Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Hansard source

I move:

That all words after “That” be omitted with a view to substituting the following words: Whilst not declining to give the bill a second reading, this House notes the Howard Government’s failures in superannuation policy.

The superannuation system that Paul Keating created for this country remains unique. It was a world’s first and it is world’s best practice. Whenever we consider changes to that system, we should remember a number of things. The first is that Australia’s superannuation savings are now approaching some $A1 trillion. In addition to guaranteeing Australians are more comfortable living in their retirement, it is taking pressure off our current account by providing a pool of savings available for those seeking to invest in Australia’s productive capacity.

Imagine where our current account might be now—already hovering at around 6.5 per cent of GDP—if we were borrowing from overseas pools of savings and paying additional interest on those borrowings to fund the investments that are currently being made. These investments are partly off the back of that superannuation pool of savings of $1 trillion that Paul Keating created when he created the superannuation scheme we live under today.

The other thing we need to remember constantly is that pressure is being taken off the Commonwealth budget as a result of the many people who will now be living off their superannuation savings rather than their being partly or completely dependent on the age pension—an enormous burden which the Commonwealth budget has been relieved of. So it is a big thing, and it is appropriate for us to think about that every time the government introduces changes to that scheme.

History will not treat the Howard government’s superannuation record kindly. I am not so convinced that, in the long term, history will treat the government kindly even on the changes proposed in the very recent budget. People will look back at the incredible shortsightedness and the missed opportunities. It is a problem that permeates this government, and it is little wonder that people viewed the recent budget more as a plan for an election than as a plan for the future.

Labor has always been ahead of the game in addressing the ageing of the population and we will continue to provide that leadership. The reason is simple: we believe in a better future for Australians. We believe that the nation’s super plan should be a plan for the future. When Labor introduced the superannuation guarantee we put in place a long-term mechanism for reform. We understood then, as we understand now, that the challenge of the ageing of the population would simply not fix itself. The superannuation guarantee has been the fairest measure in our community since Labor introduced Medicare. It has shown how good economic policy and good social policy can go together. To their great shame, the coalition voted against the super guarantee and have tried to undermine it ever since. Even though they had their own generous superannuation, they did not want to spread it to the whole workforce.

That is the point I did not make in my introduction. Keating’s super plan extended, for the first time, superannuation to all Australians. I made the point in an applied sense, but it is worth remembering that prior to Keating’s plan it was something exclusively for politicians, senior public servants and a few who could afford to make their own investment. In addition to offering a broader and fairer superannuation tax cut, Labor has led the debate on superannuation simplification and safety. We have said recently that we will simplify superannuation by (1) automatically consolidating superannuation accounts, (2) ensuring a standard reporting format for all funds and (3) offering investment choice to all fund members. Labor will also make the superannuation system safer by (1) fully compensating for losses in the event of theft, fraud and business failure, (2) establishing clear, simple and comparable disclosure of all fees, charges and commissions and (3) regulating some fees and commissions by (a) entry and exit fees prohibited, (b) commissions banned and/or restricted on super guarantee contributions and (c) a system of flat fees for advice.

Protecting Australians against theft and fraud, excessive fees, charges and commissions and misleading financial advice provides confidence in superannuation as an institution of economic ownership. People are entitled to a secure retirement. The way to provide it is to ensure that our simple and fair system remains safe, secure and adequate. In recent weeks, there has been a lot of interest in Labor’s fiscal policy framework. We have argued the case for an active approach to meeting the nation’s long-term savings and investment needs. As I have discussed, Labor introduced the biggest intergenerational policy of them all—compulsory superannuation. The principle of superannuation is simple: put a little bit away today so that we can maintain a decent standard of living in the future. We need to recommit to this principle constantly.

Superannuation for individuals will only be part of the solution to the ageing population. We know that it will not cover all of the costs and that it will not be the full answer for everyone. We will still need a social safety net, a universal public health system, affordable aged care services and an aged care pension for people to fall back on. Other nations do more than report on the intergenerational challenge; they respond to it. Nations such as New Zealand, Norway and Ireland put aside funds today so that they can meet the costs they know they will face tomorrow.

I had the great honour and privilege to visit Norway recently and to speak to the people who control what used to be called their petroleum fund but is now called their pension fund. It is interesting to note that the not too subtle title change was made in an attempt to quell growing public support for more expenditure to come from the pension fund than is now currently the case. In other words, by changing the name, the government sought to remind people that the then petroleum fund was there to cater for tomorrow’s liabilities and was not necessarily in large measure available for spending on certain recurrent costs of today.

I also noted while I was talking to the Norwegians that they have a fascinating ethical standard attached to their pension fund which ensures that those who control the fund are not able to invest in companies involved in industries which would not ordinarily enjoy the support of the local community, the most obvious example being the manufacturers of landmines. I note with great interest that our infant duplication here in Australia—the thing we now call the Future Fund—has no such ethical framework attached to it. I look forward to that debate panning out over the next little while, as I am sure it will and it should.

Just as Labor introduced compulsory superannuation for all Australian workers—a savings fund which can only be drawn upon to meet defined future needs of our people—we should consider this principle at the national level. We should put aside funds to deal with clearly defined future fiscal pressures—superannuation for the nation. For too long the budget balance sheet has been driven by short-term concerns such as the Treasurer’s obsession to sell Telstra and to kill the bond market. Labor will refocus the budget towards making provisions for our long-term intergenerational needs, including a transparent approach to dealing with unfunded superannuation liabilities.

The most basic of intergenerational tests is our willingness to provide for and invest in the future. At present, this is a test we are failing on both counts. Given its record on superannuation, I am surprised that the government wants to debate intergenerational issues at all. What is the Howard-Costello alternative to meeting future pressures through savings and investment? It is to pare back the social safety net—paring back Medicare and the public health system and pursuing an Americanised health system, refusing to ever face up to the long-term pressures confronting our aged care system, leaving it as a political football for every election, threatening the financial security of pensioners through the Treasurer’s latest big idea that there will be no such thing as full-time retirement, that people should have to work until they drop.

Labor is offering a different way. With a bit of foresight and a bit of planning, we can help achieve the future security and prosperity of all Australians. A civilised society should be able to meet basic needs of health, aged care and pensions into the future without forcing people to pay more and more. That will require action today for the sake of tomorrow. As with superannuation, only Labor is prepared to meet the challenge.

I want to return to a very important point I made earlier, and that is the way in which superannuation savings are being directed into investment for the productive capacity of the nation. People listening at home or in the gallery might say, ‘What does all that mean? What are we talking about when we talk about this new pool of savings?’ If people want to invest in Australia, they have to borrow the money from somewhere. We assume that if they need to borrow money they have to get the money from somewhere. They can get it offshore—of course, we pay interest on that money—or they can delve down into the savings of Australians. From that investment comes enormous benefits to the Australian community.

For example, in my electorate we have what is known as the Hunter Economic Zone. I cannot say that the Hunter Economic Zone would not have taken place if it were not for the assistance of superannuation funds or, to put it another way, if it were not for the capacity of the principals of the initiative to seek investment from superannuation funds, but there is no doubt that when you look at the Hunter employment zone or Hunter Economic Zone—the terms are used interchangeably—you will see there is some doubt as to whether we would have that initiative if it were not for the opportunity to draw on superannuation savings. Let me tell you what that project means for the Hunter region. This makes it tangible for people listening to this debate. This is what Keating’s $1 trillion bucket of money means for local regions. Nearly 14,500 people will be directly employed by businesses located in the Hunter employment zone. That is equivalent to 6.6 per cent of employment in the Hunter today. It is a huge increase. The current workforce of the Cessnock local government area, which I represent, is about 15,000 people. Through spending by state tenants and their employees, the business estate will also indirectly contribute over 12,000 jobs to the Hunter.

HEZ is expected to contribute about $1.1 billion directly and $3 million indirectly to value add to the Hunter economy each year for a total contribution of $1.4 billion annually—an increase of 9.6 per cent on today’s figures. Combining the direct contributions and indirect contributions—they are $2.8 billion and $5 billion respectively—to Hunter turnover, HEZ’s business estate is modelled to contribute about $3.3 billion to annual Hunter turnover. That is an increase of 11.4 per cent on today’s figures. There is expected to be a direct and indirect contribution of about $1.1 billion to annual wages and salaries in the Hunter economy.

There is talk of a gas pipeline being built from south-east Queensland right through the Hunter and onto Sydney. That will of course not only introduce greater competition in the gas market at every point down that pipeline, including in the Hunter, but also introduce additional competition in the gas market in Sydney, Australia’s biggest market, and no doubt as a result will drive gas prices down in the private sector for both residents and industry operating in Sydney. The gas pipeline would not be a viable proposition if it did not have the Hunter Economic Zone as a base customer. Superannuation savings, a pool of money, taking pressure of pensions, taking pressure off the current account and making savings available for investment in Australian projects like the Hunter Economic Zone all flow into delivering super benefits to regions such as the Hunter.

This brings us to the question of the most recent talk about superannuation—the government plans as announced in the budget. Some on the other side of the House have dared to criticise Labor for not articulating a fixed and firm view on these super changes. That astounds me, given that they are not in the budget and there is no real proposal. The Treasurer says he was out there consulting for 12 months to deal with the very many unanswered questions about that scheme, the least not being the transitional arrangements for many people, but the government wants us to have a firm position. That in itself is a ridiculous proposition and we certainly will not be drawn into it.

It is interesting to see the member for Wentworth at the table because he, like me, sat for a long time on the Standing Committee on Economics, Finance and Public Administration, putting a lot of energy into an inquiry into the adequacy of superannuation for under-40s in this country. I cannot say too much about that inquiry because the report is yet to be tabled. Indeed, I think it is still in draft form and that would be a question of privilege. I do not think anyone would be surprised to learn that members of that committee were surprised to see the measures in the budget. I do not think it would be giving too much away, or running the gauntlet on privilege, to say that it has obviously been a surprise to them and has caused them some difficulty, because these changes were out of left field. While they will no doubt prove to be politically popular, the question arises whether they are both good politics and good policy. I think there is a lot of debate to be had in this country before those matters are finally determined.

The good thing about the government’s super changes is that they present simplicity. There is no doubt that consumers and financial advisers alike have been seeking greater simplicity for a long time. The other good thing—I suppose you might call it a good thing—is that it retains the core of Keating’s super plan, the employer super contributions et cetera. So the savings net will continue. It is hard to argue that this legislation does anything about adequacy. I have not seen any great evidence that it will address in any way the number one issue, and that is adequacy. I do not see how it is going to add significantly to super savings for many people in many demographics.

There are a couple of big concerns with this legislation. One is that it would appear that the changes proposed—I underscore the word ‘proposed’ because in many senses we have not even seen the changes yet with no real costings—will undermine the progressivity of Keating’s scheme; in other words, make it more regressive, with most of the benefits coming to those on higher incomes who are most able to take advantage of the changes. What really surprised me about those changes—in fact, it shocked me and many in the community—was the removal of the incentive to take one’s super as a pension type payment; that is, as an annuity or an allocated pension, some other means of spreading the super over the balance of one’s life. This was a key element of Keating’s package.

What is the alternative? Give people an equal choice not affected by tax of taking an annuity, an allocated pension or a lump sum. Human nature is a fairly predictable thing. When some people who have never seen in one lump sum more than $50,000 in their life see a bucket of money worth anything up to $200,000, $300,000 or $400,000, I know what they will do: they will take the lump sum. Unfortunately, in some cases—it might be the minority of cases—they will also blow it. Some will do it almost deliberately—buy some fancy things, go around the world a few times or buy a new, gold wristwatch. Others do it inadvertently. Unfortunately, they will get caught up in a bad financial decision and lose the money. But, whatever the mechanism, whatever the process, one thing is certain: when the money is gone there is only one place to turn, and that is back to the age pension. This is not a clever move. It might be superficially attractive to some, but it is not a good thing for the nation. This is the debate we need to have.

Let me say this about the scrapping of the end benefit tax at age 60. The considerable majority of Australians do not pay this tax because it cuts in above $129,000 indexed for post 1983 superannuation savings. Even those that do pay it have it rebated back if they place the lump sum in a complying pension or annuity. That is the current system—again, an incentive to take the super as a long-term payment rather than a lump sum.

Turning to superannuation benefits, there is to be no income tax on a lump sum or pension at age 60. This is a significant change in benefit to those who have more than $129,751 in super savings at age 60. A person at age 60 will also be able to draw on their super even if they are still working full time or part time. They will no longer have to cease doing so at age 65; they can contribute to their super until age 75. This tax-free status will apply to new and existing retirees in a pension/annuity scheme but not to retired public servants in a defined benefit fund. It appears those in defined benefit pensions will receive a 10 per cent rebate instead. This, of course, is the politicians’ tax cut, the principle being that you cannot deliver in the budget a big tax break for those in a taxed fund because that would upset the relativities between those in a taxed fund and those in an untaxed fund. So to fix this problem, the principle is that you have to provide equity. The only way to provide equity is to give a 10 per cent rebate to those in an untaxed fund. This will affect not only politicians but also in greater volume public servants in these defined funds. That might be a principle worthy of supporting—it is a shame that politicians were in there muddying the waters—but it raises real questions about the government’s approach. These are the things we need to be debating.

Turning to self-employed contributions, the self-employed are to be covered by the co-contribution scheme and the same new general tax stream limitations as employees. Currently, a self-employed person can claim a 100 per cent tax deduction for the first $5,000 of contribution and a 75 per cent tax deduction for anything above this amount up to the age based limit, and the self-employed are not entitled to payment from the government’s co-contribution scheme. This is the only new measure that will directly encourage higher contributions to the system.

The number one issue is adequacy. Out of the government’s whole super package—I am not going to put a dollar value because they effectively have not but it is billions of dollars—only self-employed contributions are likely to add to adequacy. Again, these are matters we need to debate over the coming period in which the Treasurer has allowed us to consider the proposal. We will not be drawn in to coming to conclusions on them now.

With respect to contribution limits, there will be a new $50,000 yearly cap on all contributions for persons under age 49. This will replace the retirement benefit limit of approximately $1.3 million indexed and the existing age based yearly limits, which are less than age 35, maximum of some $14,000; from age 35 to 49, maximum of $40,000-odd; and, from age 50 to 69, maximum of $100,000. This is of benefit to those aged 49 or less as it allows them to contribute more to their super each year if they wish—if they can find the money to do so. It is negative for those aged 50 to 69 as it effectively halves the amount they can contribute to super. As the main group affected by this would be the high-income earners, the government has already flagged a transitional arrangement to help those persons over 50 who are disadvantaged—and so it should. This is the big call. I know that financial advisers around the country are scurrying to tell their clients to get that money into that fund while they can. They are typically self-employed, they earn good money, they are looking for an opportunity to divest themselves of some of that capital into super, and the government is about to change the rules on them.

With respect to asset tests for the age pension, there is a reduction in the pension asset test taper rate from $3 to $1.50 per fortnight for every $1,000 of assessable assets. Currently, the limits are a single home owner can accrue $165,000 in assets and a couple, $275,000 in assets, before it affects their pension. Currently, for every $1,000 of assets a person exceeds this limit, it reduces their pension by $3. The budget proposal will help age pensioners by a $1.50 reduction for every $1,000 over the asset limit. Superannuation will still be included as part of the income assets test in determining a person’s eligibility for receiving an age pension. There is nothing wrong with that. The opposition does not have a particular difficulty with that proposition but, again, where is the measure for adequacy?

I will briefly say something about the detail of the bill before the House, the Superannuation Legislation Amendment (Trustee Board and Other Measures) Bill 2006. I do not want to dwell on it. It is unusual for me to immediately follow the minister presenting the bill but, as he indicated, the bill consolidates and revises the government’s arrangements of the Commonwealth Superannuation Scheme, commonly known as the CSS, the Public Sector Superannuation Scheme, the PSS, and the Public Sector Superannuation Accumulation Plan, commonly known as the PSSAP, and gives effect to them from 1 July 2006. I love all those acronyms.

The bill’s introduction is in response to the Review of the Corporate Governance of Statutory Authorities and Office Holders, commonly known as the Uhrig review, which reported in mid-2002. So you can see the government has not rushed in. The Uhrig review was appointed to review the governance practices of statutory authorities and office holders. Of particular interest to the review were those agencies which impact on the business community. The objective of the review was to identify issues in relation to existing governance arrangements and to provide policy options for government to gain the best from statutory authorities and office holders and their accountability framework.

The review found that the Financial Management and Accountability Act 1997 should be applied to statutory authorities and recommended that these organisations should be governed by a CEO. The review also found the Commonwealth Authorities and Companies Act 1997 should be applied to statutory authorities and these organisations should be governed by a board. In general, agencies which exclusively manage Commonwealth appropriations should be represented and governed by a CEO, and a board structure is favoured if there is a strong commercial focus to the organisation or if the agency is intergovernmental.

The main recommendation of the Uhrig review was on the optimal size of a statutory authority board. The review recommended a public sector board size of between six and nine members. Currently, the boards overseeing the Commonwealth superannuation schemes are of different sizes: the CSS board has seven members, the PSS board has five members, and the PSS board is responsible for the operation of the PSSAP.

Following the release of the Uhrig report, the Department of Finance and Administration recommended that the PSS board be increased from five to seven members and that consideration be given to the establishment of a single board for the CSS, the PSS and the PSSAP. So the proposed merger of the CSS and the PSS boards has several advantages, including reducing complexity, simplifying administration and bringing the Commonwealth superannuation investments into line with best practice principles identified in the Uhrig review. Labor’s view is that this bill has no financial implications. It is true to the Uhrig report and on that basis we will be supporting the changes articulated in the bill.

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