian Campbell—It is across the world. I am sure Senator Conroy has a lot of contact with the stockbroking industry as well. The good news is that, although they were very reluctant about the FSRA—because, similar to accountants, there was a general attitude of ‘We’ve been around for a hundred years. We have a “know your client” rule. We don’t need to be regulated’—they have got past that, and I think it is fair to say that the industry as a whole, in Australia in particular, has embraced FSRA and is investing very heavily in putting in supervisory structures. I think the ASIC campaign will assist that.


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My own anecdotal evidence from looking at big, small and medium firms across the country is that they are doing a lot of work to get up to speed with their FSRA compliance very quickly. There are very high compliance costs on those businesses, at a time when the market is very poor for them—there are not many stockbrokers making any money at the moment—so it is a particular burden. But my own anecdotal evidence is that they are putting a lot of effort into coming up to speed, and clearly this survey shows that that effort needs to be made, if not significantly increased.

Senator CONROY—We had some of this discussion earlier, but one of the issues identified by the survey was that alternatives were ignored. Under the subheading ‘Alternatives ignored’ in the Choice article about the survey, it says: Most plans recommended investing in managed funds. Many of these didn’t show whether the planner had considered other strategies like paying off your mortgage quickly and channelling more of your salary into super. As a group, brokers were far too inclined to recommend buying shares.

Mr Johnston—We should emphasise—I think Mr Kell was just leaning forward to do the same thing—that the stockbrokers we looked at in the campaign were only those that marketed themselves as offering comprehensive financial advice. We did not unfairly judge execution type activity.

Senator CONROY—There is no requirement under FSR to provide a suite of products that includes all the different potential options, similar to the choice regime that the government has suggested.

Mr Johnston—Earlier evidence probably covered that.

Senator CONROY—Yes, we covered that. Under the subheading ‘Expensive recommendations’, the Choice article says: There’s no legal requirement for planners to find you the cheapest investment.

Mr Johnston—That goes back to the appropriate advice discussion. One of the things that the planner needs to take into account is the circumstance of the client and to recommend products that are appropriate to the client’s needs. I think the Adelaide evidence probably covered that. Is there anything else, Mr Rodgers, in the policy paper?

Mr Rodgers—I do not think so. The one point that probably has not been made, which needs to be made to complete the picture, is that as well as what happens in the financial planning process there is a requirement for the licensee and its representatives to provide a client with a financial services guide generally. There is an obligation in that guide to describe the range of services. In the policy context, we will put some emphasis on the limits of those services. Again, it is an area where disclosure, in our view, needs to do some work and we could hypothesise without all that much difficulty a circumstance in which there had been such a departure from the appropriate advice rule that we would take the view that that itself was actionable. There will be matters of judgment. There is a spectrum of activity that will fall under here, but the rules in the law and the way we are proposing to interpret them leave it open in some cases to say that, if you have simply ignored all possible alternatives, in the face of information from your client, then that may have been inappropriate advice.

CHAIR—That is not very far from the proposition I was putting to you earlier, Mr Rodgers. I do not think it would be terribly hard to construct an argument to say that failure to inform yourself of the range of alternatives that the client might be informed of was failure to offer appropriate advice.

Mr Rodgers—I agree with that, Senator. What I am emphasising—


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CHAIR—In any other area of the law, if you remain constructively ignorant in circumstances where there is a reasonable expectation that you would inform yourself, that would be enough to hang you.

Mr Rodgers—My only comment—it is a comment of emphasis—is that much depends on what you end up with as an adviser from the obligation to make enough inquiries about the client to know what the client likes. This applies across the spectrum. We are talking at the full financial planning end of the spectrum where you can imagine that someone may come in the door and say, ‘I have this amount of money and I want your advice about how best to invest it.’ That might be different from a circumstance where someone says to their stockbroker, for example, ‘I want your advice about whether I should exit that particular stock and buy another stock.’

CHAIR—Sure, but it is a two-step thing, is it not? What the adviser needs to find out from the client is what the client’s needs are. That is easy: the adviser just asks the client the questions and if the client does not fully inform the adviser, that is the client’s fault. The second step is, having informed himself of the client’s needs, he then has to consider what options are the best fit for those particular needs. There are two sides to the appropriateness coin, it seems to me.

Mr Johnston—And as we said earlier, our policy proposal paper says that this means the adviser has to demonstrate a reasonable match between the client’s circumstances and the options available, including those available other than through the adviser—we do put that in there.

Senator CONROY—But the bottom line here is that your definition of ‘appropriate advice’ has not changed from the old regime to the new regime. So the holes that exist now, that have allowed this to go on, are not being plugged under your definition because it is fundamentally the same definition that you have always had. This is a massive whole in the FSR. You are actually going to use the same definition of ‘appropriate’ as existed previously.

Mr Johnston—I am not sure why that is a massive hole in the legislation.

Senator CONROY—Because you are not out there putting in jail the people or barring the advisers who have given this advice.

Mr Johnston—I think we are.

Senator CONROY—No, you are having a chat about compliance.

Mr Johnston—On the web site there is a media release that we issued yesterday or the day before about an adviser whom we have just banned—not as part of the shadow shopping exercise—for giving inappropriate advice, for putting people into a product that was not in accordance with their needs. We have just banned someone for doing that.

Senator CONROY—What are you doing about the 50-odd per cent from the shadow survey, that have given inappropriate advice? You said that none of them are licensed, so the existing regime is the one you would be dealing with.

Mr Johnston—We want to make sure people understand what their obligations are under the new law, but we are still prosecuting and banning people under the existing law—60-odd in the past couple of years, and 10 of them are in gaol—including for things such as giving inappropriate advice and not disclosing commissions.

Senator WATSON—When you say ‘banned’, do you mean for life, for two years, or what?


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Mr Johnston—Some of them were banned for life and some were banned for a period of time depending on the magnitude of the misconduct.

Proceedings suspended from 6.31 p.m. to 8.04 p.m. Senator CONROY—I want to talk about funding. On the Business Sunday program,

David Knott said that the whole of ASIC’s enforcement budget was ‘taken up with existing investigations’. That being the case, has ASIC requested additional funds from the government in the light of thousands of potential breaches of the Corporations Law in relation to HIH?

Mr Wood—In one sense we still have to await the findings of the royal commission. The indications that we have before us are that those findings will be quite extensive in attributing fault to a number of individuals. Until we know the exact numbers, we really cannot be certain as to the extent of our commitment, but I think we can say at this point that, even if the recommendations are only accepted in part, that would still exceed our capacity to attend to those matters.

Senator CONROY—Mr Knott seemed to indicate that you could not take any more enforcement actions even if you wanted to, that your budget is tight and at maximum capacity now.

Mr Wood—That is a fair assessment.

Senator CONROY—Senator Campbell, do you think that if ASIC are to properly follow through on HIH they will need more funds?

Senator Ian Campbell—I support what Mr Wood has said. We are obviously eagerly awaiting the outcome of the royal commission. The government has shown over a number of years that it is committed to having a very successful and effective regulator. Since the last election, when I think Labor promised an increase in asset funding of $1.5 million—

Senator CONROY—And you promised none. You went into the election promising none.

Senator IAN CAMPBELL—If I may, Mr Chairman.

CHAIR—Let Senator Campbell finish.

Senator CONROY—That was the actual amount.

CHAIR—Senator Conroy, let Senator Campbell finish.

Senator Ian Campbell—we have given specific funding in relation to HIH of probably over $6 million.

Mr Wood—It was $5 million for HIH.

Senator Ian Campbell—I think there was some supplementary funding as well. I think $4.6 million particularly for the royal commission and there is an extra $90 million in the next budget. So, since Labor promised $1.5 million in additional funding, we have delivered in the budget very close to $100 million—certainly $95 million plus. I think that demonstrates the government commitment’s to ensuring that the regulator is adequately funded. Our track record is strong. Obviously in the budget process we will be looking at all of the requirements of all of the agencies within Treasury.

Senator CONROY—Mr Johnston, is that $90 million that Senator Campbell is talking about all in one year?

Mr Johnston—No. It is to cover for the introduction of FSR over a period of three or four years.


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Senator Ian Campbell—Four years.

Senator CONROY—So it is almost all specifically tied to FSR and other—

Mr Johnston—It is money that we asked the government for to be able to effectively introduce the legislation. In our funding bid we worked out the number of staff we thought we would need to license people to consider applications for relief from the law, to carry out surveillance and then to run enforcement actions.

Senator CONROY—How much is the breakdown between enforcement actions and the FSR implementation?

Mr Iglesias—Of the $90 million, roughly $28 million went to increasing our general enforcement capacity.

Senator CONROY—That is spread over three years?

Mr Iglesias—Spread over four years, so it is roughly $7.4 million in each year. The remainder was applied to the implementation of FSR and to take any enforcement actions in respect of FSR.

Senator CONROY—Senator Campbell, Mr Knott talked about a task force being established, to be specifically funded on a one-off basis, for the HIH issues. Do you think that is a reasonable idea?

Senator Ian Campbell—I think it is one of the options that will be before the government when the HIH Royal Commission report is handed down. From the government’s point of view, it is to make sure that the work of the royal commission carries through seamlessly to proper enforcement by the appropriate regulators and then, where necessary and where appropriate, by the DPP. It is fair to say that is one of the options that would be on the table. The Costigan royal commission, for example, used a similar structure as a special task force, and we will obviously look at what the most effective precedents have been for following through on royal commissions. The last thing the Australian population would want is an expensive royal commission that fails to deliver sound regulatory outcomes and prosecutions where people have breached the law.

Senator CONROY—I would like to move on to the SRI guidelines. I draw your attention to paragraphs 4.5 and 4.6 on page 14.

Mr Kell—This is the socially responsible investing disclosure guidelines ASIC discussion paper.

Senator CONROY—Yes. The draft guidelines appear to suggest that the information required in a PDS is what a reasonable person would require and that this reasonable person is referred to as a target consumer.

Mr Kell—Yes.

Senator CONROY—Section 1013D(1) of the Corporations Act says that a PDS must include such of the following information as a person would reasonably require for the purpose of making a decision. My reading of that section is that the PDS must include information that is reasonably required to make a decision. To my mind, what a reasonable person needs and what information is reasonably required about whether to invest are two very different issues. Would you agree?

Mr Kell—Would you repeat that last observation.

Senator CONROY—My reading of that section I quoted is that the PDS must include information that is reasonably required to make a decision. That is the actual law. To my


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mind, what a reasonable person needs, which is what your paragraphs 4.5 and 4.6 on page 14 talk about, and what information is reasonably required about whether to invest are two very different issues.

Mr Kell—Why would you assert that?

Senator CONROY—You say in clause 4.5: Just how much information a consumer would reasonably require involves asking who that consumer is.

I just do not agree at all. I think that is a fundamental misinterpretation of the act and is right out of left field. It really surprises me because, from my reading of the paper, everything else about the paper revolves around this argument.

Mr Kell—I would perhaps make a few comments there. As you clearly know, this is a discussion paper; this does not represent ASIC’s final views on this issue.

Senator CONROY—I understand.

Mr Kell—We have invited comment and that is due at the end of this month. Hopefully, this is one of the issues on which we will get feedback from the various stakeholders out there that have an interest in this issue. One of the points that is being made in relation to this issue of what a consumer may require is that in the SRI area—if that is an appropriate term—you have funds that have no explicit SRI objective; they are just general investment funds that are aimed at most people out there. Then you have more specialised investment vehicles that clearly market themselves as green investment funds or ethical investment funds.

We are suggesting in the paper that there may be different quantities of information required about the SRI component of the fund in those two different circumstances. You would obviously expect, if you are targeting people who are much more interested in seeking out an ethical investment fund, that the sort of information you would want to have in there would be more detailed. That is where the issue of the target consumer comes into play. If your target is, broadly speaking, the mass of investors out there, then the information you provide may legitimately vary if you are definitely targeting that much smaller subset who are actively seek ethical investments.

Senator CONROY—My reading of section 1013D is that the answer to the question of how much information a consumer needs is that the consumer needs enough information to make an informed decision about the company’s stance on socially responsible investing, which is not what this paper is about.

Mr Kell—I think it is what this paper is about.

Senator CONROY—No. The fundamental premise of assuming this issue of a target consumer is just wrong. The legislation is universal. The legislation is not specific to those people who go looking for a specific SRI product. I do not have a difficulty with your premise that, when an SRI type fund wants to advertise itself as an SRI type fund, there is extra information that you might want to suggest that it provides. The guidelines appear to assume that a company either will not comply at all with SRI principles or will be 100 per cent committed to SRI investment and the guidelines provide some guidance so as to avoid misleading statements, but they do not address the fundamental issue. This is the intent of the legislation—that is, that all companies should have to provide sufficient information on their position on SRI for an investor to make a decision as to whether to invest. It is not about target consumers or a specific set of consumers that are interested in SRI specific funds. I have no argument that at that end of the market, if I can use that phrase, there may need to be secondary referrals and those sorts of things. What I was hoping this would be about was


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setting out the minimal level of information necessary for all consumers, irrespective of whether they are inquiring about a specific SRI product but that they are just after an investment product.

Mr Kell—We state right up-front that, in ASIC’s view, all investment products will need to address SRI issues in their product disclosure statements to some extent. At one end, that may mean that products may say simply that they do not take SRI issues into account at all. We actually think that those sorts of products will be in quite a small minority. We think most products will fall into the middle category of those that are not green or ethical funds but do take these sorts of issues into account to some extent because they do so for commercial reasons. Then you have at the other end specific SRI funds that market themselves on that basis, but all investment products will need to address this issue in their disclosure.

Our view is, however—and you were right on this—that the more a product promotes itself as taking into account labour standards and environmental, social or ethical considerations, the more detailed the PDS disclosure will need to be. We are certainly not of the view that funds can ignore providing information to any consumer. They will need to address this issue—it is clearly there in the law—but we do recognise that there will be some variation in the amount of disclosure provided depending on the type of the fund.

Senator CONROY—My issue with the paper is to identify three categories: one, we do not take SRI into compliance. The solution is very simple there because they simply say, ‘We do not take it.’ The majority of the paper, in my view, is about that other end—the paper seems to me to be devoted to a discussion about the other end. In my view, both of those two ends that you have defined will be small compared to what you could describe as the area in the middle.

I just cannot find any issues in here where you actually set out the minimum—I use the word ‘minimum’ but I am not using it in a pejorative sense—that every consumer must receive to make an informed decision. My concern with the paper is that, while it is very good in its discussion about what, for the purposes of the discussion, I will call the premium end, and there is a very lengthy and comprehensive discussion about whether they have a secondary, what has to be in the PDS, whether it could be two documents, secondary references—all of the above—but there is almost nothing about what that minimum standard should be for every product.

Mr Kell—I have to disagree with that. Much of the discussion in here does apply to, if you like, those products that fall into the middle category. That is where some of the most difficult issues arise. We have in the paper asked questions, for example, about what disclosure applies to product providers that devolve investment decisions to others. That is clearly going to be mainly those in the middle category. We have outlined how SRI issues might be taken into account in a number of ways in conventional investments—in formulating the investment objectives, in choosing different managers or investment advisers, in formulating risk management strategies or other governance arrangements, in looking at any direct investments selected or disposed of by the product issuer. I think we would be remiss if we did not pick up the issue that you are dealing with. Most of the industry that we are going to be talking to on this issue are interested in exactly the category that I think you are interested in, and that is very much why we are hoping that we will get some feedback on those sorts of issues, because that is where some of the borderline decisions will come into play.

Senator CONROY—I think you have identified the areas, and you have a discussion about the procedural issue—if I can use that phrase—about whether some people are going to be captured or not, but I do not think you go to the substance of what it is that you believe.


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This is a policy guidance note at the end of the day—it is not expected to change the world— but it just seems to lack some definition about what the minimum standard is. As I said, that is not meant to be a pejorative. You and I spend hours trying to lift minimums, so I am not using it as a pejorative. I am just concerned at the way the paper describes the premium end of the market, and the debate at length about all of that while at the minimum end it is fairly vague and more of a process discussion. As an example, clause 5.6 on page 22 gives a non-exhaustive list of what may be considered to be labour standards. The standards that are listed there fail to refer to the International Labour Organisation, which I would have thought was an automatic starting point for a discussion of labour standards. I think you have probably heard me speak on this, so I do not want to bore you, but ILO covers things like child labour, slave labour and prison labour, and none of them seem to get a guernsey. I appreciate that this is a beginning. I think you have to add this into the discussion.

Mr Kell—That is a useful observation because it has hit on one of the issues that we have, at this stage, had the most difficulty in dealing with: should we provide a list of labour standards or environmental or social or ethical standards in any guideline that we might issue? If we did, how could we ensure that that list was an exhaustive list? At this stage, the feedback that we have had suggests that it probably would not be appropriate for ASIC to produce a definitive list. However, we have taken on board suggestions that we at least consider providing a non-exhaustive list of what might be considered to be labour standards or environmental, social or ethical considerations. That is what I think we are trying to stimulate with some of the possible standards that we have listed here.

I am happy to admit that we have not included all of those standards that you have referred to just then. One of the things we are going to hopefully get some feedback on is which ones might be good examples in any guidelines that we produce and which ones we might reasonably leave out, because it is not ASIC’s role to, in effect, define what is ethical. One of the issues here for us, of course, is that our role here is that of a disclosure regulator. Our role is not one of defining what is ethical or environmental or what the relevant human rights standard might be. This issue is probably where that comes to a point. Feedback on that is going to be very useful for us.

Senator CONROY—I accept the point that you are making. Certainly—and Senator Murray and I both have a very keen interest in this, for obvious reasons that you would be aware of—to my mind it is about what happens when the consumer walks in and sits down with the financial planner and what they are told. It is not about whether or not they have walked into an SRI green fund or the Westpac SRI index or any of those sorts of things. It is about what information will be provided to the person sitting there. They may not have started off by asking what is the green record of the companies you invest in, but the information you provide them with allows them to make that informed choice. That is the key intent. It is certainly my intent. I will not speak for Senator Murray, but that is the key intent. That is why I am concerned that you have distinguished between investors when you talk about a target consumer. That worries me.

Mr Kell—Just on that point about advisers, I would note that this paper is directed at eliciting feedback on what should be in a PDS. We have noted that we have put out a related policy paper on financial product advisers, conduct and disclosure, where we encourage people to also consider the related issue of under what circumstances an adviser should also provide information on social, ethical and environmental issues as well. This paper is focused on the PDS, because that is the key obligation under the law.


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Senator CONROY—That is the key obligation and the key information that will be provided to a consumer, but I am just concerned at this concept of a target consumer. The legislation is not about target consumers; it is about every consumer.

Mr Rodgers—Can I just make an observation. This paper is first of all eliciting ideas at this stage, but it does sit against the general background of how we have approached PDS disclosure generally. I have the impression that you are perhaps making more of that statement and its role in the whole document. I think the message it intends to convey is fairly clear. Where you have disclosure obligations and you have a further obligation under the law to make your disclosures clear, concise and effective, one of the principles is that you should have in mind with whom you are communicating and understand that there may well be different types of communication, depending on the target recipient of that. So there will be variations, I think. That is an approach that we have taken consistently in relation to PDS disclosure. I must say that I am just a little bit surprised that you have taken it as if it were a major qualification on obligations in this area, because I think it is directed towards encouraging people to the good practice of thinking about target audiences when they are devising communications that are to go to retail investors generally or to particular classes of retail investors.

Senator MURRAY—If by that you are meaning practical cameos—in other words, a target group for communication might be professional buyers, people who buy on behalf of others in a wholesale sense—that is certainly a type of improvement.

Senator CONROY—We have regularly differentiated in parliament between a retail consumer and the protections they need and a wholesale consumer.

Senator MURRAY—But the intent for an individual message needs to be common.

Senator CONROY—That is my concern as well. I am not disagreeing that there can be extra information for somebody who says to the Westpac SRA fund, ‘Tell me what your policy is on investing? Do you screen positive? Do you screen negative?’ I accept all of those. I think that will evolve naturally. What will not evolve naturally is what I am describing—as I said, not in a pejorative sense—as a minimum standard. Certainly I, and probably Senator Murray, want to see it for all consumers.

Mr Johnston—I would submit that, because we are dealing with a discussion paper which does not even have the status of a policy proposal paper—that is, it is not reflecting a draft policy, if you like—this discussion is very useful because it is the sort of feedback that we are seeking from industry and other stakeholders. It is the sort of comment that we can use and consider when we go over the discussion paper.

Mr Kell—I agree. It is very useful feedback, and I will relay it to Ms Rickard. I can reassure you that what you characterise as a minimum standard is something that ASIC is taking very seriously.

Senator CONROY—Are ASIC considering international practices in relation to this issue? Are you looking at other countries around the world which have similar types of things?

Mr Kell—Yes, we certainly have been. We are trying to determine how they might help us understand our approach here. The paper refers to legislation in the UK and Europe which has requirements to disclose the extent, if at all, to which social, environmental or ethical considerations are taken into account. We are in a position of being able to learn from some of that overseas experience in developing our own approach here.

Senator CONROY—Are you talking to the overseas regulators, as well?


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Mr Kell—I would have to check with Ms Rickard as to whether she has had any actual discussions. We certainly have been researching the issue thoroughly, so we can learn from lessons from other jurisdictions.

Senator CONROY—Even though all investment products will need a SRI statement, what percentage of investment products are expected to have actual SRI consideration? You seemed to indicate that you thought almost everybody would in the end.

Mr Kell—Again, it depends on how you characterise SRI products. If you say that they are products which market themselves and, if you like, are developed specifically as SRI products, they are still obviously in a relatively small minority. But, as I said, when we looked at this issue one of the things that soon became apparent was that most products take into account SRI considerations to at least some extent, even if it is just as part of their commercial judgment on the quality of the investment and as part of their risk assessment process. For example, you are not going to necessarily invest in a company that is about to be successfully sued on environmental grounds.

Senator CONROY—I noticed a discussion in the paper about how you would enforce them. Could you expand on that a little bit? If you do decide to issue guidelines, how will you enforce them?

Mr Kell—What we have noted is that we will take an approach that is consistent more generally with our approach to enforcing PDS requirements. Our guidelines of course would not be a directly enforceable instrument but, as we try to do with most of our work in this area, we would set it out in such a way and we would hope to construct it in such a way that people who breach the guidelines may risk breaching their wider disclosure obligations. We are also aware of the fact that one of the criticisms of funds in this area is that some funds have been misleading or deceptive on the overall impression given about the SRI status of the fund. We are alert to the fact that that may become an enforcement issue at some stage. So it is an area that we will police seriously. I do not think at this stage, prior to the development of any such guidelines and prior to our discussions with the industry, we are out there seeking particular enforcement targets, but once the guidelines are in place we will obviously have to look at how we can encourage and ensure adherence to them.

Senator CONROY—They are the only questions I have on that issue.

Senator SHERRY—I have some other questions—

Senator CONROY—I have lots of other questions; I just did not want to close off that issue.

CHAIR—Do any senators have any questions arising out of Senator Conroy’s last bracket of questioning?

Senator SHERRY—I have a couple of cases I wanted to ask about, which you may be able to assist me with. The first is the RACV superannuation fund. On 31 January this year, Ms Foley, who is a senior lawyer at the Superannuation Complaints Tribunal, wrote to the Australian Manufacturing Workers Union, informing them that the tribunal intended to refer a matter to ASIC relating to the RACV superannuation fund. Has that referral been made or received?

Mr Johnston—I would have to take that question on notice, unless Mr Wood—

Mr Wood—We would have to take that on notice.

Senator SHERRY—I have only one other question on this matter, but you could take it on notice as well. If it has been received, has ASIC undertaken any investigation or any


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enforcement action to a possible breach of section 1017C(2)(c) of the Corporations Act 2001 or its predecessor provisions by the fund in relation to a request by some members for documents relating to the position of the fund?

Mr Johnston—We will take that on notice.

Senator WATSON—Does that relate to surplus?

Senator SHERRY—Yes, it was a defined benefit surplus distribution. ASIC released a media release on Wednesday, 5 February announcing that charges had been laid in respect of two directors of the EPAS superannuation fund. Each was to face 18 charges of breaching their duties. Could you give me a bit more detail about the nature of the charges? I am particularly interested in the nature of the charges because I am interested in whether or not any or all of the charges would constitute theft and fraud within the provisions of the compensation provision of the SI(S) Act.

Mr Johnston—I will ask our enforcement team to handle that one.

Mr Wood—Again, I am afraid I will have to take it on notice and come back to you.

Senator SHERRY—I notice that the same press release states: These charges against Messrs James and Sheilds are separate to an earlier civil action commenced by ASIC in April 2000, which is currently filed in the Supreme Court of Queensland.

I understand the sensitivities of the proceedings if you cannot provide the information, but why has a separate set of charges been laid at a much later date?

Mr Wood—Again, I think I will have to make inquiries on that, but perhaps I can engage in a little bit of speculation. I think it is probably the fact that it would take longer to put together the criminal brief and go through the process of consultation with the DPP and obtain their sign-off on the charges. I think it would almost invariably be the case that criminal charges would come at a later stage.

Senator SHERRY—What will happen? You have an earlier civil action that was commenced in April 2000 and now an action commenced in February 2003, almost three years later.

Mr Wood—You are wondering whether the criminal charges might in fact interrupt the civil proceedings.


Mr Wood—It would get back to whether there was a significant overlap on the facts and, in particular, whether there were common parties between the two actions. For example, if the accused in the criminal proceedings were in fact parties to the civil, it may be that they would have to disclose or run their defence to the criminal action in the civil. But in the absence of detailed knowledge of the matter, I cannot take it any further.

Senator SHERRY—This matter first came to my attention and that of, I think, some of my colleagues on the Senate superannuation committee. It appears that problems were identified back in, I think, 1997, when attention was being drawn to them within EPAS. I would not have expected ASIC to be aware of problems then, but in this case why has it taken almost five years for charges to be laid against these two people for breaching their duties as directors of EPAS?

Mr Wood—Again, I am afraid that in the absence of a detailed knowledge of the facts it would have to be speculative. The only opinion I can express goes to when the offences were discovered as distinct from when the deficiency came to notice.


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Senator SHERRY—Was this matter referred by APRA to ASIC?

Mr Wood—I am sorry, but I will have to take that on notice.

Senator SHERRY—Okay. I must say that I thought you might have been able to provide me with a bit more information than you have so far. Are there any other individuals currently under investigation on matters relating to EPAS?

Mr Wood—Not so far as I am aware.

Senator SHERRY—Finally on this matter, the press release refers to the two individuals making ‘improper use of their positions as directors of EPAS to gain an advantage for themselves’. Do you have any details of the specifics as to what their gaining an advantage for themselves was?

Mr Wood—I am sorry, Senator.

Senator WATSON—Could you name some other cases that have been referred by APRA to you in the last two years which have gone to prosecution?

Mr Wood—I will consult Ms Redfern, who may have more detailed knowledge of the issue.

Ms Redfern—There have been a number of matters referred by APRA that we have investigated and some are in process of discussion with the DPP. There have also been a number of matters where we have taken some joint action and also civil action in relation to superannuation matters.

Senator WATSON—Can the committee be privy to that information as yet?

Ms Redfern—Yes. There are quite a number of them.

Senator WATSON—Have they been before the courts?

Ms Redfern—Most of them have been and some of them are still in investigation mode or we are having discussions with the DPP about particular prosecutions.

Senator WATSON—Could you give us a list of those that have been referred, those on which you are jointly taking action and those superannuation funds that you are investigating on your own account.

Ms Redfern—Most certainly. In fact, we issued a press release today about a superannuation issue in relation to charges that have been laid and sentencing, which was a matter that we investigated independently of APRA.

Senator SHERRY—When you are putting that list together, which I think would be very useful, I do not want a huge description but could you tell us the nature of the charges that were laid and, if the case has been concluded, the findings in respect of the breaches that occurred.

Ms Redfern—The nature of the breaches?

Senator SHERRY—Yes. I have a further case you might be able to help us with while you are here. It refers to a press release issued by ASIC on 21 May 2002, No. 2/178, titled ‘Receiver appointed to unlicensed schemes’. It says on the release that ASIC has: ... brought the application in the Supreme Court to appoint a receiver after becoming concerned that investor funds were in jeopardy.

It also says: ASIC alleged that the fundraising—


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of $6 million— carried out under the schemes was illegal ...

Are you able to outline what it was that ASIC was so concerned about and the nature of the alleged illegality?

Ms Redfern—I do not have that press release on me, but we have done this on a number of occasions in relation to unlicensed fundraisings or what we call illegal fundraisings over the past year. That could be any one of the matters that we have appointed a receiver to or on which we have sought to freeze funds. Is there a name of a company or an individual?

Senator SHERRY—Yes. Secure Finance is the name of it.

Ms Redfern—As I said, I will have to take that question on notice and perhaps include it in the supplementary submission.

Senator SHERRY—The full names are Secure Finance and Investment Services (Australia) Pty Ltd and its sole director, a Mr Phillip Crane. Do they ring any bells?

Ms Redfern—Was it the Supreme Court of Queensland?

Senator SHERRY—No, this was in Western Australia.

Ms Redfern—I cannot recall its precise detail. As I said, there have been a number of those matters in the past year on which we have taken action.

Senator SHERRY—The media release says, for example: Secure Finance claims to offer investments in offshore funds. ASIC alleges the schemes, through their promoters, have raised nearly $6 million from approximately 200 investors over a two-year period

ASIC alleged that the fundraising carried out under the schemes was illegal as it contravened the managed investment provisions of the Corporations Act, as no disclosure document had been lodged with ASIC as required under the law.

That doesn’t ring any bells?

Ms Redfern—Yes. In fact, that one was resolved recently, I think.

Senator SHERRY—I was going to get to that issue. Are you able to outline to me the alleged illegalities before we get to the resolution?

Ms Redfern—The alleged illegalities were basically that investments were being offered, more or less as the press release says, to investors, and $6 million was collected. Our concern was that there was a breach of the managed investments legislation. It was illegal fundraising. That was principally the issue.

Senator SHERRY—Can you provide us with a list of investments offered by Secure Finance?

Ms Redfern—Not now, but we will certainly do it on notice.

Senator SHERRY—The judge ordered the receiver to investigate the company’s affairs and report to the court by 19 July 2002. Can I have a copy of that report—obviously not now, but on notice?

Ms Redfern—Yes. My only concern is about whether that report was read in open court and published.

Mr Johnston—For the purposes of the officers at the table I would like to clarify something. I believe that Senator Watson requested that we provide the committee with details


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of some people that we might be investigating. It generally has not been the practice of the committee to request details of matters that are still under investigation—

Senator WATSON—Only where proceedings have commenced against them.

Mr Johnston—So you would like the details where we have commenced proceedings rather than where we are simply investigating?

Senator WATSON—Yes. It would be improper for the committee to get the other information.

Mr Johnston—Senator Sherry, I raise that issue because I thought it went to the same point that you were raising.

Senator SHERRY—No, this is a different issue altogether.

Mr Johnston—But the evidence may not have been given in open court.

Senator SHERRY—Could you check that for me please?

Ms Redfern—Yes.

Senator SHERRY—You said that the matter had been settled, and there is a follow-up press release of 13 December 2002, headed ‘Secure Finance matter settled’. Would settling this matter have been ASIC’s decision nationally? Or was it a decision by ASIC in WA or Melbourne, or a decision of the prosecutors?

Ms Redfern—In terms of the decision to resolve the matter, the terms of the settlement would have been discussed at a national level. We are nationally focused.

Senator SHERRY—You cannot recall? Would it have been discussed with the prosecutor?

Ms Redfern—This is a case where we brought civil injunctive proceedings. We in fact were the plaintiff in the case. So we made the decision—

CHAIR—You mean there was not a prosecutor.

Ms Redfern—No. It was a civil case. It was an injunction to basically freeze funds and wind up the scheme or put in place proposals to wind up the scheme.

Senator SHERRY—Was there any consultation on this matter with any organisations or individuals outside ASIC—that is, on reaching a conclusion on the matter being settled?

Ms Redfern—I am not sure what you mean by that. Do you mean with the investors?

CHAIR—For example, ordinarily, if a piece of civil litigation is being settled, the advice of the barrister who is briefed in the matter would be sought as to the desirability of settling it.

Ms Redfern—Of course.

CHAIR—So that would have been done?

Ms Redfern—Yes, in terms of the prospects of the case, the issues involved and whether the resolution met the aims that we require. But we do not consider them as third parties.

CHAIR—So you would have taken independent legal advice as to the desirability of the settlement?

Ms Redfern—Yes.

Senator SHERRY—You may not be aware or able to tell me at this point in time of anyone else or any other organisations that were consulted. Are you able to or will you take that on notice?

Ms Redfern—I will take that on notice.


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Senator SHERRY—It appears under the terms of the settlement that Secure Finance and its sole director, Mr Crane, have given a commitment or promise not to do it again and to repay the investors’ money if requested. Is that the only sanction ASIC sought against the company and its director?

Ms Redfern—In those proceedings we sought to have the schemes wound up. We sought injunctive proceedings and we sought disclosure information which could be provided to investors. Based on that disclosure information, investors could then make the decision about whether they wanted a refund. So in effect the things that we sought we achieved through the settlement.

Senator SHERRY—So is this normal practice in relation to a company and its director who had, only six months before, been putting, to use ASIC’s description in a press release, ‘investor funds in jeopardy’ and breaching the requirements for fundraising under the Corporations Law?

Ms Redfern—We often approach enforcement in two phases. The first phase is to protect funds and to put an end to what we think is illegal fundraising and to put mechanisms in place to make sure that investors are advised about the position. That is the first phase. That is what we did as a result of these proceedings. It does not necessarily mean that that is the end of the matter. We often have a two-pronged approach that may lead to further action, which I cannot necessarily comment on at this stage. Obviously, we need to go in fairly quickly where it comes to our attention that we think there are funds in jeopardy or that there has been illegal fundraising.

Senator SHERRY—I understand why there is a need to move quickly, but in this case no further action has been taken.

Senator WATSON—Yet.

Ms Redfern—In the civil context, that is right.

CHAIR—Presumably because the urgency has gone out of it, because the funds were protected. So the civil action achieved its end.

Ms Redfern—Yes, that is right.

Senator SHERRY—Is the case still open?

Ms Redfern—Our inquiries are still continuing about whether we take any further action. But the civil proceedings have been resolved and finalised.

Senator SHERRY—Did this case relate only to Secure Finance and Investment Services or were there other companies involved with Secure Finance?

Ms Redfern—As far as I am aware, it related only to Secure Finance. But, again, I should take that on notice.

Senator SHERRY—Yes. Could you also take it on notice to provide me with a full list of companies related to Secure Finance, both here in Australia and overseas?

Ms Redfern—Yes.

Senator SHERRY—Thank you.

Senator CONROY—I have one quick issue, if we could go back to FSRA for a moment.

Senator MURRAY—Can I stay with enforcement?



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Senator MURRAY—Mr Wood, I recall that there was a press release from ASIC—by the way, my compliments to whoever churns those things out; they are very informative and very clearly written.

CHAIR—Perhaps they are taking a leaf out of Professor Fels’s book—he is famous for his press releases.

Senator Ian Campbell—Can I just go back to the request made about companies and related companies?

CHAIR—Do you want some definition?

Senator Ian Campbell—I just think there is a certain role for committees and there is a boundary where you have crossed. The information requested by Senator Sherry is available on databases. I think it is appropriate for the committee to ask questions about the policy, the budget and those sorts of things but not to use the committee process to effectively get information that is publicly available through databases and not to circumvent process. Anyone else in the public would have to go to ASIC and then search the database and pay any relevant fee. I do not think the committee should be used to get information which the government makes available to the whole world. I think it is appropriate for senators to make use of that available information; it is an effective use of the resources.

Senator SHERRY—Chair, I do not know that it is that unusual a request.

CHAIR—Senator Ian Campbell, I understand your point. I did not think any of the questions in relation to the circumstances of the settlement were objectionable on grounds of irrelevance. I understand your point, but the request is related to that issue, albeit perhaps a little bit thinly.

Senator Ian Campbell—This is one prosecution of many. If you allow a senator to come along and say, ‘Have you looked at this particular company? Are they registered on your database? Who are they related to?’ you could create yet another public counter for ASIC for any senator who wants to come along on behalf of a constituent and get free access to the database.

CHAIR—Perhaps that is right.

Senator Ian Campbell—I just do not want to see it abused. I am not even looking at this particular case. I think that, in principle, if the government has made information available through annual reports, through databases, through a range of other mechanisms that are readily available, it is a better use of the resources of the body we are talking about and of the committee to use those available mechanisms.

CHAIR—Quite. Senator Campbell, I think your point is well made. Senator Sherry will obviously take the point on board.


CHAIR—I think on this one occasion I will let it go. It is a request limited to one company and the request is to tell us what the related companies are, which is presumably those companies that would fall within the statutory definition of a related entity.

Senator SHERRY—Mr Chairman, I have one very brief comment. I do not think I press too much for unreasonable information; I do not think I have that reputation. I do not think there is a computer file down there that is costing you a couple of hundred thousand dollars to handle all my requests, as has been alleged against another Senate colleague. I am conscious of that. I know there are other occasions, maybe not in ASIC, where material has been


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publicly available, other senators have asked for it and it has been made available. I am conscious of the hard work of ASIC staff and public servants more generally.

Mr Johnston—The other comment I make, Senator, is that I know that sometimes it is frustrating for the committee that we cannot bring to mind various enforcement matters that we have on foot at any one time. But just for the committee’s information, ASIC would have somewhere around 200 investigations open at any one time. Right now, we have in excess of 200 defendants before the courts on various matters.

CHAIR—Mr Johnston, I do not think anyone is suggesting for a moment that there has been an unsatisfactory level of information provided or promised to be provided on notice.

Senator SHERRY—I am not suggesting that at all.

Senator CONROY—It was the parliamentary secretary who was objecting.

Senator SHERRY—The only slight concern I had about EPAS was that it was an issue I thought you would have expected me to raise. I have informally communicated that to you as a slight concern, but I understand and you can do what you can for me on notice.

Mr Johnston—Point taken, Senator.

Senator MURRAY—I recall that you put out a press release about mass marketed tax effective schemes, that you had surveyed about 113 of them, I think, and that you had found them to be in pretty poor condition.

Mr Johnston—It was 13 schemes.

Senator MURRAY—I think you were referring to them obliquely earlier today in your remarks on the agricultural side. I assume you are aware that this committee in its other guise as the Senate Economics References Committee investigated that area as thoroughly as a Senate committee can.

Mr Johnston—Yes.

Senator MURRAY—The estimate of the tax revenue risk in those inquiries was $2½ billion. You are aware of that?

Mr Johnston—Yes.

Senator MURRAY—The committee took evidence that the effects on people who had been conned was so marked that a number of deaths through suicide resulted. Are you aware of that?

Mr Johnston—Yes.

Senator MURRAY—If I may, I will quote from a letter that the chair recently received. It says: As a person in the goldfields who has seen marriage split-ups, bankruptcies and suicidal situations as a direct result of mass marketed tax effective schemes, I cannot express in words how much the decisions of your committee—

that is the Senate committee— have resulted in benefits to our community.

This person is an accountant and has provided an invaluable snapshot of the relief afforded to those who were victims, and the effects financially. Strangely enough, if you multiply it out to nearly 50,000 investors, it comes pretty close to the $2½ billion we are talking about. The question I want to put to you is, given the scale of the tax revenue and the effects on literally tens of thousands of people and their families, with what vigour is ASIC pursuing the


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promoters and con artists who have been behind a number of these schemes? Obviously it is not all schemes, because some are perfectly legitimate and perfectly proper.

Mr Johnston—Perhaps I can start by mentioning the purpose of the campaign and the hypothesis that we were working to. We did not actually specifically target agricultural schemes or mass-marketed schemes in this campaign. We started it by saying that we wanted to look at where the commissions being paid to the advisers were highest and out of the market. That automatically took us to the agricultural schemes, because commissions of up to 20 per cent were being paid to advisers to recommend these schemes. So our starting point was not, ‘Let’s investigate mass-marketed agricultural schemes.’ It was, ‘Let’s look at advisers who are providing advice to people and putting them into these types of products or into any product where they are receiving very high commissions.’ The category where the commissions were highest were these types of schemes.

So our focus was on the advisers—the people you are talking about—who are putting people into the schemes. We looked at 27 advisers, who were representing some 13 schemes. They were giving advice to 300 or so investors. We conducted interviews with the investors. Our hypothesis was that, with the commission being so high, there was a good chance that there would be poor advice being given and inappropriate selling of products to the investor. We believe that that hypothesis was proven. As to the level of vigour, we looked at 27 advisers and it is likely that there would be half a dozen or so enforcement actions resulting, which is a high percentage in terms of the number of people that we looked at. There will be a full range of potential outcomes there including administrative, in terms of licensing, and bannings—civil and criminal outcomes. There is a full range of outcomes available. At this stage, enforcement referrals have been made and it is really too early to say what actions will actually come out of it. But the focus is on the promoter-adviser of the scheme.

Senator MURRAY—Are there any what I might loosely describe as cross-jurisdictional prosecutions—in other words, you might be going after them for a particular package of breaches and perhaps crimes, the tax office would be after them for tax offences and the ACCC, for instance, might be after them for misleading and deceptive behaviour. Is there that kind of coordination going on between the agencies?

Mr Johnston—It was not a coordinated exercise inasmuch as we were focusing on behaviour by advisers, whether they were disclosing commissions and whether they were giving appropriate advice. As I said, we did not start it as necessarily a project on mass-marketed, tax-driven schemes. The tax office were aware that we were doing it, because we do consult with the tax office on these types of matters.

Senator MURRAY—You do consult?

Mr Johnston—We do. Any misleading and deceptive conduct would in fact be an ASIC matter in this case and not an ACCC matter. That might be the type of conduct that we investigate.

Senator MURRAY—I have framed some of my questions the way I have deliberately, because the Senate committee asked that the tax office coordinate a drive against promoters of immoral schemes—obviously not those who are going about their legitimate commercial business—and integrate an approach with other agencies in this field, particularly yourselves. Is that under way?

Mr Johnston—We have certainly had discussions with the tax office. I am not able to identify whether we have a concerted campaign under way with them, but they are certainly


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aware of the fact that we were working on this project. We are discussing other matters with them.

Senator MURRAY—I would like to request on notice—because I think you would need to do this—a briefing note which outlines the nature of the coordination you are doing here. I return to my original comment that you are talking here originally about an estimation of $2.5 billion and very many schemes. It is an area where enforcement and regulation is needed and it may take some time.

Mr Johnston—It is. We have taken other actions in respect of the mass-marketed and tax-driven sector, as I think the committee is aware. We have a long history of producing consumer alerts and media releases warning people about these schemes. When it comes to enforcement, one observation I think I should make, though, is that it is sometimes difficult for us to get cooperation from the victims, if you like, partly because, when we interviewed them, it was clear that for many people obtaining a tax deduction was the main reason for being in the scheme. Unless and until the tax deduction was threatened or denied them, they really were not overly concerned about whether they had proper disclosure made to them and whether the product had been missold. It is not an easy area for us to get cooperation from the investor.

Senator MURRAY—You would be aware perhaps—perhaps not, not being as close to the evidence as I am—that while that was the motive, the reason they were described as victims is that they believed that getting a tax deduction in this manner is perfectly legal.

Mr Johnston—And is in most cases.

Senator MURRAY—Yes. So that is a difficulty. If you are happy to accept the request for a short briefing note—it does not have to be extensive—just to summarise what has happened and where you are going in what I might call an integrated activity on this, I would be grateful.

Mr Johnston—I would be happy to do that.

Senator MURRAY—Thank you.

Senator Ian Campbell—It is fair to say, Chair, that as those schemes are being dealt with—and many of them date back to 1996, as I recall from my correspondence in-tray when I was last in the portfolio—if you followed the media in late January about these aggressively marketed property schemes attached to aggressively leverage financing schemes, you would have seen that there is yet another class of these things coming up which ASIC is on top of and I think it is fair to say is involved in liaison with the tax office as well.

Mr Johnston—Yes. I should add—this should have come to my mind before—the actions of the tax office and the actions of ASIC, not just in taking action against the promoters but in dealing with proper projections in offer documents with respect to these schemes and requiring those to have a reasonable basis—

Senator MURRAY—Yes, I have seen that. I think you have done good work.

Mr Johnston—Over the past couple of years, the investment in these schemes has dropped from $2 billion to about $300 million and there are far fewer of them around these days.

Senator MURRAY—And the ones that survive are very genuine.

Mr Johnston—We would like to think that, but we will keep an eye on them.

Senator MURRAY—You would expect that, if they are dropping their rates of return and taking a more realistic view of the world—I should qualify my remark.


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Senator WATSON—Superannuation funds and investment managers all have to meet capital adequacy requirements. Do those same requirements have to be met by specialised administrators to superannuation funds?

Mr Johnston—You are taxing my knowledge there, Senator.

Senator WATSON—If so, what is the figure?

Mr Johnston—Minimum capital requirements under FSRA?

Mr Rodgers—For superannuation trustees, they are covered by our licence.

Mr Johnston—Yes. It depends whether you are talking about the capital adequacy requirements that APRA might have, as opposed to FSRA type requirements. It would depend on whether or not the operation was in fact required to be licensed by us as to whether or not they would need to meet the capital requirements.

Senator WATSON—But if they are providing a service in administering superannuation funds, is there no requirement for capital adequacy?

Mr Johnston—If they are providing—

Senator WATSON—They are not providing advice.

Mr Johnston—If they are providing a service under the Financial Services Reform Act, then they have the same requirements that a superannuation fund would have. The question is whether or not they are carrying on activity for which they would need to be licensed.

Mr Rodgers—To expand a little: we do set what we call financial resource requirements for Australian financial service licence holders. We deliberately avoid the term ‘capital adequacy’ because we want to make it clear that we are not a prudential regulator, that our requirements for financial requirements go to the ability of the licence holder to provide the service.

We impose financial requirements on all licensees, other than those that are directly subject to APRA’s capital adequacy regime. But, as Mr Johnston said, it depends whether the activity requires a licence. Some administrators will need a licence, not under the old law but going forward under the new one, because they carry out that new category of activity which requires a licence called ‘custodian and depository services’.

Senator WATSON—That is why I am asking the question.

Mr Rodgers—They will be required to meet the financial resource requirement in our policy, enshrined in licensed conditions, which I think requires for the holding of assets in that circumstance of a minimum of $5 million. It is not an intangible asset requirement.

Senator WATSON—Or an aggregate $5 million.

Mr Rodgers—Yes. The short answer is that, if they are licensed by us and are not subject to a capital adequacy regime administered by APRA, they will need to meet our financial resource requirements. These requirements are being imposed through the implementation of FSR, so not everybody is there yet. The issue arises when they choose to apply for one of the new licences.

Senator SHERRY—I have half a dozen questions. I have an extremely sore eye for some reason, and I might have to go and get it checked out, so I am keen to get away. On 2 December, Mr Knott and I assume you, Mr Johnston—this is coming off the transcript— informed the Joint Committee on Corporations and Financial Services that ASIC was engaged in an honest broker role with the superannuation and financial services industry to develop a


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consistent approach to disclosure above the requirements of the Corporations Act. Can you report on how this honest broker role is progressing?

Mr Johnston—The consultation we are undertaking with both industry and consumer bodies is something that we announced that we would do in our policy statement on product disclosure statements some time ago. There has been a bit of a myth around the place that it arose following the disallowance of the regulations. We had said in our policy statement that we were going to undertake this role and asked Professor Ian Ramsay to prepare a report for us, which was to be the catalyst, if you like, for those discussions. He was of course briefed to do that ahead of the regulations being disallowed. We have used the Ramsay report, if we can call it that, as the basis for our discussions. We have had detailed discussions with IFSA, ASPA and the Australian Consumers Association with a view to trying to get some agreement on more detailed disclosure of fees and charges in managed fund products, including superannuation.

Those discussions are going well. We are optimistic that we will get agreement between the relevant bodies on a number of important issues. We have also brought some other industry bodies into those discussions, including the Industry Funds Forum, the Australian Institute of Superannuation Trustees and the Corporate Superannuation Association. So we are consulting widely.

We have put forward a range of proposals, including some common definitions or terminology for various fees and charges, because that does not really exist at the moment and I think that we will get agreement on that. We have suggested that it would be useful in a PDS to have a table to display the various fees and charges and I think we will get agreement on that. We have produced a template for that type of disclosure, which we have given to those bodies and asked them to think about and come back to us with comments on—such things as what is the fee; how should it be described; what is the purpose of the fee; in what circumstances does the fee apply; is there a discretionary element to it, and this will be presented in tabular form—for example, a switching fee you would describe as discretionary, if you switch funds; to whom the fee is paid; whether there is a commission paid; and whether the fee is negotiable—for example, it might be an entry fee whereby the amount might well be negotiated away with the adviser.

So I am confident that we will get agreement on the need to have common definitions and reasonably confident also that we will have agreement on a table that could be used in PDSs. Those two things alone would be a great stride forward from where we are now. We are also pursuing discussions on appropriate measures such as MERs and OMCs et cetera. I am not quite so excited about getting agreement on that quickly, but we are progressing the discussions.

Senator SHERRY—Do you have any sort of indicative date of when the discussions might conclude and we will see some draft documentation?

Mr Johnston—I will ask Ms MsAlister to join me at the table. She is leading this process for us. She is eagerly making her way to the table now. We have given a time frame by which we want to get some comments back from the various bodies, but Pam could perhaps take it from here.

Ms McAlister—We have asked the main stakeholders to come back to us by the end of this month with their feedback on the table that we proposed. As Mr Johnston indicated, we are optimistic. Preliminary reactions to the table were favourable. Assuming that we get those favourable reactions confirmed at the end of the month, we might then be in a position to at


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least have that part of the project agreed in the first quarter. As to the other, more contentious items, I think it is too early to say how long that might take.

Senator SHERRY—So if we assume that there is agreement in some areas would that be released publicly or would you have to wait until the discussions had concluded—perhaps unsuccessfully, from what you are indicating—in other areas?

Ms McAlister—Very much we have taken a tiered approach to trying to build consensus in this area. I do not see any reason why we could not release the table once that format is agreed and then continue to try to facilitate agreement on the other matters.

Senator SHERRY—Will these, whether or not there is success, be subject to specific consumer testing?

Ms McAlister—I must admit that we have left the issue of consumer testing off the immediate agenda. It is something that we have considered in conjunction with the project. I know that some of the industry bodies that we are liaising with are very keen to proceed to their own consumer testing. So we have left open how that consumer testing might proceed.

Senator SHERRY—I raise that issue because—notwithstanding whether agreement is reached between the individuals that you are consulting with in organisations that I know and have had dealings with—it is not necessarily the case that at the end of the day they actually do understand what a consumer would understand. So we can get agreement between organisations, but it may not translate into something that is readable on the ground.

Mr Johnston—We would accept that. Our favoured position would be that consumer testing take place. I think Ms McAlister is being prudent in her comments at the moment because we have not yet got agreement that we will do that.

Senator SHERRY—Okay.

Senator WATSON—Do you have a view as to whether the fees should be related to the assets under management or whether they should be related to transaction costs in terms of what is bought or sold? There would be some managers who are on the first basis and other managers who are on the second. I am wondering how you would get commonality. Do you have a view?

Ms McAlister—You have raised an underlying issue about the complexity of different fee arrangements within the superannuation industry and how that very complexity complicates the whole process of fees and charges disclosure. At the moment the position that we have taken in consulting with the various industry groups, including the Consumers Association, is very much that we are not trying to regulate the way fees are charged but trying to encourage transparency. So, to the extent that someone charges an asset based fee, that is clearly disclosed, and the table does include how the fee is charged. If it were charged on a transaction basis, that would also need to be disclosed.

Senator WATSON—It may be difficult to see without a typical comparison with a size of fund and size of transaction what the difference in fees might be for different types of PDSs, insofar as the investment manager is concerned.

Ms McAlister—That is true. The table focuses on trying to get all the significant fees disclosed in a common format, because that of itself will be an aid to comparability. Whether indeed there need to be other comparability mechanisms, in addition to the ‘see at a glance’ table, is something that we have left open. We acknowledge that there may need to be a range of tools available to facilitate both comparability and transparency.


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Senator WATSON—By disclosing meaningful comparisons, it may just further confuse a potential superannuation fund.

Ms McAlister—That is where consumer testing will be important, to ensure that that is not the end result.

Senator SHERRY—I am a little bit concerned about all of this. I have many friends in the superannuation industry. When I look at the incredible range of different fees and charges, I am concerned for an industry which is supposed to be creating, hopefully, a relatively simple product, a retirement income product. In these discussions has the issue about the direct regulation of some forms of the fees and charges been raised?

Mr Johnston—We do not think that it is our job to prescribe whether there should be different types of fees. It is not something we can do; we cannot prescribe that.

Senator SHERRY—But you can have a view on that.

Mr Johnston—We have tried to improve the position by making sure there is consistent and comparable disclosure and, importantly, common terminology. I think that, with some of the complexity that you are talking about, you do still see entry fees or application fees described in various ways when in fact they are the same thing. We are trying to get some clarity and to simplify that as much as we can. There is nothing we can do about the various practices as to the types of fees around.

Senator SHERRY—I think there is, but we will not debate that. Would this include a standard format? Even the different formatting—different titles, different displays—can confuse consumers, even where you have standard fees disclosed.

Mr Johnston—Yes. We have started with the terminology and we have prepared a template. So we have a recommended format which we are discussing with the various stakeholders just now—that is the table to which I referred.

Senator SHERRY—I noticed that on 2 December Mr Knott said:

The government has made it very clear, in relation to what used to be in the regulations, that it is not disposed to introduce any further regulation or requirement in the law until the end of the transition period.

Is that still the stated position?

Mr Johnston—That is the stated position, as I understand it. It may be a better question for Senator Campbell.

Senator SHERRY—Yes, but he is not with us. We will wait and see if he comes back before I have to leave. Would ASIC’s role in enforcing the Corporations Act with respect to disclosure be easier, and disclosure more consistent, if the government were to introduce new regulations that corrected the defects in the old regulations? Here comes Senator Campbell.

Mr Johnston—The law in respect of disclosure is in the act, and that is what we enforce. Regulations often add clarity to that. So, yes, it can make our job easier where there are more specific provisions and regulations, but it is actually the law itself, the act itself, that we would enforce. I would hasten to add that any policy position that ASIC puts out is an indication to the marketplace and to consumers of how we interpret the law and how we intend to apply it. But of course our policies do not have the force of law.

Senator SHERRY—Senator Campbell, you were absent when I asked a question earlier— that is not a criticism; I understand. Mr Knott was reported on 2 December as saying:


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The government has made it very clear, in relation to what used to be in the regulations, that it is not disposed to introduce any further regulation or requirement in the law until the end of the transition period.

Is that still the government’s position?

Senator Ian Campbell—Yes, very clearly. I think the industry needs to get on with some certainty. I made that clear at the time of the Senate debate; I said that if that regulation was voted down we would not bring a new one in. I spoke with ASIC on that very day. The strong advice of the chairman was that it would be desirable not to have any more confusion. If we had gone about a new regulation, a consultation process, market testing and so forth, we would still be leaving the industry up in the air.

I asked ASIC to set about consulting with ASFA, IFSA and all the other usual suspects, and I commend ASIC for doing that in a very diligent way. I think it is fair to say from the reports I get regularly from Mr Johnston and his team that that process has been constructive and it is likely to have a good outcome. I commend both ASFA, IFSA and the others for being a constructive part of it and I encourage them to keep the momentum going to a successful outcome. It would be in the interests of all consumers to achieve that. We can then review it; Mr Johnston’s concept is to look at the performance of the advisers and probably the implementation of the policy at a reasonable time after the transition. So 18 months, say, after 11 March would be sensible for both.

My own expectation is that, if the industry can reach consensus on the disclosure model, you would have to be a very brave product producer to go and use some other model. I think there will be enormous legal and market based pressures to comply with the model that is developed by ASIC in the policy proposal.

Senator SHERRY—I can understand that, Senator Campbell, but you might have a few people who could seek to take advantage, who may not be part of the mainstream industry. With the lack of a regulatory requirement in response to—hopefully—an improved set of disclosure rules, it would be difficult for ASIC to enforce.

Senator Ian Campbell—I would agree with you, except that the main body of the FSRA itself, which the parliament passed, is pretty thorough. I do not have it in front of me, but the words are something along the lines of ‘all costs, all commissions and all other charges’— basically, everything—‘must be disclosed, and it must be done in a clear, concise and effective way.’ So there is not a lot of wiggle room, and the policy guidance will be built on those very clear legal requirements. My information from ASIC is that no other jurisdiction on the planet has these sorts of requirements. I think the FSA, as Mr Johnston said earlier, is trying to catch up with us.

You do not get a lot of wiggle room if the law says you have to disclose every charge, every commission, every fee and any other cost; if you have to do so clearly, concisely and effectively; and if the regulator says, ‘This is how you do it; this is how you comply with the law.’ There is very little wiggle room, and I am sure that is what we all want to see. We could not agree on the regulation—that was a vigorous debate—but in the end we got very close to an agreement. I think we were arguing over the date of the sunset clause in the end, weren’t we, Senator Murray? To be fair to the whole debate—

Senator MURRAY—It was slightly more than that.

Senator Ian Campbell—To be fair to the whole debate, it gets heated because there are very strong views around choice, and the Labor Party wants to run a strong ideological campaign on choice.


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Senator SHERRY—We do?

Senator Ian Campbell—And all of these arguments get sidetracked by the obsession that Labor has with saving its union mates in the industry funds. That is just a reality I have to deal with. In the meantime, we want to look after the rest of the world—that is, the consumers— and we want to make sure they get good disclosure. I respect the decision of the Senate in knocking off that regulation.

On a different subject, Professor Ramsay’s report: Disclosure of fees and charges in managed investments is an informed piece of work on this issue. To come up with a perfect disclosure model for products like superannuation is probably a greater task than the Almighty could ever set a bunch of humans. Professor Ramsay looked very closely at these issues—the upsides and the downsides of the OMC, exit fees and entry fees. He analysed it very carefully and came up with some recommendations. With the value of hindsight—having seen the Senate debate, the public debate and Professor Ramsay’s report—I think the process that we have to go through as a result of the Senate knocking off the regulation is actually diligent, sensible and most likely to come up with a good outcome if people maintain the level of cooperation that seems evident to date.

Senator SHERRY—I have one last question, but first I have to state for the record that the Labor Party does not have the ideological position of so-called choice: it is the government’s position.

Senator Ian Campbell—You have a position that is—

Senator SHERRY—Could I just finish. You made a political point; I am entitled to, and I intend to do it briefly.

Senator Ian Campbell—Parliament is a good place to do it.

Senator SHERRY—Your ideologically driven obsession with so-called choice is an obsession that is not shared by any other government in any other place in the world. In the discussion we had earlier about the outcomes in the United Kingdom, no-one would dare to suggest that choice be re-implemented there, because of the disasters—no other government. Go to the US—they are certainly not interested in it, because they see the problems with it.

Senator WATSON—Already?

Senator SHERRY—I have one last question. Mr Kell, you reported that ASIC would be introducing a fee calculator on the ASIC web site early in the new year. When will that calculator be launched?

Mr Kell—I cannot give an exact date, but I would say it will be within a month or two. It is coming along very well. We have some of the software in place and being developed, so it will be there very soon. We will certainly let you know when it has arrived.

ACTING CHAIR (Senator Chapman)—I would like to ask some questions on a different issue. What are the current requirements regarding statements of advice, product disclosure statements, know your client et cetera in relation to the marketing of term life insurance policies?

Mr Johnston—The three documents to which you refer—the statement of advice, the product disclosure statement and the financial services guide—do different jobs. The statement of advice covers a specific recommendation that an adviser might give to purchase a product, and the rationale behind that. In evidence earlier this evening we dealt with the fact that that advice needed to be based on the client’s needs and that it needed to be appropriate to meet those needs. The statement of advice would explain the basis on which that position was


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reached by the adviser, and the recommendation made. The statement of advice has to contain, specifically, details of any remuneration or other benefits received by the adviser, in respect of a financial product, where that remuneration or other benefit could influence the recommendation. ASIC’s position is that if a commission is being paid then that is capable of influencing the recommendation made. So the commission paid to the adviser in respect of a life insurance product would have to be disclosed specifically in the statement of advice.

ACTING CHAIR—Is there a mandatory requirement to provide a statement of advice?

Mr Johnston—Yes, a statement of advice has to be provided whenever a recommendation is made. Whenever personal financial product advice is provided to an investor, a statement of advice has to be provided.

ACTING CHAIR—Is marketing a product regarded as giving advice? If a person is telephoned and offered a product—a term life insurance product—is that regarded as giving advice to that person?

Mr Johnston—If they were telephoned and offered a product over the telephone—

Senator Ian Campbell—It would be a breach of another section.

Mr Johnston—It depends if it met the cold calling requirements and it would depend if they were—

Senator Ian Campbell—Especially on Sunday!

Mr Johnston—There are periods of time—this is where we need Mr Adams—

Mr Rodgers—Just briefly, to give you an overview, the rules that ordinarily apply are that the documents will apply as people go into the full transition period, including the PDS requirements. It is a financial product and will be regulated in the same way as other financial products under the law. By the end of the transition period, all of the rules that we have been talking about—PDSs, financial services guides and statements of advice—will apply where they apply to any other financial product, which is at the retail end of the market.

ACTING CHAIR—But they do not yet apply, then? If an organisation wants to take advantage of the transition period, they do not have to meet those requirements yet?

Mr Johnston—I was giving you the position under the Financial Services Reform Act. If you are talking about now, it depends on the type of product. If it is purely an insurance product then those requirements would not need to be met.

ACTING CHAIR—Term life insurance?

Mr Rodgers—Yes.

ACTING CHAIR—I raised the issue because one of the banks in South Australia has been telephoning university students who would have had school bank accounts with that particular bank, and probably still have those accounts carrying on, and it is marketing these particular products. It happened to my son. I assumed that perhaps he was just one, but I have subsequently found out that it has happened to a number of young people in that age group. They are telephoned, there is a strong sales pitch put and they are asked to agree to accept the policy or not. The policy is then sent out and they then have one month in which they can retract that agreement or abandon it, after which a monthly fee is automatically taken out of their bank accounts. My son said, ‘Yes, I will take it’ because he wanted to get rid of the bloke and he subsequently abandoned the policy. I understand that others have had the salesman on the phone to them for some considerable time before they have been able to get rid of them without taking a policy.


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Mr Rodgers—My recollection is that some of the conduct rules apply now, including the hawking provisions. So people have the benefit of the transition for the full panoply of what applies, but in some conduct rule areas—including, as I recall, the hawking provisions—

Mr Johnston—Yes, the hawking provisions are in now.

Mr Rodgers—They apply now to the sort of circumstance that you have described. I am not purporting to give advice on whether, in that particular instance, there might have been a breach of those provisions, but—

Senator Ian Campbell—In my experience, which we went through in some detail earlier last year—and Senator Conroy will recall those discussions—another company was selling insurance. We do not need to name them; we can say XYZ Insurance. That behaviour would have got close to that bit of the law for an uncomfortably long period of time. That would clearly have been in breach of the anti-hawking provisions, I would have thought. You can be an existing customer of a bank or financial institution, but that still does not give them the right to ring you up and sell another product. I think what they can do is make an appointment and offer you financial planning advice.

Mr Johnston—The provisions are actually quite detailed. It depends on the nature of the relationship and what type of product it is. Provisions are different for managed investment type products compared to others. So, like Mr Rodgers, I would not want to venture an opinion as to whether they were in breach of the hawking provisions without actually seeing all the facts. But it is a matter that we would be happy to look at.

ACTING CHAIR—Certainly in terms of knowing your client, I would have thought that these policies were quite inappropriate for 20-year-old university students who have no financial commitments or responsibilities. Why would they need a term life insurance policy? It has no investment component and it is of no real benefit to them whatsoever.

Mr Johnston—I thought you were heading somewhere else with that qusetion, Senator. I suspect that will be dealt with at another committee.

Senator CONROY—I want to return briefly to the SRI discussion paper. On page 25, under the heading ‘What does “the extent to which” mean?’ it says at 5.2.2: The law requires funds to disclose ‘the extent to which’ they take SRI matters into account.

I want to stress that ‘they’ is the product issuer, the manufacturer.

Mr Kell—That is right.

Senator CONROY—Not the consumer.

Mr Kell—Indeed.

Senator CONROY—I want to talk briefly about your investment banking surveillance. Can you describe ASIC’s surveillance campaign in relation to investment banking?

Mr Johnston—Can we describe it?

Senator CONROY—Yes, explain what is happening.

Mr Johnston—We are looking specifically at the area of analyst conflict, analyst behaviour, whether conflicts have been properly managed and whether proper disclosures are being made. The purpose of the project is, if inadequate disclosure has been made, to correct that and provide policy guidance in the area because we think that area has not received a lot of attention. It will help to inform our position on law reform in the area, but it also has a role in identifying any breaches of the law so that we can then, as we do with all our campaigns, take any action where we identify a breach of the law.


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Senator CONROY—What issues in particular are you exploring? What are you looking for?

Mr Johnston—We are looking to see whether the legal requirements are being met, we are looking to see whether or not proper disclosures about positions are being made, whether or not there are any conflicts that are not disclosed. We have asked the question about whether or not any of the so-called dog stocks in the American institutions have been recommended to Australian clients.

Senator CONROY—Have you found any? I am struggling to believe that JP Morgan New York recommended dog stocks and that those recommendations were not carried through to here in Australia.

Mr Johnston—I shall not mention any names in respect of the institutions that we have been looking at just now, but we have asked the question of some eight institutions. Not all of the answers are in yet, but we have yet to find an example of a recommendation with respect to the dog stocks being made to any Australian retail investors.

Senator CONROY—Only wholesale.

Mr Johnston—We have yet to find an example of any recommendation to Australian retail investors.

Senator CONROY—Would recommendations to wholesale investors concern you?

Mr Johnston—Not to the same extent as recommendations to retail investors and it depends—

Senator CONROY—A wholesale investor could be a super fund.

Mr Johnston—I was just going to say that it depends on the type of institution and it is institutions I think we would be talking about. It also depends on whether or not there really was a recommendation. I would rather not go much further on that just now because the matter is still under way.

Senator CONROY—So you have looked at the eight majors from overseas?

Mr Johnston—No, we have looked at overseas institutions and Australian investment banks also. We started widely with eight. We have narrowed the focus to a number smaller than that. That is completely consistent with the way we tackle campaigns. We talked before about how in campaigns we are looking at issues, we are looking at trends and trying to make an assessment of behaviour and where we need to take action. That almost always involves us starting the net widely, then seeing where we think there is the greatest risk and narrowing it down.

Senator CONROY—Are any institutions other than investment banks being investigated?

Mr Johnston—I think I should say not; that is right.

Senator CONROY—Are the investment banks cooperating?

Mr Johnston—We are serving notices on the people who are the target of the campaign, and that is the usual way in which we approach these matters. We receive responses to the notices that we serve.

Senator CONROY—In December you announced an investigation in relation to an Australian investment house concerning conflicts between analysts and the investment banking arm. I think it has now been stated that the investigation has been closed.


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Mr Johnston—Yes. The chairman might have mentioned that in his Business Sunday interview.

Senator CONROY—No charges were laid?

Mr Johnston—No. The investigation was closed because there was not any evidence of a breach of the law.

Senator CONROY—In the US the SEC has approved a rule called regulation analyst certification. The rule requires research analysts to attest that their research reports accurately reflect their personal views and to declare that none of their pay was related to specific research opinions. Given the concerns raised recently about T3, is ASIC considering this issue? The change in opinion of those companies around Telstra and its sale or non-sale was pretty coincidental, don’t you think?

Mr Johnston—As I said, the work that we are doing here will inform our position on policy and law reform matters. I might get Mr Rodgers to comment on where that is up to.

Mr Rodgers—In CLERP 9 the government has raised the question of our analysts. We have expressed views publicly on that, along with many others. That has moved to the stage where the call about what the legislative framework ought to be in this area is one for the government.

Senator Ian Campbell—I am happy to talk about that, because it is probably useful for the committee to know about it. CLERP 9—as Senator Conroy would know and as you would know, Chair—had a significant discussion of analyst independence issues and put forward a recommendation, and we have been consulting on that document since then. I was keen to look very closely at analyst independence and we came up with broad recommendations. I have been doing a lot of detailed work on that over the summer recess. That has involved extensive consultations with ASIC, trying to effectively reach the outcome that we want— deliberations to feed through to the ultimate policy and then the legislation, which we hope to release fairly shortly. The work that ASIC were doing in terms of the surveillance program— if that is the right term—has helped the government in developing its thinking there. Of course, I have watched closely the US developments. I always carefully—

Senator CONROY—Do you believe that the SEC’s proposal will be useful here in Australia? Do you believe it should be adopted?

Senator Ian Campbell—I think you have to be very cautious when you are developing law in Australia to look at trying to pick the things out of other jurisdictions, including the city of London and the US—and Europe, to some extent—that are appropriate to our market. Ours is a different market. I think they have had far worse problems than we have had. I do not think they have been as well regulated in many areas as we have been. We have a fragmented market—Sydney dominates the area, there is another business community in Melbourne and then different communities in the other smaller capitals, including Perth, Brisbane, Adelaide and Hobart—and a different brokerage industry. We have some of the bigger international banks here, and then you have medium sized brokerage firms and smaller brokerage firms, and they all carry out analyst work to some extent.

I am not fudging the issue here; I am just looking at some of the policy complications. If you just took the SEC rules and said, ‘Let’s put them in Australia,’ they might have perverse consequences. For example, if you had a small to medium firm in the Australian market, you want analysts in those firms that can look outside, say, the top 100 companies. Many of the bigger firms will only look at the top 50. If you are in a marketplace where you are trying to develop venture capital or to develop medium sized enterprises into bigger enterprises,


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effectively making it impossible to have an analyst working within a medium sized broking house would probably be contrary to what you want to achieve.

The whole issue is how you manage conflicts. I think all of us know that there has to be conflict within a broking house or a merchant bank. The trick is: how do you regulate in a way that ensures that there is a strict legal requirement to manage those conflicts and for there to be proper and appropriate disclosure? That is what we have been grappling with. I think the SEC work goes a long way to it, but I do not think it is entirely transportable across to Australia. I think there will be a good acceptance. I think ASIC and the government have probably got to an agreement on which way we should go. We are effectively now in the drafting stage of some stuff and we will have the detail of that coming out—I do want to hamstring myself too much on time things because in government they always tend to blow out for all sorts of reasons—certainly within the next few weeks. Possibly it may even be in draft legislation form, depending on the resources available.

Senator CONROY—The SEC has also introduced a new rule that requires institutions to disclose how they vote their proxies. They believe that it will enhance transparency. What are your thoughts on that?

Senator Ian Campbell—It is fair to say that that is one of the CLERP 9 issues that is before the government. I do not really want to give a running commentary on my own views on it. There are arguments for and against it. There is a pretty high level of disclosure of those things already in Australia, and it is increasing without the need to regulate.

Senator CONROY—There is a small increase in the amount of people voting, which is positive.

Senator Ian Campbell—And institutions, and in institutions reporting how they vote. I can give you some statistics on that. I got some recently and I would be happy to provide them.

Senator CONROY—That would be useful. I have not seen anything that suggests that they are fessing up a bit more than they used to. I just want to talk about the review of ASIC fees. Are you conducting or planning to conduct a review?

Mr Johnston—Of ASIC fees?

Mr Iglesias—Not that I am aware of. We did a review some time ago but, as far as I am aware, I do not think that there is another review in the pipeline.

Senator CONROY—You are not aware of anyone else doing one?

Senator Ian Campbell—My recollection is that CLERP 7 is going to bring in a range of reforms in that area. That is before the parliament at the moment. It is going to cap fees for a couple of years, bring in some differential levels and basically reform it. That is the only thing that I am aware of.

Mr Iglesias—They have been made public, as far as I am aware, as part of the bill.

Senator Ian Campbell—I think that was exposed in December. That was when the bill was introduced. I would refer you to that. It was pre-Christmas, so I do not have a clear recollection of it.

Senator CONROY—I have some questions about the overlap with APRA, but I suspect that Senator Watson was asking you about those.

Mr Johnston—Yes.


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Senator CONROY—I might pass on those. I think you have had a discussion about them. I was just wondering if you could tell me a bit more about Scamseek. I understand you used to have a surf day in the office—everyone logged on and went looking for the scams. But you have a new system?

Mr Johnston—Yes, it comes under the enforcement directorate, I am happy to say.

Mr Wood—It is IT based.

Mr Iglesias—Scamseek is, I guess, an Internet search engine. It is a product that has been developed which automates searches across the Internet. It is based upon a point score when it matches certain words across the Internet. It is designed to run overnight or it can run 24 hours a day, if you want. It will search across the web and where it gets hits it reports those hits and creates a database of web sites that score a certain number of points. We will then analyse those and look to whether or not there is any enforcement or other disciplinary action to take place. We have taken actions in the past to close down web sites, for instance. This just automates that process.

Senator Ian Campbell—Is it true that Senator Conroy’s web site came up?

Senator CONROY—Do you still have your ‘surf’s up’ days?

Mr Rodgers—The surf days began as an IOSCO initiative where we participated along with other securities regulators in searching. This began as the Internet became a common mechanism for attracting—

Senator CONROY—I probably get two or three business offers daily over the Internet.

Mr Rodgers—The technological work that Mr Iglesias has talked about has been our extension of that on a domestic basis. Mr Kell, you might be able to talk about it.

Mr Kell—Every year, we participate in the ‘Surf Day’. One is run by IOSCO and another one is coordinated by the ACCC that scans more generally, not just financial scans. Surfing is a popular thing and we are happy to participate in it.

Senator CONROY—Are you happy to take that on notice and give me a report on how successful surf days have been in finding things?

Mr Rodgers—And scam search. I am happy to do that on notice.

Senator CONROY—I will move on to the continuous disclosure rules, the new ASX listing rule. Do you agree with recent criticism of the ASX listing rule that forces companies to respond to market rumours published in the media?

Mr Rodgers—We have been a strong and public supporter of the ASX rules. Indeed, we would like to claim some credit for the ASX revisiting these issues.

Senator CONROY—Certainly, I acknowledge that ASIC has been a key agitator and there have been improvements.

Mr Rodgers—We have noted some criticism. There was a very dynamic debate about the rule when it was in proposed form. In our view, some of the arguments against it are overstated. We see the rule, as ASX has reconfirmed over the last week or so, as directed towards well-established rumours, information or purported information in the marketplace that is having a very clear effect on the price. It is not to say that every rumour out in the marketplace will automatically flush out a mandatory disclosure from a listed corporation. But it is part of the continuous disclosure regime in the law and the ASX listing rules that, where information in the market is having a clear effect on price on the market, it is the


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obligation of the instigator whether or not it holds the information to clear up that issue for the market.

Senator CONROY—Do you think the rule allows manipulation to creating a market? It has been put to me that analysts and journalists can potentially create a market.

Mr Rodgers—I have heard the same argument. There may be some risk of that occurring. It is overstated. We have to bear in mind that the purpose of the continuous disclosure regime is to make sure that market trading takes place in an informed environment and the risk of that occurring is a far larger risk of artificial prices being created by analysts or journalists.

Senator Ian Campbell—The good thing about their new listing rule, which will act in concert with the CLERP 9 law reform to give ASIC an infringement penalty, is it will effectively ensure that the market is informed more rapidly. If there is a rumour that is going around affecting the market, there will be a strong incentive for the market to be fully informed very rapidly.

Senator CONROY—I am a supporter of the rule, as you all know. Have you been to visit Mr Murray yet to explain to him that he is going to have to comply?

Mr Rodgers—As I understand from the press report, the ASX has helped along understanding generally about the effect of its own rules.

Senator CONROY—He has been the most public opponent, calling for it to be reviewed and it was only introduced on 1 January. That has to be a record. So you guys are not chatting with him about it at all?

Mr Rodgers—I would not want to be drawn to comment on that particular interaction.

Senator Ian Campbell—To Mr Murray’s credit, at least he has had the guts to go public. There are not many people I bump into who do not criticise the rule in private.

Senator CONROY—No. You have to give him credit, absolutely. If companies say they are not going to comply, what happens to them?

Mr Rodgers—There are enforcement mechanisms. The front-line enforcement of the listing rules is the ASX’s responsibility. Under these new rules, it has some powers to compel a list entity to make disclosures in these circumstances. If there is a complete refusal to comply with the listing rules, there are mechanisms in the Corporations Act for us to be involved in that and to require compliance. The CLERP 9 proposal that we have an administrative fining power of some kind is a very welcome addition to our responsive armoury.

Senator CONROY—I did want to chat with you about your response, Mr Kell, to the eChoice advertisements, which I am sure you would have expected.

Mr Kell—I was hoping that the letter would be sufficient.

Senator CONROY—You should know me better than that. I might harass you in private. I was surprised to see you comparing a 20-year trail commission as the same as a car airconditioning unit. I am not quite sure that they are directly comparable.

Mr Johnston—Mr Kell is ever creative with his analogies.

Senator CONROY—I am not so sure it was a great one. The advertisement says ‘They’ll find the best loan for you’ and they are not because they are not delivering the half of a per cent to the customer. On top of that I have a range of other things. I am happy to have a chat with you about it. I am pleased that car airconditioning units are on the same level with ASIC as 20-year trail commissions! And apparently ASIC have discovered the free lunch.


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Mr Kell—As you would note in the letter we have set out, this is an area we are concerned about. We have some advertisements we are currently looking at with the contemplation of possible enforcement action. As we have also said, we are happy to discuss our decision with you.

Senator CONROY—Yes. I will chat with you about that. I have a clipping here of Mr Johnston’s smiling face with a headline ‘ASIC relaxes PS146 guidelines’.

Mr Johnston—An overstatement.

Senator CONROY—I would like to pursue that now, but I will pursue you soon and you can explain to me the error of Mr George Liondis’s article. Mr Pound, I did have a couple of questions for you as well about some accounting issues. You might want to tune in for the next hour or so when they are going to get an extensive run.

CHAIR—The ASIC officers can be excused, Senator Conroy?


CHAIR—Thank you, gentlemen.

Proceedings suspended from 10.05 p.m. to 10.14 p.m. Australian Accounting Standards Board

Financial Reporting Council CHAIR—I welcome officers of the Australian Accounting Standards Board and the

Financial Reporting Council to the table. Would gentlemen from either of those organisations care to make an opening statement?

Mr Alfredson—I would. If the time was not a quarter past 10 I would make a very fulsome statement. There are some very important issues to do with the work of the AASB that I believe this committee should give attention to. One of the matters that concerns me at times is that of the comments in the media and elsewhere over harmonisation of international accounting standards and what that means. The board has been aggressively working on what it believes is the appropriate process of the adoption of international accounting standards. I have brought with me some copies of an article I have written for one of the chartered magazines that I will not repeat, but with your permission I would like to table it.

CHAIR—Certainly.

Mr Alfredson—It is a status report on the work of the AASB to date on implementing international accounting standards by 2005. We have mirrored the work of the IASB, the International Accounting Standards Board. We have issued five exposure drafts in the last year or so. We expect that there will be three more exposure drafts by June this year. That will set the framework for the international accounting standards that will hopefully be in place by 1 January 2005.

I have always said that an absolute premise of the implementation of international accounting standards is that they are high quality. The IASB inherited about 30 standards from the former International Accounting Standards Committee. Sir David Tweedie and his board have been aggressively working on improving those standards. That is why they issued an improvement standard to 12 standards. They have issued an exposure draft on financial instruments. They have brought out another exposure draft on share based payments. They have brought out an exposure draft on business combinations and intangibles and goodwill.

Those standards are fundamental to improving international accounting standards and they are fundamental to improving Australian accounting standards. Even if we did not harmonise


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completely with international accounting standards, and I am not saying we will not, we are gaining considerable benefit from this process. Australia has serious gaps in its accounting standards. We do not have a comprehensive standard on recognition and measurement of financial instruments. The process we are working through with the IASB—and we have been aggressively working on this and giving a lot of input to the IASB on it—will give us real results in the standard on that important topic.

The IASB has had the courage to take a leadership position on share based payments. We issued the same exposure draft. We are now getting comments. ASIC reminds us many times that Australia has had inadequate accounting standards about intangibles. The IASB process will give us a robust accounting standard on that topic. This process will not only improve international accounting standards to a level that I believe will make them acceptable but will make a quantum change to the quality of accounting standards in Australia and fill some important gaps. It is often lost on the public that many of the things we are now doing we wanted to do anyway, irrespective of the harmonisation debate, and I think that is a very important process.

The IASB have to deliver. They have a very aggressive program. I believe they have a very competent board and very competent staff, but they have set themselves a big task. They are practical people; they know that Europe wants these standards by 2005 and they know Australia wants them by 2005. I believe they were going to undertake processes that will result in standards that are very acceptable. We are going to have a problem at some edges— that is, we might say some international accounting standards are not of the quality we want. I am not talking about standards that concern measurement and recognition—in other words, the figures that are in a statement of profit and loss or the balance sheet—but about disclosure and sometimes measurement. I want to briefly, without taking up too much time, mention these.

We had a robust debate at the Accounting Standards Board today over related party transactions. No topic could be more important to corporate governance in Australia than related parties. I expressed the view at the AASB today that I thought even the improved version of the international standard on related parties would take Australia backwards. We had some examples of some public company reports, and the staff had roughly identified disclosures that might disappear—and I only say might disappear—if the international standard operated rather than our standard. I said that, in the interests of good governance, I thought in situations like this the board had to be very careful about going backwards and I said I could not support it. We have to have a robust debate and public consultation on the issues, but I think there are some situations, like that, where we will want standards in Australia that frankly are better than the international standards.

I can give one other example, which is general insurance. We have an accounting standard on general insurance—and I am sure that standard will get a bit of focus out of the HIH commission—and it may need improving. In fact, we have been told it needs improving by the industry and the Institute of Actuaries. It is a fairly old standard and may need some improvement. We will do that. The IASB has no standard on insurance. It is working on a short-term solution to do with insurance contracts. We are not sure where that is going to get to and we are not sure how it is going to line up with Australia. It is a very different standard to the Australian standard, which is a standard on general insurance companies as a whole, that contains provisions to do with both the assets and the liabilities. The international standard only deals with the liabilities arising from insurance contracts.


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We have been consulting with APRA and the industry, and we have come to a view—only an informal staff view at this stage, but it is well supported by APRA—that there is a need for considerable consultation. Again, we may reduce the options that are available in the international standard. We might say, ‘You have to have market value accounting; you cannot account for certain financial instruments on another basis.’ The IASB is likely to allow different bases, but the practice in Australia has been market value accounting. I was told by industry via some consultation that they now supported it—although some did not used to— therefore, some of these issues still need consultation.

I want to tell the committee that the board is actively working on these issues. It is a very considerable project, but the board is focused on this, and we are going to have more definite time lines to achieve it. But achieving high-end convergence by 2005 is heavily dependent on the success of the IASB, and I have no reason to doubt at this stage that the IASB will not reasonably meet its intentions.

I would like to move to another topic that seems to be the flavour of the month—that is, public sector accounting. As you know, the AASB has a responsibility for not only accounting standards under the Corporations Act but also making accounting standards for other purposes. This led to the merger of the Public Sector Accounting Standards Board and the former AASB. I would like to make a few comments about the significance of the 2005 international standards. International standards are designed for for-profit entities only. The objective of the IASB is to make standards only for for-profit entities, principally those listed on stock exchanges. Many requirements of those standards are, of course, equally applicable for not-for-profit entities—standards to do with financial instruments. Many standards are just the same, but some are absolutely not appropriate for the public sector, especially where international accounting standards are based on cash flows from commercial activities.

A good example is the private sector, where impairment of assets is a significant issue. The IASB and the exposure draft that we have just issued advocate fair value accounting if assets are impaired, based on discounted cash flows. Many assets within the public sector, of course, do not have discounted cash flows attached to them. So the rules that the IASB are interpreting and formulating, and we are working along with them, on those sorts of assets are just not applicable to the public sector. Therefore it makes no sense—and I often hear this— that the public sector will adopt the international standards by 2005.

They will adopt international accounting standards that are applicable to the public sector, but not all of them are applicable and, therefore, there are unique issues in the public sector. That is why the public sector committee of IFAC, the International Federation of Accountants, a worldwide committee, has been working on modifying the International Accounting Standards Board standards. It is, unfortunately, a committee that is still tied up with the accounting profession solely, but it has some good people on it, and I will mention them soon.

That committee has been working, through the accounting profession, on modifying international accounting standards so that they are appropriate for the public sector, where the basis of accounting ought to be different. I have to tell you that the committee is significantly funded by the World Bank, and I believe the Asian Development Bank and some others, and that IFAC funds some of it. It is undoubtedly in its formative years. It has issued approximately 20 standards—I do not have the correct number. They have taken the international accounting standards and have made amendments to them to make them applicable, to the extent that they have been practically able to do so, to the public sector.

More significantly, that committee is in the process of considering public sector specific issues such as social policy obligations and non-exchange revenue, which means how to


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account for income tax et cetera. It is starting to examine the relevance of GFS, government finance statistics, reporting and GAAP reporting, generally accepted accounting practice reporting. There is a major issue I know in Australia in relation to the differences between so-called GFS reporting and GAAP reporting, and it is a concern of many people in the public sector.

I have to tell you that committee is commencing high level discussions with the International Monetary Fund. However, what is of grave concern to me is that I understand— and these facts may not now be up to date but they are pretty close to being right—that only one OECD member country is represented on that committee by its finance ministry; in other words, an employee from the finance ministries. Finance ministries do not have a right to become members; they are all nominated by accounting bodies. But I understand that this committee that is setting financial accounting standards for the public sector has only one member on it from a finance ministry anywhere in the world, and that is the Netherlands.

The audit offices of three countries are represented on that committee—that is, Canada, France and New Zealand. I might add that the committee is chaired by Mr Ian Macintosh, who happens to be a former ASIC chief accountant and who was a chairman of the former Public Sector Accounting Standards Board. He was a consultant on public sector matters, of course, when he worked in his previous firm.

Of course the point I would make is that this lack of finance ministry involvement obviously raises questions among some regarding the promulgation of standards by the public sector committee and their acceptance and credibility. I plead with you tonight that I believe Australia needs public sector involvement in public sector activities—I mean the public sector committee activities. We need, for example, an elite from the public sector who could be a member of the Australian Accounting Standards Board. We have some members on our board. I do not want to be insulting to them—they are very good members—but if we want to make a worldwide difference to public sector accounting, I believe the public sector has to come up with the goods and put an elite on the AASB who is willing to contribute to the work of the public sector committee.

I do not believe it is appropriate for either Finance and Treasury or the AASB to ignore the activities of the public sector committee. Given World Bank backing, I have no doubt that in due course it will grow in relevance. I believe that is a significant challenge for this committee and it is a significant challenge for the public accounts committees of governments in Australia. They ought to consider the relevance of this public sector committee. It is a question as to whether Australia wants to continue its leadership position in regard to public sector standard setting. After all, it was Australia and New Zealand who were leaders in the introduction of government accrual accounting. I understand it was staff from the ABS who were very influential in introducing accrual accounting to GFS.

Australia has significantly contributed to the work of public sector accounting not only in Australia and New Zealand but it has laid the foundations for work that has become international. Surely—and I plead with you—Australia should continue to take an international leadership position. It cannot do this without the involvement of what I would call some public sector elite in the process. At the public accounts committee conference that I attended last week in Melbourne, I made the same statement. I believe the public sector needs more involvement in standard setting.

The government made the decision under the ASIC Act to merge the two accounting bodies and to have one body. That probably was premature but that decision has been made. I believe we have to make sure that the public sector does not get dudded in this process. We need great


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assistance and I have been having discussions with Treasury to set up more consultation of what I would call the elite in the process.

We can debate tonight the relevance of the Financial Reporting Council strategy and all of those issues. Whether I agree with it or do not agree with it I think is irrelevant. It is a strategy that the FRC has been given to us. Irrespective of whether the board believes we agree with every word and whether the FRC has gone beyond its role, I would like to put it behind us. I have had some robust discussions with the chairman of the FRC concerning this, but I know there is a serious issue. It is not appropriate endlessly to have these government reports the way we have them at present where there is a GFS result and there is a so-called AAS31 result. There has to be some robust debate about the purposes of the GFS system and who they are used for. I read all sorts of things and I am going to a meeting next week to deal with GFS at the OECD. In one of the papers I have read there it says: The GFS is based on accrual concepts. It is however important to note that it is a statistics standard and not an accounting standard. It is designed for macroeconomic analysis.

I can read little bits and argue about one thing or the other—and I know Treasury has done work for the government, but I have seen none of the reports and we have had no consultation on this very issue—but there now has to be a serious amount of work between the AASB, state and federal governments and anyone else affected by public sector accounting. This has to happen so we can properly articulate the purpose of GFS reporting and the meaning of the results, or whatever they are called, that are said to be surplus, and ask why the GFS has various transactions in another statement, which Senator Conroy will tell me are hidden in another statement—and they are because they have a different basis.

We have to sort out the objective of GFS and the objective of AAS31 accounting which is all to do with transparency and accountability. We have to sort out, articulate and get agreement with the public sector on the purpose of whole-of-government accounts, the purpose of so-called GGS—general government sector—accounts and how we bring together these competing issues. So, just like the IASB is trying to get transparent financial reporting in the private sector, we can stop the debate about whether public sector accounting is transparent because we will come to an agreement on the most desirable answer.

We cannot work on this in isolation. I believe it can be done. Australia and New Zealand, which wants to work with us on these issues, can contribute much more to the international debate, but we need resources at the highest level within the public sector to bring it together. We may have been antagonistic about some of this; but, having had more consultation, having been to the parliamentary accounts committee conference last week et cetera, I have a much more open mind about getting down all the issues, properly articulate what is the debate, what are the issues, what are the options, what is the desirable outcome and have reporting that properly answers all of those questions. Thank you for allowing me to make that statement.

CHAIR—Would either officer from the Financial Reporting Council like to make some preliminary remarks?

Mr Lucy—No, thank you.

Senator WATSON—Mr Alfredson, the issue of high-level representation from the public sector was raised in debate in the party room, as Senator Ian Campbell will confirm, and the Prime Minister indicated that he would take the issue on board and look into it.

Mr Alfredson—I thank you for that advice.

Senator CONROY—Senator Campbell, are you confirming that?


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Senator Ian Campbell—I must have been out getting a coffee at that time. The debate about what happens when you combine public and private sector accounting in the one body went on during one piece of CLERP legislation, and there was very little demur from it. The only concern we would have had is diluting the importance of the public sector, but some people said that you actually make it better if you have the public sector with the private sector, and obviously you would have a committee working on the public sector. That was our hope at the time. I am lucky in that I was there at the time of that debate when that legislation was put through, and I am back again now that it is all bedding down and hopefully working. The government has shown through its actions that it has been dedicated to good outcomes of public sector accounting reforms. We have had to do the hard yards in implementing most of them.

I agree with Keith’s views about the importance of getting the debate behind us and getting on with implementation. You can have the sort of debate that Senator Conroy has been running in relation to currency swaps and accounting treatment and have good political gains, but if you can actually get an agreement, particularly an international one—I mean have the same sort of ideals apply to private sector accounts in terms of international accounting standards—to have one set of international accounting standards for listed profit entities and the same ideal apply to the public sector then you have comparability and transparency. So you get rid of all those political debates that do not move the game forward. The government’s intention in both the public and the private sector areas is to move for high-quality public sector accounting and take our place internationally—which, as usual, is hitting way above our weight—in progressing these issues and achieving sound outcomes.

Senator WATSON—Mr Alfredson, as you would know, in bringing revenue to account the Treasury has two approaches: the GFS approach and the tax liability method. I am not sure whether you are referring to that, but obviously there is a desire for harmonisation. There are reconciliations at the back of the budget papers to bring those two systems together so that people can understand where they are coming from. What does concern me is that in the wash-up of the problems of Enron in the United States, because the impact of failure there was so much more severe than in Australia, we may well find that the Americans are demanding standards higher than we currently have in Australia or what the international standards may well be. Have you looked at that possibility? It raises problems about American companies, for example, which have subsidiaries in Australia. Clearly we want the highest standard, but you can see some difficulties if they are moving unilaterally ahead of both what we have in Australia at the present time and also the international standard.

Mr Alfredson—I think it is a difficult question. There has been this very strong debate going on out there which has assumed that American standards are rule based, that international standards are principle based and that principle based standards are good. I went to a conference in Hong Kong on international accounting standards where we discussed many issues to do with international accounting standards. One of the members on the FASB said that this was a bit overstated. This person—she is a well-regarded academic on the FASB—reminded everyone that we all start from so-called concept statements or frameworks which are very similar.

The trouble is that the US has been a very litigious community and the accounting profession have demanded rule after rule after rule to give certainty to try and avoid litigation. They have had some rules which I think they were behind the game on. We created a rule— and Australia was one of the leaders on it—which said that you consolidate all entities you control. It is not as simple as that, but we believe that that is a very strong principle. The FASB is debating some of these issues now and they are likely to come to rules pretty similar


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to ours. I think you also have to recognise—and I cannot say what the facts are; we may never know the facts—that in much of this debate there has been a complete confusion between non-compliance with even FASB standards, the US standards, and compliance. According to most statements, Enron did not comply with some US standards.

We have also said, ‘We would have got a better answer in Australia.’ We might have got a better answer, but at least they eventually had to properly account for derivatives. We would not have had a standard that would have coped with all of their derivatives, so we might have been worse off than they were with some of their accounting, and that is why financial instruments are very important.

But there is now a very important memorandum of understanding between the FASB, the US standards setter, and the IASB. It was signed last October, and they are doing a fast-track job. By 30 June this year they will issue an exposure draft jointly that may amend some international standards to take them closer to FASB standards and FASB standards may get changed to come closer to the IASB standards. They have signed this memorandum of understanding that they will work together to try to have a long-term solution on the differences.

It is not going to happen overnight, but I do believe the political climate is such at present in the US on the importance of financial reporting that there is a new spirit of working together between the US and the IASB, and that must be the hope. I know the new chairman of the FASB. He was on the International Accounting Standards Board. I think he strongly supports the work of the International Accounting Standards Board and I think there is a new desire to work together.

But I have to tell you that I heard a member of the FASB say that all of these things will be strongly debated, because while Enron and a couple of others—WorldCom et cetera— devastated the capital markets in the US and brought disrepute to their standard setting process they have still got a lot to lose by giving up what they have got. A lot of it is this certainty. That is all about a litigious community that likes to sue.

A lot of this is going to be argy-bargy and debate, but I am hopeful that there will be a new spirit of cooperation. If, and I think it will, the European Union get off the ground in 2005 with standardised reporting in the EU and they strengthen their capital market as a result of that—and, frankly, that is the only reason they are interested in doing it: they want a strong capital market in Europe—I think that will be another reason why the US will take notice. While the European market is not as big as the US market, it is a major market and companies might say: ‘Do we really want to go to the US? Will the European market be enough?’ I am pretty hopeful that in the longer term there will be a growing together of the accounting standards, but it will take time.

Senator WATSON—Do you have trouble recruiting people to your board who are, as you say, at the right level, in the absence of the Commonwealth public sector? In the private sector do you have trouble recruiting high-level people to your board? And do they get paid?

Mr Alfredson—I think they get paid as well as most members of boards of agencies of the Commonwealth. Jeff, what do they get paid?

Mr Lucy—A very modest amount.

Mr Alfredson—A modest amount—something like $600 a day?

Mr Lucy—It is $620 per sitting day.


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Mr Alfredson—In the end, the people who come to the board do it not for the cash but because they have a strong feeling of contribution to financial reporting. They come from organisations that believe it is important to participate. It is for the FRC to elaborate, but we recently advertised for members and some very good members have come on to the board as a result of that process. One is from the public sector, one used to work in the public sector but now is a contractor and there is one from one of the accounting firms.

The nominations committee decided the quality of the responses to the advertisement for another private sector member because one of our members, Greg Ward, who is a CFO from Macquarie Bank, is not continuing. He is retiring from the board, and we wanted a strong replacement for him. The Financial Reporting Council said—and the nominations committee recommended to the Financial Reporting Council—that we should not accept the people who had indicated they were willing to serve; instead, we should go back to the Business Council and the G100 and put pressure on managing directors and chairmen of companies to encourage some of the elite from the private sector to continue to come forward. That process has, I understand, been successful in eliciting some names. Again, it is for the FRC. I am a member of the nominations committee, and the nominations committee will soon be interviewing those people. I think that process has been working.

Senator CONROY—Thank you.

CHAIR—Senator Conroy, we are going to adjourn at 11 p.m. Obviously, this evidence will have to continue in the morning. I will give you the option of starting now.

Senator CONROY—I am happy to adjourn now. I will barely get warmed up.

CHAIR—The committee will convene at 9 a.m. tomorrow. We will continue with Senator Conroy’s questions to the present witnesses. Senator Conroy, how long will you be?

Senator CONROY—I hope no more than 45 minutes, an hour at the outside.

CHAIR—After that we will take the Australian Office of Financial Management. We will then have the Department of the Treasury, beginning with outcome 3 and proceeding in accordance with the draft program for 13 February.

Committee adjourned at 10.52 p.m.

Documents

COMMONWEALTH OF AUSTRALIA Official Committee Hansard · Resources portfolio and the Treasury portfolio. The proposed program for today’s business has been circulated. The committee