Grant Chapman (SA, Liberal Party) Share this | Hansard source

When the debate on the Tax Laws Amendment (Simplified Superannuation) bill and related bills was interrupted for question time, I had outlined the major reforms that the Howard government has introduced with regard to superannuation which are reflected in this legislation. I was then outlining particularly the benefit that has been delivered to small business as part of decisions made in the finetuning process of those major superannuation reforms. I was referring to the provision in the legislation for an amount of up to $1 million gained over the lifetime of a small business person or farm owner to be put into a superannuation fund as an after-tax contribution, provided that money is derived from the sale of the small business or farm assets for the purpose of retirement.

This is a very important part of the legislation, a part that I strongly advocated with my colleague Senator Bernardi after meeting intending retiring farmers and their accountant in Adelaide in the latter part of last year. We listened to the concerns expressed about their inability, under the arrangements as they had been announced in the budget, to put the proceeds of their farm business, once sold for retirement, into superannuation. When this additional measure was announced it was decried by some, and I think by some in the Labor Party, as a benefit for the rich. It is nothing of the sort, because anyone who knows anything about small business or farmers knows that during their working lifetime they have very little opportunity to put money into superannuation because any surplus money from farms, on the rare occasions that a surplus is generated from a farm or from small business, is put back into the farm or small business to pay off the farm or pay off the small business. So, during their working lives, those people have very little opportunity to put money into superannuation, unlike people on salaries, particularly those on high salaries, who have that opportunity.

Traditionally, under previous arrangements, when those people came to retiring age they regarded their small business or their farm as their retirement nest egg and often sold the small business or farm and deposited the proceeds into a superannuation fund to provide adequate income during their retirement years. Under the initial announcement, with the $150,000 untaxed contribution limit that applied, or the $450,000 limit over a three-year cycle, this particular group were excluded from putting the proceeds of their business into superannuation. In effect, the $1 million only equates to what another person who could put in the $150,000 year by year for 20 or 30 years would have in their superannuation fund. So there was no particular concession being made to the rich, as the critics of this decision would have you believe. It in fact introduces an element of fairness for people who during their working lives simply do not have the capacity to put money into superannuation. It allows those people at the end of their working lives, when they sell their small business or farm, to make that contribution to superannuation.

This is a very important initiative, which, as I said, came out of discussions that Senator Bernardi and I had with constituents and their accountant. As a result of those discussions, I took the matter to the government members’ Treasury committee. Despite some initial reticence, I have to say, on the part of the Treasurer, he eventually saw the wisdom of extending this provision to allow farm owners and small business people to make this up to $1 million over a lifetime after-tax contribution. So this initiative does put small business people and farmers on an even footing with those who can make regular contributions during their working lives.

Unlike the other concession provided, whereby people currently planning to put money into superannuation from the sale of a home or other assets would have until 30 June this year to put up to $1 million into a superannuation fund, this is an ongoing provision well into the future. Provided that the small business or farm owner meets the same requirements in place to get the capital gains tax concession, these people will be able to make that contribution to their super fund to provide for their retirement. So, as I said, this is a very important provision. It is very good news for small business people and farm owners, who, as I said, regard the value of their business as their retirement nest egg and who in the past have always been able to put that nest egg into superannuation funds.

Of course, if the opposition, and Mr Rudd in particular, have their way, this may be the last good news that small business owners receive. As we know, a Labor government intends, in its workplace relations policy, to abolish Work Choices and instead reinstate the unfair dismissal laws for small business employees. It has been another very important initiative of the Howard government to get rid of those draconian unfair dismissal laws which hung around the necks of small businesses and in fact prevented them from providing employment opportunities for people in the community, notwithstanding that often they needed those extra employees. The draconian nature of the old unfair dismissal laws was a substantial disincentive to small businesses to employ people.

So it is important that small business owners remain free to make their own workplace agreements with their employees under the Work Choices legislation that this government has initiated and do not have that opportunity diminished by the return of the unfair dismissal laws which Work Choices gets rid of. As I say, we must not allow the return of the Labor Party to government because that would not only undo the Work Choices legislation and the good work that that does for small business but might well undo these particularly important superannuation changes for small business.

I want to refer to the way in which these changes also have the capacity to address the challenge of encouraging younger Australians to save for their retirement through superannuation. The raft of benefits that I highlighted earlier make salary sacrificing into superannuation the most profitable and tax effective of a range of popular investment strategies. Superannuation is now far superior to negatively geared investments, whether property or shares—indeed, it is even superior to accelerating repayments on the home mortgage.

However, I think it is true to say that, despite these incentives, for those under the age of 40, whose retirement is 20 or more years away and who have immediate family and mortgage pressures straining their finances, the thought of saving for retirement is well down their list of priorities. It is a fact that most Australians save for their superannuation after they reach the age of 50. Getting young people to invest in superannuation is a tough problem because it is hard for them to envisage how much their savings will stack up over the years. The upshot of that is that younger Australians, especially in the lower to middle-income groups, almost certainly will need more help to follow through with any good intentions they have to contribute to superannuation. We need to find the right carrots to attract extra savings that will help younger Australians into a comfortable and enjoyable retirement.

The Howard government’s co-contribution scheme—another very positive initiative of this government—saw lower income Australians collect more than $33 billion into their superannuation funds from the government co-contribution over the last three years. The contribution rates and dramatic yearly fluctuations, however, show that this is not enough. We need to examine a number of possibilities to address this challenge. Introducing age based criteria combined with current income criteria for eligibility for the government co-contribution is something that I believe the government might consider. For example, for lower income and younger Australians we could increase the current annual $1,000 cap and/or increase the government co-contribution from the current $1.50 to $2 for every dollar that an individual contributes. We could combine those measures with relaxing the taper rate at which the government co-contribution is reduced for those earning more than $28,000. I believe these are initiatives worthy of consideration.

To support these options we also need better education and to initiate ongoing awareness strategies. For instance, many people in the superannuation industry are convinced that the government could achieve greater voluntary contributions if the regulators eased their rules which have made most commercial groups steer away from using calculators which enable people to model their own situation and see firsthand what they need to do to achieve their retirement financial goals.

Similarly, the Howard government’s recently introduced choice environment allows people to choose their superannuation fund. Despite the widespread benefits that this brings, there is, of course, additional administration for all businesses through an increased paperchase—sorting out separate super payments to scores of different funds, depending on the individual employee’s particular choices. Hence, establishing a super choice centre within the Australian Taxation Office would be a significant cost-saving solution, offering businesses one standardised payment process per employee without the maddening and costly paperchase.

New Zealand will be introducing this solution later this year, along with a world-first default super option that will see employees who do nothing having an additional four per cent of their wages deducted and paid into superannuation unless they tick a box opting out or specify another deduction amount. This initiative takes a common employee response to superannuation—that of doing nothing—and uses it as a tool to secure a comfortable retirement income for lower income and younger people.

Alternatively, in Australia, an opt-in box could be considered, applying to either salary sacrificing or co-contribution deductions. On the ATO tax file number declaration form, a new superannuation section could be linked to attached information, showing the employee what their level of contribution may net them at retirement, based on current projections, compared with not making voluntary contributions additional to the legislated nine per cent employer contribution.

Along these lines, the current choice authorising tax file number disclosure to an employee’s superannuation fund could also be changed so that disclosure is automatically authorised unless the box is ticked to deny disclosure. This could be accompanied by an attached explanatory note that nondisclosure could result in money which should be going to their superannuation fund being taken out in tax.

So there are a number of initiatives, I believe, which could create opportunities for young people—and, indeed, further incentives for young people and lower income people—to make worthwhile contributions to their superannuation funds to ensure that in retirement they will have an adequate retirement income.

With world-leading superannuation reforms being locked in by this legislation, we must continue to pursue and promote the Howard government’s reform agenda. There is no room for complacency in securing opportunity and building prosperity for all Australians over the long term. This legislation takes a major step along the road to those goals. It is yet another major reform of the Howard government, and I commend this legislation to the Senate.