Senate debates

Wednesday, 24 June 2009

Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009

Second Reading

9:40 am

Photo of Helen CoonanHelen Coonan (NSW, Liberal Party, Shadow Minister for Finance, Competition Policy and Deregulation) Share this | Hansard source

I rise to speak to the Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009 on behalf of the coalition. This bill has three schedules.

Schedule 1 is a tax measure that addresses the existing tax exemption for foreign employment income. Currently there is a tax exemption for income that is earned by Australian residents working overseas for at least 91 continuous days. These rules were originally introduced to ensure that people would not be subject to double taxation on their foreign employment income. However, this tax exemption created inequities between people working overseas, particularly those working in low-tax countries, and people working in Australia paying our standard income-tax rates.

The new legislation now proposes that all Australian residents earning income from foreign employment will have their income taxed under the Australian income tax system. They will get a rebate for any tax they have paid on that income to other countries to ensure that they are not double-taxed. This exemption will remain in place for workers undertaking certain aid or charity work, certain government work, and other work that is deemed to be in the national interest.

Whilst I do understand that this measure reinforces the general principle that individuals who are Australian residents for tax purposes should be taxed on their worldwide income, the proposed changes may indeed have some unfortunate results. The measure will place a new compliance burden on the individuals and the companies affected. For example, in the mining industry, most employers are foreign entities, and they are not governed or bound by Australian law. Their accounts are not freely available, nor is information regarding individuals or foreign companies operating in developing countries. In pursuing such information, the Australian Taxation Office would be required to breach various privacy acts on foreign soil. And, given that we do have numerous Australians working offshore—in mines, and as engineers and all kinds of professionals all over the world—these types of compliance issues should not, in our view, be underestimated.

In addition, on a personal level, there is a risk that those Australians working offshore will simply become nonresidents to avoid this taxation change. This would mean that they would no longer bring their money back to Australia to spend. We could also, potentially, lose their talent and experience—a literal ‘brain drain’ could well occur as a result of this measure. The equally unpalatable alternative is that they would give up their work overseas and return to Australia immediately, which would only increase our existing pressures on unemployment, particularly in the mining and finance sectors—sectors already suffering high unemployment, having been heavily affected by the pressures of the global financial downturn.

So we would just pose the question to the government: are either of these solutions the outcome really being looked for here, given that there is a legitimate policy purpose to be addressed? The proposal to make this measure effective from 1 July has given the families and companies affected no time to look at existing contracts and make life-changing adjustments and decisions. So there are certainly some either unintended or unpalatable consequences in the schedule.

The bill, of course, has two other schedules. Schedule 2 and schedule 3 both deal with changes to superannuation. Schedule 2, to my great regret, amends the existing superannuation co-contribution scheme that was introduced by the former coalition government. In fact, in my role as the former Assistant Treasurer I had, I think, the great fortune to develop the original co-contribution policy. The scheme was designed to encourage low- and middle-income earners to set aside some of their earnings for their retirement by providing favourable conditions for contributing to their superannuation.

The existing scheme provides $1.50 for every dollar that a low- or middle-income earner puts aside to look after themselves in retirement and, of course, it has been a very significant success. Regrettably, this bill proposes to, as it is expressed, temporarily cut the superannuation co-contribution scheme to a dollar matched for every dollar contributed, a substantial diminution in the incentive in the co-contribution scheme. The maximum government contribution will be lowered from $1,500 to $1,000. The government will gradually phase the co-contribution rates back up to $1.50 by 2014.

This measure will have a significant impact on the 1½ million Australians who received the superannuation co-contribution in 2007-08. So that is 1½ million low- and medium-income earners who are now going to have superannuation ripped away from them by this government. They are certainly not going to be supported by the government of Australia as they were under the previous coalition government.

There is also a lot of focus on the word ‘temporary’. It is very difficult to accept tha, when the Prime Minister and the government say ‘temporary’ they really mean temporary as in fleeting or certainly of very short duration. I do not think the length of time until 2014 is temporary. Do not forget that we heard that we were going to have a budget deficit for a temporary period of time, but we are going to have a budget deficit, as we now know, for years and years and years to come. The government has now used the word ‘temporary’ in relation to the wind back of this very positive superannuation co-contribution program. We certainly know that we cannot rely on the Rudd Labor government and I think we can take the word ‘temporary’ with a very big grain of salt. If I am passionate about the co-contribution scheme, so be it.

I do want to make the comment that this is a budget measure. It is a casualty, of course, of the mad scramble to make savings following the mad spendathon that this government has embarked upon—$124 billion of new spending since this government came into office. What this measure shows is that people, particularly low-income earners and families, are already paying the price. They are paying the price for Labor’s reckless spending and mounting debt.

The coalition are very proud of the co-contribution scheme that we introduced and in fact enhanced, and the sad fact is that this measure—introduced, they will no doubt say, as a matter of necessity to fill this burgeoning deficit in our finances and in our fiscal position—will reduce the capacity of low-income people to save for their retirement. It is a direct consequence and a casualty of this Labor government’s spending and inability to plan for the global downturn with anything other than a reckless spending spree. Cuts to the co-contribution scheme are a clear example of the price being paid for Labor’s huge debt.

The reason that we have such a large debt and that very good policies and low-income people are being impacted by the scramble to try and fill this big gap in revenue is explained as ‘trying to deal with the fact that there has been a very big revision in revenue’. That is true, but the huge impact of spending $124 billion since this government got into office and a debt of at least $315 billion is that two-thirds of that is due to new spending. About $95 billion of that is in stimulus packages. Our quarrel about the stimulus packages, which have had such an impact on a measure such as the co-contribution scheme, is not that there was not a case for stimulating the economy in the light of the reduction in revenue and the impact of the global financial downturn. Our argument with the stimulus packages has been first of all about the magnitude of them and, second, that they are doing so little for the long-term productivity and benefit of this country.

We had the early stimulus packages with the sugar hits, the cash splashes, that have not done anything significant to save jobs. We know in fact that, notwithstanding this huge spending spree, 80,000 jobs have been lost over the past six months. If these stimulus packages have been so effectively targeted to save jobs, why is it that we still see unemployment rising and 80,000 jobs lost over the past six months? It just does not stack up with the government’s claims that the sugar hits were creating jobs.

Then over the past few days we have seen the extraordinary events surrounding the wanton waste and inefficiency of the $14.7 billion splash on schools—dressed up as ‘Building the Education Revolution’, a very Orwellian expression. Of course, what it does is give a lot of schools a lot of facilities that they have not particularly sought and absolutely no flexibility to design what they really need and want.

This massive spending and debt are certainly not justified as supporting jobs in the magnitude claimed by the government. As I said, the trouble with the argument is that 80,000 full-time jobs have been lost in the last six months, with more than 24,000 lost just in May. We are entitled to ask: with such massive spending, why is the number of jobless still increasing?

The point of my discussion with the Senate today about the impact of these stimulus packages and the wanton waste and inefficiencies that we have seen in the second stimulus package—and, in particular, the spending on schools—is that one casualty of this poor planning and indiscriminate spending is a good measure like the co-contribution scheme that directly impacts on the low-income earners of this country, who otherwise, without these sorts of measures, would have had no incentive to save for their retirement. In fact, the reduction in the co-contribution is a direct result of the Rudd Labor government being unable to properly deal with the obvious pressures that have been brought about by the impact of the decline in revenue and the pressures of the global financial downturn. These people are paying the price for Labor’s reckless spending and debt.

Schedule 3 is focused on the area of superannuation concessional contributions. In this particular policy area, the government announced in the budget that it will halve the concessional contribution caps that currently exist for people to put aside superannuation contributions so that they can save for their future. The current provisions cap superannuation contributions at $50,000 for those aged 50 or lower and $100,000 for those aged 50 or older until 2011-12. The amendments propose to lower the cap to $25,000 for those aged under 50 and $50,000 for those over 50 until the financial year 2011-12. After this point, all Australians will be subject to annual contribution caps of $25,000. Of course, with this measure the government is undermining efforts to create self-sufficient retirees and provide retirement incomes for all Australians. It represents, I think, an assault on intergenerational responsibility for retirements. It is the first time in many years that the government has said to Australians, ‘We’re going to ensure that you can’t set aside funds for your own retirement anymore.’ For several years, there has been very much a bipartisan approach to superannuation and a real public policy interest in this nation that I think has been shared by both sides, by and large. But now I think that this measure very clearly says to people, ‘Don’t put aside as much; whatever you put aside, we’re going to support you less for your efforts.’

The end result of these two things will be that Australians will put aside less for their retirements and there will be more Australians calling on the public purse in the future. It is very unclear just what the government sees as the intergenerational pressures on superannuation and what it ultimately proposes. I know that there are many reviews going on, but these kinds of piecemeal measures, where you pull apart some parts of the system without thinking through the consequences, seem to my way of thinking to be very poorly thought out. With respect to Senator Sherry’s role in this, I am quite sure that he was not consulted—or, if he was, he probably did not have the ultimate say in these things—but that does not excuse the Rudd Labor government for not having a coherent approach before putting in place as part of a budget these measures which are so patently and obviously designed to just plug some revenue holes.

These changes, we think, are very short sighted. They may suit the government in the short term because they might claw back some $4.3 billion worth of tax savings for the government—which, of course, it desperately needs given that it has got this country into such a terrible situation with debt. We are back on the debt treadmill, so we know that these measures are designed very much to try and get us off the treadmill at some stage, although we cannot be very confident as to when that will be and what consequences this is going to have both for these measures and no doubt for others as the government realises the consequences of this ill-thought-out debt binge. These measures might serve the government’s short-term objectives; we acknowledge that. It is not that we are going to stand in the way of them, because we do understand that the government has created a big hole of its own making with debt, but in the long term they are going to mean that more people will end up dependent on the public purse—the public pension system—which is precisely what the government that I was a member of and a minister in for several years had very much sought to avoid. It is, I think, the first time that a government of Australia has sent such a negative signal to the people of Australia regarding savings for the future, and I am very surprised that the government was not able to find other ways to try to shore up its debt hole.

It is short-termist, I think. A grab of over $4.3 billion in these policy changes will no doubt help the government to rip back some savings from people seeking to provide for their retirement and will no doubt help the government, in the short term, to repay some parts of the monstrous debt that we are all now facing. But you really have to ask yourself: what is it going to do in the long term? What is it going to do to our objectives in the national interest to make as many people as possible self-sufficient in retirement, and what is it going to do in terms of undermining Australians’ confidence in saving for their future—the incentive to make whatever provision you can for your own retirement rather than be a burden on taxpayers? Yet again the superannuation goalposts are being moved, and uncertainty in superannuation undermines the system’s credibility and safety. It is, I think, disappointing in the extreme to allow measures to pass which hamper the ability of low-, middle- and high-income earners to provide themselves with an adequate retirement income. However, the perilous state of the budget requires such action. Australians impacted by these measures should know that this is a direct result of Labor’s reckless spending, and it should not be excused.


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