It was only when the government subsequently issued a media release that its real intent became clear.

This was not going to be a banking royal commission but a "Royal Commission into the alleged misconduct of Australia's banks and other financial service entities".

The terms of reference, it transpired, were heavily aimed at the industry super funds set up by employers and unions in the 1980s to wrest superannuation out of the control of the big life offices and companies that would use their employees' superannuation funds as piggy banks to prop up their share price.

True target revealed

As if the humiliation of having to set up a royal commission in the first place – or face everyone else in the parliament, including some of its own backbench setting up a commission of inquiry which it would not control – was not enough, the government decided to engage in a bit of payback.

If Labor – not to mention a few of its own backbenchers – were forcing it to hold a banking royal commission into the banks, the government was going to spread the damage to the industry super sector.

Someone probably thought it was a smart move.


But it will only sharpen the impression that the government is firmly on the side of the banks in one of the last great battles where blind ideological prejudice and suspicion outweigh any semblance of rational policy thinking.

Not only did the government consult with the banks on the terms of reference, it set the banking inquiry up to take aim at the only other part of the financial sector that poses a competitive threat to the banks.

"Let's be very clear," says David Whiteley, the chief of the industry funds lobby group, Industry Funds Australia, "all of the scandals and the community concern and mistrust are with the banks.

"In the last two years the major banks and AMP have paid out an estimated $545 million in refunds, compensation and fines," he says.

"Industry super funds have not had to pay a single dollar. Industry super funds have nothing to hide. The public knows the problems are in the banking system."

A dark, irrational blot

The ideological battles in Australian politics have changed in recent decades. Where once most of the big political struggles could be fairly confidently and neatly split into labour versus capital, the new arguments tend to be more subject specific, as the policy differences between the major political parties have diminished in the general embrace of market forces and the universal quest for the swinging voter.


Think of climate change as the classic example of a boutique ideological debate rather than one which has deep roots in the history and culture of the mainstream political parties.

But a few dark, irrational blots remain in the national policy debate.

One of the more spectacular examples of these outliers is superannuation.

Industry super funds have grown into a financial behemoth over the past 30 years, and are now worth half a trillion dollars.

They regularly outperform private sector funds (for example, 10.3 per cent over five years compared to 8.2 per cent for retail funds), charge much smaller administration and management fees, and, most importantly, deliver higher returns to their 5 million members,

Their presence provides one of the few counterweights to a banking sector so dominated by just four institutions that the four big banks represent one-third of the value of the Australian Stock Exchange.


They have not been plagued by any major scandals and they fought for years against the system of commissions paid to financial advisers which have got banks into so much trouble in recent years.

No wonder the government hates them so much.

What? How does this make any sense? Well, it doesn't.

But the Coalition's antipathy to the industry funds remains a serious factor in distorting the policy discussion about superannuation and one of the great policy power plays still at work in Australian politics, as this week's events have demonstrated.

This antipathy has consciously and repeatedly seen the Coalition – when in government – stymie attempts to lift the superannuation guarantee charge to the 12 per cent originally projected to deliver a proper retirement income to Australians.

There have been repeated attempts to undermine the competitiveness of industry super funds and an obsession with ridding their boards of ex union officials.

"Let's be very clear," says David Whiteley, the chief of the industry funds lobby group, Industry Funds Australia, "all of the scandals and the community concern and mistrust are with the banks. Luis Enrique Ascui

'It's inimicable to society'


And the obsession, according to one of the former Liberal politicians who has "jumped the fence" in the last decade and become involved in industry super, has also stopped an obvious and sensible collaboration between the massive funds and government on one of the most pressing issues facing Australia: infrastructure.

"No, the phone doesn't ring," says Peter Collins, former NSW Liberal government Treasurer, and now chairman of both the industry fund Hostplus and the industry association, Industry Super Australia.

He is quite clear that federal Coalition MPs and ministers – unlike some of their state counterparts – have an ideological objection to super that blinds them to all argument.

"Sometimes I feel we live in an alternative universe where the federal government talks up the need to build infrastructure, and where we talk about investing in infrastructure but we are rarely called in to be asked whether we are interested in investing in some of these projects."

Yet industry super funds now own most of Australia's airports and ports, and large slabs of electricity and gas infrastructure.

Garry Weaven, the chairman of the industry funds' funds management body, IFM Investors, doesn't think the super funds have been discriminated against on infrastructure deals as such.

"I don't think I'd say cut out," he says. "What I would say is the federal Liberal government certainly hasn't taken an opportunity to engage with the super industry in a meaningful way and that's because a large part of the party really doesn't like super and certainly not industry super.

"But to ignore the opportunity and carry through with the biases of the right wing rump is very bad policy.


The government has set up royal commission up to take aim at the only part of the financial sector that poses a competitive threat to the banks: industry super funds. Lukas Coch

"It's just stupid to continue to find ways to undermine the most successful parts of super. It's inimicable to society, and to retirement incomes, and ultimately to the budget deficit. The lower the contributions to super funds the higher the deficit to fund pensions," he notes.

"With compound interest there is a path into very big numbers."

A 'Chicago racket'

But the suspicion runs deep.

When unions first agreed in the mid 1980s to forego a 3 per cent pay rise and instead see the funds paid into compulsory superannuation, the then Opposition leader described it as representing "all that is rotten with industrial relations in Australia".

It showed the government and the trade union movement "playing the employers of Australia for mugs," John Howard said, describing it as a "Chicago racket".

As prime minister, Howard refused to honour a deal to increase super by a further 3 percentage points.


Former Prime Minister Paul Keating – who regards the superannuation industry as one of his legacy issues, charges that Howard's decision has cost much of the Baby Boomer generation a viable retirement income.

People then in their 40s and 50s completely missed the lift in the international equity market between 2003 and 2008, he says.

Garry Weaven: "It's just stupid to continue to find ways to undermine the most successful parts of super." Photo: Josh Robenstone

"Howard's decision to deny that 3 per cent superannuation tax cuts of 1995 has probably cost a Baby Boom person maybe $120,000 or thereabouts in what they could have accumulated in super from that period," he says.

"You know if a Labor government had done anything like this you would never hear the end of it."

The Coalition's view was not much different in 2012 when, contemplating a further rise in the compulsory superannuation contribution, the then leader of the opposition, Tony Abbott, described industry funds as little more than a "gravy train" for union officials to sit on the boards.

Two years later, and now in government, the Coalition broke an election commitment when it again stopped compulsory super being lifted above 9.5 per cent.

More recently, the Liberal Party machine has been targeting payments made by the super funds to unions, claiming $50 million of payments have gone to unions over a union as a sign of "brazen" political ties between the industry funds and unions.


In fact, the constitution of industry funds explicitly rules out their shareholders obtaining dividends or profits from them.

The payments nominated by the Liberal Party are overwhelmingly director's fees paid to organisations whose employees act as directors of the industry funds. The same arrangement applies to employees of employer groups who are also involved in the funds.

Most significantly, though, the government has had two pieces of legislation looming that are squarely targeted at the union funds.

Howard refused to honour a deal to increase super by a further three 3 percentage points. Sitthixay Ditthavong

The first relates to governance – and arguments about the need to get more independent directors on to the industry fund boards based on an ASX standard of what constitutes an independent director.

"The Commonwealth Bank's board is almost entirely comprised of independent directors," an industry fund director observes dryly.

Default funds the next big battle

But the real point of battle – until this week's royal commission announcement – has been over the so-called default fund issue.


That is, the question of where compulsory super contributions made by an employer on behalf of an employee go if the employee doesn't nominate a particular fund themselves.

Historic links between particular industrial awards and industry funds mean they have been the winners from arrangements in the past.

Productivity Commission draft recommendations earlier this year were designed to remove the ability of unions and employers to leverage workers into their jointly controlled industry funds, but also the ability of banks to tempt employers to leverage workers into bank funds by offering employers sweetheart banking deals.

And this goes to the heart of the political battle over superannuation. Not only does it have the lingering Coalition resentment and suspicion of union attachment, the banks have been lobbying fiercely to get a bigger share of the superannuation savings pool.

Now, the government has put the powers of a royal commission to the task of helping them achieve just that.