Greg Combet's Speech To ACTU Superannuation Seminar

The key goals of unions in superannuation are to build retirement incomes which are held in not for profit funds characterised by low cost, vesting, portability and equal employer/union representation says ACTU Secretary Greg Combet.

1. Introduction

As you know, the ACTU and unions have an important role in the economy, particularly in relation to the labour market.

The ACTU and unions also play a role in superannuation: in achieving the contributions needed to build retirement incomes, and in establishing the structure of the funds.

Our key goals in this area have not changed from the 1980s: they are to build retirement incomes which are held in not for profit funds characterised by low cost, vesting, portability and equal employer/union representation.

2. ACTU – Fund Managers Dialogue

This is an unusual event. However, dialogue is important given the significance of superannuation to the ACTU and unions, and the pivotal role of fund managers in investment.

We recognise that the performance of fund managers and consultants contributes to the retirement incomes of our members.

But, just as importantly, investment helps shape the economic environment which ultimately determines how our members and their families live and work.

Unions have something to say about the issues which are relevant to your investment decisions - the economy, the labour market, corporate governance and performance.

Many of you work with union trustees, but I not sure you know much about the way we see the world and our place in it.

Today is intended to provide you with some insight, in particular, into our view that a strong, competitive economy is not inconsistent with high levels of union membership and a fairer society.

3. The Australian Economy

The starting point for unions is the economy.

Australia is a very different place from 20, or even 10 years ago, having experienced a historic combination of economic expansion, low inflation, high productivity and structural change.

GDP growth has averaged around 4.5% per year for 10 years, which has added over $200 billion to the economy in real terms and has far outstripped the G7, OECD and European average.

Corporate profits have grown by 233% over 10 years in real terms, productivity growth has been sustained at record levels and the economy has accommodated 1.6 million extra jobs.

Average earnings have increased by over 4% a year over ten years, and we recently overtook Germany and Japan, the post-war powerhouses, in GDP per capita.

Strong growth has been sustained despite some dramatic external shocks - a recession in Japan, the Asian economic crisis, September 11, and the depreciation of markets over the last couple of years. Who would have thought that the New York market would have fallen by a third during the first two years of George Bush?

4. Societal Impact

Overall, these features are some of the positive elements of the engagement of the Australian economy with the world.

I share the analysis recently articulated by Reserve Bank Governor Ian MacFarlane that Australia’s positive performance is largely attributable to policy changes occurring over the last 20 years, including currency and financial deregulation, fiscal and monetary policy performance, the discipline exacted by competition in public and private sectors, the departure from the twin pillars of tariff protection and compulsory arbitration in favour of more open trading arrangements and decentralised workplace bargaining.

These policy changes might be uncontroversial in your neck of the woods but they are not in mine, because they have wrought extraordinary changes which impact harshly on working people.

The statistics conceal the character of the change which is taking place, as economic analyses tend to do.

The fact is that many people and regions are not sharing in the benefits of prosperity, and inequality is widening.

The foundation for economic prosperity has been reduced staffing, higher workloads, longer working hours, less security, more stress, casual jobs, low pay and an assault on family life.

An untold story is that, for all occupations other than managers and professionals, the net increase in jobs during the 1990s consisted entirely of part-time casual jobs.

Because they were casual jobs, nearly 30% of the workforce now has no right to paid sick leave or annual leave, and no job security past the next shift.

The fact is that 87% of the net jobs created during the 90s paid less than $26,000 per year. An incredible 48% paid less than $15,600 per year. Middle income jobs actually declined.

ABS figures show that two million households are experiencing severe financial stress, with many working families unable to have a holiday, buy new clothes, pay bills on time, or go out.

195,000 households go without meals from time to time, while at the other end of the scale, the top 5% of income earners are doing really well.

The total earnings of this group stands at $62 billion per year, and exceeds the entire national spending on all social security and family payments.

The top 5% also outstrip the combined earnings of the bottom 40%, amongst whom are a lot of casual and part time workers. No less than 600,000 part time workers want more hours of work per week to make ends meet.

These trends also mean that millions of workers will not have anywhere near enough super to enable a decent standard of living in retirement.

5. Union Analysis of These Trends

These developments fundamentally define the union policy outlook on many fronts.

Certainly we want a strong economy, which we understand is a precondition to a more prosperous society.

But we also have long standing values which represent our commitment to a fair distribution of wealth, and equal access to the basics – decent health care, education and employment.

Our contemporary policy agenda is driven by these values, and our responses to the changes I have outlined.

Our policy agenda falls into two broad categories: union renewal, and policies for a fairer society.

6. Union Renewal

The key impact of economic change for unions has been membership loss.

A lot of ill-informed comments have been made about the reasons for declining union membership in the 1980s and 1990s.

The simple fact is that economic change, and particularly the transition to a services based workforce, has been the key reason that membership has fallen.

Employment fell during the 80s and 90s in almost every part of the workforce where union membership has historically been high. Just think of Ansett, bank branch closures, the shut down of manufacturing and steel plants, the dismembering of the CES, and you start to get the picture.

Hundreds of thousands of union members have been downsized, contracted-out, casualised and privatised while, at the same time, employment has expanded in new areas where unions have traditionally had little presence. In call centres, for example, job numbers grew by 12% during 2001 alone, to reach 225,000 employees.

These trends have been experienced by unions in other advanced economies, with falling union membership a density a common result.

7. Policies for a Fairer Society

This brings me to the second broad category of policy – achieving a fairer shake for people. Unions believe that the benefits of economic growth can be shared more equitably.

I simply want to say that we will be active in terms of the claims we make upon employers across the bargaining table, in our view of corporate governance, in our approach to retirement incomes, and in our approach to politics and Government.

8. The Political Environment

It’s no surprise that the current political environment is not one that we would choose.

While Labor is not in the best position it’s ever been, it would be unacceptably risky to give the ALP away for the next election.

As we know, all over the world we see unexpected election results as the community changes its focus on issues.

Unions have had a long relationship with Labor; we take a careful interest in developments and place a strong emphasis on Labor policy as a means of pursuing our goals.

Labor’s policy focus is on health and education, and we know that when the community’s attention is on issues like health, education and social justice, all of which are important to them, then they turn to Labor.

There can be little doubt that these issues, particularly education, are of growing concern. Medicare will be an issue in the next election, although the extent will depend on whether Howard can exploit more of the security/immigration type issues

There are some key strategic judgements coming for Labor relating to taxes and services.

Australia is not a highly taxed country.

Labor needs to look at a fairer tax system, and one which will fund a decent standard of public services.

Health is primarily about restoring the availability of bulk billing.

In education, the attention must be on ensuring access to all qualified students without compromising the excellence of our institutions through cost-cutting and requirements for more and more income from the private sector.

Trade and our relationship with countries in the region is also critical. To a certain extent, the Howard Government has continued with its predecessor’s initiatives, such as APEC, although care needs to be taken, as we take an active part in the security of the region, that we are not seen as arrogant or as a mere agent of the US.

We are concerned that trade liberalisation be genuinely directed at assisting developing economies, rather than exploiting them while reducing our own living standards.

I believe that we need to think more about investment in emerging markets in a long-term way. The power of the investment markets in these countries is massive, and needs to be harnessed as a force for responsible and equitable development.

9. Corporate Performance

Unions and their members, like all Australians, understand that we need strong companies with sustainable profits in order to have jobs and economic growth.

We understand that Australian companies can no longer rely on protected local markets, and have to compete in the global economy.

Looking at the issues simple mindedly, it might be thought that companies are better off without unions - after all, they should be able to lower wage costs and improve their bottom line.

The reality, however, is somewhat different.

While old style adversarial industrial relations, where neither party was able to recognise the legitimate interests of the other, may well not contribute to company performance, this is not the case where employers are able to have a constructive relationship in the context of understanding shared and separate interests.

While there hasn’t been significant research done on this issue in Australia, a US study conducted by Lisa Lynch from Tufts University and Sandra Black from the New York Federal Reserve found that the average unionised establishment that adopted high performance management techniques recorded productivity increases 20% higher than the baseline firm, twice the gain recorded by non-union establishments adopting the same techniques.

Overall, unionised companies averaged 16% higher productivity levels, while their non-union equivalents were 11% lower than the baseline, mainly because high performance management was more common in union shops.

A study by none other than the World Bank recently confirmed the positive economic role played by unionised workers.

The best Australian companies value their workforce and respect their employees’ right to union representation and to negotiate collectively.

They consult with their workforce about their plans. Good companies do not destroy trust by dropping news about redundancies or relocations on the Friday afternoon before it happens.

Good companies negotiate wages and conditions in good faith; they keep to their side of the agreement and expect the same from their workforce.

They are honest with workers, just as they are honest with shareholders.

If you think about it, would executives who are prepared to lie to their employees not also seek to deceive shareholders?

While this way of operating might be in the best interests of a company’s long-term growth and sustainability, it is not necessarily in the interests of its short-term share price, given that cost-cutting initiatives are likely to be viewed favourably by the market, irrespective of what they mean in terms of loss of a company’s capacity to grow in the future.

Similarly, expansion plans will be rewarded, leading to some companies taking on far more than they are able to absorb, and entering, with guns blazing, markets about which they know too little.

So, what do unions think Australian companies should be doing?

First, improved corporate governance is obviously one of those things. Profitable companies need to be well managed, and proper standards of governance is one key aspect of this.

Second, they should be committed to collective processes with workers and their unions: consulting about change and about the company’s strategic direction and bargaining in good faith around wages, conditions and other employment related issues. The current Government has done everything in its power to limit employers’ obligations in this area, but this has done nothing to improve working life in this country.

Third, companies should adhere to a high standard of social responsibility. The private sector has a key role to play in the provision of public infrastructure and services, but the public has to see that occurring in a way in which they receive value for money, rather than simply providing an opportunity to gouge the public.

10. Retirement Incomes Policy

We would all be agreed on the importance of superannuation as the second pillar of our retirement incomes system, and as part of employees' total remuneration.

I don’t know if I need to restate that the money belongs to employees: real people, most of whom earn in a week less than what some of you would spend on a good dinner for four, including wine.

Of course, superannuation is only part of the picture.

For the foreseeable future, the age pension (currently received, in whole or in part, by 80% of people of eligible age) will be the basis of retirement incomes.

For this reason, unions are implacably opposed to any increase in the pension eligibility age or other conditions for access.

Although we do not believe that workers should be forced to retire at any particular age, we are very aware that for many over age 55 (or 45 for that matter) continuing in employment can be very difficult, either because of physical injury, or because jobs are simply unobtainable after retrenchment.

For this reason, we also oppose any increase in the preservation age for access to superannuation.

The aging of the population is a real issue, with implications for health, employment, tax and income policy, but it should not be addressed by cutting existing entitlements.

Nevertheless, there does need to be more thought given to boosting superannuation. This is in all our interests, although I hope that we will continue to be able to reduce the proportion of these savings which go to you and other service providers. Perhaps we can have a discussion about this another day.

So, apart from lower fees, how can we increase superannuation savings?

Government contributions through reduced tax is one obvious area.

There is a broad consensus that taxes in our superannuation system are imposed irrationally, and there is much to be said about abolishing the contributions and earnings taxes and replacing them with a properly progressive tax on benefits.

On the other hand, we need to be realistic about the likely preparedness of any government to reduce its current revenue in favour of some other government well into the future. Given that, we need to think about ways of making superannuation tax more equitable. Although we don’t endorse it, the proposal put forward by ACOSS is interesting.

ACOSS has proposed replacing the contributions tax and surcharge with a tax based on the employee’s marginal rate, together with a flat dollar rebate targeted at low and middle income earners - a type of tax credit for super, which could address the current inequity in benefits from tax concessions, where 33.5 cents in the dollar goes to those earning $60-80,000 and 2 to 3.5 cents in the dollar for those earning between $6 and $20,000.

The ACTU also continues to call for higher contributions, in order to ensure that all employees can have retirement incomes based on around two thirds of their gross pre-retirement income.

The amount required will differ depending on individuals’ income and circumstances: 15% will be right for some, but the low-paid may need more and the higher paid will be OK with less.

While it seems unlikely that there will be legislative requirements for employers to contribute more than 9% in the foreseeable future, we need to give more thought to this issue now that the SG has reached its highest point.

The ACTU is actively promoting bargaining with employers for higher superannuation contributions in enterprise agreements. A number of unions have achieved this through giving employees the ability to choose to take a proportion of a negotiated wage increase in the form of superannuation.

The ACTU does not have a policy supporting compulsory employee contributions, but we note with interest evidence that this would be accepted, particularly if assistance was given to low and middle income earners, as was proposed by the Keating Government in 1995.

In the UK, the Trades Union Congress supports the ability of employers to require employees to make contributions of about half the employer’s contribution level.

11. Superannuation Investment

There is no doubt that the negative returns we have seen over the last couple of years - for most of our members the first they have ever seen - has concentrated our minds about issue of investment.

Prior to this, most of the fund members who had experienced negative returns had been in defined benefit funds and were not greatly affected.

During this longest bull run ever, it was very difficult to question the ever greater move into listed shares, including international equities, as the market continued to reward these strategies.

Now, in spite of signs of some recovery, is the time to re-examine some fundamentals, particularly the role of the listed share market.

Will it continue to outperform other investment forms in the mid to long term or is too much money chasing too few stocks?

To what extent are long term gains dependent on real growth?

Is superannuation investment different from other investment - is it “patient” capital, as our American colleagues say?

Can we develop private equity instruments which encourage real growth, including in employment, without high levels of risk?

What conclusions should we be drawing from the reluctance of governments - of all political persuasions in most developed countries - to borrow for public infrastructure?

The privatisation explosion of the 80s was seen by most of the funds (along with other investors) as an opportunity to make a lot of money - and it delivered, for a time. It is, however, becoming increasingly clear that these privatisation deals were frequently not in the long-term interests of the public, which includes members of superannuation funds.

Maybe now is the time to look for stable long-term returns which government debt instruments of one sort or another can deliver. The current low levels of such debt leave room for this to occur.

On the other hand, if governments retain their obsession with the current model of private-public partnerships, we should be looking at ways to use these to provide stable low risk investment opportunities.

12. Union Involvement in Superannuation

Finally, I want to say something about unions’ direct involvement in superannuation funds.

Although super is for us primarily an industrial issue, we also play a significant role as directors of fund trustees.

Most of you have probably dealt with union nominated trustees on industry, public sector and corporate funds, so you will know that they do not use their positions to promote a union agenda and they are diligent and conscientious in carrying out their fiduciary duties to fund members, as are employer representatives.

Industrial relations does not, and should not, play a role in superannuation funds.

It is for this reason that we seek to take the debate about investment and companies directly to the fund managers and asset consultants.

We don’t want there to be any misunderstanding about how we see the role of union trustees: they are there in the interests of fund members and for no other reason

On the other hand, union trustees will have a world view which is somewhat different from that of employers, and investment managers, for that matter.

It is because we suspect that you have little opportunity to hear about what we think and what we do that we organised this seminar.

I hope that you gain some insight from it.

Greg Combet, ACTU Secretary. Speech To The ACTU Fund Managers’ Seminar, 24 July, 2003.