Gary Nairn (Eden-Monaro, Liberal Party, Special Minister of State) Share this | Link to this | Hansard source

I present the explanatory memorandum to this bill and move:

That this bill be now read a second time.

The Superannuation Legislation Amendment (Trustee Board and Other Measures) Bill 2006 will consolidate and revise the governance arrangements for the Commonwealth Superannuation Scheme, the CSS, the Public Sector Superannuation Scheme, the PSS, and the Public Sector Superannuation Accumulation Plan, the PSSap, with effect from 1 July 2006.

To make these changes the bill will amend the Superannuation Act 1976, the Superannuation Act 1990, the Superannuation Act 2005 and the Superannuation Legislation Amendment (Superannuation Safety and Other Measures) Act 2006.

The consolidation of the governance arrangements for the Australian government’s civilian employees’ superannuation schemes under a single board is being undertaken consistent with the governance principles of the Review of the corporate governance of statutory authorities and office holders, which is known as the Uhrig report.

Following the release of the Uhrig report, an assessment in relation to the CSS board, which is the trustee of the CSS fund and responsible for the administration of the CSS, and the PSS board, which is the trustee for the PSS and the PSSap and the administration of those schemes, recommended changes to those governance arrangements.

The assessment recommended that the membership of the PSS board be increased from five to seven, which is consistent with the Uhrig report’s best practice principles that boards have from six to nine members. The assessment also recommended that consideration be given to the establishment of a single board for the CSS, the PSS and the PSSap.

The bill therefore transfers the powers and functions of the CSS board to the PSS board, which is renamed as the Australian Reward Investment Alliance, and abolishes the CSS board. The Australian Reward Investment Alliance is to comprise seven members, giving it the same membership as the CSS board and two more than the current PSS board. This reflects the recommendations of the Uhrig assessment and the board’s broadened role as the trustee of the three superannuation schemes.

As a transitional measure, the two members of the CSS board who are not members of the PSS board will fill the two additional positions on the Australian Reward Investment Alliance. The bill includes consequential and transitional provisions to ensure that any references to the CSS board and the PSS board in any act, delegated legislation or relevant documents, for example insurance contracts, can be read as referring to the Australian Reward Investment Alliance. The seamless transfer of the assets and liabilities of the CSS board to the Australian Reward Investment Alliance is also provided for in the bill.

The consolidation of the governance arrangements for the CSS, the PSS and the PSSap under one board will provide significant opportunities for efficiencies in the management of the CSS, the PSS and the PSSap.

It will also offer an opportunity for the board to adopt one investment mechanism for the ongoing management and investment of the three funds, which would assist in its management of the CSS. This is particularly significant for the CSS because it is a closed scheme with a decreasing contribution base where net benefit payments exceed contributions received.

The bill will modify the application of the Income Tax Assessment Act 1997 to provide for the effective deferral of any capital gains tax liability that would otherwise result from the pooling of assets of the CSS fund with those of the PSS and the PSSap funds already pooled in the PSS Investments Trust. The provision of the capital gains tax rollover reflects the essentially involuntary nature of the transaction.

I commend the bill to the House.

Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Link to 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.

Mrs Bronwyn Bishop (Mackellar, Liberal Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Craig Emerson (Rankin, Australian Labor Party) Share this | Link to this | Hansard source

I second the amendment. Labor supports the Superannuation Legislation Amendment (Trustee Board and Other Measures) Bill 2006 because it involves a modest amount of streamlining and simplification and that of itself is a worthy objective. It involves no cost to the revenue; therefore, on that basis it makes sense to establish a single board overseeing the various superannuation acts governing public servants. That is why Labor supports it. I also support very strongly the second reading amendment moved by my colleague the member for Hunter, and I want to dwell on the content of that amendment in my remarks tonight.

The entire modern superannuation system of Australia was developed by former Treasurer Paul Keating—a tribute to him and his farsightedness in ensuring that there were reasonable retirement income prospects for working Australians. Up until that time superannuation had been the province of wealthy Australians, whereas working Australians on lower incomes did not look forward to the prospect of a reasonable retirement income. Mr Keating, as the Treasurer, set the ball rolling by introducing a compulsory superannuation scheme through the superannuation guarantee arrangements.

He had the foresight to understand what was confirmed in 2002 by the present Treasurer in the Intergenerational reportthat is, we do have a problem with the ageing population. In the true Labor spirit of encouraging self-reliance and self-provision, former Treasurer Paul Keating knew that something needed to be done and that is why he created superannuation for working Australians. In so doing, he created a world-leading retirement incomes policy, where there would be a combination of superannuation and, for all those who did not have adequate retirement incomes, a part or full age pension.

This was a far-reaching reform that has put Australia in a very good position. If it had not occurred then the alarm bells that were ringing in 2002 in the Intergenerational report would have been positively deafening because, even with Paul Keating’s far-sighted reforms, there are genuine financial problems associated with the ageing population and there are problems with the budget. Indeed, the Intergenerational report projects that, on the assumption that tax rates are unchanged, there will be an increase in the fiscal deficit equal to five per cent of GDP. That is a very large amount of money, something in the order of $60 billion—something about which all Australians should be concerned and something about which we as parliamentarians need to anticipate and to put in measures to ensure that that very bad scenario does not unfold in Australia.

When Treasurer Keating introduced these reforms you would have thought and hoped that a coalition in opposition that paraded itself as the champion of self-reliance and individual liberties would have supported the spreading of superannuation through the workforce but, sadly, it opposed those superannuation measures with extreme vigour. It did everything it possibly could to ensure that working Australians did not enjoy the benefits of the superannuation guarantee.

This brings me to the often heard assertion in this parliament that, when in opposition, the coalition supported the reform program of the Hawke and Keating governments. At best, that is a massive overstatement. It is well known now—and confirmed by the Productivity Commission, the OECD, the International Monetary Fund, the Secretary of the Department of the Treasury—that much of the prosperity that Australia enjoys now was a consequence of the reform program of the Hawke and Keating governments. That reform program was not, contrary to assertions by the Prime Minister, widely supported by the coalition, then in opposition.

Central to that reform program was the introduction of an assets test on the age pension in 1984. Mr Peacock was the Leader of the Opposition at that time, but the coalition ran a very strong campaign against the assets testing of the pension. I note in the discussion paper released on budget night that there is a proposal to further ease the assets test on the pension. Access Economics has in the media today estimated that most of the $6.2 billion cost of the changes over the next four years in retirement incomes is in fact attributable to the easing of the assets test on pensions. So the coalition has been pretty consistent on this and obviously believes that the pension should be universally available—yet this is a political party that parades itself as the champion of self-reliance and self-provision.

The coalition’s opposition to Labor’s reform program did not stop there. The coalition opposed many of the measures introduced by the incoming Labor government to close down the notorious bottom of the harbour schemes. It also opposed the major tax reform program of 1985, which included a fringe benefits tax, a capital gains tax and the nondeductibility of entertainment expenses—all of which in fact were used to broaden the income tax base and to lower the marginal rates. I notice the member for Wentworth is at the table today—certainly a strong advocate of broadening the income tax base to lower the marginal rates of tax—but, while the coalition talks the talk of tax reform, it was Labor in government that walked the walk on tax reform and effected the biggest cuts in marginal rates of income tax in the postwar period. If you look at the history of the reforms to the tax system, Madam Deputy Speaker, you will find that the cuts in the marginal rates of income tax were actually made by Labor governments. Ironically, the party that says it is the party of tax reform has increased marginal rates of income tax, eroded the income tax base along the way and jiggled the thresholds ever so slightly.

It was not only the fringe benefits tax, capital gains tax and non-deductibility of entertainment expenses that the coalition opposed but also the petroleum resource rent tax, a tax that will be the subject of debate later this week. Thank goodness we have a petroleum resource rent tax: we have a resources boom and the PRRT, which I was able to assist in designing, collects for the community a reasonable share of the benefits of that resources boom as it applies to the petroleum industry. But, true to form, the coalition government opposed that.

Where am I leading with this? I am leading to this point: one of the next great reforms that the coalition opposed was the provision of superannuation and a reasonable retirement income to working Australians. The coalition was, as I said earlier, vigorous in its opposition. Of course, the coalition knew that this was an important reform and thought, for political opportunism, it should nevertheless oppose it. I have a document titled Super for all—security and flexibility in retirement: the federal coalition’s superannuation and retirement income policy, dated 19 February 1996. It was one of these rolled gold ironclad promises—a core promise, I am sure—because here it is in black and white on page 6:

A Coalition Government:

will provide in full the funds earmarked in the 1995--96 Budget to match compulsory employee contributions according to the proposed schedule;

will deliver this Government contribution into super-annuation or like savings;

reserves the right to vary the mechanism for delivering this contribution so as to provide the most effective and equitable delivery of the funds.

So here we have the coalition coming into government saying, ‘We will preserve and protect the amount of money that Labor has set aside for increasing superannuation contributions through the superannuation guarantee.’ It said it might look at different ways of making sure that those funds flowed to people’s retirement incomes but it would keep that amount. It goes on to say:

The Coalition will inherit both Labor’s proposal and the expectation that has gone with it. We will deliver the full benefit of the proposed contribution but will do so in a manner that is both efficient and equitable.

The coalition took government in 1996 and then in the 1997 budget it cancelled the extra contribution which would have flowed into the accounts of working Australians and which would thereby have increased the provision for retirement incomes to 12 per cent from nine per cent. It did not preserve those funds. It did not do that at all. Instead it introduced the infamous savings rebate that lasted all of six weeks. When the Prime Minister was asked in the parliament whether he would take the savings bonus, he declared he would not and the whole thing went down the tube within six weeks—and with that came the breaking of the promise that was made in 1996 and the assurance that retirement savings of working Australians would be an adequate 12 per cent of incomes.

Fast forward to 2006. We have another major change in the superannuation arrangements. It is a complex document and detail is still missing. I want to spend some time now making some observations about the discussion paper that was released on budget night. The Treasurer certainly gave the impression on budget night that this was a set of policies. It is not. It is a discussion paper. But, when you stop to think for a moment it means this: that anyone over the age of 60 in the future need not pay income tax. The reason I say that is that anyone over the age of 60 will be able to take superannuation benefits as a lump sum or put it into a savings vehicle, and the earnings on that savings vehicle will be tax exempt. So they can take the lump sum tax free or they can put that money into this vehicle and any earnings on that will be tax exempt. Add to that the senior Australian tax offset, which is around $20,000 for an individual and $40,000 for a couple, and you would be a mug to be paying income tax if you are over the age of 60.

When we assess the merits of this proposal, let us apply the standard tests. The first test in assessing the merits of a change in taxation arrangements is simplicity. It passes that. It certainly is simple, and therefore, on that basis, the proposal has merit. But I have a way of simplifying the income tax system dramatically. Up until recent changes, the income tax act ran to 9,600 pages. There is a way of simplifying that: abolish income tax. This is effectively what the government has done in respect of superannuation for anyone over the age of 60. So abolishing a tax certainly passes the test of simplicity and gets a tick on that basis.

The second criterion would be revenue-raising capacity. We have taxes to raise revenue. As a result of the effective abolition of income tax for people over the age of 60, as appears to be the case outlined in this discussion paper, there will be a very substantial hole in the revenue. Taxation statistics have just been released for the year 2003-04 and they reveal that income tax collected from people over the age of 60 amounted then to almost $10 billion. So I pose this question: do these changes put a $10 billion hole in the income tax base? On the face of it, that appears to be the case.

If you put a $10 billion hole in the income tax base then we must ask the question: how will the hole be plugged? There are three ways. The first way to plug a $10 billion hole in the income tax base is to increase the income tax for those who still pay it—that is, working people up to the age of 60. I have done a simple calculation. For a taxpayer on $55,000 per annum, the average tax rate would have to rise from 25.2 per cent to 28.1 per cent. That is an increase of 2.9 percentage points and it equates to an increase in tax paid of—wait for it—11.5 per cent. What does that work out as in dollars per week? More than $30 a week. So, if you do poke a $10 billion hole in the income tax base and you say to the other people, who do pay tax, ‘You’ve got to pick up the bill,’ the bill for someone on $55,000 a year is more than $30 a week.

There are two other ways of plugging the hole. The second way is to withdraw services for people over the age of 60—or indeed for people under the age of 60. People over the age of 60 have become accustomed to having their aged care supported financially by the government of the day. They have been accustomed to receiving an age pension if their incomes are not so high as to preclude them from receiving the pension, and there is also health care. One or more of those would have to be curtailed in order to fund the $10 billion hole.

There is a third way. The third way is the GST. This is the orphan tax. The government of Australia, the Howard government, denies that it ever gave birth to this tax. It says it is not a Commonwealth tax. It is a Commonwealth tax. Ask the Statistician and ask the Auditor-General but do not ask the Howard government because it will deny that the GST is a Commonwealth tax. The third way of plugging a $10 billion hole is to increase the rate of GST or remove the food exemption—that would do the trick. We on the Labor side of politics would strongly oppose these sorts of measures: increasing the GST rate or removing the food exemption, withdrawing the age pension or services from people over the age of 60 who have retired and are on low incomes or increasing the income tax burden on working Australians. It is incumbent on the government, when it releases its final position paper on these superannuation changes, to inform the Australian people honestly as to which of those three options it favours in order to fund the big hole that it has poked in the income tax base.

The Intergenerational report was an important report and if we have a $10 billion hole now just imagine what that hole will look like as more and more wealthy baby boomers move into retirement. The first of those baby boomers, born in 1946, will reach the age of 60 this year, but we know that there is a huge surge of retiring baby boomers coming through the system and that that is what is causing the ageing of the population. I advise the House that at present around 18 per cent of Australians are over the age of 60 and that by 2041 that will have increased to more than 31 per cent, so the $10 billion hole must get bigger and the chickens must come home to roost. It is all very well for this government to release a policy which sounds terrific and simple but will it lead to those chickens coming home to roost and to a future government withdrawing services from or increasing tax rates on the poor? That is what the government has to answer, and it has to answer it soon. (Time expired)

Bernie Ripoll (Oxley, Australian Labor Party, Shadow Parliamentary Secretary for Industry, Infrastructure and Industrial Relations) Share this | Link to this | Hansard source

I rise to speak tonight on the Superannuation Legislation Amendment (Trustee Board and Other Measures) Bill 2006. It is interesting to be speaking on this bill not only because the bill does a variety of things but also because it gives me and other members in this place some opportunity to venture wide while still remaining within the confines of discussing superannuation within the context of superannuation changes, particularly those relating to the budget. Superannuation is a very important area, and we have just heard the member for Rankin talking about the Intergenerational report and the impact that report will have on the future decision- and policy-making direction of governments and how we deal with people’s retirement incomes, particularly those of the baby boomers when their turn to retire comes, many of whom will retire soon. So there are many very important decisions, issues and policies to be considered not only by this government today but by future governments in this area whose importance I think is sometimes well and truly overlooked in terms of long-term planning and what needs to be done. I cast my mind back to not too long ago when Treasurer Costello was lording the greatness of the Intergenerational report. We heard from him at that time that this was the biggest thing, the biggest challenge, the biggest policy area for the next 40 years—this was going to be bigger than anything else that had ever taken place.

John Murphy (Lowe, Australian Labor Party, Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

What has he said lately on it?

Bernie Ripoll (Oxley, Australian Labor Party, Shadow Parliamentary Secretary for Industry, Infrastructure and Industrial Relations) Share this | Link to this | Hansard source

Exactly! The member for Lowe throws me a good line when he asks, ‘What has he said lately on it?’ Unfortunately, the Treasurer has said nothing, and it would be a real tragedy if he is not being true to his word. Not so long ago, when the Intergenerational report came out, he was using it almost like his personal manifesto. He talked about this great challenge for the next 40 years—visionary words but we are yet to see visionary policy or action. I have to say that I am concerned about what that means for the future, particularly if you look at the latest budget: the huge spend by government, the opening up of the coffers and the throwing out of money, sprinkling it over Australia and hoping that it hits the political mark with our seeing nothing such as some serious work on the direction given by the Intergenerational report, which is very much supported and understood by the Labor Party.

Labor were the builders of superannuation. It was the Labor Party that saw well into the future and had a grand vision, a great vision, of ordinary working people being independent in their retirement and having good, solid retirements—people who would normally not have the capacity to access the income or funds that would provide for them in their retirement years. So Labor have always been the builders and have always had the visionary policy to deal with these issues, and I do not think anything has changed today. Labor are still committed to superannuation and we believe it should be much better than it currently is. The nine per cent is certainly a good position and a good start, but we certainly need to move forward from that.

I, as a Labor member, the Labor Party itself, the people who have supported us and ordinary people should be very proud of the work that Paul Keating did that very much led the super debate. He worked hard to try to get people to understand how important it is to save for your retirement, to put something away to make sure that you are not left to your last resort, the pension. Thank God the pension is there, but living on it is a meagre existence and a difficult position for most. People lucky enough to have paid off and own their home, to have their own vehicle and to have no other debts to speak of can get by on the pension, but we know it is very difficult to do so. All of the members of this House, whether they are on this side or on the government side, fully appreciate the difficulty that people on the pension generally have in trying to still lead a normal, decent life while being on the bare minimum. So I think it is opportune that this bill has come up tonight.

The bill has a number of purposes. One is that it revises and consolidates the governance arrangements for the Commonwealth Superannuation Scheme, the CSS, the Public Sector Superannuation Scheme, the PSS, and the Public Sector Superannuation Accumulation Plan, the PSSAP, and that will take effect from 1 July this year. The bill enters the House in response to the Review of the corporate governance of statutory authorities and office holders. This is part of the Uhrig review, which reported in mid-2003. The Uhrig review was appointed to look at the governance practices of statutory authorities and office holders. Of particular interest to the review were those agencies which impact particularly on the business community.

While it was not a completely wide-sweeping review, it was still an important one that identified a number of very important aspects and discrepancies in the accountability, management and operation of those super funds that I have mentioned. In particular 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 absolute best from their statutory authorities and office holders in those authorities and to deal with the accountability frameworks and how they operate within those particular funds.

The review found that the Financial Management and Accountability Act 1997 should be applied to statutory authorities, and it recommended that these organisations be governed by a chief executive officer. The review also found that the Commonwealth Authorities and Companies Act 1997 should be applied to statutory authorities and that these organisations should be governed by a board. These are sensible recommendations and I do not think anyone would question them, and certainly we support them. The review also found in general terms that agencies that exclusively manage Commonwealth appropriations should be represented and governed by a CEO and board structure. That was favoured in terms of a strong commercial focus towards an organisation or if the agency happened to be an intergovernmental agency.

The main recommendation of the Uhrig review was in relation to the optimal size of statutory authority boards. The review recommended that a public sector board size should be between six and nine members. Currently the boards overseeing the Commonwealth’s superannuation schemes are all different. There is no consistency in how they operate and there are a number of inconsistencies in the sizes of the boards. For example, the Commonwealth Superannuation Scheme board has seven members and the Public Sector Superannuation Scheme board has only five members, and the PSS board is responsible for the operation of the PSSAP as well. Following the release of the Uhrig review, the Department of Finance and Administration recommended that the Public Sector Superannuation Scheme 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. Again, these are good, sensible proposals.

The proposed merger of the CSS and the PSS boards has several advantages. A number of things that will be of benefit will be the reduced complexity and the dilution to a simpler and much more accountable board with a better format and a much more transparent and accessible style of operation and administration. The simplified administration is very important.

If you made a comparison with industry super funds, you would see that they are certainly run well. I do not think there are any particular issues in terms of their practices, but certainly inconsistencies and a number of management and administrative issues could always be improved. If you have a look at the performance of industry super funds, and there are quite a number of them, you can see that they are exceptionally well managed, particularly some of those that are run by unions. They are excellent funds and are models within the superannuation schemes and funds industry. I think there are some good lessons to be taken from the way that unions run their schemes and how effective and profitable they are for their membership in the services they provide. There are lessons in the way they are administered and the way in which their boards are run. It always gives me great confidence to know that these funds are managed in the way they are.

Another area of importance relates to conformity and pulling Commonwealth superannuation investments into line with the best practice principles identified in the Uhrig report. That link between what happens in industry funds and what happens in Commonwealth superannuation investments needs to be strong in terms of how they are administered and their performance. The Uhrig review dealt with those issues.

Concerns were raised in relation to assets of the three schemes that would be joined together and managed as one trust. The government has given assurances that this will not happen. So the government has looked at this issue and we are confident that that will be the case. It is also important that the investments of the three schemes are separately managed as the age profiles and the rates at which members of the various schemes retire are different. There are different needs in the different schemes. The schemes really are unique in their provision of services, and I think it is important that this unique provision of services be dealt with separately. They should have their own management and their own boards, and they should be accountable in that fashion so that there can be no question on the transparency, the complexity or the issues that arise because of differences in the way they are administered.

Consultation on this bill has been conducted and an agreement reached that satisfies all members of both the current boards. The bill has no financial implications for the Commonwealth, which I am sure the Commonwealth is very happy about. Labor supports the bill, which I said earlier and other speakers have also said, and it does provide us with the opportunity to look at superannuation more generally.

Quite interestingly, in relation to the budget, with which I started, there are sweeping superannuation changes from the government, in particular to the 15 per cent exit tax. It is thrown at us every day that this is a great change from the government. It is certainly applauded and it is a good change, but I think there could have been a better change. More interesting than that, though, is the number of people that it will affect. That is certainly a key point here.

The impression I got on the day was that this was a massive change that affected everybody—that it had a 100 per cent impact. On closer examination, if you dig just below the surface, you will find that most Australians are not affected at all by the 15 per cent exit tax. I will be very generous and say that we were slightly misled; certainly, we were not led in the proper direction on this. The truth of the matter is that around 85 per cent of people never pay the exit tax—and it is important that we note that. Most people do not have enough superannuation to meet the cut-off limit of $129,750. So, even though they might have been rubbing their hands together on budget night and thinking it was all solved and done, they are not affected by it. It is not just the complexity of the Australian superannuation system that is a problem. The day after the budget speech, the Treasurer, Mr Costello, said:

… you don’t need a financial adviser to get into superannuation … can I say to you one of the reasons why people have been going to financial advisers is the end rules have been so complex. Once we sweep those away then I don’t think you will need a financial adviser at the end of the superannuation chain either because you will know this one thing, that your superannuation will come out of the fund tax free.

John Murphy (Lowe, Australian Labor Party, Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

You can’t trust him.

Bernie Ripoll (Oxley, Australian Labor Party, Shadow Parliamentary Secretary for Industry, Infrastructure and Industrial Relations) Share this | Link to this | Hansard source

I think you are right. You cannot trust him on this. However, as my colleague Senator Sherry quite rightly pointed out, the new rules for contribution limits—that is, $50,000 a year for those under 50—create new uncertainty and increase the need to seek financial planning advice. So I do not think this is going to make things simpler or easier for anyone else. Then, of course, there was the outrageous 15 per cent surcharge, which was introduced back in 1996.

John Murphy (Lowe, Australian Labor Party, Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

Mr Murphy interjecting

Bernie Ripoll (Oxley, Australian Labor Party, Shadow Parliamentary Secretary for Industry, Infrastructure and Industrial Relations) Share this | Link to this | Hansard source

The government promised at that time that there would be no new taxes, but, two months later, we saw a new tax—and we have seen a whole heap since then. So it is not always as it seems on the surface. The government are so confused about their own superannuation changes that they cannot even get it right among themselves. We have been hearing it in question time in the House of Reps. The government have been saying, ‘Will you back our super changes?’ We have been saying, ‘We’d love to if we knew what they were. You don’t.’ Although they have made an announcement, the government do not have policies yet. It is quite usual, in terms of a budget, to make an announcement and put an aggregate costing on it—I think the figure is about $6.2 billion—and not break it down so that we can see where the money is being spent. Again, a bit of shenanigans is going on there.

Just six days after the Treasurer, Mr Costello, proclaimed that you do not need to get a financial adviser, Chris Pearce, the Parliamentary Secretary to the Treasurer, said, ‘I would have thought it would have been quite the opposite.’ So I think the Treasurer and his parliamentary secretary will have to have a bit of a talk and see who is right on this issue. It is certainly an area of concern.

This bill is not controversial. This bill has Labor’s support. Labor have always supported proper and correct moves to enhance Australia’s superannuation regime. We will continue to do that not only because we built the system but also because we are supporters of superannuation. We think superannuation is a very important part of a person’s retirement and that it should be supported.

There are a number of other things which are important to note when discussing these matters. The government said that about 100,000 people are expected to retire next year, implying that this is how many people would save a massive amount of money on the 15 per cent exit tax. But, if you break that down, it is quite misleading, because that is just the number of retirements. It does not go into the detail of who will benefit from it. If you are a CEO retiring on millions of dollars there will be a huge windfall—not that you would need it. But for an ordinary person who is retiring—

John Murphy (Lowe, Australian Labor Party, Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

David Murray is going to do well.

Bernie Ripoll (Oxley, Australian Labor Party, Shadow Parliamentary Secretary for Industry, Infrastructure and Industrial Relations) Share this | Link to this | Hansard source

David Murray will do very well. There is no question about that at all. Another change in the budget which is a good idea and supported by Labor is that self-employed contributions—those covered by the co-contribution scheme—will now be given the same general tax treatment and limitations as employees. I think this is a good move and a worthwhile change. But, if you break it down and take out the 15 per cent, this is the only new measure, in terms of self-employed contributions, that directly encourages higher contributions to the system. I think that is key. What we should be doing is directly encouraging higher contributions—if the government had the gumption. Senator Minchin said a number of times in interviews that the real kicker, the real bonus, would have been on the way in. Anybody who has done basic maths 101 would understand that, if you save the 15 per cent on the way in, the accumulation over a lifetime to retirement gives you a much bigger outcome. That can easily be demonstrated by anyone who sits down and does some simple arithmetic on this. Of course, the cheaper option, the easier option, is to do it on the way out. I think that is what the Treasurer was talking about when he said this is less complex. Yes, it is less complex for government, but it is not necessarily less complex for those who are about to retire.

So there are a range of issues. The government has finally taken some notice on superannuation. The greatest tragedy is that, with the size of this budget, the government, in raining down dollars wherever it could, missed the mark. The government missed the opportunity to make visionary changes where they were needed the most. For me and a lot of people I have talked to, that is the real miss in the budget and the super changes. People were pretty excited up front, and I think this is why the government missed the point on this. They thought they would get a great week or two out of their budget, but it only lasted a few hours because people worked out very quickly that there were more politics than good measures in what the government had done. Labor support this bill, but we think the government has a lot more work to do. (Time expired).

Steve Georganas (Hindmarsh, Australian Labor Party) Share this | Link to this | Hansard source

I too rise to speak on the Superannuation Legislation Amendment (Trustee Board and Other Measures) Bill 2006. The purpose of this bill is to consolidate and revise the governance arrangements for the Commonwealth Superannuation Scheme, or CSS, the Public Sector Superannuation Scheme, or PSS, and the Public Sector Superannuation Accumulation Plan, or PSSap, with effect from 1 July 2006. Before I speak on the substance of this bill I would like to place on the record my views of the government’s superannuation changes announced in the budget—particularly, the Treasurer’s contemptuous attitude to every Australian saving for retirement.

The budget announced that the 15 per cent exit tax on superannuation payments would be abolished. The first point I would like to make is that this does not help many Australians. Why? For the simple reason that it only applies to those with savings over $129,751 and the majority of Australians do not have this kind of money when they retire. I see many people in my electorate of Hindmarsh, where 25 per cent of the population are 65 or over, and, believe me, many of those people are retiring on very little super or none at all.

The second point I would like to make is how ridiculous—in fact, reckless—was the Treasurer’s statement that there is no need to get financial advice on superannuation anymore. The Treasurer said on 10 May:

... you don’t need a financial adviser to get into superannuation ... Can I say to you one of the reasons why people have been going to financial advisers is the end rules have been so complex. Once we sweep those away then I don’t think you will need a financial adviser at the end of the superannuation chain either because you will know this one thing, that your superannuation will come out of the fund tax free.

This is clearly nonsense. In the very same budget there are changes which make the superannuation system even more complex. Take the planned new rules on contribution limits. The limit of $50,000 a year for those under 50 creates new complexity. Some of the rules are backdated and are not finalised due to the need for transitional provisions. In fact, the Treasurer’s own assistant, the Parliamentary Secretary to the Treasurer, Mr Pearce, stated last week: ‘I would have thought it would have been the opposite.’ This superannuation system is so confusing that the Treasurer and his assistant cannot agree—or maybe it is just that they do not talk to each other. I have to agree with the Treasurer’s assistant on this occasion: the changes in the superannuation system make it more complicated, not less.

The bill enters the House as a result of the Review of the corporate governance of statutory authorities and office holders, which reported in mid-2003. In November 2002, the government appointed Mr John Uhrig to conduct a review of the corporate governance of Commonwealth statutory authorities and office holders. 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 frameworks.

The Uhrig review recommended two templates for government statutory authorities to ensure good governance: agencies should be managed either by a chief executive officer or by a board structure. The review states:

Two templates have been developed incorporating these governance principles. A ‘Board Template’ is proposed where government takes the decision to delegate full powers to act to a board, or where the Commonwealth itself does not fully own the assets or equity of a statutory authority (that is, there are multiple accountabilities). The ‘Executive Management Template’ is proposed in other cases.

The review found the following: firstly, that the Financial Management and Accountability Act 1997 should be applied to the statutory authorities and that these organisations should be governed by a CEO and, secondly, that the Commonwealth Authorities and Companies Act 1997 should be applied to the statutory authority and that these organisations should be governed by a board. The opposition supports this bill.

Gary Nairn (Eden-Monaro, Liberal Party, Special Minister of State) Share this | Link to this | Hansard source

In summing up, I thank members opposite for their contributions on the Superannuation Legislation Amendment (Trustee Board and Other Measures) Bill 2006. The amendment moved by the member for Hunter was obviously a nonsense amendment that was simply designed to allow a number of members to talk on superannuation but had nothing to do with the bill itself. The member for Rankin spoke on the bill for about 30 seconds and then proceeded to talk on other matters. I think it came as such a surprise to members of the opposition that the superannuation measures in the budget were so good that they felt they had to grab every opportunity to try and regain some ground on superannuation as a result—and, unfortunately, they have used this bill to do so.

The bill is straightforward. It brings together three schemes under one board. As I said in my second reading speech, it is a sensible bill and follows recommendations made in the Uhrig report. The consolidation of the governance arrangements for the three schemes under one board will provide significant opportunities for efficiencies in the management of the schemes. It will also offer an opportunity for the new board to adopt one investment mechanism for the ongoing management and investment of the three funds. This is particularly significant for the Commonwealth Superannuation Scheme, which has been closed to new members since 1990 and has a decreasing contribution base. I commend the bill to the House.

John Murphy (Lowe, Australian Labor Party, Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

Mr Speaker, I just want to put on record that I think the member for Rankin made an invaluable and lasting contribution to the superannuation debate.

David Hawker (Speaker) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Hunter has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question is now that the words proposed to be omitted stand part of the question.

Question agreed to.

Original question agreed to.

Bill read a second time.