Peter Hendy (Eden-Monaro, Liberal Party) Share this | Hansard source

I rise to support the Tax and Superannuation Laws Amendment (2015 Measures No. 1) Bill 2015. As the Assistant Treasurer said in his second reading speech, the bill amends various taxation and superannuation laws to implement a range of improvements to modernise Australia's taxation system. As I understand it, this bill includes a number of amendments that relate to issues lodged on the tax issues entry system, a platform for members of the community to raise issues regarding the care and maintenance of the Australian government's tax and superannuation systems. Indeed, I myself have some concerns to raise about the superannuation system.

As this is a bill for an act to amend the law relating to taxation and superannuation and for related purposes I am allowed to address a burning issue in my electorate, which is the threat to the superannuation and other retirement income of people in Eden-Monaro. Their retirement savings are threatened by a multipronged attack by the Australian Labor Party. At the latest census there were some 43,984 people over the age of 55 in my electorate. That is 32.5 per cent of the population of Eden-Monaro and compares to only 25.6 per cent for the nation as a whole.

So what is the threat? The Labor Party are determined to attack the retirement savings of everyday Australians in a desperate attempt to plug their growing budget black hole. Firstly, Labor want to double the tax that Australians pay on their superannuation contributions if they earn over $250,000 a year. I strongly doubt that Labor can be trusted to stop there. In addition, Labor's other recent policy announcement is to ensure that superannuation earnings of more than $75,000 during the retirement phase are taxed at a concessional rate of 15 per cent instead of being tax-free. And Labor have stated that there would be no indexation of the threshold. The fact that they would not index those thresholds is of great importance. It means that the changes would affect thousands more Australians as the years pass by and inflation brings the effective threshold down every year in real dollar terms.

Why is this all very alarming? A short history lesson will help explain. Before the 2007 election Kevin Rudd said that there would be no change to super, 'not one jot, not one tittle'. In fact, they increased taxation on super by just short of $9 billion, including cutting super benefits for lower income earners by more than $3.3 billion. What we actually saw was no fewer than 12 tax grabs for the superannuation of ordinary Australians. In May this year the shadow Treasurer said at the National Press Club:

… what we have flagged is that we are still doing work on other aspects of superannuation policy.

So there is obviously more to come. Let us dissect the Labor argument to so-called fixed superannuation. Let us also assume for a moment that Labor see a genuine need to fix superannuation rather than indulge in a grab for cash. Let us assume that they seek to because they believe superannuation is lightly taxed. Let us look at that proposition.

Highly regarded economist Henry Ergas has previously examined the issue. In this case he has noted that the headline tax rate on superannuation of 15 per cent is not an accurate indicator of how heavily superannuation is taxed. According to his analysis, the effective tax rates on long-term superannuation savings are close to or even above the top rate of income tax. We need to look at the difference between nominal and effective tax rates on long-term investments. In an article published on 15 October 2012 Mr Ergas noted that superannuation allows savers to defer consumption. Mr Ergas wrote:

Assuming a real annual return of 5 per cent and an inflation rate of 2.5 per cent, the effective income tax rate on a dollar invested today and withdrawn in 35 years is 40 per cent.

He went on to say:

Effective tax rates on long-term savings in our "concessional" regime are therefore more than twice the nominal 15 per cent rate.

And that ignores the impact of volatility in returns and the fact that income from super reduces saver's entitlements to the aged pension.

When those are factored in, effective rates are likely at or beyond the top income tax rate of 46.5 per cent.

But that is not all. As I have previously said, policy makers cannot simply ignore the fact that the superannuation system we have in Australia today is a classic case of a social contract. It is a social contract where people were effectively given a deal whereby they would accept compulsion to mandatorily put money into super and to lock it away for decades in exchange for lower levels of taxation. To then subsequently turn around and remove those taxation concessions is a blatant breach of that social contract.

When Labor want to hike superannuation tax, they get the numbers all wrong. What about the numbers of people affected by their policy? Modelling for Senator David Leyonhjelm by the Parliamentary Budget Office has shown that Labor's attack on superannuation could affect more than twice as many people as they claim. The proposed $75,000 threshold policy would affect more than 125,000 taxpayers by 2027—more than double the number those opposite claim will be initially affected. Further, the high-income super surcharge of 30 per cent would affect more than 300,000 people, not the 110,000 claimed by Labor.

However, that is not all the Parliamentary Budget Office exposed. Not only will the tax hike affect more than twice as many people as Labor claims; Labor's tax hike on superannuation will hurt low-income earners. How? The Parliamentary Budget Office analysis found that substantial additional compliance and administration costs would be incurred. Those extra government administration costs alone would be more than $20 million a year. It is not difficult to see that super funds will pass these additional costs on to members, including low-income earners.

I know that devising tax policy is hard work—I have been turning my mind to it for three decades—but this degree of economic illiteracy is unacceptable. As I said, Labor have launched a multipronged attack on the retirees of my electorate of Eden-Monaro. So what might Labor also be planning? We do not have to go far, as they have been doing media interviews to float their impending policy. Only last week, on 10 June, it was reported in the Australian Financial Review that the shadow minister for finance, the member for Watson:

… told ABC radio that capital gains tax concessions for investors would also be on the table for consideration, along with stamp duties and negative gearing.

"All of these play into a mix which means when somebody's going to buy a property, they're not simply competing with other home owners, they're competing with a disproportionately high number of investors," he said.

Labor have made a calculated gamble, based on an appeal to the politics of envy, to target retirees to fund the vote-buying spree that the Leader of the Opposition announced in his budget in reply speech. It is not about good policy.

Just a little economics lesson for these people: negative gearing is not some special tax subsidy for housing investors, as they want to propagandise. It is in fact a legitimate business expense model incorporated in the bedrock of our taxation system to reduce double taxation on investment and therefore encourage the investment that sustains our economic prosperity. It is not a subsidy or a tax dodge; it is integral to our tax system. And it is perverse to think that any proposition to raise effective taxation levels on investment in housing in some way assists in dealing with the supply issue we face in providing affordable housing.

And let me also note that the so-called unfair tax competition, raised by many people who should know better, between housing investors who have negative gearing and first home buyers who do not have negative gearing is a false comparison verging on outright lies. It wilfully ignores the fact that home owners get a huge capital gains tax break with a complete exemption on the principal residence. To compare apples and apples, that huge tax break available to homeowners compared to what landlords get needs to be taken into account. In my view, over time you may find that it is an even bigger tax break. I would like to know whether Labor, in all their talk about capital gains tax, are planning to remove the tax exemption for principal residences, because the logic of their rhetoric would lead to that conclusion.

Lastly, can I just say that, while the Reserve Bank governor can say that the housing market in Sydney is a bit 'crazy', the tax debate in this country at the moment is completely crazy. People who are completely ignorant about tax design are pontificating on something that they have no idea about, and in addition there are many people who should know better who are being swept along in a river of make-believe. To massively increase taxation levels on investment by slashing into superannuation, negative gearing and capital gains tax is perverse given the wider economic challenges facing the nation. Everyone should just step back and think what the economic and financial challenge facing the country is. As clearly outlined in the Intergenerational report, Australia's big mega-trend economic challenge is an ageing population, going from 7.3 working-age people for every person aged 65 and over in 1975 to a projected 2.7 workers per retiree in 2055. That has massive economic and financial implications.

One of the absolute givens in responding to this challenge is to increase people's savings for retirement to take the pressure off the taxpayer to meet the massive future demand. Instead the Labor party and the Greens are ignoring the big picture and simply seeking ways to fund increased government expenditure by ironically hitting private savings through attacking superannuation, negative gearing and capital gains. It is cock-eyed economics at its worst.

For short-term expediency they are justifying their tax grab as some sort of solution to a so-called housing bubble in Sydney. Let's be clear: we should not be setting our taxation system simply based on the property market in Sydney. Paul Keating acerbically once said, 'If you're not living in Sydney you're camping out.' It appears that the Labor leadership still holds to that outrageous sentiment. Well, I can say most Australians do not live in Sydney, and I will be standing up for the people of Eden-Monaro in their fight against this threat from Labor.

Lastly, can I say that the solution to Sydney's housing issues is not taxation measures designed to impact on the demand side of the equation. There are numerous studies, including from the Productivity Commission, over the last two decades that show that a major part of the problem is planning rules and costs imposed on developers in the Sydney market that restrict the amount of supply. We should be looking at addressing these problems directly. State and local governments have the most to do to handle these issues.

However, I think Australian policymakers need to come to a realisation that the world has changed in the last few decades. Sydney is now truly a world-class city on par with London, New York, Los Angeles and Tokyo, to name a few. We cannot keep thinking that in an international city, with all its associated expenses and population pressures, you can expect to have the same level of owner occupiers as in other cities. Today, Sydney has an owner occupier ratio of around 65 per cent, compared to around 67 per cent for the nation. However, according to the latest statistics I could find, in London it is less than 50 per cent, while for the UK as a whole it is 64 per cent; in New York it is 32.2 per cent and in Los Angeles 49 per cent, compared to 65 per cent for the US as a whole; in Paris it is less than 30 per cent, compared to just over 50 per cent for France as a whole; and in Tokyo it is 44.6 per cent, compared to 61 per cent for Japan as a whole.

Australian lawmakers cannot ignore this fact of life. The Sydney levels of owner occupation will probably fall to match those of other international cities. It will necessarily be dictated by the constraints on urban transport and other infrastructure provision. As a result, we should also be looking at other innovative ways to deal with this problem. I have advocated high-speed rail as a development solution that would massively open up regional New South Wales and Victoria for residential development, which would be a way of dealing with our overcrowded mega cities of Sydney and Melbourne. This part of the answer is staring our political leaders in the face, and they should just get on with it.

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