Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Hansard source

The legislation before the Senate is seeking approval for a one-off additional government co-contribution into the superannuation accounts of those people who made eligible contributions in the 2005-06 income year. The legislation will effectively double the government co-contribution for those who have already made voluntary contributions in the 2005-06 financial year. It passed the House of Representatives yesterday, where Labor supported it, and we are supporting it here today.

The cost is estimated at $1.1 billion, with most payments being made in this financial year at a cost of $990 million and a further estimated cost of $80 million in the 2007-08 financial year. This, along with a number of other measures, characterises a very clever and cunning strategy by the government to disburse lump sums in significant ways in the lead-up to the election. Right on the lead-up to the election, six months out, we see these dollops of lump sums being distributed throughout the community.

In retirement incomes policy there are two approaches to increasing the level of retirement savings in a community. One is what is commonly known as compulsion. You compel people to save for retirement; that is done in a number of ways, such as compulsory superannuation. A government age pension is a form of compulsion. The other, which is usually a part of a retirement income system mix, is the incentive approach, where you reward people for future saving—with the emphasis on ‘future’.

A combination of measures has been adopted in Australia: tax concessionality and the co-contribution itself for future saving. I must say I cannot recall an example in any other country where they are significantly rewarding people for past saving, not future saving. It is a unique approach and probably a world first. Nevertheless, that in itself is not a reason for opposing the payments. Labor supports the payments because the payments will result in a one-off addition of just over $1 billion flowing into the superannuation savings accounts of about a million people. It is up to $1,500; not everyone gets $1,500. To that extent there is an improvement of about a billion dollars on the already $1 trillion of saving in the country.

I will describe briefly the operation of the co-contribution scheme. It grants up to $1.50 of government contribution for $1 of employee voluntary contribution, capped at a maximum government payment of $1,500. The current scheme allows the maximum government co-contribution of $1,500 to be paid up to the income threshold of $28,000 and then it phases down at the rate of 5c for every dollar of income above the threshold, completely phasing out at $58,000.

Co-contribution policies have a somewhat chequered history. The original policy of a co-contribution was announced by the Keating Labor government in 1995. This was to be a compulsory co-contribution—three per cent employee and three per cent government—to be phased in between 1996 and 2002. It would have delivered an extra $4.6 billion per year in 1996 dollar values when fully implemented. It was to build on Labor’s compulsory nine per cent superannuation guarantee, initially introduced at three per cent in 1987 and phased up to nine per cent by 1 July 2002.