Luke Hartsuyker (Cowper, National Party, Deputy Manager of Opposition Business in the House) Share this | Hansard source

I welcome the opportunity to speak on the Tax Laws Amendment (2010 Measures No. 1) Bill 2010. The bill introduces a number of measures, the majority of which are supported by the coalition. The bill introduces protection to the deductions made by investors in forestry managed investment schemes. Previously, investors have been able to make deductions only after the interest is held for four years. These provisions will allow deductions where the four-year rule is not satisfied due to factors outside the investor’s control, such as the collapse of a forestry MIS, the death of the investor and where trees have been damaged by, say, natural disaster.

In the wake of collapses such as Timbercorp, these reforms are welcomed by the coalition as measures to improve investor confidence in forestry schemes by protecting them in unforeseen circumstances. The legislation also makes changes to the rules surrounding managing investment trusts. The government is amending the law to allow managed investment trusts to make an irrevocable election to apply capital gains tax on the disposal of certain assets such as shares and real property. Currently, when investments are disposed of, the proceeds can be classified as capital or revenue depending on the nature of the asset, business and investment activity.

The coalition support these changes because we believe they will provide certainty to investors by allowing MITs to make a one-off choice to apply the capital gains tax rules to the disposal of certain assets. If the MIT does not choose to apply the capital gains tax rules then the proceeds of the disposal will be classified as revenue.

The bill makes changes with regard to the entrepreneurs tax offset. The bill will introduce an income test for those seeking to access the offset. This was originally announced by the government in the 2008-09 budget and deferred. The amendments introduce an income threshold of $70,000 for singles and $120,000 for families. Above these thresholds the maximum offset that can be claimed is reduced by 20c for every dollar of income above the threshold. Whilst the coalition are concerned that these amendments will provide disincentives for entrepreneurs to create and access the offset, we are supporting this government’s budget decision and will monitor its effects.

The legislation also makes some minor amendments, addressing errors and anomalies within existing tax legislation. These changes will ensure the correct operation of existing taxation legislation by clarifying unclear provisions of the consolidation regime addressing incorrect terminology, outdated definitions, grammatical errors and punctuation errors. My colleague the shadow Assistant Treasurer will consider in more detail the elements of the bill I have just outlined.

However, incorporated in the bill are provisions that are of concern to the coalition. These provisions relate to the government’s policy to implement a superannuation clearing house for small business. The superannuation clearing house was promised by the government during the Prime Minister’s 2007 budget reply speech when he was opposition leader. The clearing house will allow small businesses to pay their superannuation guarantee contributions in a block to an approved clearing house at no cost to small business. The clearing house then splits that single payment into individual payments and remits them to each employee’s respective superannuation fund account. The service will be available to employers with fewer than 20 employees. The Labor Party in opposition argued that the Howard government’s superannuation choice policies, as introduced in 2005, increased compliance costs for small businesses, which in many cases were now required to make separate superannuation payments for each individual employee. This situation was a bi-product of the success of superannuation choice—that so many employees chose their own superannuation fund after the policy’s implementation.

The coalition support measures to lower the compliance costs of super guarantee payments to small business. We support the availability of a superannuation clearing house to small business. However, the superannuation clearing house represents an example of another broken promise by this Labor government. Firstly, the government promised that the clearing house would be implemented by 1 July 2009. Early actions by the government indicated they were trying to meet this target. The then superannuation minister, Senator Sherry, released a discussion paper in November 2008 asking for submissions on its implementation. Over 12 months then went by without so much as a word of what the government intended to do with their promise to deliver clearing house services to small businesses by 1 July 2009. Well, 1 July came and went, and surprise, surprise, we did not hear a word. The superannuation industry was left doubting whether the government would actually implement their policy and their promises. But this is a standard pattern for the government in this portfolio—to review and issue discussion papers and then to discuss industry-changing policies that leave the industry guessing what the regulatory environment may be in six months or 12 months time.

This is a government that hit the ground reviewing. Nobody knows what will happen with the Cooper review. The government refuses to release Henry. As for Ripoll and Johnson, the government cannot decide what it wants to commit, and it leaves the industry hanging in the balance—uncertain and potentially confused. We are all constantly waiting for random announcements by the government that may or may not follow recommendations and may or may not even follow its own policy promises.

That brings me to the second promise which was broken by this government with regard to its superannuation clearing house. That was Kevin Rudd’s promise to contract the government clearing house to the private sector. Then opposition leader Rudd issued a media release on 10 May 2007 clearly stating that the clearing house would be contracted to the private sector. On 11 May, Senator Sherry argued very strongly that the policy would not create a new bureaucracy because the clearing house would be contracted to a private operator. The 2008 discussion paper also asked the industry to make submissions on the basis that the contract would be awarded to the private sector. Then something happened in the 12 months that the government sat on its review. What made it change its mind? In November last year, without any warning and without any explanation, the Minister for Superannuation and Corporate Law announced the clearing house would be awarded to Medicare. There were those in the industry acting on the misrepresentation that they could tender for the contract. They have now been cut out of the process with no explanation as to why. As the company, Payment Adviser, said:

When Minister Sherry appealed to the industry to develop a solution for small business, and then put out a discussion paper, we all responded.

As they might!

We did not hear from Treasury or anyone associated with the Government after putting in our submission. We worked to develop this solution and a few other people looked at what they could do to provide a solution to small business. And it was quite a shock late last year for a press release to say that the Government was going to give it to Medicare.

In the Senate inquiry, Medicare claimed that they have completed costings, but refused to publicly release what these were. Medicare admitted in the inquiry that they have not finalised their system for data processing and the types of payments to be accepted.

Medicare have not developed key performance indicators for the scheme, they have no plans for how to deal with errors and they did not consider if anything could be outsourced. Medicare admitted to the inquiry that they have no targets for business take-up; they only have targets to develop the system and to get the system up and running by the due date. They are using all the resources merely to implement a scheme by the government’s timetable so Prime Minister Rudd can be seen to be meeting an election promise—$16.1 million over four years to be provided to Medicare to operate the clearing house. This amount was budgeted when the government were planning to send the scheme to the private sector.

So the government are paying $16.1 million for a clearing house and have not provided how this will be spent. How much will it cost to develop and implement the system? How much will it cost to process each transaction? How much would be spent on labour costs? How much would be spent on system maintenance? These are all questions to which we have no answers at the moment. How will these costs fluctuate depending on the take-up? With no plan for how many small businesses will actually use the clearing house, Medicare cannot answer these important questions. How will Medicare deal with the quarterly massive peaks in workload created by the operation of the clearing house? How will this be staffed? How will this impact on Medicare’s core responsibility to assist in the delivery of health services?

When asked by Senator Bushby if responses from the consultation paper into the clearing house were made available to Medicare for their consideration in terms of building and delivering the system, Ms Hughes from Medicare admitted, ‘We have not asked for any of these documents.’ How can Medicare even understand the concerns of industry if they did not seek these submissions? Medicare will be under no obligation to make superannuation transactions within a minimum time period. The general manager of Medicare told the inquiry that they could not commit to a time because they did not know if there would be ‘issues with matching and some requirement for us to do follow-up work’. Surely, the speedy remittance of funds to a member’s superannuation account is an important element in the selection of a superannuation clearing house, yet that does not appear to be a concern to the government. Funds not remitted in a timely fashion will have an adverse affect on returns to fund managers, yet the speedy remittance of funds does not appear to be a priority for this government.

Existing private clearing houses have systems in place to process transactions. They know how much each transaction costs and they could implement the government’s policy in a relatively short time span with a full business plan. These businesses are being told that they have lost out to a government agency that has not finalised its plan, that has no regard for industry concerns and that does not even know if there will be ‘issues with the matching of some requirements for them to do follow-up work’, as was admitted by the General Manager of Medicare. Craig Osborne, Managing Director of MicrOpay, has made some interesting comments on the announcement:

Medicare is not looking at the full detail that needs to be achieved when there are adequate private enterprise solutions out there ... To run with a government agency that doesn’t have a track record in collecting this information and collecting these sorts of funds, and doing the disbursements and matching and cross-checking that’s needed to ensure the system is efficient, has not been addressed or even contemplated.

So when this government is planning health reforms that may see the workload of Medicare increased it is also handing Medicare responsibility for superannuation payments. Why would the government award the contract to Medicare, which has no experience in superannuation? After the government has received overwhelming evidence that the private sector could easily handle the additional transactions at a fraction of the cost proposed, why would the government announce without warning that it was going to award the contract to Medicare? According to Treasury’s evidence to the inquiry, the decision was made on the basis of risk management. We know how well this government manages risk. We have seen that in action with the insulation affair. It has very interesting risk management procedures.

The legislation provides that employers will be able to discharge their superannuation guarantee obligations by making a bulk payment to the approved clearing house on the 28th day of the month in each quarter when the payment is required. This is different to the current system where employers need to have the payment arrive at the superannuation fund trustee by the 28th of the month when the payment is due, regardless of whether they use a clearing house or not.

The government is now arguing that changing the super guarantee obligations for an approved clearing house will increase the risk of using a clearing house to process superannuation fund payments. Because the employer discharges his or her obligations before the payment reaches the fund, Treasury argues that the risk of processing the payment moves from the employer to the employee. But aren’t employees always at risk with their superannuation guarantee payments? There are, for example, the risks that employers may not make payments on behalf of the employees and that their entitlements may not be respected by an employer. Life is full of risk and it is matter for government to properly manage and assess risk. I must say that when it comes to risk management this government has a very poor record.

At the end of the day, it is employees’ money that is being transferred and risk management is important, but Treasury have not made the case for Medicare. They have made an excuse. They have not made the case; they have made nothing but an excuse. Why this Labor government is worrying about the risk for the clearing house when it undertakes so many risky policies is beyond me. We have seen this government turn policies that have little risk into very risky projects due to its inability to listen to experts. Once again, the Home Insulation Program is the perfect example of that.

We know that the government refused to listen to the experts on home insulation and now it is refusing to listen to the experts in superannuation and payment processing with regard to the clearing house. I ask the government: why do you have so many reviews into superannuation and finance if you refuse to listen to the views of experts? The Investment and Financial Services Association told the Senate inquiry that private clearing houses are well regulated through prudential reporting requirements and that private clearing houses must hold an Australian financial services licence. IFSA told the inquiry that the risk involved with private clearing houses was very low and that the use of private clearing houses provides ‘certainty’.

ASIC requires clearing houses to issue product disclosure statements which must detail the terms and conditions of the facility, any fees and charges, how the transactions are made and authorised, and any risks associated with the facility. Medicare will be exempt from this regulation. If the government is suggesting that companies with this level of regulation are risky, then the minister is suggesting that the current level of regulation is insufficient.

The largest private clearing house provider, SuperChoice, is processing around 20 million contributions each year on behalf of 50,000 employers; 40,000 of these have fewer than 20 employees. If the Minister for Financial Services, Superannuation and Corporate Law, Mr Bowen, is suggesting that SuperChoice and other private clearing houses are risky, then he is telling millions of employers and employees that superannuation payments are already at risk if they are being processed through a private sector clearing house.

All government promises have an element of risk about them. It is up to Treasury to implement these promises whilst mitigating the risk. In this instance, where private clearing houses are well regulated and operating at acceptable levels of risk, it is not good enough for the government to hide behind the risk argument for failing to meet its promise to tender the operation of the clearing house to the private sector. In ignoring its commitment and awarding the contract to Medicare, the Labor government is also giving Medicare a competitive advantage compared to privately operated clearing houses.

Private clearing houses currently operating will still be forced to process their payments by the 28th of the month in which the payment must be made, which requires employers to pay their bulk payments in advance of that date. On the other hand, employers will be able to pay the Medicare clearing house on the 28th, when the payment is required. Under these conditions, why would any employer not choose Medicare as its clearing house?

I remember one of the last acts of the Keating Labor government was to sign an agreement with the states on the principles of competitive neutrality. Competitive neutrality is overseen by the Productivity Commission and requires all government agencies to compete on a level playing field if they are competing with private industry. As a principle, the coalition believes in competition and efficient markets. Competitive neutrality is a favoured principle in legislation and will impact on the private sector. This legislation enshrines principles that contradict those of competitive neutrality. Medicare will have a clear advantage over private sector clearing houses. As ASFA have argued, the government’s scheme ‘has the potential to deliver commercial damage to existing providers of clearing house services’.

The industry are questioning whether this was a rushed Rudd government decision to give Medicare the contract so that it could announce that it was meeting its clearing house commitment before the next election. Who knows? Mr Osborne of MicrOpay says:

Like the home insulation debacle, it begs the question of why did the government not listen to the experts in this area—payroll, banks, super funds?

Peter Philip, CEO of SuperChoice, puts the issue plainly by saying:

We certainly feel that what the Government is proposing will create distortions in the market ... how could it not when they’re funding with public money a clearing house that will be a significantly advantaged competitor to existing clearing houses?

The bill as drafted misses a real opportunity to implement an efficient superannuation clearing house market by extending the definition of an ‘approved clearing house’ to privately operating clearing houses holding an AFS licence and subject to prudential requirements. This would level the playing field and allow employers to make their superannuation guarantee payments to a number of clearing houses with the same deadlines. These changes would increase competition and lower fees in the sector.

Private sector clearing houses have worked to meet the needs of the market. They have been operating efficiently without issue. The bill as drafted will damage this market. As Mr Osborne says, the provisions are:

… certainly a substantially larger investment than what has been earmarked and that does beg the question: ‘Does the Government really understand the complexity and nature of what they are trying to achieve?’ And the answer has to be no.

This entire clearing house exercise has been another example of waste and mismanagement. The government is showing a reckless regard for the companies backing Australia’s retirement system.

In conclusion, $16.1 million has been allocated to the clearing house over four years and we still do not know if Medicare is able to deliver an effective scheme within the allocated budget. Private sector clearing house operators have delivered efficient and low-risk services to employers for many years. The legislation as drafted will give Medicare a significant competitive advantage against private sector operators, who have found a need in the superannuation market and developed innovative technologies to fulfil that need.

I await the outcome of the Senate inquiry with interest. I foreshadow that the coalition will be moving amendments in the Senate to provide for competition in the market, to make the provision of a government funded clearing house contestable. We will certainly be moving amendments in the Senate which would place all clearing houses on a competitive footing.

We have support for some elements of this bill, but we have major reservations with regard to the impact of the proposed government funded clearing house. It has been a retrograde step by this government to depart from its promise to have a service that is provided on a contestable basis. We have no problem with the allocation of the job of the government funded clearing house to Medicare if Medicare is able to compete with private sector operators and put in a bid that is price and service competitive and offers the same degree of amenity or better amenity than is being offered by private operators. But there is a very distinct possibility that we are going to squander large amounts of government money and see a more expensive solution and a less customer orientated outcome. We will see small business being the loser out of this. We will see the taxpayer being the loser out of this. What does the government have to lose by putting this issue out to public tender, allowing the private sector to compete for a service and allowing this market to operate on an arms-length basis without a government preferred operator in the field? I have real concerns with this legislation, and we will be moving amendments in the Senate in that regard.

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