House debates

Tuesday, 26 October 2010

Ministerial Statements

Superannuation

4:52 pm

Photo of Bill ShortenBill Shorten (Maribyrnong, Australian Labor Party, Assistant Treasurer) Share this | | Hansard source

by leave—The Gillard government is committed to boosting the retirement savings of all Australians through reforms to Australia’s superannuation system. The government is committed to boosting the national savings of Australia through reforms to our superannuation system. The primary aim of superannuation is to help provide a means by which Australians can save for a dignified and comfortable retirement. Superannuation also has very positive impacts on the economy through increasing Australia’s national savings and reducing our reliance on foreign borrowing.

Australia has a three-pillar approach to retirement income. This approach ensures that retirement income policy is sustainable as our population ages. The three pillars are: voluntary superannuation and other private savings; compulsory superannuation savings through the superannuation guarantee (SG) system, complemented by concessional tax treatment; and a means tested taxpayer funded aged pension. Compulsory superannuation savings through the SG system in particular focuses on adequate retirement income.

The Gillard government plans to build national savings through our superannuation reforms. Australians today have over $1.2 trillion in superannuation savings. That is roughly the same size as our GDP. Australia’s total superannuation savings are estimated to increase to $6.1 trillion by 2035—including $500 billion from the government’s superannuation reforms. These reforms will assist in building a stronger, broader and more competitive economy.

At the time of the super guarantee system’s 1992 introduction, it was expected that the provision of wage increases through superannuation would provide significant benefits to employers, as well as employees. Employers would not incur the additional on-costs associated with a direct wage increase, such as workers compensation and payroll tax. At this point I want to pay tribute to former Prime Minister Paul Keating and former ACTU Secretary Bill Kelty for their foresight two and a bit decades ago to promote these issues. The grand bargain they helped deliver both between and for Australian workers, employers and taxpayers holds up as a powerful economic lesson for us today.

Between 1 July 1992 and 30 June 2003, when the superannuation guarantee was lifted to nine per cent, the Australian economy grew strongly. GDP growth averaged 3.9 per cent per annum. Unemployment fell from 11 to 6.1 per cent. Labour productivity grew very strongly, well above its 30-year average, at 2.2 per cent per annum. Unit labour costs fell over the period by 4.5 per cent. Real wages grew. Australian business profitability grew by 6.1 per cent per annum and profits rose as a percentage of the GDP. This is a strong record. And it is now time to reconstruct a broad consensus and write the next chapter on superannuation.

The government’s long-term superannuation reforms, announced on 2 May 2010, will deliver substantial improvements in retirement savings and a fairer distribution of superannuation tax concessions, ensuring more Australians can enjoy a comfortable and secure retirement. The reforms included changes to the SG arrangements, a government contribution to assist low-income earners and changes to superannuation caps to assist employees who are nearing retirement.

The Gillard government is increasing the superannuation guarantee rate from nine to 12 per cent to address issues raised by our ageing population and to boost private and national savings. This represents a major new investment in the long-term adequacy of Australian retirement savings. The government will also extend the SG arrangement to workers aged between 70 and 74, to apply from 1 July 2013. This measure will particularly assist older workers who perhaps missed out on superannuation during the earlier years of their working lives.

From 1 July 2012, the government is introducing an annual government contribution of up to $500 which will effectively return the tax payable on compulsory superannuation contributions made by or for workers on incomes up to $37,000 a year. This measure will provide a fairer distribution of superannuation tax concessions, as these employees do not currently receive tax incentives for saving through super.

From 1 July 2012, individuals aged over 50 with superannuation balances below $500,000 will be able to make up to $50,000 in concessional superannuation contributions annually. This doubles the cap of $25,000, which was scheduled to apply from 1 July 2012, and will allow these individuals to ‘catch up’ on their superannuation contributions when most able.

As a result of these reforms, approximately 8.4 million Australians will receive an increase in their retirement incomes, including 3.5 million Australians on lower incomes who do not receive tax incentives for saving through superannuation and older workers catching up on their retirement savings. For example, an employee now aged 30 on average full-time wages can expect to have an additional $108,000 in superannuation at retirement. Another example: a female aged 30 today on average full-time weekly earnings, but with an interrupted work pattern, can still expect to retire with an additional $78,000 in superannuation.

Under the Fairer, Simpler Superannuation package, the government announced it will introduce a new low-cost, simple product called MySuper from 1 July 2013. The introduction of MySuper forms the first part of the government’s response to the Super System Review (also known as the Cooper review) into our superannuation system. MySuper is designed to provide a simple, low-cost fund that has no unnecessary fees or charges and simple features that will make it easier to compare fund performance. It will replace existing default funds. Only those funds whose default product meets MySuper standards will be able to operate as a default fund.

Labor will introduce new standards that providers of MySuper products must meet, including:

  • No entry fees, with exit fees limited to cost recovery.
  • A ban on commissions and conflicted remuneration structures in relation to retail distribution and advice in line with the government’s financial advice reforms.
  • New duties will require super fund providers to deliver value for money or be stripped of their licence by the regulator.
  • A single, simple and easy-to-understand investment option designed to maximise a person’s retirement income.
  • Standardised reporting requirements in plain English.

MySuper funds will be licensed by APRA, who will also monitor and publish MySuper fund investment returns and costs to ensure members are getting value for money. Anyone making contributions to super will be able to open a MySuper account.

The government also proposes to work with consumers, the superannuation industry and employers to modernise and streamline the administration of the superannuation system. An important first step in this process is the better use of tax file numbers to identify and consolidate member superannuation accounts, including lost accounts. An individual’s tax file number will be the primary identifier of member accounts, subject to strict conditions to ensure privacy and security of information.

The use of tax file numbers as primary account identifiers will commence from 1 July 2011. Superannuation funds will be able to offer MySuper products from 1 July 2013. Transfer to an account with the lower fees expected from the MySuper and SuperStream proposals is projected to increase the retirement benefit of a worker, now aged 30 and earning full-time average wages, by more than $40,000 by the time they retire.

The final report of the Cooper review was released on 5 July 2010 and outlines 177 recommendations, including the MySuper and SuperStream proposals, which I have outlined. We will respond to the remainder of the review’s recommendations by the end of 2010.

With regard to the government’s proposed SG changes, the superannuation industry, the wider financial services industry and employee representative bodies have all indicated their broad support for the proposed SG increase. And here I would also like to acknowledge the work of my predecessors in the superannuation portfolio—Chris Bowen and Nick Sherry.

In delivering this ministerial statement in this place I want to be clear that the time for a new consensus on super has arrived. My objective is not to be political—indeed we need to remove politics from superannuation.

Photo of Tony SmithTony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | | Hansard source

Why are you smiling at me?

Photo of Bill ShortenBill Shorten (Maribyrnong, Australian Labor Party, Assistant Treasurer) Share this | | Hansard source

Because I like the member for Casey. But it cannot be left unsaid that the federal opposition has—at least to date—expressed an unwillingness to support the government in this place in delivering the reforms I have outlined. They simply seem to ignore the tide of demographic trend sweeping towards us. In simple terms we face a situation where the number of retirees will grow faster than the number of workers. Yet up until this point the opposition has regrettably consistently chosen to oppose what I have outlined today despite modelling by the Treasury showing that the government’s superannuation reforms will save Australian taxpayers $42 billion over 25 years in lower pension outlays.

The introduction and implementation of the Gillard government’s superannuation reforms build upon and enhance Australia’s already robust retirement income system. Our changes will facilitate a dignified and an adequate retirement for millions of Australian workers, and they will help build our country and our economy as we go about securing the next wave of prosperity. Our reforms are the right answer to the challenges before us.

My profound hope is that members opposite will soon join the new consensus, put down the instruments of political noise and join the chorus. Let us seize this opportunity to deliver for future retirees, our children and our grandchildren. Seize the opportunity for sound reform and deliver for Australia’s future. I commend this statement to the House. I seek leave of the House to move a motion to enable the member for Casey to speak for 9½ minutes.

Leave granted.

I move:

That so much of the standing and sessional orders be suspended as would prevent the member for Casey to speak in reply.

Question agreed to.

5:02 pm

Photo of Tony SmithTony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | | Hansard source

by leave—Thank you Madam Acting Deputy Speaker. The minister’s statement today was interesting for what it said and for what it did not say. He made a number of points about Australia’s superannuation system. He said, amongst other things, that it was important to boost national savings and I must begin this contribution by pointing out that of course the coalition agrees that boosting savings is a critical economic objective. He managed to mention that in his speech without any reference whatsoever to this government’s dismal record on national savings with respect to its continued debt-fuelled and wasteful spending.

He also said that the period between 1 July 1992 and 30 June 2003 was a very good period for the economy. In fact he read out a number of key statistics and at the end said that this is a strong record. We welcome the fact that he acknowledges the performance of the Howard-Costello government in delivering economic reforms. We do not remember—I can be forgetful but the shadow finance minister will correct me—any great consensus on tax reform through 1998, but we do thank the minister for acknowledging that the tough and difficult economic decisions taken between 1996 and 2003 did play a huge role in delivering the outcomes that he mentions, and he rightly points out the strong economic record of that period.

The minister spoke almost in homily terms about his approach to super in the future. Lets us go back and see the value of Labor’s words. Twelve days before the 2007 election—the Assistant Treasurer would remember these words—the then Prime Minister, Mr Rudd, said there would be no change to superannuation laws, ‘not one jot, not one tittle’. From that period on, in nearly three years Labor has halved the concessional contribution caps, penalising thousands of Australians who inadvertently exceeded them, and undermined Australians’ incentive to save. Labor cut back co-contribution payments, discouraging low-income earners from saving, and it mandated that industry funds be the default superannuation fund for the bulk of modern awards, curtailing competition amongst funds; it promised to tender the role of the Superannuation Clearing House to the private sector but instead gave the contract to Medicare.

It is crystal clear that Labor’s track record from the moment of time it broke its promise not to alter superannuation and the changes that have followed, its chaotic approach since 2007 has damaged confidence in the system. Voluntary contributions have slowed to a trickle. They are not moving forward. Voluntary contributions have dried up because of the damage the government has done over the last three years.

A key aspect of the minister’s speech and the government’s policy now is to lift the SGC levy from nine per cent to 12 per cent. He would agree—we do agree on some things—that was the bulk of his speech. That is what we would agree on. He talked about the great consensus that he wanted to build. He said that so far we on this side of the House have disappointed him because we have not joined his great consensus.

As I said at the outset, his speech was interesting both for what it said and what it did not say. Whilst he talked at length on this subject, he did not mention the recommendation of the Henry review. He did not even mention Ken Henry. The word ‘Henry’ was not mentioned in 9½ minutes—not one mention. The poetic bit at the end would have been added, we know, by someone in the minister’s office. Whilst the Treasury have great skills, we do not suspect that was from them. But I bet the draft had something in it about Henry.

Let us go to the facts of the matter. The Henry review, unlike the minister and unlike the Labor government, looked at this issue, amongst others, for 18 months. After 18 months of modelling and careful consideration, here is what they said:

The retirement income report recommended that the superannuation guarantee rate remain at 9 per cent. In coming to this recommendation the Review took into the account the effect that the superannuation guarantee has on the pre-retirement income of low-income earners. Although employers are required to make superannuation guarantee contributions, employees bear the cost of these contributions through lower wage growth. This means the increase in the employee’s retirement income is achieved by reducing their standard of living before retirement.

That was the considered view of Ken Henry after 18 months of consideration of modelling and information. We can see why this government will not release the key documents and the modelling associated with the Henry review. That is the first point.

The second point, Madam Acting Deputy Speaker, is that, whilst the government received this review, considered it and announced a totally opposite position, they have not explained why they think Ken Henry is wrong—why they think those on the Henry review, in their view, have got this so wrong. At no point have they put forward information to demonstrate that the policy they have come up with will damage low-income earners, but that is precisely what the Henry review points out in great detail.

In the time remaining, let me also point out on behalf of my colleague in the other place—Senator Cormann, the shadow Assistant Treasurer—that another key area the minister has shied away from is the important area of competition amongst superannuation funds that are identified as default funds under modern awards. Throughout 2008-09, the AIRC and now Fair Work Australia have selected default funds in modern awards and have done so without any criteria or transparency or capacity for review. There is a significant bias towards industry. No retail funds are prescribed in the most widely applied modern awards. They are biased towards industry union superannuation funds. When this process began—and the minister might groan—the minister’s predecessor, Senator Nick Sherry, to whom the minister paid tribute, wrote to the AIRC asking the commission to implement objective criteria. They declined the request and this government has simply sat back and weakly accepted it.

Madam Acting Deputy Speaker, with respect to the Cooper review, we have said in our election policy and since that we recognise there is merit in many of the recommendations. There will be much that we will be able to support. Interestingly, the minister’s statement was silent on how the government will fix conflicts of interest and the issues in super caused by poor governance, for example reforms on mandatory disclosure and the like. He did point out that he was going to respond to the Cooper review before the end of the year. That brings back memories for the shadow finance minister and me, because the Henry review was going to be released before the end of the year and it was going to be responded to by February—and then nothing happened until a few days before the budget. We have no faith in this government. With respect to My Super, we have previously outlined our views. Low-fee products do exist and we are very concerned that My Super encourages a pay in, leave and forget attitude to superannuation. (Time expired)

Photo of Ms Anna BurkeMs Anna Burke (Chisholm, Deputy-Speaker) Share this | | Hansard source

The discussion is now concluded. And just for the edification of the member for Casey: whilst there is only one Deputy Speaker, everybody in the chair is under licence from the Speaker and there is no need to use the word ‘acting’. I encourage everybody to use the honorific ‘Deputy Speaker’, whether with ‘Madam’ or ‘Mr’. It is much easier. We are all deputy speakers. I thank the member.

Photo of Tony SmithTony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | | Hansard source

Obviously the change has confused me.

Photo of Ms Anna BurkeMs Anna Burke (Chisholm, Deputy-Speaker) Share this | | Hansard source

This is for everybody. Anybody who is in the chair is the Deputy Speaker. There is no need to use the word ‘acting’.