Chris Bowen (Prospect, Australian Labor Party, Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

by leave—The government is committed to providing a better superannuation system for Australians.

On 2 May 2010, the government announced its long-term plan to deliver on this objective.

The government’s reforms will deliver substantial improvements in retirement savings and a fairer distribution of superannuation tax concessions, ensuring more Australians can enjoy a comfortable retirement. The government’s reforms will bring broader economic benefits as well.

One thing we can count on is that Australians approaching retirement will spend more time in retirement than any generation in our nation’s history. This trend will only deepen as future generations approach retirement.

In 1960 a male could expect to live another 12 years after reaching age 65. Today they can expect to live another 19 years. In 2050 they can expect to live 24 years after reaching age 65.

In 1960 a female could expect to live another 16 years after age 65. Today they can expect to live another 22 years. In 2050 they can expect to live another 26 years.

Our ageing population is reflected in the estimate that the number of Australians aged over 65 is projected to grow from three million now to 8.1 million by 2050.

Over the next 40 years, the ratio of working age Australians to those aged over 65 will decrease from 5 to 1 to just 2.7 to 1.

These facts illustrate the necessity of acting now to boost retirement incomes for the current generation of Australians approaching retirement, as well as future generations. This is the responsible thing for a government to do.

The government is introducing superannuation reforms that will deliver substantial improvements in retirement incomes for Australian workers, boost national savings and enhance the fairness of the superannuation system.

Increasing the superannuation guarantee (SG) rate from nine to 12 per cent will directly address issues raised by our ageing population and boost private and national savings, bringing broader benefits to the community and the nation.

This reform will significantly increase the future retirement incomes for 8.4 million employees, improving the adequacy of their retirement incomes.

In addition to raising the SG rate, the SG age limit will be raised from 70 to 75 from 1 July 2013, coinciding with the increase in the rate of the SG.

Currently, the SG only applies to people aged up to 70. In contrast, employers can make voluntary deductible superannuation contributions for employees under 75 and self-employed people can make deductible contributions until they turn 75. Individuals aged 70 to 74 are less likely to be able to negotiate voluntary superannuation contributions with their employers.

This measure will mean that workers aged under 75 will be eligible to, for the first time, compulsory SG contributions to be made on their behalf.

This measure will align the age limit for SG with that of voluntary and self-employed contributions.

Around 33,000 employees are expected to benefit from this measure which will improve the adequacy and equity of the superannuation system.

This will provide an incentive for mature workers to remain in the workforce and improve the equity of the system and correct a long-standing anomaly that will ensure these workers are remunerated on an equal footing with their younger co-workers.

Currently, all concessional superannuation contributions, such as employer SG contributions, are taxable in the fund at a flat rate of 15 per cent.

As a result around 3.5 million Australians currently get no or next to no tax concessions on their superannuation guarantee contributions or, worse still, have these contributions taxed more heavily than their normal income, due to the 15 per cent superannuation contribution tax being at or below their marginal income tax rate.

The low-income earners government contribution tax refund will provide an annual contribution of up to $500 for individuals on incomes up to $37,000.

This will improve the fairness of the superannuation system by effectively returning all of the tax payable on compulsory superannuation guarantee contributions made for low-income earners in 2012-13.

The amount payable under this measure will be calculated by applying a 15 per cent rate to the concessional contributions made by or for individuals on adjusted taxable incomes of up to $37,000 (not indexed), with an annual maximum amount payable of $500 (not indexed).

The amount will be paid into a superannuation account of an individual to directly boost their retirement savings.

Concessional superannuation contributions made from the 2012-13 income year onwards will be eligible with the first government contribution paid in the 2013-14 financial year.

The superannuation savings of 3.5 million low-income earners will be boosted in total by $830 million per annum in 2012-13.

And these reforms build on earlier reforms by the government. In particular, these reforms build on measures to increase the age pension which were announced in the 2009-10 budget.

The government recognises that many workers want to make a larger catch-up on their superannuation contributions as they approach retirement.

Under the reforms, individuals aged 50 or over with a superannuation balance below $500,000 will be able to make $50,000 in concessional superannuation contributions annually. This doubles the cap of $25,000 which is scheduled to apply from 1 July 2012.

This will allow these individuals to ‘catch up’ on their superannuation contributions when most able. By targeting this higher cap at those with lower balances better equity is delivered. This measure will particularly benefit those who have spent time out of the workforce or had a later start to their working life, including many Australian women.

Women’s ability to build retirement savings can often be affected by periods spent out of the workforce for family reasons and periods of part-time work. The government wants to help Australian women build larger retirement balances. In 2012-13, around 2.1 million women will be eligible for the up to $500 low-income earners superannuation rebate. They will represent 60 per cent of all recipients. In 2013-14, around 4.1 million women will have increased super guarantee contributions as a result of this policy: almost half of all people estimated to benefit from the increased superannuation guarantee contribution in that year.

As I indicated earlier, the new provisions will provide concessions to allow people to ‘catch up’ on their superannuation contributions. This will also particularly benefit people who have had periods outside the workforce, the majority of whom are women. The Treasury estimates that, as a result of the government’s superannuation reforms, a woman aged 30 now on average weekly earnings with a broken work pattern will have an extra $78,000 in retirement savings, while it is estimated to be an extra $108,000 in retirement savings for the same female without broken work patterns.

The government recognises that when such a significant reform is implemented it is prudent to ensure that the nation’s employers and employees, particularly those in small business, have the opportunity to plan for change. The implementation of the increases in the superannuation guarantee has been very carefully thought through by the government.

Small business will benefit from a two percentage point cut in the company tax rate a full 12 months before the changes in the SG commence. An average small business will save $100 a week, or $5200 a year, as a result of the Rudd government’s early reductions in the company tax rate to 28 per cent in 2012-13. There is also a three-year lead time before the increase in the SG commences.

The initial increases in the SG are modest, with a 0.25 percentage point increase occurring in 2013-14 and 2014-15. For a worker on full-time average earnings, a 0.25 percentage point increase in the SG amounts to around $3 week, or $150 a year, that will be directed into superannuation savings. If this money was not directed towards superannuation, for most full-time workers the tax paid would be double because, as I outlined earlier, superannuation contributions are taxed at 15 per cent. This contrasts with income tax rates of up to 45 per cent. Therefore, when you increase the size of superannuation savings, you increase the cost of superannuation tax concessions to the government. Those who suggest that changes to superannuation will not cost the government any money do not understand this simple fact, or worse still, wilfully choose to misrepresent it.

Increasing the SG, refunding the tax paid on superannuation for low-income earners and raising concessional contributions for those aged 50 or over with lower superannuation savings reduces the tax burden on working Australians. As such, these measures will cost around $2.4 billion over the next four years. The government believes the right thing to do is to bank the benefits of the mining boom in reforms that will have a lasting and significant impact on the retirement savings of current and future generations of Australians and ensure that as a nation we are well placed to deal with the challenges of an ageing population.

The government’s reforms to superannuation have been welcomed by a broad range of stakeholders, who recognise the significant benefits of increased national savings for working Australians and the economy as a whole. On 2 May 2010, the Combined Pensioner and Superannuants Association of New South Wales had this to say:

Pensioners and superannuants welcome the Australian Government’s response to the Henry Review, as it will make the superannuation system fairer for low-income earners, and boost retirement incomes. We call on all MPs to pass these reforms, which are too important to be subject to the political wrangling that has resulted in the demise of other policies.

On 3 May 2010, Mercer Australia, a respected global provider of investment services, noted:

The tax changes to the superannuation system announced in the Government’s response to the Henry Review will help to increase the adequacy of retirement savings for Australians and reduce the overall cost of Government support for retirement income.

We can only hope that those who claim to be interested in ‘Rebuilding Sustainable Prosperity’ will come to understand the value that higher retirement savings provides to the nation.

The government’s changes to superannuation will make a significant contribution to helping Australians enjoy a better retirement. The reforms announced on 2 May this year will bring significant benefits. The people who will benefit from the government’s reforms include:

• around 8.4 million employees who are expected to benefit from the increase in the superannuation guarantee;
• around 33,000 Australians from the increase in the superannuation guarantee age limit to 75;
• around 3.5 million low-income earners from the low-income earners government contribution tax refund—with their superannuation savings increased in total by over $830 million per annum; and
• around 275,000 individuals aged 50 or over who will be able to make higher ‘catch-up’ contributions.

Our reforms will deliver significant increases in retirement incomes:

• The average superannuation balance today for men aged 60 to 64 is $245,000 and for women is $170,000. By 2036 these amounts are expected to be $485,000 and $345,000 in real terms.
• And a significant part of this growth can be attributed to the government’s reforms. An average worker now aged 30 can be expected to have an additional $108,000 in superannuation at retirement as a result of our reforms.
• A low-income earner who would benefit from the new contribution tax refund, and who is also able to save under the existing co-contribution scheme can achieve an effective contribution rate of 19 per cent after these reforms are implemented without using salary sacrifice.
• The increase in the SG age limit alone can potentially increase the superannuation balance of a worker on average earnings by $36,000.
• The increase in contribution caps for older workers can potentially increase the superannuation balance of a worker on average earnings by $139,000 if working full time. If the worker had a broken work pattern and thus a lower balance at the age of 50, they could potentially increase their balance by $188,000 (reflecting the greater scope to contribute up to the $500,000 balance limit).

These reforms will deliver broader benefits as well. The Australian superannuation funds are already significant investors in the Australian economy and having the fourth largest pool of funds under management in the world at $1.2 trillion in value has enabled Australia to develop a world-class wealth management industry.

These funds have been at the disposal of the Australian economy, which is one of the reasons Australia has weathered the global financial crisis so well. In the 2009 financial year, at a time when liquidity was rapidly being withdrawn from markets around the world, Australia remained an attractive place to raise capital. Australian listed companies raised $90 billion of equity. Investor support, including from Australian institutional investors, helped to restore the capital base of companies that together employ over 1.6 million Australians.

To put this in context, at the height of the financial and liquidity crisis, a greater proportion of the total market capitalisation of listed companies was raised in Australia than any other major economy. Australia’s total superannuation savings are projected to increase by $500 billion by 2035 as a result of the government’s reforms. National savings are expected to increase by around 0.4 per cent of GDP by 2035.

Barely 20 years ago, only 46 per cent of full-time workers and seven per cent of part-time workers had any superannuation arrangements. But, for the past decade, 96 per cent of full-time workers—and at least three-quarters of part-time workers—have been making regular contributions to their superannuation funds. Labor introduced superannuation, Labor is strengthening superannuation. The opposition’s rejection of these measures and the rejection of the Resource Super Profits Tax, which funds a significant improvement in Australian’s retirement savings, is a deep disappointment.

These initiatives deliver significant benefits to Australians and the economy more generally. Benefits for a more comfortable retirement for Australians. Benefits for our push for Australia to be a significant financial centre. Benefits for the availability of funds for nation-building infrastructure. Benefits for the availability of funds to develop and grow Australian businesses. They directly address issues raised by our ageing population and boost private and national savings, bringing broader benefits to the community and the nation. These reforms build on our earlier reforms to the age pension and deliver a stronger and fairer retirement income system for all Australians.

I ask leave of the House to move a motion to enable the member for Cowper to speak for 15 minutes.

Leave granted.

I move:

That so much of the standing orders be suspended as would prevent the member for Cowper speaking in reply to my statement for a period not exceeding 15 minutes.

Question agreed to.

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

I welcome the opportunity to respond to the minister on the question of whether the government are proposing a stronger and fairer superannuation system. Given that the government have linked the system to the great big new tax on mining and are requiring businesses to find $20 billion a year to pay for the increases to the superannuation guarantee levy, the system is not stronger or fairer.

But let me start on what the opposition and the government agree on. We agree that all Australians must start saving more for their retirement so as to increase their standard of living in retirement and to take the pressure from the age pension. The minister is correct to state that the ratio of working age Australians to those aged over 65 will decrease from five to one today to just 2.7 to one in the future. This is a challenge for a government. But this government and the minister must also recognise that it is not only a challenge for government but a challenge for future retirees. Workers must start planning their individual needs in retirement and how much retirement savings they believe they need.

The government’s main answer to this challenge is to increase the superannuation guarantee by three per cent, which will be phased in by the year 2020. The government are also proposing to raise the superannuation guarantee age limit from 70 to 75, and to provide a $500 annual contribution for individuals on incomes up to $37,000. The government have also back-flipped on their 2009-10 budget plan to cut the concessional contribution for over 50s to $25,000 per year. The cap will be left at $50,000 a year, but those under the age of 50 will still have their ability to voluntarily contribute to their superannuation balance capped at $25,000 as a result of the Labor’s budget last year.

How ironic that a government addicted to spending is forcing Australians to save. The government does not trust Australians to save for their own retirement and Australians, rightfully, do not trust this government to save for the nation’s future. The measures do little to engage with workers and encourage workers to engage in planning for their own retirement. This government does not trust workers to think about their retirement futures. Labor will mandate that employers pay an additional three per cent to each employee’s superannuation account. Most employees will not even know the payments are being made, where they are going and who is ultimately going to control the money.

Many Australians are concerned about what is happening to their superannuation balances right here and now. Labor is linking the Resource Super Profits Tax—Labor’s great big new tax on mining—to the superannuation reforms and it is hitting the value of resource stocks. That has been very much the case since rumours were leaked of this new tax on 13 April 2010. Since that time, resources stocks have plunged in value by over $90 billion, with $23 billion being ripped from the superannuation accounts of workers and retirees.

Yesterday Minister Bowen claimed in question time that any suggestion that Labor’s great big new tax on mining was hurting share prices was nothing but a scare campaign. But today, there were comments made in the Australian newspaper by Citigroup economist Paul Brennan who said that his bank’s clients in Singapore and Britain had lightened their holdings of Australian shares and were ‘citing perceived political risk due to the resource super profits tax’. According to Mr Brennan, ‘A number of investors believed there was now greater political risk to investing in the Australian market.’

The minister may now wish to claim that investors in Singapore and Britain are engaged in a scare campaign against this government. The government needs to be held accountable for what is currently happening to superannuation account balances. Last week, my office took a call from a constituent who is 63 years old, has worked in the transport industry for some 40 years and is very concerned about his superannuation. Since the announcement of the tax, he has seen his superannuation fund drop in value by $8,949 to $156,133, a decline of 5.4 per cent. At 63 years old, he will not easily make up that loss. And he is not alone.

Yesterday, the member for Pearce asked the Prime Minister whether the government did any analysis on how the new mining tax would affect investments of self-funded retirees and impact on their standard of living. Well, the Prime Minister refused to answer the question and crudely referred to the increase in the superannuation guarantee as how the government would boost retirement incomes. Today the Prime Minister was asked a similar question:

Will the Prime Minister assure Mr Jones and 778,000 other self-funded retirees in Australia that the government has done an analysis on how the new mining tax will affect them?

Quite clearly, the government has not considered the impact of this great big new tax on self-funded retirees because the Prime Minister was lost for a relevant answer. The Prime Minister should know that the superannuation guarantee does not affect people who are currently retired. Certainly the Prime Minister’s answers yesterday and today are an insult to self-funded retirees. Comments made by the minister for superannuation on Sky News last Monday were an insult to future retirees. The minister dismissed concern that the mining tax would hurt superannuation savings and said that the losses would only be minor and that these things would happen when reforms are introduced. The minister is basing the impact of the government’s great big new tax on mining on research conducted by the Industry Super Network, who have more recently written:

It is difficult to quantify any particular direct impact on share prices attributable to the RSPT at this stage.

Whilst the industry funds might have difficulty quantifying the loss, every superannuant in this country can quantify the loss to them by looking at their superannuation account balance. They do not believe a minister and a government that are so intent on burying any negative information about government policies and instead use questionable data and comments from vested interests to sell their policies.

We saw how Labor operates this week when they were scrambling to justify the great big new tax. The government and the Prime Minister wanted to show that taxes paid by the mining industry were, on average, less than those paid by other sectors. The only problem was that the most up-to-date figures that mining companies provided to the ASX on taxation levels did not back up the government’s claim, nor did data from that great mining-friendly organisation, the Australian Taxation Office.

In its desperation, the government used a paper written by a graduate student from the University of North Carolina in the United States of America to claim that the industry was only paying an effective tax rate of between 13 and 17 per cent. Since then it has been revealed that the paper—which has not been finished—used as few as four mining companies to reach its figures, it did not take royalties into account and it lumped Australian companies in with companies from New Zealand. These were figures relied upon by the Treasurer of this country. The author of the paper, Mr Kevin Markle, told the Australian newspaper that his paper ‘has nothing to do with what it is being used for in this debate’. The paper was about comparing tax domicile, not comparable industry tax rates. When this was revealed the government searched far and wide and found a Treasury minute backing up the 17 per cent claim. The only problem is that the Treasury minute refers to the decade ending in 2004. Why would we use figures that are six years out of date? That is what this government is all about. It is more concerned with spin than truth. It does not want voters to learn that the tax rate for the mining industry is 41.34 per cent when we take into account royalties. It does not want us to know that it is the highest taxed industry in this country.

When the opposition has the nerve to point out the government’s errors we are accused by the Prime Minister of favouring the views of the Minerals Council of Australia. The government has been struggling hour after hour, day after day to justify that position on this great big new tax. Meanwhile, business is being squeezed by this government. Small businesses are finding it difficult to find finance and banking competition has been dramatically reduced. The government continues to spend madly, borrowing $100 million every day and competing with small businesses in lending markets as it raises government debt to its peak of $94 billion in 2012-13. All this is so that schools can be given massively overpriced halls and the government can clean up its blow-outs in the pink batts program. We see debacle after debacle in relation to the Building the Education Revolution. Borrowing and spending are putting pressure on interest rates, making it more difficult for small business to compete in the market. And now small businesses will have to find an additional three per cent on their payroll to pay the government’s increase to the superannuation guarantee levy.

But the government tries to give the impression that the great big new tax on mining will in fact pay for the increase to the superannuation guarantee. That is the spin they are trying to put on it. We have heard what they said but we knew what they meant. The minister knows that these statements are willingly misleading. While the increase to the superannuation guarantee levy will have an impact on taxation revenue, and there will certainly be increased funds paid into superannuation funds, it will be paid for by businesses large and small across Australia.

Over $20 billion each year will need to be found by businesses to pay the increase to the superannuation guarantee. This will come out of their capacity to produce and continue as a viable business. The government promised before and after the election that it would not raise the superannuation guarantee level beyond nine per cent for the impact it would have on small business. It assured business that it would not raise the guarantee. Here is what the then shadow minister for superannuation, Senator Sherry, said before the 2007 election:

We won’t be increasing the nine per cent superannuation guarantee for a number of reasons. I’ve said time and time again at many conferences to many people in the financial services sector, privately and publicly, that nine per cent is enough from the employer, it would be unfair to increase that nine per cent any further and we won’t be doing it.

And here is what the then minister for superannuation, Senator Sherry, said in February after the election:

The 9 per cent superannuation guarantee contribution that employers pay for their employees—again, we’ve committed that we could not increase that and increase the payment burden on employers.

The Labor Party have very well and truly broken their promise not to increase the burden on employers and now they are attacking others with this position. Meanwhile business is having to find $20 billion to pay for this government policy. Here is what Mr Peter Anderson of the Australian Chamber of Commerce and Industry has said about the increase to the levy:

This means an additional cost to Australian employers of between $20 billion and $23 billion per year once the full effect of that measure is put in place by the year 2020. That is a very substantial new hit on Australian businesses. It is not funded by the proposed Resource Super Profits Tax —it is funded by Australia’s employers and small business. It involves no redistribution from the resource industry to other industries or to employees.

The government has not been able to answer how small business is going to cope with this increase. I do not think it really cares. The minister refers to cuts in the company tax rate that will assist small businesses to pay this levy, and the Prime Minister has made similar claims, but this ignores the fact that only one-third of small businesses are incorporated. These businesses do not benefit from the cuts to the corporate tax rate. These businesses will have to find an additional three per cent on top of payroll. The government needs to answer how these businesses will do so in a very competitive business environment.

I also note that the government has ignored the Henry review’s advice on superannuation. Ken Henry specifically ruled out increasing the superannuation guarantee levy and detailed other proposals that would increase savings rates which the government has ignored. The government has refused to release the modelling of Henry’s advice to the detriment of this debate and it is undermining its position.

So, although the government and the coalition agree that retirement savings must be increased, the opposition do not believe the government has the right to do so. The government should not be imposing a greater burden on small business. The government should not be putting small business under further strain. We really should be encouraging employees to invest for their future. We should be encouraging greater financial literacy. This government is all about slugging business. The coalition is all about personal choices and ensuring that businesses large and small prosper without the imposition of a great big new tax.