Senate debates

Wednesday, 23 November 2016


Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016, Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016; Second Reading

9:33 am

Photo of Mathias CormannMathias Cormann (WA, Liberal Party, Minister for Finance) Share this | | Hansard source

I move:

That these bills be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—



These Bills implement the Government's election commitment to improve the fairness, sustainability, flexibility and integrity of the superannuation system.

We want superannuation to keep working for all Australians in their retirement as we move through the twenty-first century and grapple with some key challenges, including the ageing of our population and the need to return the Budget to surplus.

The measures in these Bills also reduce the extent to which the superannuation system can be used for tax minimisation and estate planning.

But the changes recognise that in a modern economy, working patterns are changing across the population and over the course of people's lives.

That's why our reforms will allow the system to work more flexibly for Australians; it will reflect their changing work-life patterns, particularly for those whose work patterns and incomes vary over time.

While some measures place limits on the amount of contributions that can be made to superannuation or amounts that will receive tax-free earnings status, at the same time these measures target the tax concessions to ensure they are fairer and more fiscally sustainable.

A key change to ensure the sustainability of the superannuation system is the introduction of the transfer balance cap, which is contained in Schedule 1 to the Fair and Sustainable Superannuation Bill. This introduces a $1.6 million cap on the total amount of superannuation savings that can be transferred from an 'accumulation account', where earnings are concessionally taxed, to a 'retirement account', where earnings are tax-free.

Importantly, the cap only limits the amount that can be transferred into the tax-free environment; once there, that amount can continue to grow through investment returns.

On top of introducing the transfer balance cap, the Government is also lowering the non-concessional and concessional contribution caps. As we look ahead, we want the superannuation system to give individuals strong incentives to make additional savings over the course of their working lives. At the same time, we want to make sure that these tax concessions are better targeted. This involves changes to both non-concessional and concessional contribution arrangements.

Schedule 3 to the Fair and Sustainable Superannuation Bill lowers the annual non-concessional contributions cap from $180,000 per year to $100,000 (or $300,000 every three years).

In addition a lower annual concessional contributions cap of $25,000 will apply from 1 July 2017 to all individuals, and will index in line with wages growth in $2,500 increments.

As with all caps that form part of the Government's superannuation reforms, the concessional cap continues to be set at levels well above the average and median contribution levels. For example, the median Australian worker currently receives annual concessional contributions to their superannuation of around $4,200 per year.

We are also reducing the income threshold above which high-income individuals are required to pay 30 per cent tax on their concessional superannuation contributions — commonly referred to as the Division 293 threshold — to $250,000 per annum.

To be liable for a total of 30 per cent tax, a person would need to have more than $250,000 in combined income and concessional superannuation contributions in a financial year.

We are introducing a number of important flexibility measures. First, we are abolishing the so-called '10 per cent rule'. This rule prevented anyone earning more than 10 per cent of their income from salary and wages from claiming a deduction for personal superannuation contributions.

As a result of abolishing this rule, more people will be able to claim a tax deduction for personal contributions to superannuation. Now all workers will have the flexibility to make concessional contributions up to their annual cap.

This reform will benefit up to 800,000 Australians, particularly self-employed contractors, individuals employed by small businesses and freelancers. It offers flexibility to people who are partially self–employed, partially wage and salary earners and in instances where employers do not offer salary sacrifice arrangements.

Take the example of a firefighter who works part-time. They might also be a contract tradesman. Under the current rules, they can't access the superannuation concessions available to most of the population because more than 10 per cent of their income comes from their firefighting wage. They wouldn't be able to make concessional superannuation contributions from their contract work as a tradesman.

The second important flexibility measure we're introducing is giving Australians the flexibility to make catch-up concessional contributions when they can afford it.

From 1 July 2018, people with superannuation balances less than $500,000 will be able to access any unused component of their concessional contributions cap on a rolling basis for a period of five years. This is a crucial step in providing assistance to those – particularly women – who have interrupted work patterns, whether it be to raise children, look after elderly parents, or seek to boost their retirement savings just before retirement.

Thirdly, we're expanding the current spouse superannuation tax offset to help more couples who make contributions to their spouses' superannuation savings. We're extending it by making the offset available to those whose spouses earn up to $40,000. This is up from the current threshold of $13,800.

It will encourage an additional 5,000 people to make contributions to the superannuation accounts of their low-income partners, who are disproportionately women.

Taken together, the removal of the 10 per cent rule, the introduction of the catch-up contributions measure and the extension of the spouse tax offset provide more opportunities for couples to jointly decide how to balance their superannuation savings between each other.

The superannuation system is designed to encourage Australians to save for their retirement. That's why superannuation is taxed at a lower rate than income outside of superannuation.

But, for low income earners, the 15 per cent tax on superannuation contributions means they pay more tax on their superannuation contributions than on their take home pay.

So, we are improving the fairness of the superannuation system by also introducing the Low Income Superannuation Tax Offset.

This offset will ensure most individuals with taxable incomes of $37,000 or less don't pay more tax on their concessional superannuation contributions than on their take-home pay.

It's estimated that the Low Income Superannuation Tax Offset will increase the superannuation savings of around 3.1 million low-income Australians, or one in every five fund members. Almost two-thirds of these beneficiaries are women.

We are also improving choice and flexibility for Australian retirees looking to better manage the risk associated with outliving their retirement savings.

Currently, innovative income stream products that could help people to better manage the risk of outliving their retirement savings are not available because they do not qualify for tax-free earnings status. This has restricted the ability of retirement income providers to develop and bring new retirement products onto the market.

Extending the tax exemption on earnings in the retirement phase to products like deferred lifetime annuities will also play its part in providing more flexibility and choice for Australian retirees, as well as helping them better manage consumption and risk in retirement.

We are also improving integrity by making a taxation change for people who have reached preservation age but are under 65 and not retired.

Those people will still be able to access a transition to retirement income stream ahead of their retirement but earnings on the amount supporting it will be taxed in the fund at 15 per cent.

Taxing earnings on these accounts at 15 per cent will provide the same tax treatment as that which applies to all other individuals who are not yet retired.

The integrity of the system will also be enhanced by the removal of the inconsistently applied and outdated anti-detriment provision.

As part of this package of reforms, the Government is also streamlining some of the ATO's administrative processes.

Notably, these reforms will replace the existing release authority requirements with standardised timeframes and processes. Schedule 10 to the Fair and Sustainable Superannuation Bill will also introduce a default process for individuals who do not make an election within 60 days when dealing with all release amounts from superannuation, ensuring that the majority of individuals will be better off if they do nothing.

Finally, unlike some previous changes to superannuation taxation, the Government has carefully analysed the impact of this package of reforms and is making changes to ensure commensurate tax impacts on members of defined benefit schemes.

Many of our superannuation tax reforms will make the system fairer and more sustainable.

These vital and important goals would be undermined if the tax treatment of defined benefit schemes and constitutionally protected funds was not similarly adjusted.

In the past, governments have baulked at the challenge of tackling defined benefit schemes.

But this Government can not only identify tough issues – we can deal with them in a way that's fair and workable.

Full details about these Bills are contained in the explanatory memorandum.

Photo of Katy GallagherKaty Gallagher (ACT, Australian Labor Party) Share this | | Hansard source

I welcome the opportunity to make a contribution on the Treasury Laws Amendment (Fairer and Sustainable Superannuation) Bill 2016 on the Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016, which have taken a while to get here this morning. I think over the last few months, particularly since budget night, we have seen a very messy policy process from the government, which started with the announcement of these budget measures back in May. Within days of these measures being announced on budget night the unrest was evident within government ranks. The retrospective changes undermined confidence in the retirement system and sparked what we all saw as a very unseemly civil war inside the Liberal party. I think it is worth reflecting on how we got to this point and how much the division within the government over these reforms and this shambolic process have undermined confidence in superannuation.

Back in April 2015 Labor led the way from opposition and proposed its policies to reform superannuation tax concessions. We had done the hard work and put out this policy in time for people to consider and consult on the implementation long before the election was called. The government spent much of 2015 and 2016 arguing against the sensible changes to superannuation concessions that Labor had put forward. Then in the May budget the government announced its planned changes to superannuation. Done in a hurry and without consultation, the government's proposed $500,000 lifetime cap on non-concessional contributions triggered significant concern across the community, the superannuation sector and the media that the government was making retrospective changes to superannuation laws. Yet the government arrogantly ploughed on. In the hurry to an early election, when asked if he could foresee any circumstances in which the policy as detailed in the budget would change following the election, Prime Minister Malcolm Turnbull said, 'It is absolutely ironclad'—a choice of words I am now positive the Prime Minister regrets.

After one of the longest election campaigns of recent times, the divisions within the government became clearer. We saw several members of the coalition raise concerns about retrospectivity and we saw the spectacle of George Christensen MP threatening to cross the floor and oppose the government's budget proposals if changes were not made. We then saw the Treasurer and the Assistant Treasurer travel the country hosting forums with coalition MPs, convincing them and consulting with them over what changes should be made. This is a very unusual process, after the government has delivered its package in a budget. It seems to me that they have gone through the process of outlining what the reforms should be. Having to go and renegotiate these issues with members of your backbench on a national tour, while backbenchers are speaking out against the changes, seriously undermined confidence in the superannuation system. I think we see that reflected in some of the reports we have seen today about the massive drop-off in voluntary super contributions. After this national tour the government eventually announced a revised package which benefits high-income earners and fails to deliver the budget repair that is needed. While the government has now reluctantly scrapped its flawed and retrospective changes, Labor believes the current proposals do not go far enough to return fairness to the system, or to deliver substantial budget repair.

Labor is the party that built our superannuation system—something we on this side of the chamber are very proud of—and it is Labor that will always work to ensure that the superannuation system is fair and sustainable. A system that currently sees half of all superannuation benefits flowing to the top 20 per cent of income earners—with 40 per cent of superannuation benefits flowing to the top 10 per cent alone—is a system that clearly needs reform. The government's package that is before the Senate today goes some way to addressing the issues. Indeed, we do support the majority of the measures that are before us. In particular, we support the continuation of the low-income superannuation contribution. The low-income superannuation contribution, originally a Labor initiative, was to be scrapped by the government. However, we acknowledge that the government has now had a change of heart. When you seek to abolish something and then realise you have made a massive mistake that will significantly affect lower income earners and you realise that the Labor policy was correct, what do you do? You put it back in but you rename it something else so it presents as a new initiative and something that you can take credit for. This is simply a rebadging of the low-income superannuation contribution, now known in this bill as the low-income superannuation tax offset.

There are two areas where Labor proposes changes to the government's legislation. Firstly, Labor believes that the annual non-concessional contributions cap should be lowered from the $100,000 cap proposed by the government to an annual cap of $75,000. Statistics show that fewer than one per cent of Australian taxpayers made $100,000 or more in non-concessional contributions in 2012-13, while over 86 per cent of taxpayers made no non-concessional contributions whatsoever that same year. Many Australians will make a single, large non-concessional contribution at some stage in their working life, for example in the form of an inheritance or a property sale. The superannuation system allows for this by letting Australians bring forward three years' worth of contributions into a single year. But Treasury figures indicate the average contribution for these one-off lump sums is $135,000, well below the $300,000 that would be allowed under the government's plan or the $225,000 under our proposal. By lowering the annual non-concessional contributions cap to $75,000, Labor will ensure the carry-forward allowance remains generous enough to accommodate the kind of one-off contributions middle- and low-income taxpayers make while maintaining the fairness of the overall system.

Secondly, Labor believes that the higher income superannuation contribution threshold should be reduced to $200,000, rather than the $250,000 proposed by the government. Parliamentary Budget Office analysis estimates that less than four per cent of taxpayers would be affected by this change, which will deliver substantial improvements to the budget bottom line over time.

There are also two measures that Labor opposes in this legislation. Labor will not support the extension of super tax concessions to allow additional catch-up contributions. The government has specifically pitched this as a solution for women who may have had fragmented working years and as a result had lower superannuation balances. Despite this being the argument of the government, the evidence tells a very different story. This measure would allow individuals to carry forward their unused concessional contributions cap for a period of five years. Only around 2.3 per cent of taxpayers made $25,000 or more worth of concessional contributions in 2012-13, with their average income being $182,000. Most Australians on lower incomes are simply not in a position to afford to make additional contributions from their take-home pay. Despite what the government claims, this measure will not provide a vehicle for women on lower incomes who have been out of the workforce for several years to contribute extra to their super balances. I have talked with many women's groups about this issue and I have read the independent analysis. There may well be women who take advantage of catch-up payments, but we maintain that these women will be predominantly higher income earners who have the capacity to contribute over and above their employer contributions.

We need to look no further than the answer that Treasury officials gave in the recent Senate estimates hearings where it was revealed that the Treasury had been unable to model any gender split. The government has also been unable to provide data to support its claims that this measure would help address the issue of improving super balances for women. And they have no answer to the Grattan Institute's work which finds that this measure will actually benefit more men than women and that the men who will benefit from it are those on higher incomes. At a time when we are trying to work to make superannuation tax concessions fairer and at a time when we need to repair the budget, Labor does not support opening up new areas for tax concessions.

The other proposal we do not support is the extension of the provisions which allow tax deductibility for personal superannuation contributions. The problem with the government's approach here is that it is not targeted at all. Improving concessions for the relatively small number of people who cannot currently make salary sacrifice contributions or claim a tax deduction for their voluntary contributions cannot be a fiscal priority at this time. If there is a genuine problem with people falling through the cracks, then Labor will look at this, but this deduction would cost almost $1 billion over the forwards and it will be primarily taken up by higher income earners. We do not believe it is not the answer. These two measures combined that Labor opposes would also cost the budget $12.3 billion over the next decade and, at a time when we have a government that has more than tripled the deficit, Labor does not believe that they are in any way affordable.

In terms of some of the other measures in the package, we support the introduction of a $1.6 million superannuation transfer cap, the low-income superannuation tax offset, improving the superannuation balances of low-income spouses, removing the antidetriment provision for death benefits from superannuation, and strengthening the integrity of retirement income streams. Labor will continue to work towards a superannuation system that is fair, sustainable and sets Australians up for their future. We announced our package when we responded to the government's finalised package, which came out in three tranches of legislation just over a month ago. We have looked at that government package and we have finalised our proposals based on that. We have been leading the debate on reforming superannuation tax concessions for over a year and, while we do accept that the government's superannuation package goes some way to reforming these concessions, we believe they should go further.

I am in the process of circulating amendments in relation to Labor's position for the debate later this morning. These amendments reflect the position that Labor announced a couple of weeks ago on lowering the higher income superannuation contribution threshold to $200,000, lowering the annual non-concessional contributions cap to $75,000 and opposing those two measures I spoke about this morning, the introduction of the catch-up concessional contributions and the changes to tax deductibility for personal superannuation contributions. I look forward to speaking about these further when they are considered in the committee stage of this debate. I encourage other senators to look at Labor's amendments and to consider support for Labor's amendments, which we believe will certainly better target the superannuation tax concessions and also contribute to the very important task of budget repair.

9:45 am

Photo of Peter Whish-WilsonPeter Whish-Wilson (Tasmania, Australian Greens) Share this | | Hansard source

I also rise to talk about the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016. To put it in a nutshell, this is a step in the right direction, but it is nevertheless disappointing in terms of the quantum of reform to our superannuation system. This is the first piece of legislation we have had before us in the 45th Parliament that actually attempts some economic reform, so I will acknowledge that the government has brought this forward, and it does attempt to reform the superannuation system. However, most of the reforms we are dealing with here are just fiddling around the edges. They are very similar to previous reforms that we have seen in this country in the last 15 years, looking at things such as the contributions caps. We have done this before.

The Greens have been leading the superannuation reform agenda when no-one else was talking about it. This goes back to before the 12 months that Senator Gallagher said Labor has been focused on this. Under our previous leader, Christine Milne, we came out with the first proposal to make super fairer and progressive and to save government revenue at the same time—revenue that, we all admit, we desperately need. We may disagree on whether we have a spending problem or a revenue problem and how we should be prioritising this, but I think we all agree that we need to raise revenue in this country.

Superannuation is a critical area for us to tackle if we are going to not only make revenue gains but make this country fairer and more equitable. It has long been used by financial planners as a tax- and estate-planning tool. Let us not mince words here. Superannuation has become, in decades past, a tax haven for wealthy Australians, and it does need reform. While I recognise that this is a step in the right direction, it is a missed opportunity for us not to have made more progressive structural changes to superannuation. That is what we are here to do. We are here to reform the economy to make it more fair and equitable and to help balance budgets to provide the revenue we need for safety nets. This is a missed opportunity. Most of the measures in this legislation do improve the situation—I will go through some measures that we oppose in a minute—but many of the big gaps will remain. And two measures put forward by the government—those are the catch-up contributions and tax deductions for contributions—will open up new opportunities for economic exploitation.

Even after all these changes in the bill pass into law, the system will still be skewed to benefit wealthy Australians. Someone earning $240,000 a year—which is you and me, Mr President, I am guessing—will get a 30 per cent benefit for every dollar, while a single mother earning only $18,000 gets absolutely no benefit for putting money into super. The superwealthy will be able to transfer a significant amount of assets into super just before retirement and enjoy tax-free capital gains and a tax-free income stream from those assets.

We are haemorrhaging revenue in this country with no corresponding policy rationale. Mr John Howard, our previous Prime Minister, made this change when he was floating on the rivers of gold. We all remember those good old days during the mining boom. He wanted the older vote in this country, and essentially Australians are still paying for it.

Labor, along with the Liberal backbench, protected the wealthiest one per cent of super funds when they forced the government to back down from the lifetime non-concessional cap of half a million dollars. This is something we were very disappointed about. That did seem to be a reasonably significant reform. Understandably, significant economic reform is going to be difficult, but the difficulty in this case proved to be within the party room of the Liberal Party. We knew there was a rebellion on around that. The vested interests were swooping, and unfortunately the Treasurer backed down on that. But that would have been a reasonably significant structural reform had it gone ahead.

It is another example of how this parliament is making income inequality worse in this country. I have talked already in this new parliament about the range of bills we have seen already—the omnibus bill taking nearly $5 billion of spending cuts from tertiary students, from Newstart recipients, from single parents and from renewable energy. And then, only a couple of weeks later, we voted—including our friends at One Nation—to pass a bill in this parliament to give a tax cut to the wealthiest Australians. So we raised $5 billion by taking it from probably the most disadvantaged Australians, and then we gave it back two weeks later to the most wealthy Australians.

But I again acknowledge that at least this is some kind of economic reform that we are dealing with here today. We welcome the restoration of the low-income super tax offset, which was repealed by Mr Tony Abbott with Clive Palmer and Ricky Muir while they were still in this building. It disproportionately affected casual and part-time workers, who are overwhelmingly women and young Australians. We all know—or we should all know—that we have a real issue in this country with intergenerational equity, with issues such as housing affordability. Giving young Australians a leg up is one of the more important things that we can do as a parliament.

But it should ultimately be doubled because people below the tax-free threshold do not get the 15 per cent benefit that people earning between $19,000 and $250,000 enjoy. These people will also be unlikely to own a home, so they will be vulnerable in retirement and will end up costing future governments more.

There are still many problems in our superannuation system. Let us not be foolhardy and think that that is not the case and that somehow this legislation before us today is going to fix the problems. It will not. It is a compromise piece of legislation. It is still unfair. It still favours wealthy Australians. But these changes will make it slightly less unfair.

I am pleased to hear that Senator Gallagher, on behalf of Labor, will be putting up amendments, because the Greens agree with Labor's amendments. We recognise the package that Labor announced on this recently. There are multiple variations of how we believe the system could be improved. I will say—it is on the public record already—that we have had chats to the Treasurer and the Treasurer's office about what the Greens believe should be done to superannuation.

We took a very strong policy to the last federal election to make the super system more progressive, ending unfair tax breaks, supporting low-income earners and raising the revenues we need in this country to fund schools, hospitals and infrastructure. Our proposal is for progressive tax rates on superannuation contributions. At the moment, all Australians pay a 15 per cent tax on contributions into super regardless of whether you earn $15,000 or $500,000. Everybody pays the same tax rate. We want to see a system that taxes superannuation contributions in accordance with a table that we set out labelling a new set of progressive taxes that are higher than 15 per cent, based on the income that you earn.

Admittedly, if I am in the 49 per cent tax rate my contribution should be higher than that of someone who earns $15,000, but it will not necessarily be at 49 per cent. I will not go through the details of all that with you, but I will say that for $180,000 upwards, which is all of the senators in this chamber, where your current marginal tax rate is 45 cents in the dollar you are currently paying 15c. We believe you should be paying 32c. We believe that people earning between $100,000 and $150,000 should be paying a 22 per cent contribution, that the 15 per cent contribution should stay for tax rates between $37,000 and $100,000, and that there should be no tax on your contributions if you earn less than $37,000.

This would actually bring the super system in line with the progressive tax system that we have in this country on income. Let us face it, super is set up to pay your income in retirement. This would make it a lot fairer. Just as importantly, the Greens approach to reforming the super system would have brought in $11 billion of revenue over the forward estimates. That is significantly more than we are looking at with this package. It is what I would call a significant structural reform.

The amendments that I understand Labor are going to move—I would urge that they be passed by the Senate—are about improving the integrity of the tax system and preventing exploitation by financial advisers and are to slightly shift tax rates further to make the super system fairer. We have seen reports from the Grattan Institute and other commentators in this country that we could take them even further and still provide the incentive necessary to help Australians save. The tension in the super system is giving people enough of an incentive to save for their retirement, because a lot of us are busy and we do not necessarily think rationally in our busy lives. The super system was set up to provide a nest egg in our retirement on top of the pension. So we do need to give people an incentive—a slightly lower tax rate on their contributions—but at the moment it is still being rorted by too many Australians.

We would support removing the ability for catch-up contributions for someone who has contributed less than $25,000 and could be put in a lump sum on the difference. We would support allowing individuals up to the age of 75 being able to deduct super contributions from their income taxes. That would split the long held nexus between income from work and superannuation. We would support making super more progressive. Currently, people who with incomes over $300,000 pay 30 cents in the dollar for their super contributions. The bill lowers the high-income super charge to $250,000. The amendment that Labor is introducing to lower that further to $200,000 will still affect the top three to four per cent of income earners. That will raise an additional $700 million. The final amendment that, I understand, Labor will be putting forward is to clean up the mess on non-concessional, or what is commonly referred to as after-tax, contributions. These are what are exploited by the very wealthy individuals in this country. They pour their assets in and protect them from future taxation.

As I said earlier, this is a step in the right direction but it is a missed opportunity to bring in very significant reform. Even if we support Labor's amendments or were to put in new, targeted changes to super tax concessions, the billions of dollars we could raise would help us take pressure off other workers in this country, such as backpackers. We still have not sorted out the mess, the catastrophe, that has come to the Senate and the House that has put Australia's agricultural producers at risk. That is an attempt by the Treasurer to rip a couple of hundred million dollars out of some of the lowest paid people in this country—seasonal workers, itinerant workers, who are here on holiday. They choose to come here for a holiday because they can get work—and it is lucrative for them to work here. We know they spend most of their money in Australia when they are here, which is good for our economy. As workers they are available when they are needed. Agricultural producers, certainly in my state of Tasmania, always try to employ locals first—they have that policy—but when they need to pick, when they need hundreds of workers, sometimes it is very hard to get that labour, and backpackers supplement that labour.

We are in a situation at the moment—the Treasurer calls it belt-tightening—that is like the proverbial squeezing of the lemon; you cannot get any more out of the lemon. The lemon is low-income Australians, disadvantaged Australians and workers such as backpackers. Most of them earn, on average, only $14,000 when they are here. It is enough for them to choose to come to Australia for a holiday. We are penny-pinching. We are going after them for a miserly amount of money. With just a slight tweak to the bill that we are looking at today, on the contributions cap for after-tax contributions, we could raise billions of dollars and would be enacting progressive reform on a piece of legislation that essentially makes us, to use the term of Chris Richardson from Access Economics, Robin Hoods. That is what the budget was set up to do: tax the rich and give that money to the poor. Those not my words; those are the words of the man that the Treasurer was quoting the other day, saying we have budget crisis and we need to cut spending. Mr Richardson made it clear that the budget is our Robin Hood. It is about taxing the rich and giving to the poor. We have taxed a little bit off the rich, but we could do a lot more. There are still a lot of wealthy Australians using superannuation as a rort. Rather than putting our agricultural producers at risk by tweaking, fiddling around the edges and taking money off those who come here to help Australian industry and come here for a holiday, we could actually fix it here today by recouping that revenue by enacting some of the amendments that Labor are putting up.

I have said it before: it is a privilege to have this job here in the Senate and have the ability to represent the people who voted for you and the people who believe in your philosophy, whatever side of politics you happen to come from. We have the unusual position of privilege where we can take the will of the people who voted for us and try to enact reform and change legislation to fix this country to help the growing crisis of inequality—the same crisis that has driven the rise of Donald Trump in the US, the Brexit backlash in the UK and, I would also suggest, the rise of One Nation in Australia by the people who feel that they have been left behind. Inequality joins those dots. This is the issue that we have to face. It is the moral challenge of our generation. Everything we do here in the Senate in terms of legislation around economic bills should be viewed through the prism of trying to tackle the moral challenges of our time, such as inequality and, I dare say, climate change as well.

We at least have a piece of legislation before us today that goes some way to trying to raise revenue and taking more money from the rich. I reiterate: it is a shame it did not go further. It is a missed opportunity. The Greens will not be giving up on real superannuation tax reform. We will not be giving up on it. There is a lot more we can do. This is an area that we need to ratchet up in terms of taking away the structural system that allows wealthy Australians to use superannuation as a tax and wealth planning vehicle and allows them to avoid paying tax—the tax that pays for our hospitals and our schools. I look forward to having the debate in committee with Labor on the amendments.

On behalf of the Australian Greens, I move:23/11/2016 8:19 AM

At the end of the motion, add:

", but the Senate notes that this bill to tighten tax breaks for superannuation should be considered together with legislation to address the tax advantages for investors in real estate or more capital will be diverted into existing housing stock, making it even harder for young Australians to buy their first home and further entrenching wealth inequality between generations and therefore calls on the Government to undertake a review into how these superannuation changes will affect housing affordability for aspiring first home owners and report the results of the review to the Senate.".

10:04 am

Photo of Jenny McAllisterJenny McAllister (NSW, Australian Labor Party) Share this | | Hansard source

When Australia came into being as a nation, it was known as a real bed for social innovation. Australia was the place where we pursued a living wage and where we were able to establish a community in which everybody had what they needed. A core part of the origins of our nation was the pursuit of a secure income in retirement and so the pension was one of the very earliest elements of the Australian social wage. It came into play in the early decades of the Australian federation. I was fascinated to find that, when the pension was first introduced, women were able to access it and so from the very beginning the idea that both women and men deserved a secure retirement was built in. I suppose that is my focus, but I am concerned about the overall systemic integrity of our superannuation system. My interest in the last year or year and a half in this place has been to ensure that system works for all Australians—and not just men but women as well.

Much of what I want to contribute this morning relates to the ways in which this bill does or does not deliver a fair retirement outcome for women. For many Australians their superannuation account is the single largest asset that they will have outside their home. Superannuation represents an enormous component of Australians' savings. For those who do not own a home at all their superannuation might be the only real form of savings that they have. In this way it is incredibly important that the system is trusted and is perceived to be fair. It is also important for Australia in a macro-economic sense. There are now over $2.1 trillion in assets under management by superannuation funds, which represents an enormous source of financial stability for Australia, but again it underlines the significance of having a system that has integrity and is perceived to be fair.

I started by talking about the age pension but the development that happens with superannuation is that it comes in as a supplement to the age pension. It is not intended to replace the age pension; it is there to make sure that as many Australians as possible and enjoy a comfortable retirement when they come to the end of their working life. Superannuation is a Labor innovation and it is an innovation that we are very proud of. Again I say for us on this side of the chamber, the integrity of that system is enormously important.

Of course, the problem I have alluded to as I began is that this system at the moment really is not working for women and does not work for some other low-income earners either. We held an inquiry into the economic security for women in retirement, and the trigger there is the vast disparity between men and women's superannuation but the problems extend well beyond that. Women have half the superannuation of men on average when they retire. That is quite a shocking statistic. I think people are aware of the gender pay gap which sits somewhere between 16 and 19 per cent, and that has been fairly static for about 20 years. If we have a gap in pay, then we have a chasm in superannuation. That has real consequences. More than half of all retired women have an income that is less than $30,000 a year and there are more single women over 60 living in poverty than any other category in Australia. What was uncovered during the inquiry into the experience of women in retirement is that this has very real human consequences. We had many women come and tell their stories; and many other women have told their stories to me privately outside the process of the inquiry. We hear stories about people getting rid of their pet because they could not afford to keep a dog. You can imagine that is a very cruel circumstance for somebody who is living a very modest life having to let go of that source of comfort. I have heard stories anecdotally of people in Victoria who turn off their hot water in summer and only put it back on when it starts to get cold again, in an effort to save money.

There are women acknowledging that, if their husband leaves them, they are stuffed, that they are tied financially into their marriage and that the prospect of poverty is a real disincentive for them. In the context where we are absolutely concerned to see women safe and secure in the relationships that they are in, I think that level of financial insecurity for older women ought to be something that we are very, very concerned about.

There are many, many such stories. We ought to be thinking very carefully about what it means to be an older woman who has retired, because the stories that we heard are heartbreaking. My concern is that there is very little on the table from the government at the moment to address this problem.

The reasons for it are quite complex, and they are not simple to address. Nobody comes to this chamber and says, 'Oh, we could fix it overnight, if only we would do this one thing.' In fact, when we undertook our inquiry, we made 19 recommendations. They spread across a very broad range of policy areas. But, at the root of it, the reason that women find themselves in this predicament, with half the superannuation balance of men, overwhelmingly reliant on the age pension in retirement, is partly that women take breaks in their career for caring responsibilities. It is women stepping out of the workforce to look after children, to look after parents, to look after people with a disability. And we know from the work done by the Humans Rights Commission that women overwhelmingly bear the caring responsibilities in this society.

It is also true that the reason women have less superannuation than men is that they are concentrated in low-paying jobs. In fact, women are significantly more likely to be in the bottom two quintiles of income earners. I will come back to tax arrangements shortly, but it means that when we are thinking about tax arrangements, when we are thinking about the rate of tax paid by the most wealthy and the poorest in our society, we must think about gender as well, because women and men in their access to income and their access to wealth are not equal. Women and men have very different economic lives and very different economic experiences. When we are thinking about how we construct a tax system for retirement savings—or for anything else, for that matter—we ought to be paying attention to the very specific impacts that these measures might have on Australian women.

My concern is that that is not the approach that the government have taken in assembling this package. The government have said—they have asserted publicly—that this is a package that helps women and low-income earners. That is their public view. The Assistant Treasurer, for instance, made a point of this in a media release that she put out earlier this month. She said:

Our changes will help women, who may have taken time out of the workforce to raise children or to care for a family member.

But unfortunately I do not believe that that is borne out when you look at the details of this package.

Let us start with the changes to the tax arrangements for high-income earners. Now, I do congratulate the government for taking some action on this. Our super system should not be a tax avoidance system or an estate management tool. But the changes simply do not go far enough. The annual non-concessional cap should be lower. It should be $70,000, not $100,000. It makes a great deal of difference to fairness and, as my colleague Senator Gallagher pointed out, it makes a great deal of difference to the budget bottom line. Similarly, the higher contribution tax for people on very high incomes really should cut in much sooner than $250,000 a year.

It is true that changes to high-income arrangements will certainly go some way to making the system fairer. They will go some way to redressing the situation where the current distribution of tax concessions sees them go two to one to men and women. That is the situation at the moment. Of the tax concessions that are made available under the current arrangements, they overwhelmingly go to men. This package starts to deal with that problem, but it really does not go far enough.

On the second measure, the catch-up concessional superannuation contributions, the government claims that this measure will help women by allowing them to make additional tax-free super contributions when they are working, to make up for the period of time spent out of work. The problem is that most women are not earning enough to contribute an amount capable of making a difference. It is difficult to find extra money to put into your super when, like so many women, after a career break to care for a child or to care for a parent, you probably return to work part time. You probably return to work in a job that is not particularly highly paid. You are probably earning less than the average wage. The idea that a catch-up concessional contribution of, say, $25,000 might be in range for a woman who is returning to work after a period out of the work force for care is simply ludicrous. That is not the experience of ordinary Australian women; it is really not possible to argue that a measure of this kind will assist. Industry Super Australia estimates that this measure will help less than two per cent of women who have superannuation accounts, and it will mostly help people with super balances over $600,000.

The government proposes to improve superannuation balances of low-income spouses by allowing people, by allowing men, to put money into their partner's accounts. The government claims that this measure will help women by providing a tax incentive for more men to make contributions to their partner's super accounts. This proposal says quite a lot about the Liberals' view of gender relations, but it does not do a lot for women who cannot, or do not want to, rely on a partner for their economic security. Indeed, the title of the report produced by the Senate committee was A husband is not a retirement plan. Australian women crave economic independence. Economic independence is a pathway for a broader kind of independence, a broader autonomy for more choices. We all understand that—those are the messages we send our children and that is the approach that we ought to be taking when we are trying to construct reasonable retirement incomes, comfortable retirement outcomes, for Australian women.

The low-income superannuation tax offset is probably the only measure in this package that will have a real impact on the retirement gender gap. Of course, it is essentially a renamed version of a Labor policy that the government has been trying to cut for the last three years. It used to be called the low-income superannuation contribution. This is a program that made sure people earning less than $37, 000 a year did not have to pay more tax on their super than they did on their ordinary wages. The people who have been helped by this program are honest people, working honest jobs. They are teacher's aides, they are security guards, they are cleaners, they are shop assistants—and, for the most part, they are women. This is a measure that overwhelmingly has been accessed by women, and it was extremely important as an element in a package to try to address the gap in women's super. It is quite remarkable that at any point in this process the government sought to remove that measure, which overwhelmingly benefited low-income women.

I am pleased see that the low-income superannuation contribution has been retained, albeit with a new name, and I pay tribute to those people in the community who have fought for this—the superannuation funds, women in super, the women's groups who campaigned so hard. It is quite hard to run a campaign about tax—tax is complex, super is complex. You want to go out and have a public discussion about it and it is very hard to communicate what the implications are of a proposal of this kind. But the women's groups and the super groups went out there and made the case, and they did a very good job. They drew to people's attention that this proposal to remove the low-income superannuation contribution would have real consequences for women, was grossly unfair and represented yet another attack on low-income Australians which really ought not to have been supported.

In the context of a package that is spruiked by the government as supporting women I think it is of real concern that the only measure that really addresses the inequity facing women is a Labor policy. There has not been much creativity on the other side of the chamber in terms of what could be done to address this problem. We do not see very much in this package—we do not see a real attempt to address this glaring inadequacy in the super arrangements. The only measure that really goes anywhere near it is the LISTO, and that is a Labor policy that the government was dragged to kicking and screaming. It is a policy that they did not want to implement but were forced to do so by an excellent community campaign and because, as the conversation wore on, as the community and indeed Labor started talking about the fairness of super, it became clear that cutting the LISC would not be tenable, would not be perceived as fair and was completely unacceptable.

I am pleased that we are having a debate. I am pleased to see a package brought into this chamber so that we can start discussing it. As I said, it is hard to talk about tax and it is hard to talk about super, but it is absolutely critical that we do. We have built a system where Australians can expect a comfortable retirement and we have built that over many decades—in fact, over a century. But that job is never complete and we need to make sure, particularly as the superannuation system matures, that it is fair. It is important that we are able to keep talking about this. There is a lot that could be done to improve the package. Labor colleagues will be moving amendments later in the chamber.

I want to say, though, that whenever we are talking about super we need to think about it in the broader context of retirement income. There is sometimes a temptation to talk about super and super alone. Because of the vast sums of money involved it is very tempting, especially for the professionals involved in it. But we need to remember that super is a component in a broader retirement system that imagines a pension and superannuation, and that is the reality for most Australians. Most Australians are not in a position to save the amount of money that will sustain them independently in retirement. Most Australians rely in some part on the age pension. So, whenever we are talking about retirement incomes, we ought to also think about the age pension and make sure that it is not whittled away, make sure that the amount is enough to keep people comfortable and start to think about what it means for all the single women living on the age pension who do it so tough and whose heartbreaking stories were told to our committee.

We do not want to see the age pension whittled away. We do not want to see the coverage of the age pension whittled away. We do not want to see changes, as were proposed by the government earlier in its life, to the way that we index the pension so that it does not, in fact, keep pace with the cost of living. These are all things that this chamber ought to be concerned about because a comfortable retirement, a retirement that is dignified and a retirement that does not see people living in poverty was an objective in the foundations of the Australian Federation. It is something that we all ought to be deeply committed to. My concern in this debate about superannuation and in future debates about superannuation, the pension and retirement more generally, we are very careful to keep our eye on the impacts that any changes will have on Australian women.

10:22 am

Photo of David LeyonhjelmDavid Leyonhjelm (NSW, Liberal Democratic Party) Share this | | Hansard source

Taxation is a necessary evil rather than some highly principled act. So, if you think you can arrive at a perfectly designed tax system, you will end up disappointed. That said, there are some rules of thumb that should be followed when designing a tax system. One rule of thumb is that it is better to tax consumption rather than income. For those who want the well-off to pay more tax, taxing consumption does the job just as well as taxing income, if not better, and taxing consumption does less damage than taxing income. If there were no tax, we would choose a mix of spending and saving that was in our best interests. Saving is simply deferred spending. If a consumption tax is imposed, we would pay tax on our immediate spending and then we would pay tax on our savings when we eventually used them to boost our consumption. So the imposition of consumption tax would not change our mix of spending and saving by much.

Income tax is different. Apart from taxing wages, it taxes returns to savings, like interest, dividends and capital gains, and because income tax attacks these returns to savings each year it has a compounding effect. Someone who saves for a long time ends up paying far more tax than someone who saves for a short time or not at all. It is natural then for people to react to income tax by saving less and spending more than they would otherwise in their best interests. As a result, people end up worse off under income tax than they would be under a system that raises the same revenue through consumption tax.

Superannuation is a form of saving: it is putting money away for the day when we are retired and no longer working. It is good that people save for their retirement. If nobody did it, the country would be crippled by the cost of supporting millions of retired Australians. In fact, the more people save for their retirement the less a burden there is on those who are still working. The taxes on those still working can be lower, making it easier for them to save for their retirement.

We recognise this in our superannuation system. Taxes on savings in the superannuation system are lower than taxes on wages. But this differentiation is pretty half-hearted, and, with this bill, it will be even more so. Taxes on superannuation contributions and earnings should be zero. If they must be taxed, they should be taxed as lightly as possible. The right time to tax them is when they are used for consumption. But, over the coming three years, we can expect more than $30 billion of taxes to be extracted from superannuation savings. Some of that will be attributable to the bills before us today. They propose to increase superannuation taxes by more than $5 billion over the coming three years. That represents a tax hike of $70 a year, on average, per Australian.

But, obviously, not everyone will pay them. Even if you think these specific tax hikes will not hurt you, what they indicate is that your superannuation savings are not safe. Eventually, your savings will be attacked because we are governed by big-spending parties that think superannuation is a resource to be plundered. These bills impose a $1.6 million cap on the amount that can be transferred to the retirement phase of superannuation, where earnings are tax-free. This means that earnings on amounts over $1.6 million will now be taxed at 15 per cent even after retirement. Getting to $1.6 million will be made a great deal harder. The bills impose marginal tax rates on annual superannuation contributions in excess of $25,000. They also increase the tax rate on a person's annual contributions up to $25,000 if the person's annual income exceeds $250,000. The bills limit annual contributions to superannuation to $100,000 so that earnings on amounts in excess of $100,000 are taxed at marginal tax rates outside of the superannuation system rather than at 15 per cent inside the superannuation system. The bills also remove an income tax deduction that is currently available to superannuation funds when they pay lump sums because of the death of a member. I oppose all these changes because they lift the taxation of superannuation savings towards our excessively high taxation of wages. I also oppose them because they will inevitably lead to more Australians relying on the pension in their retirement.

With the disincentives, building up your superannuation will be harder and saving more than $1.6 million will not be attractive. Instead, there will be increased spending, leaving more people eligible for the pension as they run down their savings. The opposite should occur. We need more people saving for their retirement so that they do not need the pension. We need to send clear signals that there is nothing wrong with saving and aiming for a prosperous retirement. In public policy terms, fewer people on the pension means reduced government expenditure and a greater chance of balancing the budget—and, of course, more funds available for helping the genuinely poor.

But, amidst all this terrible treatment of Australian savers, I will finish my contribution on a high note. Some proposed changes in these bills will slightly offset the tax hikes. One such change is close to my heart because my lobbying made it happen. It is a rule change to allow people to deduct personal contributions to superannuation, even if their wage income exceeds 10 per cent of their income. This change is estimated to save hardworking Australians $850 million over the coming three years. It is the first tax cut the Liberal Democrats can claim some ownership of, and I am proud of it. I applaud this tax cut and the other small tax cuts in these bills, but I condemn the tax hikes. We need any taxes on superannuation to be far less than our excessive taxes on wages so that fewer of us end up dependent on taxpayer funded pensions when we retire. The major parties should keep their grubby paws off our savings.

10:29 am

Photo of Mathias CormannMathias Cormann (WA, Liberal Party, Minister for Finance) Share this | | Hansard source

I would like to thank all those senators who have contributed to this debate. These bills will ensure that superannuation tax concessions are better targeted and that the superannuation system is fairer and more sustainable as the population ages and fiscal pressures increase. I commend these bills to the Senate.

Photo of Glenn SterleGlenn Sterle (WA, Australian Labor Party) Share this | | Hansard source

The question is that the second reading amendment moved by Senator Whish-Wilson be agreed to.