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
When the debate on the Tax Laws Amendment (Simplified Superannuation) bill and related bills was interrupted for question time, I had outlined the major reforms that the Howard government has introduced with regard to superannuation which are reflected in this legislation. I was then outlining particularly the benefit that has been delivered to small business as part of decisions made in the finetuning process of those major superannuation reforms. I was referring to the provision in the legislation for an amount of up to $1 million gained over the lifetime of a small business person or farm owner to be put into a superannuation fund as an after-tax contribution, provided that money is derived from the sale of the small business or farm assets for the purpose of retirement.
This is a very important part of the legislation, a part that I strongly advocated with my colleague Senator Bernardi after meeting intending retiring farmers and their accountant in Adelaide in the latter part of last year. We listened to the concerns expressed about their inability, under the arrangements as they had been announced in the budget, to put the proceeds of their farm business, once sold for retirement, into superannuation. When this additional measure was announced it was decried by some, and I think by some in the Labor Party, as a benefit for the rich. It is nothing of the sort, because anyone who knows anything about small business or farmers knows that during their working lifetime they have very little opportunity to put money into superannuation because any surplus money from farms, on the rare occasions that a surplus is generated from a farm or from small business, is put back into the farm or small business to pay off the farm or pay off the small business. So, during their working lives, those people have very little opportunity to put money into superannuation, unlike people on salaries, particularly those on high salaries, who have that opportunity.
Traditionally, under previous arrangements, when those people came to retiring age they regarded their small business or their farm as their retirement nest egg and often sold the small business or farm and deposited the proceeds into a superannuation fund to provide adequate income during their retirement years. Under the initial announcement, with the $150,000 untaxed contribution limit that applied, or the $450,000 limit over a three-year cycle, this particular group were excluded from putting the proceeds of their business into superannuation. In effect, the $1 million only equates to what another person who could put in the $150,000 year by year for 20 or 30 years would have in their superannuation fund. So there was no particular concession being made to the rich, as the critics of this decision would have you believe. It in fact introduces an element of fairness for people who during their working lives simply do not have the capacity to put money into superannuation. It allows those people at the end of their working lives, when they sell their small business or farm, to make that contribution to superannuation.
This is a very important initiative, which, as I said, came out of discussions that Senator Bernardi and I had with constituents and their accountant. As a result of those discussions, I took the matter to the government members’ Treasury committee. Despite some initial reticence, I have to say, on the part of the Treasurer, he eventually saw the wisdom of extending this provision to allow farm owners and small business people to make this up to $1 million over a lifetime after-tax contribution. So this initiative does put small business people and farmers on an even footing with those who can make regular contributions during their working lives.
Unlike the other concession provided, whereby people currently planning to put money into superannuation from the sale of a home or other assets would have until 30 June this year to put up to $1 million into a superannuation fund, this is an ongoing provision well into the future. Provided that the small business or farm owner meets the same requirements in place to get the capital gains tax concession, these people will be able to make that contribution to their super fund to provide for their retirement. So, as I said, this is a very important provision. It is very good news for small business people and farm owners, who, as I said, regard the value of their business as their retirement nest egg and who in the past have always been able to put that nest egg into superannuation funds.
Of course, if the opposition, and Mr Rudd in particular, have their way, this may be the last good news that small business owners receive. As we know, a Labor government intends, in its workplace relations policy, to abolish Work Choices and instead reinstate the unfair dismissal laws for small business employees. It has been another very important initiative of the Howard government to get rid of those draconian unfair dismissal laws which hung around the necks of small businesses and in fact prevented them from providing employment opportunities for people in the community, notwithstanding that often they needed those extra employees. The draconian nature of the old unfair dismissal laws was a substantial disincentive to small businesses to employ people.
So it is important that small business owners remain free to make their own workplace agreements with their employees under the Work Choices legislation that this government has initiated and do not have that opportunity diminished by the return of the unfair dismissal laws which Work Choices gets rid of. As I say, we must not allow the return of the Labor Party to government because that would not only undo the Work Choices legislation and the good work that that does for small business but might well undo these particularly important superannuation changes for small business.
I want to refer to the way in which these changes also have the capacity to address the challenge of encouraging younger Australians to save for their retirement through superannuation. The raft of benefits that I highlighted earlier make salary sacrificing into superannuation the most profitable and tax effective of a range of popular investment strategies. Superannuation is now far superior to negatively geared investments, whether property or shares—indeed, it is even superior to accelerating repayments on the home mortgage.
However, I think it is true to say that, despite these incentives, for those under the age of 40, whose retirement is 20 or more years away and who have immediate family and mortgage pressures straining their finances, the thought of saving for retirement is well down their list of priorities. It is a fact that most Australians save for their superannuation after they reach the age of 50. Getting young people to invest in superannuation is a tough problem because it is hard for them to envisage how much their savings will stack up over the years. The upshot of that is that younger Australians, especially in the lower to middle-income groups, almost certainly will need more help to follow through with any good intentions they have to contribute to superannuation. We need to find the right carrots to attract extra savings that will help younger Australians into a comfortable and enjoyable retirement.
The Howard government’s co-contribution scheme—another very positive initiative of this government—saw lower income Australians collect more than $33 billion into their superannuation funds from the government co-contribution over the last three years. The contribution rates and dramatic yearly fluctuations, however, show that this is not enough. We need to examine a number of possibilities to address this challenge. Introducing age based criteria combined with current income criteria for eligibility for the government co-contribution is something that I believe the government might consider. For example, for lower income and younger Australians we could increase the current annual $1,000 cap and/or increase the government co-contribution from the current $1.50 to $2 for every dollar that an individual contributes. We could combine those measures with relaxing the taper rate at which the government co-contribution is reduced for those earning more than $28,000. I believe these are initiatives worthy of consideration.
To support these options we also need better education and to initiate ongoing awareness strategies. For instance, many people in the superannuation industry are convinced that the government could achieve greater voluntary contributions if the regulators eased their rules which have made most commercial groups steer away from using calculators which enable people to model their own situation and see firsthand what they need to do to achieve their retirement financial goals.
Similarly, the Howard government’s recently introduced choice environment allows people to choose their superannuation fund. Despite the widespread benefits that this brings, there is, of course, additional administration for all businesses through an increased paperchase—sorting out separate super payments to scores of different funds, depending on the individual employee’s particular choices. Hence, establishing a super choice centre within the Australian Taxation Office would be a significant cost-saving solution, offering businesses one standardised payment process per employee without the maddening and costly paperchase.
New Zealand will be introducing this solution later this year, along with a world-first default super option that will see employees who do nothing having an additional four per cent of their wages deducted and paid into superannuation unless they tick a box opting out or specify another deduction amount. This initiative takes a common employee response to superannuation—that of doing nothing—and uses it as a tool to secure a comfortable retirement income for lower income and younger people.
Alternatively, in Australia, an opt-in box could be considered, applying to either salary sacrificing or co-contribution deductions. On the ATO tax file number declaration form, a new superannuation section could be linked to attached information, showing the employee what their level of contribution may net them at retirement, based on current projections, compared with not making voluntary contributions additional to the legislated nine per cent employer contribution.
Along these lines, the current choice authorising tax file number disclosure to an employee’s superannuation fund could also be changed so that disclosure is automatically authorised unless the box is ticked to deny disclosure. This could be accompanied by an attached explanatory note that nondisclosure could result in money which should be going to their superannuation fund being taken out in tax.
So there are a number of initiatives, I believe, which could create opportunities for young people—and, indeed, further incentives for young people and lower income people—to make worthwhile contributions to their superannuation funds to ensure that in retirement they will have an adequate retirement income.
With world-leading superannuation reforms being locked in by this legislation, we must continue to pursue and promote the Howard government’s reform agenda. There is no room for complacency in securing opportunity and building prosperity for all Australians over the long term. This legislation takes a major step along the road to those goals. It is yet another major reform of the Howard government, and I commend this legislation to the Senate.
I am pleased to follow Senator Chapman in endorsing the very good policy contained in the Tax Laws Amendment (Simplified Superannuation) Bill 2006, because it is policy that is in the interests of all Australians. It is in the long-term interests of Australia and it has been quickly recognised as such by the men and women of Australia, the financial professionals and even the union dominated industry superannuation funds. The only people who have had to be dragged kicking and screaming to support this legislation are the economic spendthrifts on the other side of the chamber: the Labor Party. It took them months to decide whether they could support a fairer and simpler superannuation system for all Australians. Just as with the tax cuts announced in last year’s budget, it took them months to make a decision about whether or not they were going to support it. They have been dragged kicking and screaming from their 1950s central planning economic theory into the modern economic age that has delivered prosperity and success for so many Australians.
Listening to the previous speeches, I was surprised how far senators opposite have had to be dragged into the future. They are still backslapping about the victories of yesteryear. Their speeches were not about how good this policy is and how positive it is for Australians going forward; they were all about how Labor introduced superannuation. We have acknowledged that, but they are still backslapping and crowing about these things. As much as they crow and congratulate each other, we need to be reminded of the real achievements of Labor when they were in office. The facts are that unemployment averaged 8.5 per cent under the Labor Party, youth unemployment peaked at 34 per cent in this country, mortgage interest rates were nearly 17 per cent, and the average interest rate was 12.75 per cent throughout Labor’s period of administration. Industrial disputation under a Labor government averaged 193 working days per 1,000 employees.
Contrast that with the performance of this government. Unemployment is at 4.8 per cent, the lowest level in 30 years. Productivity is higher. Interest rates have averaged 7.15 per cent. Industrial disputes, I read the other day, are at the lowest level they have ever been. Real wages growth has peaked in excess of 16 per cent. Yet, despite the evidence that the coalition’s economic policies have delivered the best economic environment this country has had in 60 years, the Labor Party are still slapping each other on the back for the only sensible decision they made more than a decade ago. The Labor Party are living in the past. They are yesterday’s party. They have no vision for the future of this country save for a resurrected union movement seeking to take control of the freedom this government has given the workers.
This government, on the other hand, does have a vision for the future of Australia. With so many achievements on behalf of the good citizens, we could probably be excused for resting on our laurels. As comfortable as that might be, we are not prepared to do it. We are still producing policies and legislation that will deliver jobs, prosperity and continuing hope for all Australians. The Labor Party have had 11 years to come up with a coherent policy on anything, and we are still waiting. Instead, they decide to promote the architect of their Medicare Gold package to the leadership. I wonder if that policy gem is going to resurrect itself at the next election.
It is with confidence that on behalf of the people of Australia I speak in support of this bill. As a former financial adviser, I know about the complexities previously associated with superannuation. Making savings for retirement simpler and more tax efficient is a huge step towards the future prosperity of this country. Removing age based concessional contribution limits and installing an annual cap of $50,000 will make it easier for Australians to plan for their retirement.
Of course, any changes introduced in this environment, however positive over the long term, do have an immediate impact on a minority of Australians. This government has recognised the impact this has on those people who are planning for their retirement in the more immediate future. In an attempt to alleviate this, we have introduced a five-year transitional cap. This cap will help those people aged 50 or more to make a $100,000 annual contribution to superannuation for five years, covering financial years 2007-08 through to 2011-12. There are also opportunities for people to contribute a further $150,000 per annum in non-concessional contributions with transitional arrangements applied to offset any inconvenience or disadvantage to those already approaching retirement age. I have had first-hand input, as Senator Chapman alluded to in his speech, in meeting people and effecting change so that people who have gone down an extensive path of preparing for their retirement are not disadvantaged. I am pleased to say that this has been very well received.
These provisions alone are enough to warrant support of this bill; but, as the ads say, wait, there’s more! This bill provides greater incentives to invest in superannuation by simplifying the arrangements for the taxation of benefits. Most significant amongst these is the removal of tax on superannuation benefits paid to people aged 60 and over when paid from what is declared a taxed superannuation fund. This initiative has a positive and direct impact on around 90 per cent of Australian employees—further proof that this government is the best friend the workers of Australia have ever had.
This also provides an incentive for people to remain in the workforce, which helps our economy in a number of ways. Principal amongst them is that we are going to be retaining a lot of skills and experience to build a stronger and more prosperous Australia going forward. Part of a stronger and more prosperous Australia is of course a strong economy. To maintain a strong economy and to ensure that people cannot rort the system, we need to ensure there is accountability and efficient administration. This bill does exactly that, because it requires the provision of a tax file number before a person can contribute to a superannuation fund. This protects the integrity of the generous taxation concessions contained within the bill.
Not only is this government the best friend that the workers of Australia have ever had; it is also a very good friend of the self-employed. The self-employed—those entrepreneurs and free spirits who have clearly rejected the tired old Labor dogma—can now claim a full tax deduction for superannuation contributions, within the predetermined limits, until the age of 75. If ever there was a positive step forward to enable people to become self-reliant, to pursue their own business and to provide employment for others in this country to ensure sustained economic growth then this is a policy that will do exactly that. I commend this bill to the Senate. It defines a very clear path. It defines a path of future prosperity, a path that will build a stronger Australia, a stronger economy and an economy that only a coalition government is fit and equipped to manage.
It is a great honour and a privilege to support the remarks of my colleagues Senators Bernardi and Chapman, who have spoken in support of the Tax Laws Amendment (Simplified Superannuation) Bill 2006 before the Senate. In essence, the bill contains the most significant reforms to the taxation of superannuation in Australia’s history. That is the short of it and the long of it. It will remove the complexity that is currently in the system. It will sweep away the current raft of complex tax arrangements that apply to superannuation. It will support a number of the government’s key principles and messages. It will improve the incentives to save—and this government believes that is important. It will increase retirement incomes. We have an ageing population in this country, in every state and territory. Increased retirement incomes can only be good for those over 65. Nearly 13 per cent of the population is in that category and that percentage is growing by the day. The principles of improving incentives to save and increasing retirement incomes will be of tremendous benefit for that category of Australians.
This legislation will also strengthen incentives for older Australians to actually stay in the workforce, and I think that is a very good thing, particularly in light of the ageing population and the scarcity of workers for the jobs that need to be done in the years and decades ahead. It is a substantial investment by this government in the standard of living of Australians in retirement and, indeed, in the country’s future economic prosperity.
The legislation supports the thrust of good economic management, which has been the key hallmark of the Howard and Costello government over the last 10 years. We now have record low unemployment. We have record low interest rates. We have an increased number of jobs over the last 10 years, specifically since the tough decision to bring on the Work Choices reforms in March last year. Over 240,000 new jobs have been created in Australia. Not only has there been an increased number of jobs; there has been an increase in real wages of over 16 per cent, including in my home state of Tasmania. That is a tremendous result, particularly when you compare that to the 13-odd years of Labor government when there was actually a decrease of 1.2 per cent in real wages. How sad for the working men and women of Australia to have been subjected to that type of mismanagement of the economy.
Under the John Howard and Peter Costello government this is what has happened: there has been a real increase in wages, there has been an increased number of jobs, specifically since Work Choices, and there has been the lowest unemployment recorded for 30-odd years. This is part of the tapestry of good economic management that has been undertaken by the Howard government and will continue to be undertaken as we pursue this policy of continual improvement at every level. In terms of the taxation of superannuation, yes, this is a first in our history. I commend these bills to the Senate.
The Simplified Superannuation reforms are a broad-ranging suite of reforms to superannuation taxation, the age pension assets test, superannuation contribution rules and superannuation payment rules. The centrepiece of the reforms is making superannuation benefits tax free, if paid from a taxed fund, to Australians aged 60 or over. I want to outline some of the other key aspects of the reforms. There will be significantly lower tax paid on superannuation from an untaxed fund for people aged 60 and over. Age based limits will be replaced with streamlined contribution rules. Contribution incentives will be improved for the self-employed—and this is a very important category of the Australian community. Obviously, these are the small-business and microbusiness operators. The self-employed is a very large category of operators across this country. Livelihoods are on the line for the self-employed. They probably have mortgages on their homes and they have to make ends meet everyday. I commend the self-employed and thank them for their courageous approach to dealing with everyday life and looking after their families and their children.
To improve the contribution incentives for those people, we will be extending to the self-employed the government’s highly successful co-contribution scheme. Also, the reforms will halve the assets test taper rate and rewrite the superannuation taxation law to present a clearer picture of superannuation taxation and reduce the compliance costs and regulatory burden faced by business and other taxpayers. I am talking about small businesses in particular. Yes, it is important for large and medium-sized businesses, but we have 1.2 million small businesses in this country and about 600,000 of them are family based businesses. Wherever possible, we should use every ounce of our energy and every fibre of our bodies to reduce the red tape, the paperwork burden and the complexity so that those people can get on and do what they do best—that is, run their businesses. This is why I am so disappointed with Labor’s response to the government’s initiatives that are before us.
Yes—but your responses over the years to a range of tough government reforms—including the Work Choices reforms, which I referred to earlier in my speech—have been very disappointing. I acknowledge the work of the Senate Standing Committee on Economics and its report of February 2007, and I acknowledge the chair of that committee, Senator Brandis, who is now a minister. I notice that the deputy chair of that committee, Senator Ursula Stephens, has signed off on the report, and I commend her and her Senate colleagues on the report. I notice that the introduction of the report says:
The proposals, which are due to take effect from 1 July 2007, represent the most significant reform to the superannuation system in decades. They will potentially affect over 10 million individuals, 1.3 million employers and more than 310,000 superannuation funds. The cost of the reforms, including additional costs associated with the transitional and administrative arrangements announced by the government in September 2006, is estimated at $7.2 billion over four years, which is less than one per cent of Commonwealth government revenue.
That indicates the extent and breadth of the reforms that the Senate is considering today.
In conclusion, I acknowledge and thank the Treasurer, Peter Costello, and the Minister for Revenue, Peter Dutton, for their leadership on this matter. They have put a great deal of time and effort into pulling all of this together. This emanated from some of the budget announcements last year. Those initiatives have been followed through and they have been very successful indeed. I acknowledge that and thank the Treasurer and the Minister for Revenue for their contribution to the good of Australia and the working men and women of Australia, who will benefit under this particular policy.
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.
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.
I had foreshadowed my own second reading amendment and wish to move that in a moment. Before sitting down, I just want to advise the chamber that I had an amendment for the committee stage. I propose to withdraw that amendment. I understand that, as that was the only amendment for the committee stage, there will therefore be no committee stage. I move my second reading amendment:
- At the end of the motion, add “whilst the Senate acknowledges the Australian Democrats’ view that the ‘Simple Super’ package of 11 bills makes a genuine and systematic effort to simplify superannuation rules and taxation, and to encourage older Australians to work and save more, the Senate accepts the Australian Democrats’ view that the bills are inadequate because they only address part of a much larger problem—problems remaining in the superannuation system and the broader income taxation system include the need to significantly improve the disposable income of low-income Australians both in work and retirement, to address the markedly lower super funds accumulated by women overall, and the continuation of super discrimination against same sex couples”.
Original question agreed to.
Bills read a second time.