Second Reading Speech
Mr Pearce (Parliamentary Secretary to the Treasurer)I move:
That this bill be now read a second time.
The government is delivering on reducing the regulatory burden for Australians. Australia is experiencing one of the most successful periods of economic growth since Federation. The current unemployment rate is at a 32-year low of 4.4 per cent; business investment continues to be strong, and both business and investor confidence is high. This is evidenced, for example, in the growth of the managed funds investment industry, which recently increased to $1.1 trillion in consolidated assets.
These results have not been coincidental. The management of the Australian economy over the last 11 years has involved consistently sound decision-making and of course prudent judgement. The government has focused on three policy levers of productivity, population and participation as the key elements to forging this success.
We, in the Howard government, have determined that cutting red tape is one of the most important investments we can make in enhancing productivity gains. One of the ways I believe we can do this is by looking at options to allow business to get on with conducting business.
The government recognised the importance of this in commissioning the Banks Taskforce to identify practical options to reduce regulatory burdens on business. In response to the taskforce's recommendations, the government has implemented a number of initiatives, including improved regulation-making and, as a part of that, an expanded role for the new Office of Best Practice Regulation to ensure objective, comprehensive analysis of compliance costs and competition impacts of all regulatory proposals.
Further, the government is also focusing on its commitments under the regulatory reform stream of the COAG National Reform Agenda to reduce the regulatory burden imposed by all three levels of government, and is developing an annual red tape reduction agenda, informed by annual reviews of regulation undertaken by the Productivity Commission.
Today I introduce a package of measures that will further deliver on the government's commitment to reducing red tape. This bill will make the corporate and financial services regulatory system simpler.
By contributing to greater business efficiency and productivity, the bill will, in turn, contribute to economic growth and better living standards for all Australians.
The bill is the culmination of extensive consultation with stakeholders. It shows that, when this government sets out to reduce red tape, it delivers.
Despite some suggestions to the contrary, the feedback from the community has shown that there are no easy solutions when dealing with the important balance between maintaining investor protections, and enhancing business productivity. This government has tackled these issues though, and is committed to simpler regulation.
The outcome of the consultative process with the business and investor community is a package of 32 measures to simplify and streamline Australia's corporate and financial services law.
The bill will reduce the burden of regulation in the areas of:
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- financial services regulation;
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- fundraising;
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- company reporting obligations;
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- auditor independence;
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- corporate governance;
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- takeovers; and
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- general compliance.
The provisions in this bill will achieve better disclosure outcomes, enhance auditor independence and improve enforcement arrangements in the event of corporate misbehaviour.
The bill will amend various provisions of the Corporations Act 2001 and related acts to improve the efficiency of corporate and financial services regulation. The majority of these provisions are based on the proposals outlined in the Corporate and Financial Services Regulation Review Proposals Paper, which I launched last November.
Over 100 submissions were received in response to this paper, which emphasises the significant interest that both industry and consumer representatives have in progressing these reforms. The bill, importantly, includes some additional measures to address issues which arose during consultations.
The bill will also implement the government's response to several recommendations relevant to corporate and financial services regulation, which were made in the Rethinking Regulation report of the Banks Taskforce.
The second intergenerational report clearly indicates that our future prosperity depends on the policy decisions that we make now. The establishment of the Future Fund and the reform of the superannuation industry are examples of how this government is setting the foundations for long-term economic prosperity, rather than solely concentrating on short-term financial gains. This bill builds on these reforms by facilitating improved access for investors to sound and affordable financial advice.
In this way, the bill also complements the policies being progressed through this government's superannuation reforms by improving all Australians' ability to plan effectively for their financial futures by growing their superannuation assets.
Financial services regulation
As individuals and households accumulate greater wealth and are looking to fund their futures, there is a growing need for them to get access to appropriate financial advice.
A key measure in this bill will improve the ability of all Australians to access financial advice. It will do this by making the provision of advice in relation to smaller investment amounts more cost effective. This will be achieved by enabling financial advisers to provide clients with a record of advice, where the investment amount is under a prescribed threshold, rather than a full statement of advice.
A record of advice is a more concise document, and is easier to produce for advice in relation to smaller investment amounts. It is also more appropriate where the cost of producing a full statement of advice is otherwise likely to make financial investment advice beyond the reach of many Australians.
The proposed threshold will be set at $15,000 under regulations that will support the bill. This targeted measure will therefore provide better incentives for Australians to seek the advice they need about their financial decisions.
In an environment which provides Australians with choice of super fund, this measure can be expected to enhance the ability of investors to consolidate existing superannuation amounts up to the prescribed limit, and thereby assist them to fulfil their financial aspirations.
However, I want to be clear. Whether an investor received a record of advice or a statement of advice, the financial advice given must be made on a reasonable basis, having regard to that client's personal circumstances.
Fundraising
In the IMD World Competitiveness Yearbook 2006, Australia ranked third of 61 countries for the protection of shareholder rights and share market financing.
This bill will assist in maintaining Australia's excellent international reputation in this area.
I recognise that corporate entities in our financial markets need to raise funds quickly and at a low cost if they are to expand their business activities within and outside Australia.
This bill includes initiatives to facilitate corporate fundraisings by streamlining regulatory processes. This will be achieved through various measures, including by aligning certain disclosure requirements and removing inconsistencies between different parts of the law. At the same time, the relief provided is made subject to conditions in order to maintain an appropriate level of investor protection.
The government seeks to encourage employee ownership of many companies through employee share schemes, given the many benefits it is recognised as bringing to the wider economy. The bill will increase the opportunities for unlisted companies to establish employee share schemes by removing certain restrictions without diluting important protections.
Through this bill, the government is also reducing the cost of raising funds by corporate entities through various means, in particular, by removing some burdensome disclosure requirements. The bill will ensure that sensible conditions are maintained such that all material information is provided to the market before the issue can proceed.
Company reporting obligations
Australian companies should not suffer under the weight of excessive reporting obligations. Feedback received in response to my November paper suggested that company reporting could be reduced, without compromising the need for the Australian public to have access to important company information.
In line with the Banks recommendations, the bill will simplify company reporting obligations.
Importantly, the bill will increase the thresholds used to define a 'large proprietary company', which will result in a reduction in the number of proprietary companies required to lodge audited financial reports. The amendments, which will increase the current operating revenue and assets thresholds by 150 per cent, ensure that only economically significant proprietary companies are required to lodge such reports. This measure will result in cost savings for some 33 per cent of companies currently required to report.
In this way, the government is addressing the concerns of smaller business enterprises that reporting obligations should be proportionate to the size of their operations. To ensure that the monetary thresholds keep pace with economic growth, the bill also allows future changes to the thresholds to be prescribed under regulations.
The government recognises the importance to companies of being able to choose how best to communicate with shareholders in an effective and timely manner.
Australians are increasingly making use of the internet and, in recognising this, the bill brings the corporate law into the modern age by allowing companies to make annual reports available on the internet, and only require hard copies to be sent to shareholders who request them.
This will result in significant costs savings to business but, importantly, shareholders will continue to have the opportunity to elect to receive hard copy annual reports free of charge. These amendments are also expected to deliver environmental benefits for the broader community.
The bill also reduces compliance costs through: streamlined executive and director remuneration disclosures; simplified notifications to ASIC; more flexible payment arrangements for annual company fees; and improved company deregistration procedures.
Auditor independence
In the global economy, it is important that the independence of auditors is appropriately regulated.
The bill will implement a number of improvements and reduce complexity in this area, following from comments on my November proposals paper and the results of the recent comparative review of Australia's auditor independence requirements.
Corporate governance
Australia has a robust corporate governance regulatory framework. This bill further balances the needs of business to operate efficiently while upholding shareholder expectations about company behaviours and operational standards.
The rules regarding related party transactions are an important check on the powers of the board to manage a public company. However, obtaining member approval for every related party transaction imposes a disproportionate compliance expense on companies in cases where the value of the transaction is relatively low.
This bill will remove the requirement for member approval for such transactions that are at or below a prescribed minimum level, aggregated over a financial year. This rule will strike a better balance between measures to guard members from improper conduct, and excessively burdensome procedural requirements.
Takeovers
Experience has shown that telephone monitoring during takeover bids and 85 per cent notices impose onerous obligations without demonstrated investor benefits.
The bill will, therefore, repeal these requirements.
Compliance
The bill enhances regulatory processes in various other ways including by allowing companies to register company charges electronically, thereby making that process much more efficient.
Consultation processes
The bill has been developed following extensive consultations on the proposals and the government appreciates the participation of stakeholders in this process.
Under the Corporations Agreement between the Commonwealth and the states and territories, certain elements of the bill needed to be considered by the Ministerial Council for Corporations. The ministerial council has approved those provisions.
The bill is another significant instalment in the government's overall objective of reducing red tape for the benefit of all Australians.
To ensure that the Australian community can take the earliest possible advantage of the bill's red-tape reductions, it is my desire and my hope that the bill be passed as soon as possible by the parliament. I commend the bill to the House.
Debate (on motion by Ms Livermore) adjourned.