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

The bill before us is the Tax Laws Amendment (2009 Measures No. 1) Bill 2009. It contains three schedules. Schedule 1 to the bill amends the Taxation Administration Act 1953. This schedule will reduce the PAYG—pay as you go—instalment amounts for certain taxpayers by 20 per cent, starting from the December 2008 quarter. Schedule 2 to this bill contains consequential amendments to the recent changes made to temporary residents’ superannuation and schedule 3 to this bill includes amendments relating to income test changes that were announced almost a year ago in the 2008-09 budget. I am obviously speaking on behalf of the coalition. There are some complex matters in this bill, so I will address each of them in turn and then address some concerns.

I will deal with schedule 1 first. On 20 November 2008 the member for Moncrieff announced the coalition’s policy to provide PAYG relief for small businesses. PAYG relief directly assists small businesses experiencing cash flow problems. Small business is the backbone of our economy and provides jobs to 3.8 million Australians. Of course, we all want to focus very much on the capacity of the economy to produce jobs. Our proposal would protect jobs by directly helping small businesses to keep employing their employees. This proposal illustrated the coalition’s demonstrated understanding and commitment to helping all small businesses in Australia. We recognise that many small businesses are experiencing cash flow problems. Unlike the Labor government, who are asking small businesses to spend large amounts of money that they do not have or that they are having difficulty borrowing before they can be eligible for any assistance, we understand the issues affecting small business. We have learnt that lesson well.

Almost a month after our announcement the government announced on 12 September 2008 that it would reduce the quarterly PAYG instalments by 20 per cent for quarterly taxpayers. The reduction will apply to small business entities, individuals and multirate trustees, full-assessment taxpayers with $2 million or less in instalment income for the previous income year, and full self-assessment taxpayers with more than $2 million in instalment income for the previous income year who are eligible to pay an annual PAYG instalment but have chosen not to. I am glad that the government was able to take our advice and assist small business by reducing the PAYG instalment amounts, so obviously we support schedule 1 of this bill. It is a very sensible measure.

Schedule 2 of this bill contains consequential amendments to the recent changes made to the temporary residents unclaimed money regime. This schedule will make the rules governing unclaimed superannuation for Australian residents consistent with the rules governing unclaimed superannuation for temporary residents. This will reduce the compliance burden on superannuation funds from maintaining two separate regimes. We clearly support schedule 2 of this bill, which is reasonably straightforward and uncontroversial.

Schedule 3, however, is a bit more complicated. This schedule contains the changes to income tests for financial assistance programs that were announced in last year’s budget. There are two elements to income testing: the items included in assessing income and the income threshold for that test. This schedule makes amendments to the first of these by expanding the definition of terms used to determine income. This element of income testing goes to ensuring the integrity of government assistance programs and should accurately reflect a person’s income.

The previous coalition government demonstrated our commitment to maintaining the integrity of income tests by undertaking decade-long reforms to income tests, starting in the 1996-97 budget—way back then. The coalition’s reforms to income testing did receive broad support from a wide range of stakeholders. This schedule then has three key parts: firstly, changes to some key definitions used in income tests; secondly, changes to the reporting requirements for taxation purposes; and, thirdly, changes to some of the actual income tests to give effect to the changes in part 1.

Part 1 introduces definitions for adjusted fringe benefits for reportable superannuation contributions, the total net investment loss, rebate income, income for Medicare levy surcharge purposes and reportable employer superannuation contributions. Part 1 of this schedule inserts a new definition of ‘adjusted fringe benefit’ to replace the existing definition of ‘reportable fringe benefit’. The definition of a reportable fringe benefit used for tax purposes is not suitable for income testing for government programs, for the reason that it does not reflect the cash benefit received by the employee. The Family Assistance Office currently uses an identical definition to the one being introduced by this schedule. This definition better reflects the fringe benefit received by the employee and it is consistent with the income definition currently used by the Family Assistance Office for income tested payments. As adjusted fringe benefits will be included in the new definition of rebate income, this new definition will apply to income tests for the senior Australian tax offset and the pensioner tax offset.

Part 1 of the schedule inserts a new definition of ‘reportable superannuation contributions’. This definition includes salary sacrifice to superannuation contributions and reportable employer superannuation contributions, which I will deal with a little bit later on. This definition ensures that salary sacrificed amounts are included under the income test when determining eligibility for government benefits.

I will now deal with total net investment loss. Part 1 of this schedule inserts a new definition of ‘total net investment loss’ and a related definition for ‘financial investment’. Currently, only net rental property losses are considered. The new definition will expand this to include losses arising from financial investments. Total net investment losses will include the existing definition of net rental property loss and losses arising from financial investments. Financial investments will include shares in a company, interests in a managed investment scheme, interests in a forestry managed investment scheme, an optional right related to any of the above, and any other investment that is of a similar nature to any of the above. A total net investment loss will include a taxpayer’s losses from financial investments and rental property that exceeds the income they received from the sources I have just mentioned.

This will not affect the ability of taxpayers to claim the tax deductions for those losses. However, the amount they would deduct will be included for determining eligibility for income tested government assistance. These amendments will add total net investment losses to the income test for the Commonwealth seniors health card. The income test for the Commonwealth seniors health card will also be amended by the Social Security and Veterans’ Entitlements Amendment (Commonwealth Seniors Health Card) Bill 2009, which we have not yet voted on but which is certainly before the parliament. Amendments in that bill add amounts that are salary sacrificed into superannuation funds and superannuation stream income from a taxed source to the income test for the Commonwealth seniors health card.

Part 1 also introduces two definitions that are the sum of other definitions used for income testing. One of these new definitions is ‘rebate income’. Rebate income is a definition that consists of the sum of other definitions and includes taxable income, adjusted fringe benefits, total net investment loss and reportable superannuation contributions. The single definition will make it easier to amend related income tests in other legislation. Rebate income will be used for determining eligibility for the senior Australian tax offset, the pensioner tax offset and the eligibility of a trustee for an offset. Part 1 of this schedule includes a new definition of ‘income for surcharge purposes’. This definition will be used to determine a taxpayer’s liability for the Medicare levy surcharge. This definition is similar to ‘rebate income’ as it is a definition that consists of the sum of other definitions. Like rebate income, this definition will make it easier to amend the income test for the Medicare levy surcharge. This definition will include taxable income, reportable fringe benefits, reportable superannuation contributions and the total net investment loss.

I place very clearly on the record that the coalition broadly supports measures to improve the integrity of income testing for government assistance programs. Part 1 of this schedule proposes a new definition of ‘reportable employer superannuation contributions’—or RESC, as I will be referring to it. I mentioned it earlier. RESC does not include payments made by an employer to meet the compulsory nine per cent superannuation contribution. It only includes amounts made by employees in addition to the nine per cent compulsory contribution. The proposed definition of RESC includes payments made by the employer to the employee’s superannuation fund where the employee ‘has or has had, or might reasonably be expected to have or have had, the capacity to influence the way the amount is contributed so that his or her assessable income is reduced’.

Any contributions made by an employer to an employee’s superannuation fund that the employee did not control will not be included in or as RESC. This includes the contributions made by an employer as part of an agreement that has been negotiated by a third party, who, of course, is often a union representative. This is another clear example of the Labor government’s policy agenda being driven by ideology rather than by common sense, as I think we will see in a moment. This proposed definition highlights Labor’s approach in managing Australia’s tax and transfer system. The Labor government have continuously claimed to be concerned about ensuring equity within the tax system. They have talked about that, but it can be a very different thing to actually implement changes to the tax system in a fair and equitable manner.

Labor’s legislation that we are considering will create two classes of employees: one class of employees who choose to negotiate their own employment arrangements and the second class of employees who choose a union negotiated agreement. Those employees who choose to negotiate their own arrangements will be treated very much as second-class citizens compared to those who are under a union negotiated agreement. This will create a bias towards workplace agreements negotiated by unions over those negotiated by employees. This is an example of an ideologically driven policy agenda for Australia’s tax and transfer system. I place on record that I am very pleased that in discussions with the minister’s office this has been recognised and there has been an approach that I think satisfies the coalition and indicates good faith in this respect.

I would like to provide an example of the effect of this proposal. For a certain government benefit the income test is $51,000. For example, let us take two people—Angus and Thomas—who both have a taxable income of $50,000 per year. Both of their employers make a 15 per cent superannuation contribution to their super funds, amounting to $7,500. Thomas reached an agreement with his employer to have 15 per cent paid into his super fund and Angus’s employment conditions are determined by a union negotiated agreement. Angus and Thomas both take home $50,000 and have $7,500 contributed to their respective superannuation funds. Angus will be eligible for the government benefit because the contributions made by his employer above the compulsory nine per cent are determined by a union negotiated agreement; however, Thomas will not be eligible for the government benefit because the additional six per cent superannuation contribution his employer contributes into his super fund will be included in determining his eligibility under the income test only because he negotiated it himself—and therein lies the rub, the problem.

So Angus and Thomas both take home the same amount of pay and have exactly the same amount of superannuation contributed by their employers but only one is eligible for government assistance. The government simply cannot justify this proposed definition as an integrity measure. As this example illustrates, the proposed measures will intentionally introduce a bias to income tests. The effect of the proposal in this measure is de facto discrimination against those Australians who choose to negotiate their own employment arrangements. This proposed change shows that either Labor do not understand the consequences of changes to Australia’s tax and transfer system or they simply have not addressed it, which is probably more the case.

I note that the report into this bill of the Senate Standing Committee on Economics shows that the additional comments made by coalition senators raised the concern that the proposed definition of RESC may create an unintentional bias. They also recommended that the bill be amended to ensure that such inequality is avoided. We have raised this issue in good faith with the government and have asked the government to address it. The fact that we are deliberating on these important and complex matters on this day in this additional sitting, and the fact that the bill was only brought on for debate in the House on Wednesday and we are told that the government needs it to be approved by parliament today in order to meet administrative deadlines, speak volumes, I think, as does the fact that we are not sitting beyond today before the budget.

The government first announced the intention to legislate these areas on budget night last year but is seeking to debate the matters in both houses in just the last few days before this year’s budget. We place on record our strong concerns about how this bill has been drafted. The parliament should have been given more time to consider the outcomes of this bill. We have stated in the other place, and I restate it here in the Senate, that we support integrity measures and we support the aspects in this bill dealing with other matters, but we do not support a system that treats employees on the same remuneration package differently based on the terms of their employment.

On Wednesday in the House the shadow Assistant Treasurer raised these concerns regarding the inequality arising from the RESC definition in good faith with the government and the minister has acknowledged the validity of our concerns. The government, as I said, has demonstrated good will by engaging in extensive discussions with the opposition to work through the inequality issues that we are concerned about that will arise from this bill.

Because of the good faith shown by the minister and his staff and Treasury, and recognising the fact that there are administrative deadlines that will be onerous for business in terms of compliance, we will not be obstructing this bill or moving an amendment to try to address it. This approach from the opposition is on the basis of, and following, the minister’s undertaking to ask his department to seek to examine any possible solution to resolve the issues we raised in the bill. On that basis we will not move amendments or vote against the bill, but we strongly urge the government, the minister and Treasury officials to work for a more equitable solution than we currently have in the bill.

Gavin Marshall (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

I note your confidence that this will be the last day of sitting. I hope you are right!

Rachel Siewert (WA, Australian Greens) Share this | Link to this | Hansard source

The Greens are very disappointed with key elements of the Tax Laws Amendment (2009 Measures No. 1) Bill 2009 and, unlike Senator Coonan, will be seeking to amend it. We share the opposition’s concerns around the timing of this bill and believe that it has unintended consequences. I also add that I think the opposition’s approach to the impacts that this bill may have on the community is very different to the approach it is taking with the seniors card. I find the approaches quite contradictory, and I will get to that in a minute.

In terms of the positive aspects of this bill, we can indicate our support for schedules 1 and 2. The Greens support the amendment in this bill to reduce tax payments for small business as a way of assisting them with the current financial crisis. We also welcome the administrative reforms to unclaimed superannuation schemes. The Greens will continue to support government regulation of business as a necessary part of our community, but we realise that, where businesses are regulated, it is a responsibility of the government to ensure that the compliance costs associated with it are minimised wherever possible.

The Greens welcome the objective of schedule 3 of this bill. We welcome efforts to better target government income support and tax offsets to people who genuinely need them. Consistent with the long-term Greens policy, this bill prevents the removal of some of the middle-class welfare payments made under the Howard government era and will prevent those on high incomes with the capacity to actively manage their non-cash income—for example, by salary sacrificing into superannuation or through receiving fringe benefits—to get their taxable income below relevant thresholds.

Under this bill people will no longer be able to sacrifice a significant amount of money into superannuation in order to receive government support. This is a bill that is long overdue. Likewise, it is appropriate that tax deductions associated with investment losses and fringe benefits do not provide a loophole for otherwise middle- or high-income earners to access the social safety net. The Greens also welcome the objective of the amendments to provide consistent treatment of a person’s income across income support programs and tax concessions. We agree that it is unfair that some people are able to access those benefits not because they need them but because they happen to be in a job that allows them to access fringe benefits and salary sacrificing arrangements which artificially decrease their income for assessment purposes.

That is the positive side of these amendments. However, from the Greens perspective, there are some overwhelmingly negative aspects in this schedule, and that is the impact on low-income earners in the community sector and more generally. There is a sting in the tail in this bill. There is the potential for some of these amendments to adversely affect some low-income workers—that is, those who earn less than $60,000 per annum who rely on salary sacrificing and fringe benefits to boost their income. This is an issue for all low-income earners but is of particular concern to people employed in the community and public hospital sectors, where fringe benefits and salary sacrifice super as part of a broader salary package is routinely used to boost incomes in order to attract staff. It is obvious that the impact of this will depend on individual circumstances and the actual eligibility thresholds for each of the affected payments or offsets amended. However, by examining most thresholds for payments in the bill, it is obvious that in many cases an expansion in the definition of ‘income’ will result in the loss of eligibility or a loss of some payment for low-income people.

For the community sector and the public hospital sector this is an unacceptable impact. These are people who do difficult jobs with relatively low pay and rely on these kinds of top-ups on already meagre salaries. Until the government agrees to increase their salaries to fair and real levels, fringe benefits and salary sacrificing will remain an important tool in attracting skilled people to these sectors. The effect of these amendments will be to remove access to income support or tax offsets that these low-income people can access to make their cost of living just a little bit easier to meet. These tests will also likely increase the rate of payment made under the Medicare levy SFSS and HELP schemes and effectively increase the tax paid by low-income earners and those with student debts less.

This issue came up last year. Those who were in the chamber when we were discussing this last year will remember the fierce debate we had around fringe benefits tax. The Greens are still seeking to increase the cap on fringe benefits from $30,000 to $40,000. This is an absolutely critical issue for the not-for-profit sector. The only way they can attract staff is by offering attractive packages through salary packages and fringe benefits tax arrangements. Not-for-profit organisations already have difficulties in attracting staff. This is going to make it that much harder. The government last year, following through from an amendment that the Howard government had put in place, was about to change the reportable fringe benefits for the purposes of family tax benefits. Fortunately, it realised that that was going to have quite a deep impact and did not proceed with that amendment. That then raised the issue around the cap on tax-free fringe benefits, and we had the debate about it in the chamber at the time. Everyone recognised and acknowledged that wages and conditions within the community sector were substantially below those offered in both the public and the private sectors.

This is an essential element that not-for-profits can use in order to pay and attract staff. It is well recognised that staff in not-for-profit organisations work for substantially less money than their counterparts in the private sector. The changes contained in schedule 3 will have an adverse impact on this sector. This will add to the pressure these groups are already under now because of the increased demand for their services in these economic times. The sector is also about to lose a significant amount of money through the government’s decision on employment reforms and employment services. Just last night the Minister for Housing, Tanya Plibersek, said that the government would be delivering more of the housing program through not-for-profit organisations and community housing organisations—a move I strongly support, I might add. They are not going to be able to do it if they do not have a sector, and they are not going to have a sector if they keep treating that sector in the manner in which they are treating it at the moment.

Senator Stephens is a very strong advocate for the not-for-profit sector. On the one hand, you have got the government saying positive things and trying to do positive things in terms of social inclusion and, on the other hand, you have got them passing policies that are having a negative impact on the sector. Come on, guys—get your approach right or at least be consistent. Do you or do you not support them? The government and Senator Stephens will tell you that these organisations were sent a copy of a discussion paper and that the bill went out for comment. It was a short period for comment, and I do not know how they undertook that consultation, but I can tell you that, with my phoning around, there are now very significant concerns in the sector about these issues. They have not been properly consulted. This is not a part of broader reform. The broader reform is going on separately to this.

The Greens ask the coalition to reconsider their approach to this, given that not two hours ago we had Senator Scullion in this place arguing that we could not make changes to the seniors health care card because it had not been considered in the context of the Harmer and Henry reviews, we did not know the numbers, we did not know the impact it was going to have and we did not know how many people it was going to impact. Those very same arguments can and should be used for these amendments. We do not know the number of people this will impact on, we do not know what effect it will have, we are doing it outside of the Henry and Harmer reviews and, most importantly, this is affecting low-income workers.

The difference with the health care card was that we were talking about people on higher incomes. These are people whom we are trying to keep in a sector that is under pressure, who are low paid and who are sacrificing a good deal of their life for community service and community work. We are now going to impact on them again. Admittedly, the impact will probably not be as bad as it would have been with the changes that the government did not proceed with last year—they have racked that down a little bit—but this is still going to have a significant impact. I cannot understand a government that is proceeding with these amendments when they do not know what impact it is going to have and when it is vital that we put resources and support into our community sector, not take it away. The Greens begged the government to take out schedule 3 so that we could look at it properly and have a proper discussion with community organisations, but they would not. The Greens begged the coalition to do the same thing, and I beg them again.

I will be submitting an amendment shortly to take this schedule out so that we can consider it at a later date and so that we can make a decision in full knowledge, because we are not now. Their arguments regarding these two bills are completely inconsistent and contradictory. On one bill they will vote down a measure because they do not know the impact, yet on this bill they will support it even though they do not know the impact. It is hitting at the most vulnerable low-income sector again. It is not the proper way to govern. It is not the proper way to make decisions on important issues like this, for a sector that is under the pump all the time and even more so now. Their services are being called on as never before and they are turning away thousands and thousands of people.

On top of that, the government has just made a decision that it will take away employment services from the majority of not-for-profit organisations operating in this country that use funds to subsidise and cross-subsidise other social and community services. This week, this sector is copping a double whammy, on top of the call on their services that is increasing exponentially. They are constantly reporting they are unable to meet need. There is a huge unmet need out there. Where is the compassion that we are supposed to be showing as a nation in helping the not-for-profit sector and helping our most vulnerable? I really urge the government to take schedule 3 off the table and to bring it back when it has got it right, when it has properly consulted and when it can put measures in to protect those workers that are on a low income across the board but particularly those who are working for the community sector. This will put further pressure on not only the community sector but the public hospital sector in attracting the staff that they need.

The Greens, at this stage, are urging the government to take schedule 3 out of this bill. If the government does not agree to that, we will be seeking to move amendments in order to protect low-income workers. We do not particularly want to do that, because we would prefer to deal with this in a more comprehensive manner. But we feel that this issue is so urgent that we really need to amend the legislation if the government is not prepared to reconsider schedule 3.

Gavin Marshall (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

Senator Siewert, is it not your intention to move an amendment now?

Rachel Siewert (WA, Australian Greens) Share this | Link to this | Hansard source

No. As I understand it, I move my amendment at the end of the speakers.

The Acting Deputy President:

Thank you.

Louise Pratt (WA, Australian Labor Party) Share this | Link to this | Hansard source

This afternoon I rise to speak on the Tax Laws Amendment (2009 Measures No. 1) Bill 2009. The Senate referred this bill to the Senate Standing Committee on Economics, and I was pleased to have the opportunity to examine some of the issues through that committee’s work. As has already been highlighted, the bill amends various tax laws to implement a range of improvements. It makes a number of amendments to our tax laws in three quite separate groups. These three groups of amendments are laid out in the schedules of the bill.

I would like to begin by making some comments in relation to schedule 1. Here we have, very importantly I think, a 20 per cent reduction of the pay-as-you-go instalments for the December quarter of 2008 for certain small businesses. It sets out the method by which the Commissioner of Taxation is able to determine the amount of pay-as-you-go quarterly instalments. The instalment system aims to smooth taxpayers’ cash flow by ensuring that taxpayers do not accrue large tax liabilities that may be difficult to pay as a lump sum. This would be an undesirable outcome. In order to prevent this, taxpayers earning business or investment income pay instalments towards their final tax liability during their income year. Some of these taxpayers may pay their PAYG instalment on the basis of what is known as their GDP adjusted notional tax. The instalments paid by taxpayers that will be affected by this amending legislation are set out in schedule 1 of this bill.

In this economic climate we know that business incomes have changed quite dramatically. Without this legislation, we may well be asking small business to pay too much tax upfront—more than they would otherwise be liable to pay. That is a significant disadvantage for small businesses that might otherwise be struggling anyway. So, broadly speaking, the GDP adjusted notional tax is worked out by increasing the taxpayer’s income in the previous year by that year’s rate of nominal GDP growth. This is known as the GDP uplift factor. In income years when economic and business conditions change quickly and unpredictably, causing the expected income of taxpayers to change accordingly, this uplift factor may not be representative of the expected profit growth of these taxpayers. That is certainly something we are experiencing at the moment.

What happens is that you have taxpayers who are required to pay instalments that are way too high in relation to their actual income. This income year is one in which economic and business conditions have already changed very dramatically. So, without this legislation, it is very likely that these taxpayers will have to pay instalments that are too high in relation to their actual income, unless the amendments proposed by this bill become law. Naturally, any overpaid tax would of course be refunded to these taxpayers at the conclusion of the income year, once their final tax liability has been assessed. But, in the meantime, paying overly high instalments can have very negative impacts for the cash flow of the small business affected because not only are they paying that higher rate of tax compared to their tax flow but they have a declining cash flow and, as we know, small business is also experiencing something of a credit crunch. Basically, those small businesses need that cash now.

It is true that taxpayers can vary their instalments on their own initiative. Many are reluctant, though, to work out reductions themselves because underpayments can trigger an interest charge: if you thought you were making the right decision and you underpay, you will be charged interest at the end of the financial year. On that basis, many businesses are quite reluctant to do that. What these amendments do is provide for a 20 per cent reduction in the instalment for the December 2008 quarter, and that is broadly in line with the average reduction in the instalments necessary in a single quarter to bring the instalment regime back into line with the expected slowing in small-business profit growth for the 2008-09 income year. So this reduction is going to avoid the need for small businesses affected to risk reducing instalments on their own initiative, while at the same time providing immediate relief to the cash flow of the small-business sector—a sector which provides, I think, about four million jobs.

It is really important that we do everything we can to support small business in the current economic climate. Senators will be aware that such cash-flow relief is much needed by small businesses and we really need to support their business confidence, because it is desperately needed in these difficult times. So the instalment reductions are going to offer relief to around 1.3 million small businesses that have an aggregated turnover of $2 million or less.

As such, this measure stands to benefit not only the businesses concerned but also their employees, suppliers and customers and, through them, the broader economy as a whole. This measure is part of the Rudd government’s broader commitment to take timely and decisive action to support small business and to ride out the current global financial crisis. The government are doing this because we value small business in its own right but also because we recognise the importance of small business to the broader economy.

As I said earlier, in addition to the instalment reductions in the December quarter, schedule 1 of the bill provides for a new regulation-making power, which is going to allow instalments to be reduced in the future in specified circumstances—when the economic conditions change. That is going to avoid the need for further legislation to effect reductions when those circumstances arise. It is going to give the government the flexibility to respond to the changing economic circumstances, which is very important.

Here we have greater flexibility in the tax system and a greater capacity to respond swiftly and appropriately to the changing economic circumstances that we currently face. This stands to benefit those small businesses that currently pay tax under this system. It is part of the government’s broad commitment to do what we can to make life easier for small business. I understand that the measures in schedule 1 have very broad support across the chamber, in recognition of their benefit to small business in these difficult times.

I will just comment very briefly on schedule 2, which makes largely technical amendments to superannuation. However, we know that government over many years has had difficulty matching up lost superannuation moneys with the people who actually own them. There are some significant improvements for temporary residents, as these amendments will reduce the number of lost accounts and amounts of lost money and enable temporary residents to reconnect with that income that they earned.

Finally, I turn to schedule 3. I know that Senator Stephens as parliamentary secretary will be responding to the issues raised in the debate, but I would like to note that for some time now there has been a level of inequity and unfairness in the way that taxation arrangements have applied to non-wage remuneration and discretionary losses. The amendments in schedule 3 will align the income test used to determine eligibility for the dependency tax offset with the definition of ‘income’ used for things like family assistance. The income cap will be linked to the income cap on family tax benefit part B. These changes are designed to introduce greater consistency across our tax and transfer systems.

I note that there is some controversy about these measures. I note that the government’s view was that there was a broad policy objective to remove inequities in the taxation levels that people were paying. Indeed, this was something that was supported by the Australian Council of Trade Unions in its submission to the inquiry, which said:

These are important equity measures which:

• Remove inconsistencies in the treatment of non-wage remuneration;
• Better target the dependency tax offsets to lower income families; and
• Treat the income of individuals and families without access to salary sacrifice arrangements in an equivalent way to those who are able to access—

such arrangements. So they see clearly that these provisions in the bill make our tax system fairer. Here we have in the provision in schedule 3 fairness within the tax system, in schedule 2 we have improvements to the superannuation system and in schedule 1 we have a commitment to assist small business to face the challenges presented by the global financial crisis. I commend the bill to the Senate.

Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I rise today to speak on the Tax Laws Amendment (2009 Measures No. 1) Bill 2009 to make a contribution in relation to the spouse superannuation tax offset. The Greens are particularly concerned about the proposed changes to the spouse superannuation tax offset. The new definition of income will include employer superannuation payments made to low-income earners in determining the eligibility of their spouse to receive a tax offset if and when their spouse contributes to their superannuation. This means that a low-income person’s total assessable income, reportable fringe benefits and employer superannuation contributions must be less than $13,800 for their spouse to receive the tax offset. This is likely to reduce eligibility for some couples to receive this tax offset and therefore discourage them from adding to the superannuation of the low-income partner.

We know that many Australians have an inadequate amount of superannuation for their retirement. For example, ABS data from 2006 indicates that, on average, Australians across all age groups only have $52,000 in their super accounts, and this reduces to $35,000 for women. So, at a time when we should be encouraging more people to save more for their retirement, we are reducing incentives for them to do so. This is short-sighted and illogical. While this amendment may save the government money in the next budget and the out years, if we do not get people contributing more to their super, particularly low-income people, this will have a long-term impact on government finances as those people seek income support in retirement. This is of particular concern for women, who generally have lower superannuation savings and, due to work breaks undertaken to raise children and other purposes, are less able to boost their super during their working lives.

These changes should be considered as part of the comprehensive changes recommended by Harmer and Henry. These amendments are being considered prior to the finalisation of publication of the broader Harmer review into pensions and the Henry review of taxation. Why is this the case? This raises questions of whether these changes pre-empt broader reforms and what may occur if they are not consistent with the government’s future response to these reviews.

The Greens want to keep in this bill the ability for the government to close down loopholes that allow middle-class welfare to flourish, but we want to ensure that low-income people are not caught up in these changes. The Greens, therefore, propose to amend this bill to exempt from these amendments people whose gross income is less than $60,424 per annum and exempt from changes to the superannuation spouse tax offset couples whose combined superannuation is less than $300,000. We believe that these amendments preserve the basic aim of the bill while ensuring that low-income people are not unfairly treated. We also believe that these recommendations will ensure that low-income couples continue to be encouraged to boost the superannuation of the low-income partner. This is particularly important when many of these people are women, who we know hold significantly lower superannuation savings than men.

Ursula Stephens (NSW, Australian Labor Party, Parliamentary Secretary Assisting the Prime Minister for Social Inclusion) Share this | Link to this | Hansard source

I thank all senators who have contributed to this debate on the Tax Laws Amendment (2009 Measures No. 1) Bill 2009 and those who participated in the hearings of the Senate Standing Committee on Economics into this bill. This is an important bill and one that the government is keen to see progress because it is part of our agenda to ensure there is consistency and fairness in our tax and transfer system.

The pay-as-you-go amendments contained in schedule 1 to the bill reduce by 20 per cent the PAYG instalment amount payable by certain small businesses for the quarter that includes 31 December 2008. The 20 per cent reduction in the PAYG instalment is intended to ensure that the PAYG instalments payable by eligible small business taxpayers more accurately reflect their expected tax liability based on actual profits for the 2008-09 income year. Let me assure all small businesses that the government is committed to helping them through the global financial crisis. This PAYG instalment reduction is one way of providing immediate and much-needed cash flow relief to eligible small business taxpayers.

Schedule 2, which has generally been considered non-controversial and been supported across the chamber, relates to the broader unclaimed money regimes, making the existing provision in the unclaimed money act more compatible with the new temporary resident superannuation provisions. The amendments also improve the general administration of the unclaimed money regime. This will assist superannuation providers to meet their unclaimed money obligations and make it easier for someone to be reunited with their unclaimed money.

Schedule 3 shows how the government is committed to enhancing the fairness and the integrity of the tax and transfer system. From 1 July 2009 individuals who have access to salary sacrifice arrangements to reduce their taxable income will be treated the same as those who do not have access to salary sacrifice arrangements for the purposes of determining eligibility for certain means tested programs. Salary-sacrificing individuals who benefit from tax concessions will continue to do so; however, those benefits will no longer flow through to the assessment of means tested programs and tax offsets. This ensures that government programs and tax offsets are delivered to those most in need.

I note the opposition have indicated their serious concerns that two employees on similar conditions might be treated differently as a result of this measure. This matter was also raised by the opposition in their additional comments to the Senate economics committee report on this bill. The opposition’s concern is that the definition of ‘reportable employer superannuation contributions’ may contribute an unintended bias as individuals on the same total income may have different RESC amounts, depending on whether their employment conditions are set by a common-law employment contract or an industrial agreement.

I understand, and Senator Coonan has confirmed, that there have been in-depth discussions today between Treasury officials, the Assistant Treasurer’s office and members of the opposition to attempt to resolve this matter. This is a complex and difficult area of tax law, and the government acknowledges that the opposition have raised a very legitimate question. The Assistant Treasurer has asked his departmental officials to seek to examine any possible solution to address these concerns.

Of particular concern to the opposition is the potential for an employee to move from one job to another on the same income but, if the second employer offers only a nine per cent super guarantee whereas the first employer offered a 15 per cent contribution, they may be treated differently. The government has undertaken to examine this issue and determine whether a solution is possible. Can I thank the opposition on behalf of the government for their engagement on this issue and the discussions that have been had in good faith. This is a sensible outcome, given how important it is for both the tax office and Centrelink that this bill, and in particular this schedule, be passed today. The test for determining whether superannuation contributions made by an employer are to be assessed as income is whether the employer had ‘capacity to influence the contribution’. It is not intended that employees be assessed on superannuation contributions over which they have no capacity to influence.

Together, these reforms ensure that the various tax and transfer programs are fairer and better targeted to those in need of government assistance. Can I draw the Senate’s attention to the report of the Standing Committee on Economics, which stated that ‘the relative complexity of the tax and transfer system will be reduced by the proposed measures’.

In relation to the timing of the bill, and the call by the Greens to withdraw schedule 3, I make the point that in April 2009 family assistance customers of Centrelink will be asked to estimate their income for the 2009-10 income year, and they cannot be asked to declare information for something that has not been made into law. So there is a real risk that the bill, as it applies to family assistance payments, might need to be deferred to later income years, and that would actually reduce the expected savings from the reforms. That would put a hole in the budget of $164 million. So it is an important measure and it needs to be resolved today.

In relation to the concerns that Senator Siewert has raised about the perceived adverse impact on the not-for-profit sector, I acknowledge Senator Siewert’s absolute championing of the sector. She is a strong advocate for all things that are in the third-sector space, and I thank and admire her for it. But Senator Siewert suggested that the sector had not been consulted on this. If I can put on the record what actually happened. First of all the government released the discussion paper and the draft legislation for public comment, in November 2008, and it was open for comment for a month. Comments from the not-for-profit sector were specifically sought about the impact of the bill, including from the Australian Council of Social Service, several church organisations including the Salvation Army and St Vincent de Paul, and the body that the ATO uses as one of its most powerful and connected consultative mechanisms, the Charities Consultative Committee—and the sector did not raise any particular issue of concern about the bill.

It is not an issue that has been raised with me, either, so I think the concerns that have been raised overstate the impact that it may have on the sector. I just wanted to ensure that that was on the public record. It seems to me that everyone is very mindful of what happened last year with the changes to the fringe benefits tax and family tax benefit arrangements. Having to fix that in such a hasty manner last year has made everyone more mindful about how there could be unintended consequences of legislation. But this is not, as we perceive it, an unintended consequence that would be of the order that Senator Siewert was referring to. Having said that, I thank everyone for their contributions.

Debate (on motion by Senator Stephens) adjourned.

Ordered that the resumption of the debate be made an order of the day for a later hour.