Bill Shorten’s potential as Prime Minister for all Australians and Treasurer-to-be, Chris Bowen, as the country’s chief fiscal fiend and friend, has to be tested with this controversy that looks like an ACTU threat to the country’s most supported industry super fund — Australian Super.
Late last week it was revealed that a trade union leader, who has held a director’s position with Australian Super, is calling on industry super funds and heavyweight trade union officials on super fund boards to use their power to force companies to offer higher pay and better work conditions.
Anyone pushing a view like this could find the Australian Prudential Regulation Authority (APRA) bumping them off an industry super fund board for being inappropriate on character, competence or experience grounds.
I have a vested interest in this because I have advised clients, families and friends that Australian Super is a very good super fund. Its results show this to be the case but in the past it hasn’t had directors trying to encourage the fund’s investment committee to pressure public companies to pay wage increases!
Now this might sound like a good idea for anyone who wants a pay increase. Here you have a very powerful organization i.e. Australian Super potentially telling BHP, the banks, Telstra, Coles, Woolies, Harvey Norman and so on to pay their staff higher wages or their stock will be dumped.
It looks like a super blackmail play, which looks logical given the unions ‘ownership’ of industry super funds and unions represent workers and their need for higher wages. But there are two things wrong with this.
First, it’s not conventional for shareholders of public companies, which a super fund is, to ask the business to reduce its profit by raising costs. Shareholders can fight to sacrifice revenue if it helps the company but a director taking a directive from the ACTU, an employer group or a government to undermine profits, dividends and share prices could end up in big trouble with the Australian Securities and Investments Commission (ASIC).
If the Royal Commission was still in operation, this would’ve been a scandal that Justice Hayne and his team of terriers could have really got their teeth into!
Second, any super fund director’s decision has to pass a crucial test and that’s the sole purpose test. It’s a test that self-managed super fund trustees always have drilled into them. It says you can’t make an investment decision that’s in conflict with the best interests of trustees/members with respect to how much money ends up in the super fund when the trustees retire.
As the ATO’s website puts it: “Your SMSF needs to meet the sole purpose test to be eligible for the tax concessions normally available to super funds. This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement.”
It means you can’t lend money to a family member in a tight jam in their business. You can’t buy a holiday home so you can send your family there on nice holidays. You can’t use super money to meet personal debts. And big super funds can’t instruct their investment committees to avoid really profitable companies because they don’t pay sufficiently high wage rises.
An investment committee who makes decisions that undermine the future nest eggs of their members, who have $145 billion in Australian Super, to try on an industrial relation squeeze play like this, could even jeopardise the concessional tax status of the fund.
Of course, that’s an exaggeration because it would never get to that, but if a trustee running his/her own SMSF did something that ignored the “sole purpose” test, their fund could lose the great tax treatment that super funds enjoy.
Clearly, Bill Shorten and especially Chris Bowen has to show he has the guts to stand up to their union buddies when they’re in the wrong. Paul Keating could do it as a Labor Treasurer and this will be a crucial test of just how gutsy Chris and Bill might be when they hold the top two government positions in the country.