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

I know you are, and a well-versed and well-read student, Senator Murray. Labor is unapologetic about a combination of compulsion and a voluntary incentive approach. In fact, Labor is proud of compulsory superannuation.

Up until 1987 the benefits of superannuation generally flowed to about 40 per cent of the workforce, in the main middle- and high-income earners in occupations such as management and the public sector. The majority of low- to middle-income earners, often casual and part time in occupations such as retail, hospitality and transport, of which over 60 per cent were women, did not receive superannuation payments. As I have said earlier, Labor introduced compulsory superannuation. It was a matter of fundamental fairness. We are proud of that, and we stand by it.

Of course it represents not just critical social policy but also major economic policy. It adds to savings, helps investment and strengthens the Australian economy. I cannot think of a single measure in the Hawke-Keating period, the 13 years of Labor government, that was any better in terms of fundamental social and economic policy than compulsory superannuation. As I have said, it was trenchantly opposed by the current government.

Today there is in excess of $1 trillion in superannuation savings, and it is overwhelmingly driven by compulsion: the superannuation guarantee. As important as the co-contribution is and as important as voluntary top-up contributions are, with incentives in the system, I think over $60 billion a year—the considerable majority of superannuation flows—is a consequence of compulsion: the superannuation guarantee.

As I have said, in 1995 former Prime Minister Keating wanted to add to it with a co-contribution of three per cent from the government for three per cent from the employee. I was very pleased, actually, by an election promise made by the coalition in 1995. They promised to retain Labor’s commitment on the three per cent and three per cent co-contribution, albeit that they said they might deliver it in a different form. But what happened? In 1997, not in 1996, the current Treasurer, Mr Costello, abandoned the co-contribution—it must have been one of those non-core promises—and therefore abandoned the additional $4.5 billion that would have resulted from the compulsory co-contribution. He did replace it partly with what was called a ‘savings rebate’. The Parliamentary Secretary to the Minister for Health and Ageing is looking a bit puzzled, and I am not surprised, because this savings rebate introduced in lieu of the compulsory co-contribution only lasted six months. So it is no wonder that the parliamentary secretary is looking a bit puzzled; very few people can remember what happened to that savings rebate which was intended to replace the co-contribution.

However, things did get better in the saga of the co-contribution. We acknowledge that the government introduced a voluntary co-contribution in 2002. Of course, it is voluntary, so it costs a lot less, but let us put that issue aside. We took a $4.5 billion step back and then we took a $1 billion step forward, so some progress has been made. The initial co-contribution was dollar for dollar, within the parameters I have mentioned. Interestingly and, I think, usefully—and I give credit to the government—in last year’s budget the co-contribution was extended to the self-employed. I give credit to the government for expanding it further. That will probably bring the cost of the co-contribution to about $1.3 billion going forward. This gives vital assistance and encouragement to low- and middle-income earners. It is welcomed by Labor and, if Labor is elected to government, it will be retained.

As I mentioned, we have seen a one-off increase retrospectively in the co-contribution. I have to say again for the public record that it does represent somewhat of a rebuff to the current Assistant Treasurer, Mr Dutton. I was pleased to see him—and again, as a Labor member, in a bipartisan, positive way, I pay tribute to the Assistant Treasurer, Mr Dutton—publicly arguing this year for an expansion in the parameters of the co-contribution, specifically targeting people under 45 years of age, and not for a one-off retrospective payment. I think that was a legitimate, positive policy parameter change that the current Assistant Treasurer, Mr Dutton, was pursuing. But unfortunately Mr Howard, being the fairly cynical, clever politician that he is, obviously overruled Mr Dutton and said: ‘Look, there is an election coming up. Let’s be clever and cunning. Let’s drop a billion dollars and reward past saving one-off, because we do not want to increase the cost of this scheme in the years going forward.’ So, regrettably, the Assistant Treasurer, Mr Dutton, was overruled by the Prime Minister and the Treasurer.

As I have said, Labor supports the measure of an extra billion dollars to increase superannuation savings. But it does highlight the government’s lack of vision in what should have been a tackling of some fundamental design issues of the co-contribution. Mr Dutton’s positive suggestion was one that was made. I know the Association of Superannuation Funds and a number of others made positive suggestions around adding to the incentive for additional middle-income earners to contribute through the co-contribution. But we have had a short-term, cunning and clever political lump sum dropped in for one year instead. There is another design issue—and I know that ASFA looked at it—in that the cut-off point for middle-income earners is $58,000. ASFA are arguing for an extension of the cut-off point to higher up the income scale. I say on behalf of Labor that this is an important issue. If you look at when the scheme was introduced, you see that the 30c marginal income tax rate cut off at about $58,000. It has now been significantly increased, and therefore there does need to be a reconsideration of the design of that cut-off threshold.

I want to touch on a critique, and it is not my critique alone. There is concern about having a lump sum retrospective saving rather than trying to redesign the system to encourage future saving. It is a critique that has been made by some others. I have mentioned ASFA. Ms Smith, the CEO of ASFA, stated:

... there is disappointment because it is only a one-off for past contributors, so—

the budget—

missed an opportunity to change savings behaviour ...

She went on to state:

This initiative rewards individuals who accessed the co-contribution a year ago, but it is difficult to see how it will encourage younger people to invest in their retirement future.

As I have said, I think that is a legitimate concern. There was another critique from a Mr David Knox. He is not from the Labor side of politics; he is generally a supporter of the government. I think he was involved in the infamous Fightback design. He is an actuary of some renown and I have considerable respect for him. He is quoted as saying:

“I think the co-contributions payment is timed to be an attractive benefit in the lead up to the election,” Mercer principal of retirement David Knox said.

“We endorse any further support for savings, however, our disappointment is that this one measure won’t change future behaviour because it’s based on decisions people have already made.”

There are a number of other people who have pointed out a similar flawed approach, lacking in imagination, to examining the fundamental redesign of the system.

As I have said, Labor is supporting the Superannuation Laws Amendment (2007 Budget Co-contribution Measure) Bill 2007. There is an extra $1 billion going into the superannuation accounts for 2005-06 of low- and middle-income earners who qualify. There is one other group which, importantly, has missed out and which I did refer to earlier. The co-contribution scheme is to be extended to the self-employed. Frankly, I am somewhat surprised that the government did not pick this up: the co-contribution scheme is being extended to the self-employed, but it did not apply to them in the 2005-06 year. Therefore, the low- to middle-income self-employed people have missed out. I was taken aback by the fact that the government has totally ignored, with its retrospective one-off application, the needs of the self-employed in this area. That is an issue that I do not think anyone has pointed out so far in the public debate. Nevertheless, $1 billion is going into superannuation for low- and middle-income earners. It is a cunning and clever political ploy and we admire the cunning and cleverness of the Treasurer and the dash for lump sum cash in the run-up to the election—surprise, surprise, six months out from the election. That cunning and cleverness is all timed for the election. That is all part of politics, but the bottom line is that there is a billion dollars going into super. That will compound over time for those people. It will improve the retirement circumstances of those individuals and it should be supported.