Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition (Social and Community Affairs)) Share this | Hansard source

I rise to speak on the suite of bills that includes the Tax Laws Amendment (Simplified Superannuation) Bill 2006 and related bills. I begin by acknowledging the work of the Senate Economics Committee and the secretariat in dealing with this group of complicated bills. Given the challenges that were presented to the committee, that was done in a very professional way. It was only possible to schedule one hearing and, on the day of that hearing, the chair of the committee was sworn in as a minister. I would not say that we were a rudderless ship, but it was certainly a challenging experience to chair the inquiry and manage the evidence provided by the witnesses and the evidence that was not provided by the witnesses—and I will come back to that point in a moment.

I have listened with interest to the contributions made to this debate by government members of the Senate. I chuckled to myself as I heard some of the remarks that have been made. It was an obvious strategy to add extra speakers on the bill today. It was about trying to revisit and recast the history of the superannuation industry and how it has come to be such a thriving industry today. We know that it was because of the foresight of the Keating government and the superannuation regime that was put in place in the eighties that we now have such a thriving superannuation and financial services industry—and over $1 trillion of national savings—which is the envy of the world. Many countries have tried, without much success, to emulate what we have in Australia.

I would briefly like to go to the issues that were raised in the committee’s inquiry. One of the most frustrating things that we found in questioning Treasury and ATO officials about the superannuation bills was the lack of detail and the lack of information that was available to the committee prior to the hearing and during the hearing itself. We asked lots of questions about examples. We believe that the explanatory memorandum and the information provided to the committee would have been much stronger if we had had some case studies and vignettes to describe for us the implications of the changes. It would certainly have helped to illuminate some of the difficulties that we experienced in understanding some of the submissions that were presented to us. That lack of detail, which has come to be a bit of a hallmark of the material that the Economics Committee has had to consider over the last 12 months or so, is starting to be a very frustrating issue for us to deal with. Information was not forthcoming during the hearing. Even this week we have had the same experience in another hearing at which information that would have made an important contribution to the committee’s considerations was not made available.

We did hear some very important evidence, which was touched upon by Senator Webber earlier today and by Senator Bartlett, from the retired Defence Force personnel on the circumstances around their superannuation pension arrangements. I can only concur with Senator Webber that this is a group of people that need special consideration. The personal circumstances that were described to us by the witnesses of almost abject poverty in which some people are living because of the way in which their retirement benefits have been structured was something that I found very moving and quite distressing. Great courage was demonstrated by the witnesses, who came and explained the circumstances in which they were living and the way in which they felt that their whole contribution to and service in the Defence Force was so devalued by Australians, by the government and by us. It was an appeal across the board to us to recognise the significance of that and the fact that they should have some kind of indexation of their pensions. It is an issue that we raised in the report and it is an issue that I intend to pursue both because those who represented their circumstances to us in the committee have given service in the past and also because it is very likely that we are going to be dealing with this issue again before too long in the future. It is something we will have to come back to.

The second issue that was raised with us by a very vibrant financial services industry was the impact on financial planners and the retirement industry. It is perhaps an unintended consequence that, when you are trying to reduce red tape, you might actually shrink an industry quite dramatically. But I still think at the end of the day anyone over 50 who is trying to work out their superannuation does need the services of a financial planner. Retirement advice is very complex and this is going to have a significant impact for them.

If I can just reflect on this suite of bills and what the real impact is going to be, first of all, from 1 July, as we have heard, the superannuation benefits paid from a taxed fund, either as a lump sum or as an income stream such as a pension, will be tax free for people aged 60 and over. The benefits paid from an untaxed scheme, which mainly affects public servants, will still be taxed although at a lower rate than they are now for people who are aged 60 or over.

An interesting part of the discussion during the committee inquiry was the impact of the abolition of the reasonable benefits limits. I can understand now why that is such an important feature of the bills. Individuals will have greater flexibility as to how and when to draw down their superannuation in retirement, and superannuation funds will no longer be forced to pay benefits. The issue of the concessional tax treatment of superannuation contributions and earnings was also raised with us. Replacing the age based restrictions that limited tax deductible superannuation contributions by a more streamlined set of rules also seemed to be a very valuable change.

Senator Barnett talked about the self-employed and how they are going to be able to claim a full deduction for their superannuation contribution as well as being eligible for the government co-contribution for their after-tax contributions. The tax exemption for invalidity payments will also be extended to the self-employed. I think that is a very important leveller in this process.

Also important, given that we have a much healthier ageing workforce, is that the ability to make deductible superannuation contributions is being extended to age 75. The introduction of the compulsory tax file number will now make it much easier for people to find and transfer their superannuation between funds. We received evidence at the committee inquiry about concerns that people had about tax file numbers and how that would all pan out. But in the end I can see that there is a lot of logic to that process. It certainly will help to recover some of the unclaimed millions of dollars of superannuation that currently exists.

To increase further the incentives to save for retirement—also a very important issue—from 20 September this year the pensions asset test taper rate will be halved to $1.50 per fortnight for every $1,000 of assets above the asset test free area. It is helpful to know that the superannuation preservation age will not change. The preservation age is already legislated to increase from 55 to 60 between the years 2015 and 2025. People will still be able to access their superannuation benefits before the age of 60, although they will be taxed on their benefits under the new simplified rules.

We are all in furious agreement that the best way to save for retirement is through superannuation. For some people it will make even more sense to pay interest on their home loans while salary sacrificing into super. I was listening to a talkback program on ABC radio just the other day. Someone was giving advice that the sensible thing to do would be to borrow money and throw it into your super before 1 July this year, simply to get that benefit. So people are doing some interesting things, although I do not know that it is going to help too many people who are trying to achieve homeownership if they do what was suggested in that case.

Labor are supporting the bills, although from Senator Barnett’s comments you could perhaps think that we are not supporting them, and we have a second reading amendment that has been moved by Senator Sherry. The importance of the committee hearings—and the importance of this legislation—is to bring the superannuation regime into line with the taxation system, which enables a much simplified system that reduces red tape and allows ordinary folk to actually understand what is happening with their superannuation. I said before that the Keating government had a vision for well-funded retirement through comprehensive superannuation. We on this side acknowledge that superannuation is contributing to the economic health of our nation and that its impact is compounding just like the retirement balances of almost all employees. In fact, Labor’s superannuation guarantee has been one of the greatest equalisers in the distribution of wealth that the country has seen in a very long time, although I know that government members would choke if they were asked to acknowledge that fact. If Labor had not made superannuation comprehensive then at least half of the workforce today would have no superannuation. It would have remained the preserve of the public sector rather than having the national system that we now enjoy.

We recognise too the important role that Australia’s fund management industries now play in our economy. The committee received very strong evidence about that and the contribution for funds management that this simplification package will actually bring into play. They are high-value industries paying high salaries that are enmeshing Australia with the world’s leading economy and they help to underline our prosperity. So while the package of changes will improve the retirement incomes of many Australians, there still are some proposals and some fundamental superannuation reform challenges. I was very interested to hear Senator Chapman raise some propositions for additional reform and change. We will pursue those.

We need to increase the retirement incomes and improve the living standards of everyone in retirement. We need to take some of the pressure of our ageing population off our future budgets. As the Australian population ages, we are now seeing a superannuation system that is starting to provide adequate incomes in retirement and is easing financial pressures so that we can continue to deliver budget surpluses and underpin our economic prosperity. You would have heard from Senator Sherry that this is the argument that Labor has about keeping the budget in surplus on average over the course of the economic cycle. In the long run, as Australia’s superannuation assets continue to grow, we are going to continue to export our capital—and we heard a lot of evidence about Australian superannuation funds investing both directly in overseas markets and through foreign debt and equity markets. In some ways it is a shame that we are seeing superannuation funds being invested offshore. I remember saying in my first speech in this place that one of the things that we could do is start to encourage the investment of superannuation funds in regional infrastructure, something that perhaps still has a way to go.

Superannuation funds, as we discovered through the committee process, today hold assets equivalent to 95 per cent of GDP. That is an extraordinary amount, a mind-boggling amount of money, something that we need to be able to draw on in terms of our economic management. As I said before, it was frustrating that the committee did not have detailed costings of the policies. We asked for an estimate of the numbers of people that would be affected by different parts of the bills but we did not actually get that. So what a surprise it was when an almost half a billion dollar costing was upgraded between when the Treasurer first announced this package and when we finally started to see some of the detail.

The primary change in the package is that from 1 July the superannuation benefits paid from a tax fund, either as a lump sum or as an income stream, will be tax free for people aged 60 and over. For those people that I talk to that is probably the most significant change. Individuals will have greater flexibility as to how and when they draw down their superannuation entitlements. The concessional tax treatment of superannuation contributions and earnings will remain, and the tax exemption for invalidity payments will be extended to the self-employed.

We were also keen to look at the costs and impacts of the package—$7.2 billion over the next four financial years. The beneficiaries of the tax-free treatment will be those Australians who have or will have $136,000 indexed or more in superannuation. For Australians with substantial retirement savings, this package will provide welcome additional retirement income.

The measures in the package which expand and rationalise incentives for small business, by applying the same rules and including them in voluntary co-contribution schemes, are also welcome. They will help people in that growing sector of our economy. It should be noted that the loss to revenue from the new tax treatment of co-contributions will amount to $4.2 billion of the estimated $7.2 billion cost of the package, which means that the government is putting just over $1 billion extra each year into superannuation. Combined with a further $1 billion each year from existing voluntary co-contributions, a total injection of some $2 billion extra a year into superannuation has been provided by the government. That incentive approach is likely to see ongoing, additional voluntary contributions of $2 billion to $3 billion a year, which is very important for setting up Australians with decent retirement incomes. But the new flows to superannuation are put starkly in the shade when they are compared with Labor’s original compulsory nine per cent superannuation guarantee, which delivers some $65 billion every year. Credit for that achievement goes back to the far-sighted Hawke and Keating governments, which introduced Australia’s superannuation system.

We have a very strong superannuation system in this country. We have some suggestions that have been raised by the committee and here in the chamber, certainly by Senator Sherry, who is our superannuation spokesperson and is certainly our expert in this area. He has foreshadowed his amendment and also the fact that there are some reforms that need to be put into place. One proposal that strongly took our attention was about tax deductibility for and indexation of the disability pension. It was raised with us by the defence services organisation, and we believe it still needs to be pursued. I thank everyone who participated in the inquiry. I appreciate it was a quite challenging thing to do.