Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

Labor will be supporting this bill, which is comprised of two schedules, one dealing with the wine equalisation tax, another dealing with MySuper. Changes to the wine equalisation tax need to recognise the perspective from which we tax alcohol. Taxes on alcohol are a Pigouvian tax, designed to internalise the externality. As the Henry tax review noted:

Taxes on alcohol should be set to address the spillover costs imposed on the community of alcohol abuse, when this delivers a net gain to the community’s wellbeing and is more effective than alternative policies. Raising revenue is a by-product, not the goal, of taxing alcohol.

This point is important in recognising changes that are proposed to the wine equalisation tax. The Henry review went on to describe how different alcohol products are taxed according to alcohol content, and it showed that wine is both the highest and the lowest taxed on a volumetric basis. A $40 bottle of wine with a relatively low alcohol content has a higher tax rate than would apply to beer or spirits, but a $12.99 four-litre wine cask has a lower tax on a volumetric basis. The Henry tax review noted an example. It said:

In Alice Springs, a 2-litre wine cask costs $10.99, which includes roughly $1.59 of wine equalisation tax. An equivalent volume of alcohol in full-strength beer would attract $7.48 in excise, and in spirits $16.45.

The changes that are being proposed in this bill to the wine equalisation tax also have an industry component, but it's important to outline their public health component first. A report from the Centre for Alcohol Policy Research and the Turning Point Alcohol and Drug Centre estimated that over 70,000 Australians were victims of alcohol related assault, of which 24,000 people were victims of alcohol related domestic violence. Almost 20,000 children across Australia were victims of substantiated alcohol related child abuse. A report from the Foundation for Alcohol Research and Education estimates that each day 15 Australians die and 430 are hospitalised because of alcohol. It goes on to say that there are significant negative externalities of alcohol, including violence in our streets and in our homes, child maltreatment and neglect, and lost productivity in our workplaces. A report carried out by the Australian Institute of Criminology in 2013, report No. 454 by Matthew Manning, Christine Smith and Paul Mazerolle, estimates that the costs to society amount to $2.9 billion through the criminal justice system, $1.7 billion through the health system, $6 billion in Australian productivity, and $3.6 billion in traffic accidents.

The challenge, though, with alcohol, unlike with other Pigouvian public health taxes, such as cigarette taxes, is that moderate alcohol consumption is not damaging. Indeed, according to some research, it may have beneficial effects. So, the key focus in alcohol taxation ought to be its ability to target heavy drinkers. In an ideal world, one would imagine higher taxes on somebody having their 12th drink at three o'clock in the morning in a rowdy pub than on Mrs Smith, sipping her first sherry at home on a Friday night. But such taxation is not practical, so taxation of alcohol works in a second-best world, aiming to target these negative externalities.

The wine equalisation tax operates in an environment in which, while alcoholic excise on spirits and beer is based largely on the alcohol content, wine taxation is based on the last wholesale price. The taxation of wine is 29 per cent of the value of wine at the last wholesale transaction, before adding GST, and then there is a producer rebate applied. The government's Re:think tax discussion paper noted that in 2013-14 excise and excise equivalent customs duty on beer, spirits and other excisable beverages raised $5.1 billion in tax revenue. WET revenue in 2013-14 amounted to $826 million net of producer rebates, which are typically around 25 per cent of total WET.

But the WET producer rebate, as it stands, has distorted production in the wine industry, contributing to the increased supply of wine and wine grapes and preventing necessary adjustments that would improve the long-term strength of the industry. The rebate was introduced in 2004 and currently provides up to $500,000 in tax relief to producers of wine. The intent of the policy was to benefit small wine producers in rural and regional Australia. My colleagues the shadow Treasurer, Chris Bowen, and the shadow minister for agriculture, Joel Fitzgibbon, noted in 2015: 'The intent of the policy is not being met and there is consensus from the government, the opposition and the industry itself on the need for change.' The member for Bendigo has been a strong advocate for the wine industry in her sector and has spoken to me about the challenges that the current scheme provides for legitimate cellar-door operators. We want to make sure we have a rebate system that encourages wine tourism but which does not have the perverse incentive of encouraging a glut of cheap wine, effectively making it more difficult for other producers in the industry and, potentially, contributing to some of those negative externalities—social costs—I spoke about before.

There have been clear signals from the opposition throughout this process that we would engage with the government and support sensible proposals. Frankly, I'd say that this could have come forward more quickly. But it is good to see these reforms before the House. They better target the rebate, improve its integrity and ensure consistency with the original policy intent of benefitting small wine producers who are making a genuine investment in the wine industry. If left in its current form, the WET producer rebate will continue to create a perverse incentive for businesses to structure themselves so as to maximise rebate claims. The result of that would be that if it were left unchecked we may see excess wine production exacerbating challenging market conditions for growers.

The measures in this package are supported by many stakeholders, including most industry participants. As the Winemakers' Federation of Australia has noted, removing the rebate from bulk and unbranded wine is an important driver for industry's restructure, and industry would like it to happen as soon as possible. The amendments make integrity changes to the WET producer rebate, quoting and WET credit rules; reduce the WET rebate cap from $500,000 to $350,000; tighten the associated producers rule; and repeal the earlier producer rebate rule. The new WET eligibility criteria generally apply to wine for which the winemaking process commenced on or after January 2018 and to most other wine products from 1 July 2018. The reduction of the WET rebate cap to $350,000 applies to dealings in wine made on or after 1 July 2018. The amendments to the associated producers rule apply to dealings in wine from the day that schedule 1 to the bill commences.

Going specifically to those changes, the changes will ensure that at least 85 per cent of the wine by volume in its final form, as a packaged and branded product that's fit for resale or sale, will have to originate from source product that was owned by the producer before the winemaking process commenced. That will target this issue of bulk and unbranded wine while ensuring that legitimate cellar-door operators can still take advantage of the rebate. The opposition notes that the government has abandoned a further decrease in the WET cap rebate from $350,000 to $290,000, as was announced on budget night, because the government believes that tightening eligibility criteria will address much of the abuse in the scheme.

I go now to the second schedule, which is dealing with MySuper. This schedule amends the Income Tax Assessment Act 1997 to provide income tax relief to superannuation funds that are transferring the account balances of their members as they transition to the MySuper rules. Labor was proud to introduce the MySuper reforms, which brought in place new, low-cost superannuation products with a simple set of features to allow members to more easily compare products and ensure that members don't pay for features they don't need or use.

The MySuper reforms were informed by behavioural economics research, which has shown that most Australians are invested in the default superannuation fund and invested in the default investment strategy within that fund. So we have to make defaults good if we're going to ensure the long-term viability of Australians' retirement savings. The original superannuation reforms of the Keating government were visionary indeed, but, in retrospect, they placed too much emphasis on choice and on people informing themselves of all of the available options and going in and making active choices so as to select the fund and investment option that's best for them. MySuper recognises that, in a busy world, many of us simply don't get around to taking an active engagement with our superannuation fund and, therefore, that we have to make sure that defaults are as good as possible.

Superannuation funds have been able to provide MySuper products since 1 July 2013. As part of the transition to the new rules, funds are required to transfer the existing balances of their default members to MySuper-compliant products by 1 July 2017. When superannuation funds are transferring these balances and the assets which support these balances, tax liabilities could arise in the transfer. The tax payable would, of course, reduce the balance of the member. Tax relief is currently available for those superannuation funds that transfer the default members to a different fund, but this tax relief has not been available where the member transfers to a MySuper product within their existing superannuation provider. This legislation extends the tax relief, providing an asset rollover for mandatory transfer of balances and assets to MySuper products within the same superannuation fund.

Labor supports this change as a measure which supports the integrity of the MySuper system and ensures that members' balances are not negatively impacted by tax liabilities when their balances are moved. It also ensures equity between those members who move to a new fund provider and those who merely take up new products within their existing providers. We need to continue the work to ensure that Australians are in high-quality default options, with minimum management fees. Australians benefit massively through investments which have low-cost administrative overheads. I commend work that the Grattan Institute has done on this, ensuring that we work over time to bring down the administrative cost within superannuation. Those administrative costs may seem small at any given year, one-half of one per cent or one per cent, but over the course of a lifetime this can add up to massive amounts. So, as the MySuper reforms continue, I commend those who are continuing to work to ensure, for example, that investments are moved towards lower cost index funds and away from actively managed funds, which appear, on average, not to have higher returns than index funds. We need to ensure that young Australians aren't placed in overly conservative investment strategies and that, overall, our system ensures the maximum returns with the minimum administrative overheads. I commend the bill to the House.

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