Tuesday, 27 February 2007
Tax Laws Amendment (Simplified Superannuation) Bill 2006; Superannuation (Excess Concessional Contributions Tax) Bill 2006; Superannuation (Excess Non-Concessional Contributions Tax) Bill 2006; Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006; Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006; Superannuation (Self Managed Superannuation Funds) Supervisory Levy Amendment Bill 2006; Superannuation Legislation Amendment (Simplification) Bill 2007; Income Tax Amendment Bill 2007; Income Tax (Former Complying Superannuation Funds) Amendment Bill 2007; Income Tax (Former Non-Resident Superannuation Funds) Amendment Bill 2007; Income Tax Rates Amendment (Superannuation) Bill 2007
On behalf of the government I thank all senators who contributed to the debate on the Tax Laws Amendment (Simplified Superannuation) Bill 2006 and related bills. This simplified superannuation package comprises a suite of reforms to superannuation taxation, the age pension assets test, superannuation contribution rules and superannuation payment rules. Collectively, I think it is fair to say that the reforms contained in this historic package will boost retirement incomes and greatly improve incentives to work and save. The changes will abolish the myriad complex rules that currently apply to superannuation benefits and give Australians greater flexibility as to how and when they draw down their super.
The centrepiece of the reforms, as has been noted, is to make superannuation benefits tax free for someone aged 60 or over if paid from a taxed superannuation fund. Lower rates of tax and simplified arrangements will also apply to benefits paid from untaxed funds to someone aged 60 or over. Improved incentives to contribute to super will be achieved by abolishing age based deduction limits and replacing these with streamlined contribution rules. Contribution incentives for the self-employed will be strengthened by allowing them full deductions for contributions and by providing access to the highly successful government co-contribution scheme. Overall, simplification of the superannuation system will encourage people to take a much greater interest in their superannuation and give them the confidence to make additional savings. The earlier people contribute, the greater the benefits they will receive.
Further improvements in incentives to save will be achieved by halving the pension assets test taper rate to $1.50 per fortnight for every $1,000 of assets above the assets test free area. This change will boost the retirement incomes of assets tested pensioners and increase the number of people who are eligible for a part pension and the associated concessions. The government is also enhancing the arrangements in respect of lost and unclaimed superannuation. Significant increases in resources for the ATO will be provided to reduce the amount held in lost superannuation accounts. The government will now be taking full responsibility for the management of unclaimed superannuation, which will provide a single access point for individuals searching for lost or unclaimed superannuation and a simpler, nationalised claims process going forward. It is, as I said, a historic, far-reaching and comprehensive package.
I will very briefly address and put on record the government’s responses to some specific issues raised during the debate. Firstly, I will turn to the release of long-term costs. These reforms are fiscally sustainable. The government has released costings in its press releases and in the Mid-Year Economic and Fiscal Outlook. The next intergenerational report, due later this year, will provide a long-term assessment of Australia’s fiscal position, taking into account the reform package. The cost of the reforms over the remaining years of the forward estimates represents around 0.5 per cent of government revenue. Even allowing for significant growth in the future, the cost of the reforms will remain a small component of government revenue.
The second issue is the higher threshold at which tax file numbers will need to be provided. Concerns have also been raised about the quotation of tax file numbers. Without tax file numbers there would be scope for significant abuse of the superannuation caps and for people to access superannuation concessions without limit. A high level of TFN quotation is crucial to the integrity of the new simplified super system. The $1,000 threshold seeks to strike a balance between the need to protect people who have very small contributions and, on the other hand, the need to protect the integrity of the new system by ensuring people cannot easily spread contributions across a number of funds in order to avoid tax liabilities and contribution caps. Greater TFN quotation will also assist in reducing the number of lost superannuation accounts, which will be of particular importance to low- and middle-income earners. The liability resulting from a person’s failure to quote a TFN is entirely avoidable and the government strongly encourages all individuals to provide their TFNs to their superannuation fund. In the lead-up to 1 July 2007, the government will be putting in place significant measures to encourage individuals to quote their TFN, including an extensive marketing and education campaign by the ATO. To further maximise TFN quotation, the Australian Taxation Office will use its own systems to match a tax file number to a member where nonquotation has occurred and contact the member to organise for the TFN to be quoted to the fund.
The third issue I want to address is low superannuation balances. Questions have been asked about the benefits of the reforms for those with low balances. The complexity of the current superannuation system impacts on all retirees regardless of how much money they have accumulated in superannuation. Removing the superannuation benefits tax simplifies the superannuation system for the overwhelming majority of the 10 million Australians who have superannuation accounts. It should lead people to take a greater interest in their superannuation savings and reduce the need for them to seek expensive financial advice.
The report of the task force on reducing regulatory burdens on business, Rethinking regulation, notes that:
While much of the complexity in the superannuation system was introduced to achieve equity objectives, complexity itself contributes to inequity—particularly for unsophisticated taxpayers and those who may not be able to afford financial advice.
A major initiative of the government’s reforms then is the halving of the assets test taper rate. Currently, a person with only modest superannuation savings or assets may be affected by the age pension assets test. As the superannuation system continues to mature, the full benefits of the reforms will be realised. For example, an average worker earning $1,000 per week and receiving only employer contributions will, after 40 years, increase their after-tax retirement income by 17 per cent.
The fourth issue is untaxed schemes. I know that has been the subject of contributions made in the debate. In respect of arrangements for untaxed schemes, Simplified Superannuation does achieve broad equity for the overwhelming majority of members of untaxed superannuation schemes. Members of untaxed schemes who are currently paying tax on the benefits will pay less tax as a result of the reforms. Retirees aged 60 and above receiving pensions from these schemes will now receive a 10 per cent tax offset, and the tax rate that applies to lump sum benefits paid from these schemes will be halved to 15 per cent for amounts up to $1 million.
Australian Defence Force personnel, as members of untaxed schemes, will also receive access to these tax reductions. The government recognises the important role that the ADF plays in serving and protecting the community and the country. Compensation provided to the ADF for their service extends beyond superannuation to include, for example, tax exemptions and offsets for certain overseas service and incapacity payments in the event of serious injury or illness. I note that the government has today announced an independent review of military superannuation arrangements to ensure that superannuation benefits are being provided in the most effective and sustainable manner for ADF members and their families.
In conclusion, these bills implement the most significant reforms to the taxation of superannuation in our country’s history. They will sweep away the current raft of complex tax arrangements that apply to superannuation, improve incentives to save, increase retirement incomes and strengthen incentives for older Australians to stay in the workforce. As a package they represent a substantial investment by the government in the standard of living of Australians in retirement and the country’s future economic prosperity. I commend these bills to the Senate.