Kelly O'Dwyer (Higgins, Liberal Party, Minister for Revenue and Financial Services) Share this | Hansard source

I am very glad to rise to speak on these three important bills, the Superannuation (Objective) Bill 2016, the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 and the Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016. Superannuation is a $2-trillion—and growing—industry. But even more important than that undoubtedly very impressive figure is this. Superannuation in large part determines how most Australians are able to live for about one-third of their lives. It means our superannuation industry must look to the future.

Let me underline that point with a bit of history. It was in 1908 that the Deakin government established the old-age pension in Australia. It was a move that had enormous significance—then, obviously, but also for the political and policy debate today. At that time, the life expectancy for men was 55, while for women it was 59. Few Australians at that time were likely to reach the age 65 pension milestone. Indeed, in 1911 it was only about four per cent. Despite that, however, it was still means tested and character tested—and it had to be. Even then the government was struggling to pay for the scheme's limited reach.

The challenges of those times resonate today. Last year's Intergenerational report showed that by 2055 the number of Australians aged 65 and over will more than double, while one in every 1,000 people will be 100 years or older. At the same time, the number of people of working age for each person aged 65 years and over is decreasing. This dynamic will put pressure on our retirement income system, a system that today includes the age pension, superannuation and other savings. It will also burden younger generations with increased taxes to pay for the retirees of today and then their own retirement in the future—if we do nothing. These bills provide us with an opportunity to modernise our retirement income system, to make sure it works for everyone, to ensure there is a clear and unambiguous objective enshrined in law, to ensure that the tax concessions that apply to superannuation are sustainable and that the system is fair and has integrity, and to ensure the system is flexible, accommodating the wide range of working arrangements and patterns people follow across their lifetimes.

Despite its critical importance, there has never been a clear legislated objective for superannuation. This has meant that it has been too easy for different governments to make ad hoc changes to the superannuation system and, ultimately, undermine confidence in it. That is why the financial system inquiry, a root-and-branch review of the financial system, recommended that the government enshrine in law the objective of superannuation—that is, to provide income in retirement that substitutes or supplements the age pension. It means we now have a clear definition of what our superannuation system is intended to do and what it is not intended to do. I believe that this clarity will promote confidence in the system overall and provide a framework for evaluating future changes. And it is important that we do not introduce new subjective measures into this definition, because that, of course, would lead to future governments potentially politically interfering in superannuation, which is what we want to avoid with a very clear objective.

Let me now turn to the flexibility measures in this legislation, which will help people to save for their retirement. Australians are hardworking and aspirational, and the government does not want to put a handbrake on that aspiration when it comes to people saving for their retirement. For instance, we know that people have very different work patterns. Some might have multiple jobs and several careers across their lifetimes. Others might take breaks from work to look after children or to care for an elderly parent. As it stands, the system offers little in the way of flexibility for these Australians. It is structured in such a way that favours higher income earners who work full time, without breaks, for the entirety of their working lives. And that must change.

It is easy to talk about these bills in a very abstract way and lose sight of how legislation can help everyday Australians. So let me give an example of how the government's flexibility measures will help an individual going about saving for their retirement. Let us use the example of Sarah. Sarah is 32 and runs and owns her own baby clothing business from home as a sole trader. She also works part time in the hospitality industry while raising two children. 'Busy mum' does not even begin to describe her situation. At the moment, Sarah has a superannuation balance of $25,000 and, over the last year, she has earned about $20,000 in her hospitality job, including $1,900 in a superannuation contribution from her employer. In addition to this, Sarah has made $60,000 from her business, giving her an assessable income of $80,000.

So what does the current system hold for Sarah? She would not be able to make deductible personal contributions from her business income because she receives more than 10 per cent of her income from employment. Not only that; because her employer does not offer salary sacrifice, she would not be able to make any voluntary concessional superannuation contributions. In other words, Sarah's only concessional contributions would be the superannuation guarantee on the one-quarter of her income that comes from wages. Furthermore, because she cannot make voluntary concessional contributions, she also cannot reach a rate of contributions anywhere near the superannuation guarantee rate of 9.5 per cent, let alone exceed it.

However, under the government's legislation before the House, Sarah's outlook in 2018-19 is a lot brighter than it is today. For instance, Sarah would be able to make a $10,000 personal contribution and claim a tax deduction for it. This amount will then be taxed at 15 per cent in the fund, rather than at her marginal tax rate of 32½ per cent, making the contribution concessional. From 1 July 2017, the annual concessional cap will be $25,000. This means Sarah will have the unused concessional cap space of $13,100, which is available to carry forward for up to five years starting from 1 July 2018. Additionally, because her superannuation balance is below $500,000, Sarah can contribute up to $38,100 in concessional contributions the following 2019-20 financial year. Because Sarah's business income varies significantly from year to year, this will allow her to make larger contributions in the good years when she can afford to do so. It is a big change, and it is an important change for the many hardworking Australians who are in similar situations to Sarah. They are the Australians who come to mind first when I say that I want a superannuation system that works for everyone.

I also want to highlight some numbers to show the reach of these changes. By removing the 10 per cent rule, this alone will improve the superannuation balances of more than 800,000 Australians. The one-third of hospitality workers and around half of farm workers who do not have salary-sacrificing arrangements, and are therefore limited by this rule, will have a door opened for them. Meanwhile, the unused concessional cap carry-forward, to take effect from 1 July 2018, is expected to be used by around 230,000 people in the 2019-20 financial year alone. And it is worth noting that this measure will be available to anyone with a balance of less than $500,000, which in 2013-14 was up to 14 million individuals. It could include mums, dads, carers, those who have taken extended leave because of illness and those whose circumstances have changed, such as when children are no longer at school and those expenses can be redirected.

These numbers I have mentioned are worth reflecting on. It is amazing then that Labor come into this House and oppose these very flexibility measures, citing affordability to the budget, at the same time that they are trying to punch a bigger hole in the budget with tax cuts for Swedish backpackers. Together, these bills play an important part in giving Australia a superannuation system that achieves its objective, is equitable, sustainable, flexible and has integrity. So I commend these bills to the House.

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