Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

Thank you, Speaker, and well done on explaining the title of this legislation! It is quite a whopper and I hope those listening will persevere. I rise to speak on the government's Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012 and Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012. It just rolls off the tongue, doesn't it! I am sure we could have come up with a catchy acronym there! The bills before the House seek to reduce the incidence of illegal early withdrawal of superannuation.

Before speaking to the bills, I would like to foreshadow to the House that on behalf of the coalition I will be seeking to move an amendment to this bill, which gives the Australian Taxation Office discretion to allow taxpayers to correct inadvertent errors leading to excess superannuation contributions breaching either concessional or non-concessional superannuation contribution caps. This amendment would give the ATO the option to remedy excessive and disproportionate tax penalties where it believed honest mistakes had been made. I will move to circulate this amendment during the consideration in detail stage of this bill.

But first, I will speak about the bills as they are. Both schedules 1 and 2 within the Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012 originated from recommendations of the Cooper review, which was handed down on the 30 June 2010, over 2½ years ago. Schedule 1 of this bill seeks to introduce civil and criminal penalties for promoters of schemes that result in or encourage illegal early release of superannuation.

Schedule 2 of the bill seeks to make superannuation roll-overs into self-managed superannuation funds subject to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. I note that this act already applies to APRA regulated superannuation funds, and that this is an extension to the self-managed super fund sector. The coalition views both of these initiatives as sensible policy measures. The early release of superannuation is only allowed under strictly limited circumstances. These circumstances include cases of severe financial hardship, total and permanent disability, temporary incapacity, terminal illness or permanent departure from Australia.

Schedule 3 of this bill seeks to amend the Superannuation Industry (Supervision) Act 1993, by introducing a range of administrative consequences for contraventions relating to self-managed superannuation funds. This has come about because there has been a view that the existing penalty regime available to the Commissioner of Taxation is limited in terms of its application to trustees of self-managed super funds. This schedule seeks to give the Commissioner rectification and education directions. The cost to government of providing these directions that are being made available to the Commissioner of Taxation comes in at $17.1 million over 5 years. This will be recouped by the government through increases it has made to the Self-Managed Superannuation Fund Supervisory Levy announced in MYEFO last year. The coalition has been critical of this increase in the levy, which saw it rise from $191 to $259. It will hit 480,000 self-managed superannuation funds, whilst raising $320 million over the forward estimates. The coalition will not oppose the measures contained within this schedule, but we are critical of the hike in the levy through which the Government has chosen to fund these measures.

The second bill, the Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012, seeks to impose a penalty rate of tax of 45 per cent for money unlawfully released early from a superannuation fund. This measure is also consistent with recommendations of the Cooper review. Rules in relation to the early access of superannuation are deliberately strict in order to prevent people from accessing retirement savings early.

Superannuation has always been a preferentially taxed savings vehicle in order to encourage Australians to invest in their own future retirement. This in turn relieves the pressure on government to provide for those who do not have the financial means to support themselves in retirement. To preserve this savings vehicle for its intended use, it is reasonable that penalties exist in order to prevent misuse, particularly given the concessional tax status of superannuation. The coalition wants to encourage as many Australians as possible to plan and save for their retirement and to take full advantage of the benefits that the superannuation system offers. This Labor government has not made life easy for many Australians planning their retirement and the spectre of further changes still hangs over their heads. The government's track record on superannuation has been one of taxation and fiddle, causing great uncertainty for those preparing for their retirement or relying heavily on their superannuation system for their income.

Superannuation is becoming increasingly important as part of household wealth. There has now been about $1.5 trillion in superannuation funds under management—that is about the same as Australia's annual gross domestic product. That figure exceeds deposits with financial institutions, which are around $720 billion; it is much larger than direct shareholdings, at around $514 billion; there are also unfunded superannuation entitlements, at $353 billion. So superannuation assets and entitlements totalled $1.8 trillion within total wealth of households and unincorporated enterprises of $7.5 trillion. The superannuation industry, in large part, owes its success to government policy. The industry is boosted by the compulsory nature of superannuation contributions, currently at nine per cent—but legislated to increase to 12 per cent—and by concessional tax treatment afforded to savings in a superannuation fund.

There is only one measure from the MRRT package that a coalition government will keep, despite the enormous shortfall in forecast MRRT revenue, and that is the increase in compulsory superannuation from nine to 12 per cent. It was in this House that I also emphasised that employer funded superannuation contributions are in fact just that—funded by employers—and the government would do well not to overstate and exaggerate the reach of the MRRT measure in relation to the increased contribution rate. The coalition understands the importance of this measure to the Australian workers planning for their retirement and, in light of all the fiddles and changes to the Australian superannuation system over the past few years, we will not add additional confusion to this arising from reversing this particular measure. The coalition government will fund this measure from savings within the budget and not from a tax that hardly raises any revenue.

Superannuation involves a trade-off with the government. Households are induced to lock up their savings until retirement and to forgo consumption today in return for concessional tax treatment. The benefit for the government is the greater financial self-sufficiency of people once they retire and the lower recourse to the government-funded pension system. The legislation before the House is to ensure that this system is upheld by preventing early and unlawful withdrawal of superannuation balances. The coalition supports this legislation before the House and believes that it is in the spirit of the compact between the government and the people. Having said that, I do not want to give the impression that the coalition is supportive of this government's constant fiddling, tinkering and threatening of additional taxation within the superannuation system—particularly of late as the government seems to eye this superannuation nest egg as a way of addressing its enormous budget shortfalls.

Many unexpected changes have been made to Australia's superannuation system by a government driven by the need for revenue to fund wasteful spending. What I find particularly disturbing is that this government seems to have a view that the superannuation industry is a cash cow, ready to be tapped when it sees fit to help fund its out-of-control budget and unrestrained expenditure. There has been a large reduction in the concessional superannuation caps, from $50,000 and $100,000 down to only $25,000, as well as freezing the relevant indexation on that cap. This is particularly of concern to the small business community and for those who may have a limited working life ahead of them, over which time they need to accumulate a retirement savings nest egg. I am frequently reminded by small business people, still reeling from the Labor government induced 'recession we had to have' in the nineties, that so much of their accumulated wealth—the very nest egg that they sought to rely upon for their retirement—was eroded over that time either by a reduction in the value of their business or by their business being forced to fold. Those people may have a limited window of their working life within which to accumulate a retirement nest egg that they can depend upon for the standard of living they hope to work for—and they feel they have worked for—right throughout their working life. So these reduction caps may, on the surface, seem to have some thought behind them if you look at them through the eyes of regular contributions throughout the adult working life of a superannuation saver, but that is not the journey of many Australian people—and it is particularly not the journey of those courageous men and women of small business, who may take the opportunity from a rare profitable year to provide handsomely for their retirement, in that year where they have that chance, realising that it is but a fraction of the nest egg they will require for a dignified retirement.

There has also been a new supertax imposed on people earning more than $300,000 a year. Again, one needs to look at that over the working life of a person and not at a single snapshot as if that represents their entire working life. The government has only partly addressed the excessive penalties imposed by the ATO when people make inadvertent errors and breach their superannuation contributions cap. I will come back to that issue shortly and speak to some examples that I am very much aware of.

To make matters worse, there are fears that the government will again dip into superannuation in the forthcoming budget to help balance the books. There were rumours circulating widely throughout the media—and, some are suggesting, being planted by representatives of the government—over the past couple of weeks that the government plans to impose tax on the currently tax-free income flows from those aged 60 and above. It was as if they were testing the waters for this further tinkering and tax gouging on superannuation. Articles from the Australian newspaper suggested that these rumours have originated from the minister's own office, despite his repeated denials. After having tested the waters, the government had to rule out this threat given the protest that was building against such moves. Any further fiddling and changes would do nothing to build confidence in the superannuation system. Consumers and the industry need stability in policies and the certainty that the nest egg they are building will be there to fund a comfortable retirement. In recent days, the government has sought to attack the coalition over our intention to rescind another superannuation measure, the low-income superannuation tax offset, funded out of revenue from the MRRT—or should I say the anticipated, but not forthcoming, revenue from the MRRT.

I want to set the record straight on this. The tax offset was announced as part of the government's Minerals Resource Rent Tax package—the MRRT. The coalition has been on the record for a long time with our commitment to scrap the MRRT because it is a bad tax for Australia. Not only has it created sovereign risk implications in terms of our nation's attractiveness to foreign investors, but it is well short of its forecast. On Friday, we learnt that the government had collected $126 million, against a revenue forecast of $2 billion. The government's low-income superannuation tax offset measure, linked to the mining tax, is unfunded expenditure because of the MRRT's incapacity to bring in the revenue that the Treasurer not only forecast, but banked and spent well in advance of it actually materialising.

The coalition have been entirely transparent and upfront about our position on this tax offset. This stands in stark contrast to Labor, who promised there would be no changes to the superannuation arrangements before the 2007 election, and then reduced the government's superannuation co-contributions for low-income earners from $1,500 under the Howard government to just $500. This move stripped $3.3 billion out of low-income earners, a lot of whom would be working women. That is a salient point for this country's Prime Minister, I would have thought. Let us not forget that it is this Labor government that has hit Australians' savings with more than $8 billion in increased taxes on superannuation over the five years since coming to government. That is correct—$8 billion of increased taxes on superannuation imposed by these Labor governments over the five years since the election of Labor. The coalition will not be copping any lectures from Labor about superannuation.

I also waved around in a contribution last week what seemed to be a visual explanation of what 'not one jot, not one tittle' actually means. Those in this House and those listening to this broadcast might remind themselves of that assurance provided by Labor prior to the 2007 election. Kevin Rudd said superannuation would not be changed, 'not by one jot, not by one tiddle'. What we have found is there has been more than 50 substantial policy and legislative changes to superannuation since that assurance. So you can imagine why there is still anxiety in the superannuation sector, including those who are saving within superannuation and those who are dependent on superannuation for their revenue, about this reassurance that the payment out of super funds will not be taxed for people over the age of 60, a proposition that has been floated and then retracted in just the last fortnight.

The coalition will be supporting the measures contained within this bill. The changes are supported by industry and are expected, albeit a little late, following the handing down of the Hooper review over two-and-a-half years ago, but here they are and they will have the coalition's support. But as I stated at the outset, I will be looking to move an amendment. This will give the Australian Taxation Office discretion to allow taxpayers to correct inadvertent errors leading to excessive superannuation contributions breaching either concessional or non-concessional superannuation contribution caps. The reasons for these measures have been brought to my attention quite vividly, and I will outline them generally. The Australian tax office argues that it does not have the discretion to allow taxpayers to correct inadvertent errors that lead to a fine or punishment where there is an inadvertent breach of either the concessional or non-concessional superannuation contribution caps. Breaches of such caps attract extraordinarily large penalties, regardless of the circumstances. It is those circumstances that the coalition wishes to address. Some Australians have been forced to pay an effective tax rate of up to 93 per cent at times because of actions taken by others, completely out of their own control.

Today, the coalition is looking to address this problem. I will be moving amendments that seek to give the Australian tax commissioner discretion in a range of circumstances where individuals have made clearly inadvertent errors. In the consideration in detail stage, I will outline that our amendments seek to provide for that discretion, in cases where an individual has multiple employers and the cap is breached without any possibility of rectification; when the employer contribution is a few days earlier or later than expected; when unexpected bonus payments or redundancy payments impact on contributions; where salary sacrifice arrangements have not had caps altered or changed in time; where a late voluntary contribution is not processed until the following financial year; or where a taxpayer has received incorrect advice from a recognised tax adviser or other professional advisers. That will be the nature of the amendments I will be moving in my name at the detailed stage. I will explain in more detail, but simply with that overview I have provided, I hope that the House gets a sense that there are a number of quite inadvertent and unintentional circumstances which can give rise to an extraordinarily disproportionate fine or penalty as a result of the rigidity of the current law and the lack of discretion for the Australian tax commissioner to take account of the particular circumstances.

In closing, the coalition supports these two bills, but we will be moving an amendment to provide the discretion that the ATO needs to deal with inadvertent breaches.

Andrew Leigh (Fraser, Australian Labor Party) Share this | Link to this | Hansard source

In 1991, the then Prime Minister Paul Keating said of the superannuation guarantee:

It will make Australia a more equal place, a more egalitarian place and hence a more cohesive and happier place.

We do not often talk about happiness and superannuation in the same breath, but I think we should, because a strong superannuation system is a system that ensures dignity in retirement. It ensures that Australian retirees can enjoy that extra grey nomad trip and the comfort of being able to spend time with loved ones without worrying about paying the bills. It ensures that generations that have given much to Australia enjoy the retirement to which they are entitled.

Labor has always had a strong commitment to dignity in retirement. In 2009, we increased the pension—the biggest increase in the pension since its inception. That increase was worth $1,600 a year for singles on the full aged pension. Peter Whiteford from the University of New South Wales estimates that that knocked down the rate of poverty in Australia by about a fifth, from about 14 per cent down to about 11 per cent—one of the biggest decreases in poverty that we have seen. That came as a result of Labor's decision to raise the pension. That is the broad context for superannuation from this side of the house.

Alas, this has not been bipartisan. If we look to the Leader of the Opposition, he said once, 'Compulsory superannuation is one of the biggest con jobs ever foisted by government on the Australian people.' In 1995 he said, 'Compulsory superannuation is possibly the greatest confidence trick of the last decade.' It is in that spirit that we were not surprised when the Leader of the Opposition said on 23 March last year:

Well, we strongly oppose the superannuation increase. We have always as a coalition been against compulsory superannuation increases…

and that he said he would therefore oppose them. You can knock him for being wrong but not for being inconsistent. At least he was following true at that point to the things he had said about compulsory superannuation. But now it appears that the opposition have backflipped on superannuation. They say they will now be supporting the increase from nine to 12 per cent. They came into this place and voted against it. It is a phased increase until 2019, but those opposite will now apparently support the increase in superannuation—dragged kicking and screaming to the line—and are now unwilling to back down on this reform.

But you know where those opposite stand when they have the chance to speak out on superannuation. On the superannuation guarantee, Wilson Tuckey said that it was 'both stupid and dishonest'. Senator Alston said 'imposing compulsory superannuation on individuals does not increase total savings'—a statement clearly at odds with two recent Reserve Bank discussion papers. Senator Watson from the Liberal Party said 'unemployment is going to rise' from superannuation. Those opposite, in their heart of hearts, would really prefer that there was not a universal superannuation system. Just as they fought Medicare at its creation, so too they fought universal superannuation at its creation. Just as they have fought a series of progressive health measures, so too they have fought the increase in superannuation from nine to 12 per cent.

Today, although they may be saying that they are going to support the increase in universal superannuation, they are also going to raise the tax on the superannuation contributions of 3.6 million low-income Australians. That is about one in three workers, and they are the lowest paid workers in Australia. Nearly a third of workers are going to have their superannuation taxes increased by up to $500 a year under the opposition. Of course this is the same opposition who cried foul when the government imposed an additional 15 per cent tax on the superannuation contributions of those earning $300,000 or more in the last budget. That affected 128,000 people and some of the highest earning Australians. This, a measure which benefits 3.6 million of the lowest paid Australians, is a measure that the opposition will claw back.

The superannuation system on which dignity in retirement is founded is a Labor creation. It was Labor that put superannuation in place and has increased it from 9 to 12 per cent. It is Labor that introduced a low income superannuation contribution effective from 1 July last year. It is Labor has put in place a measure to implement a one-off refund of small excess concessional cap contributions breaches from 1 July 2011. Labor has put in place a higher concessional contributions cap for over-50s with low balances, and we have abolished the 70-year-old age limit on the superannuation guarantee. At the same time we are making the system more efficient and making the process of everyday transactions easier through new data and e-commerce standards, the use of tax file numbers as the primary locator of member accounts and facilitating account consolidation and electronic portability.

The Find My Super campaign that I ran locally with ACT MLA Chris Bourke helped link Australians to their superannuation. We can also do a lot through the Australian Taxation Office to make sure that your lost superannuation account finds you. Labor is working on those reforms. We have announced new rules to make superannuation simpler and more cost-effective through the MySuper reforms, which are grounded in the Cooper review. This recognises that choice architecture needs to operate in an environment where many people simply take the default fund and the default option within that fund. Defaults need to have high returns for individuals. The MySuper reforms see that put in place. They ensure that the defaults Australians receive are good defaults. I think this was a notion not well understood in the early 1990s. The emphasis then was very much on choice, but I think a lot of the research since then, particularly some of the studies coming out of behavioural economics, have told us that most people are not active managers of their retirement savings. They want rules that ensure good defaults, and that it what the MySuper reforms put in place.

We are making sure that the directors of super funds are appropriately accountable for meeting their duties towards members. All of this is of a piece with ensuring that Australia can be a financial services hub and ensuring that Australia is a place where we encourage good money management in a way where we ensure that financial advisers are not conflicted and that they have good disclosure for their clients.

The consumer credit reforms we have put in place sit alongside the MySuper reforms in making sure that customers get a good deal, making sure we have a system that puts customers first.

To go to the specific provisions of the bill: the bill introduces civil and criminal sanctions for someone who promotes a scheme that has resulted or is likely to result in the illegal early release of superannuation benefits. At the moment, there are not those provisions available for promoters unless they are in the situation of themselves being trustees of a fund. This ensures that those who would seek to benefit from the illegal early release of superannuation benefits can be punished.

The bill amends the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 to require that superannuation benefits that are rolled over into self-managed superannuation funds are captured as a designated service. That ensures that we take into account the risks of money laundering and financing of terrorism that can be associated with asset rollover and that we have the appropriate customer identification and reporting requirements to ensure that superannuation is not used for inappropriate ends.

The bill amends the Superannuation Industry (Supervision) Act 1993 to introduce administrative consequences for contraventions relating to self-managed superannuation funds. That gives the Commissioner of Taxation effective, flexible, proportionate power to address noncompliance with superannuation laws.

These reforms are essential if we are to ensure that the superannuation system remains a strong system which ensures good investment in Australia—we have seen the pool of assets grow to around the size of Australia's GDP. These reforms ensure that Australians have dignity in retirement.

I call on those opposite to change their commitment to scrapping the low-income superannuation contribution. They have argued that they are not going to support any measures that are linked to the mining tax, but we know that is not the case because, just after making that statement, as soon as the breath was out of their mouths, they then said: 'Not the increase from nine to 12 per cent.' The increase from nine to 12 per cent is not small bickies. I understand that each percentage point is around $1 billion of forgone tax revenue for the government. So there is $3 billion sitting right there.

My call to those opposite is: if they are going to support a good measure—increasing superannuation contributions from nine to 12 per cent—why not continue and support an equally good measure in bringing down the tax rate paid by the lowest income Australians on their superannuation contributions? It is a reform that follows the Henry review. The Henry review recommended the tax paid on superannuation contributions should be an individual's marginal tax rate minus 15 per cent. We have not gotten to precisely that, but we have recognised the wisdom of the Henry review's recommendation that superannuation taxation should not be a flat tax, that it should be lower for lower income Australians. So we have brought down the tax rate to zero for 3.6 million Australians.

I call on those opposite to support that measure. It is a good measure. It improves dignity in retirement and it improves dignity for lower income Australians, who are disproportionately female workers. As we know, women earn lower wages in the Australian labour market, for a range of reasons—from industry, to discrimination, to career breaks. Women in the Australian workforce earn less and, as a result, have lower superannuation balances. These 3.6 million Australians, disproportionately women, are benefiting from the low-income superannuation contribution. If the coalition were to come to government and scrap it, they would be raising taxes on a group of low-income earners, disproportionately women.

This is as good a measure, in my view, as the increased superannuation contribution. It is an important equity measure and it is an important measure to ensure that Australians in their retirement have the independence to be able to travel, to spend time with loved ones, to enjoy a good retirement. I hope that sense prevails, that the Liberal Party, which has traditionally been deeply suspicious of universal superannuation—since the very inception of universal superannuation—can now see its way to support recommendations coming out of the Henry review that low-income Australians pay less tax. I commend the bill to the House.

Paul Fletcher (Bradfield, Liberal Party) Share this | Link to this | Hansard source

I am very pleased to rise to speak on the Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012 and the Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012. The purpose of these bills is to increase penalties for those involved in the unlawful early release of superannuation moneys. These bills, in a sense, go to the bargain which exists between the Commonwealth and its citizens in relation to superannuation. The bargain is that the Commonwealth says to citizens, 'We will provide you with tax concessions to assist you to save and build up a balance that will provide for you in retirement,' and, in exchange, your part of the bargain as a citizen is that you will use the money only for the designated purpose of providing for your retirement. Hence, efforts to, for example, release the funds early are breaching that bargain, and that is, it would appear, the rationale for the measures in the bill today.

However, there is one aspect of the bargain which the Commonwealth is not doing a very good job of keeping. Indeed, the Commonwealth has, quite frankly, breached its side of the bargain when it comes to the situation of citizens who, in good faith, make contributions into their superannuation fund and find themselves inadvertently paying extremely high rates of tax—as high as 93 per cent—when they inadvertently breach what are highly technical and complex rules.

The result is that money, which has been paid in by the citizen in reliance on the bargain with the Commonwealth with the intention of saving money to provide for that citizen's retirement, is in fact seized by the government and put into general tax revenue. Regrettably, and quite extraordinarily, the Rudd-Gillard Labor government has been content to let this situation fester for years while collecting tens of millions of dollars in tax revenue in excess contributions tax each year—much of that revenue collected essentially by tricking citizens. That is why the coalition has moved an amendment to this bill which is designed to fix this problem—which is designed to prevent citizens being tricked into paying punitive rates of taxation on monies which they thought were going to contribute towards their retirement income.

I would like to speak to the amendment and I want to make three points in the brief time available to me this afternoon. Firstly, I want to point out that the current rules are unfair and capricious in the way they operate. Secondly, I want to highlight the fact that the Rudd-Gillard Labor government has allowed this situation to fester for a number of years and has grabbed at revenue which has been received from citizens under a misunderstanding. An inadvertent error by citizens has led to them paying excessive rates of tax. Thirdly, the coalition, in the amendment we are moving to the bill this afternoon, are proposing an effective and workable solution to this problem.

Let me turn, firstly, to the proposition that the current rules are unfair and capricious in the way that they apply to citizens. When you state that a particular payment could attract a rate of tax of up to 93 per cent, most Australians would be very, very surprised. They would be particularly surprised to learn that you can be subject to a tax of up to 93 per cent, not because you have made a deliberate attempt to obtain benefits to which you are not entitled but because, through inadvertent error—and in some cases through factors which are wholly beyond your control, as I will go on to explain—payments have been made, in some cases, just days before 30 June or days after 30 June, with the result that the total amount being paid in a particular financial year exceeds an arbitrary limit and then very, very high rates of tax can apply. Let me explain how this can occur. The starting point is that the limit on concessional contributions into superannuation is $25,000 a year. I note that this contribution limit has dropped very, very sharply in the five-and-a-bit years of the Rudd-Gillard government. For many citizens it was $100,000; it is now $25,000. Of course, that sharp and continuing reduction in contribution limits has been a factor in leading many citizens to be confused and surprised and to find themselves inadvertently in a position where they have breached the contribution limits. The Rudd-Gillard government's poor administration of the contribution limits has been a factor in many citizens finding themselves caught up in this mess.

The second thing that happens is that, if you make contributions which are intended to be in contact concessional contributions but exceed the $25,000 limit, then further contributions are treated as incurring the excess concessional contributions tax of 31.5 per cent. They then fall into your non-concessional contributions limit which is $150,000 in one year or $450,000 over three years. The risk is that, if you are already at your non-concessional contributions limit, then any dollar over the $25,000 which fails to be treated as a concessional contribution picks up additional tax because you have also exceeded the non-concessional limit. I think you will agree it is crystal clear. Even as I explain it, it is very easy to see how Australians can inadvertently find themselves breaching these highly complex and technical rules. This is the situation that a disturbingly large number of people find themselves facing.

The key point is: you can breach these rules through no fault of your own, because, if a payment that you thought was going to be made by your employer by 30 June of a particular financial year ends up being made on 1 or 2 July, thus falling into the next financial year, you can trip-wire these limits in that next financial year. There is a whole range of circumstances in which, for reasons wholly outside of your control, you can end up as an employee breaching these contribution limits. One situation is where an individual has multiple employers and the cap is breached without any possibility of rectification. Another possibility is where an employer contribution is a few days earlier or later than expected. There can also be the situation of unexpected bonus payments or redundancy payments. So you might have developed a strategy to contribute up to the $25,000 limit and no more, but then, unexpectedly, you are made redundant, a redundancy payment comes in during the financial year and then you are suddenly rocketing through that contribution limit and that money, which ought to be your money, is being seized as a very large percentage in tax. Of course, another possibility is if a late voluntary contribution you intend to have made in this financial year is not processed by the superannuation fund or by your financial institutional until the following financial year. As I have explained, the consequence of any one of these highly technical errors and errors which are made for reasons which, in many cases, are outside of the control of the citizen—outside of the control of the taxpayer—can lead to you being hit with tax of up to 93 per cent. That is, on any view, completely unreasonable and unacceptable.

You would have thought that merely explaining this problem would immediately create, in any government, an urgency to fix it. You would have thought that no government would want to be in the position where it was, in essence, collecting taxes from its citizens by trickery. But, remarkably, the Rudd-Gillard Labor government has made no serious attempt to fix this problem. Let us just look at the scale of this problem. In the 2008-09 financial year, 35,000 Australians breached the contribution rules. By 2010-11 it was 50,954, and by 2011-12 it was 66,435 Australians paying excess contributions tax—in many cases due to inadvertent error. And that dramatic increase from 35,000 to 66,000 in three years is undoubtedly related to the fact that the Rudd-Gillard Labor government has systematically reduced contribution limits, all the while incidentally, telling Australians they were going to be doing the opposite—all the while telling Australians that the reduction to $25,000 was only temporary and that for those above 50 their contribution limits would not be maintained at a low level.

The Labor government, it is true, in 2010 passed some legislation which was designed to give the commissioner a certain degree of discretion to deal with this matter. But the degree of discretion is extremely limited. It is only available in respect of excess contributions of up to $10,000. What the commissioner says is that citizens or taxpayers in that situation may be eligible for a once-only offer to have their contributions withdrawn from their fund, added to their assessable income and taxed at the marginal rate.

Why such a piecemeal solution has been proffered by the present government is difficult to understand unless we recognise the troubling possibility that this government is so desperate for revenue that it is willing to collect tax revenue by trickery. And in 2011-12 the Rudd-Gillard government raised $174 million in excess contributions tax. It is clear that in significant measure some of this money has effectively been tricked out of ordinary Australians seeking to comply with the fiendishly complex rules governing contributions and contribution limits, and have found themselves—for reasons in many cases beyond their control—paying tax on their contributions, of up to 93 per cent.

Now, the Rudd-Gillard government has been content to let this situation fester. The coalition is putting forward an amendment which is designed to fix this problem; it is designed to end this tawdry behaviour, on the part of the present government, of essentially taxing Australians through trickery.

The proposed provisions in our amendment would add new subsections to the existing section 292-465 of the Income Tax Assessment Act. They would authorise the commissioner to make a determination to reverse contributions where a taxpayer has made an inadvertent error and would allow the commissioner to consider, in determining whether to exercise his discretion, several factors that typically have caused taxpayers to make these kinds of inadvertent errors. For example, having more than one employer is the first factor set out in the proposed subsection 292-465(6A) and then whether contributions were made by the taxpayer's employer at a time that was earlier than the time the taxpayer expected; whether they were made at a time that was later; whether the taxpayer received an unexpected bonus payment that had an impact on the amount of his or her contributions, and a range of other factors, which, experience tells us, have led thousands of Australians to find themselves paying excess tax for reasons which are beyond their control—reasons which they could not take into account. I repeat, in 2011-12, 66,435 taxpayers paid an excess contributions tax. So this is a large and growing problem—a problem that the Rudd-Gillard government has been quite happy to let fester.

Will this measure have a budgetary impact? Potentially it will. I have indicated that the revenue collected in the last full financial year was $174 million. But if the reduction in revenue occurs because Australians are no longer being tricked by their government into paying an excess contributions tax of up to 93 per cent because of their failure to comply with technical and complex rules, and in many cases exacerbated by factors beyond their control such as the timing of payments from their employer—if the reduction in revenue occurs because that kind of trickery is no longer able to be perpetrated by the Commonwealth on its citizens—then that is a reduction in revenue that this parliament ought to welcome.

And it would be a shocking thing indeed if the Rudd-Gillard government were to say to the people of Australia, 'We are quite happy to keep raising revenue, to keep taxing through trickery.' That would be a shocking thing indeed. And unless that is what the Rudd-Gillard government wants to say to the people of Australia, then I cannot see any reason why the government would not support this amendment which the coalition has moved, which is designed to ensure that Australians no longer find themselves in that position, through inadvertently breaching highly technical and complex rules and being taxed at up to 93 per cent on money that they thought they were setting aside to provide for their retirement. I commend this amendment to the House.

Stephen Jones (Throsby, Australian Labor Party) Share this | Link to this | Hansard source

We are debating a bill to amend our legislation in respect of superannuation. The Labor Party's superannuation policy has an important public policy purpose, and that is to build a pool of individual and national retirement savings so that individuals can retire with some dignity and some income security, and also to provide some relief for future generations in respect of pension payments and meeting the challenges of an aging demographic.

In respect of this the government provides a tax concession on contributions and earnings for moneys going into the fund and the earnings of the fund. You would have to say that on any fair analysis the policy is working. We have over $1.4 trillion in retirement savings invested superannuation accounts around the country. This is close to the fourth-largest pool of superannuation funding anywhere in the world.

It should be the case that early access to superannuation is only available in extremely limited circumstances. By 'early access' I mean prior to retirement. In the cases of severe hardship or other very limited circumstances the trustees of funds may allow early access to this funds and they do not receive high levels of taxation penalties as a result.

Unfortunately, a number of individuals promote illegal early-release schemes. The superannuation system review recommended that the government take action to reduce the illegal early release of super, and the two bills before the House today are aimed at addressing just that. Schedule 1 of the Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012 provides for civil and criminal penalties for those who promote the legal early release of super. The Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012, the ITR bill, amends the law to ensure that superannuation benefits pulled out as part of some illegal early release are taxed at 45 per cent.

Schedule 1 to the Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012 amends the Superannuation Industry (Supervision) Act to introduce civil and criminal sanctions for a person who promotes a scheme that has resulted, or is likely to result, in the illegal early release of superannuation benefits. The government's super system review found that stronger sanctions must exist to deter the promoters of illegal early-release schemes from undermining the government's retirement policy and, in addition, harming members in the process. The review found evidence of promoters who were pushing these schemes charging very high commissions for convincing sometimes unwitting investors to roll their money over from a compliance scheme into one of these early-release schemes and taking as high as 50 per cent in commission—unconscionable behaviour that should be condemned by all members in this place.

Currently, there are no specific penalties for the promoters of illegal early-release schemes who are not themselves trustees of a regulated superannuation fund. Often the promoter will not be a trustee of a purported superannuation fund used in a scheme but instead recruits other parties for the role. This measure delivers on the government's announcement that it would introduce penalties to deter the promotion of these sorts of schemes. It will allow the commissioner to seek civil and criminal penalties for those who promote these early-release schemes. The review also found that those individuals who gain illegal early access to their superannuation benefits should not enjoy the same tax treatment as that which is designed to promote that public policy purpose. The review recommended that amounts released by illegal means should be subject to the superannuation fund non-complying tax rate of 45 per cent.

The Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012, being considered in cognate with the first bill, imposes the superannuation non-complying fund rate of 45 per cent on those amounts that are released early by illegal means. These measures will ensure strong sanctions are in place to deter the illegal early release of superannuation.

Schedule 2 to the bill amends the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 to require that superannuation benefits that are rolled over into self-managed superannuation funds are captured as a designated service. The super system review noted that, since trustees and members of SMSFs are generally the same, there is greater scope for assets once received in the self-managed superannuation fund to be diverted for an illicit purpose. By capturing rollovers into self-managed superannuation funds as a designated service under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, the transferring superannuation fund will have to comply with a range of obligations, including customer identification requirements and reporting obligations. This measure will ensure that consideration is given to the money-laundering and terrorism-financing risk associated with the rollover of assets to a self-managed superannuation fund.

Schedule 3 to the bill amends the Superannuation Industry (Supervision) Act 1993 to introduce administrative consequences for contraventions relating to self-managed superannuation funds. The super system review found that the Commissioner of Taxation, as regulator of self-managed funds, needs to have effective, flexible and proportionate powers to address noncompliance with the superannuation laws. Currently, the commissioner has a very limited number of tools available to address instances of noncompliance. The review acknowledged the benefits that the current penalty regime provides to deal with and deter noncompliance; however, it highlighted some areas of the current regime which limit the commissioner's ability to achieve optimal regulation.

Applying the current penalties can be costly and time consuming, and the potential consequences can be disproportionately high. The absence of graduated penalties results in a number of self-managed superannuation fund trustees avoiding sanction for contravening conduct by simply rectifying the conduct when it is detected. This may be appropriate in some circumstances, but it is not appropriate if the trustees can continue to contravene the law and therefore their actions simply have no consequences. The review recommended that the commissioner be given additional tools, both educational and punitive, in conjunction with existing powers. These tools will support the ongoing integrity of the superannuation system. This measure delivers another stronger super reform for self-managed superannuation funds.

On this side of the House, we have a strong commitment to Australia's superannuation system. It was, after all, the Australian Labor Party that built the system and added to it. We built it over the vehement opposition of the coalition, who have never been supporters of occupational superannuation. They see it as some form of socialist plot. Every time we have had the opportunity to bring into this place measures which advance the capacity of workers to add to their retirement savings, those measures have been met with vehement opposition by those on the other side of the House.

But this government is increasing its commitment to workers' superannuation, particularly by increasing the superannuation guarantee. Those from the coalition parties really did deserve an award in hypocrisy when, in previous weeks, they raised questions and tried to speculate about what might be in the forthcoming budget when it came to workers' superannuation when they themselves, only months earlier, had opposed measures to lift the superannuation guarantee from nine per cent to 12 per cent. This measure alone will boost the retirement savings of 8.4 million Australians by about $85 billion over 10 years and add about $500 billion to our pool of retirement savings by 2035. That means around $118,000 to the retirement superannuation balance for an average worker who is 30 years old today.

Labor's super reforms also provide an annual contribution of up to $500 into the superannuation accounts of workers earning less than $37,000. This is a measure that came into effect on 1 July last year. It will enable workers aged between 70 and 74 to receive contributions for the very first time since the introduction of compulsory superannuation. This is a measure that will come into effect from 1 July this year. It also creates a new low-cost superannuation product called MySuper. Again, this is a measure that will come into effect from 1 July 2013.

In stark contrast, the coalition have confirmed that they would re-impose a 15 per cent tax on Australia's lowest paid workers—that is, those earning below $37,000 per annum. This group of people includes 2.1 million working women. The opposition leader announced at the National Press Club recently that, if elected, the coalition would abolish the low-income superannuation contribution. That is, those workers earning over $37,000 a year who are currently having $500 per year diverted into their accounts by the federal Labor government, adding to their retirement income, will have that reversed—stopped, knocked on the head—if the Leader of the Opposition ever becomes Prime Minister of this country.

The coalition policy constitutes a superannuation tax increase of up to $500 on every Australian worker earning below $37,000. If you just think about it for a moment, their policy is to abolish our policy of increasing the tax-free threshold—nearly tripling the tax-free threshold—up to $18½ thousand, so that nobody earning less than $18½ thousand pays income tax. On top of that, they are going to whack these workers' superannuation by another $500 per annum in additional taxation. It is quite clear to see where their priorities lie, and it is reflected in the focus of their contribution on this legislation.

The purpose of the low-income superannuation contribution is to effectively refund the tax that is paid by low-income earners on their concessional superannuation contributions, including the superannuation guarantee of up to $500 per annum. Because of their lower income tax rate, lower income earners otherwise do not get the same concessional benefits as workers on higher incomes do. They do not have access to a whole heap of the benefits that higher income earners may have when it comes to minimising their tax arrangements through superannuation contributions.

Treasury analysis says that there are around about 3.6 million workers earning less than $37,000 per annum—so it is not a small group of people—including, in my own state, around 1.1 million workers who would be affected by this retrograde change. That is roughly three out of every 10 workers in Australia. So, far from decreasing taxes and increasing retirement savings of Australians, the coalition—led by the member for Warringah—would go into the election opposing the low-income superannuation contribution while also opposing our policy of raising the superannuation guarantee from nine to 12 per cent. It also immediately destroys the coalition's so-called commitment earlier in the week to make no changes to the superannuation system. The re-imposition of a $1 billion per year tax on 3.6 million workers is an unexpected, unfortunate and dramatic change by any assessment.

If Australians want to ensure that they have decent policy protecting their retirement incomes, they should support members in their electorates who support the sort of legislation such as that before the House today, and the party that brought occupational superannuation to the Australian people. I commend the legislation to the House.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

It is always wonderful to hear the contribution from the member for Throsby but, as is usual for this government, there was nothing new or constructive to add to the debate.

I rise to speak today on the Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012 and the Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012. From my experience in the financial planning and superannuation industry before entering this place, these bills are based on the sound recommendations that have come out of the Cooper review. Although that review was brought down some 2½ years ago, it is heartening to see that some steps continue to be made to introduce some of those recommendations that have been very rightly made to preserve and enhance the integrity of our superannuation system.

The bills in essence are designed to reduce the incidence of illegal early withdrawals from superannuation and to impose some realistic penalties on those people who seek to illegally withdraw funds early. It is also worthwhile to note that there are some provisions within the legislation for the early release of super, but it is strictly controlled and under limited circumstances, such as severe financial hardship, total and permanent disablement, temporary incapacity, terminal illness or permanent departure from Australia. These rules have been made deliberately strict because there is an agreement inherent in the structure of superannuation that it is there for the long term for people's retirement, and the consequence is that you get a concessional tax rate for having your money not available until you retire at age 55, 60 or 65.

The Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill imposes a penalty tax rate of 45 per cent for money unlawfully released early from a superannuation fund. Forty-five per cent is the current superannuation non-complying tax rate, so it fits in with current regulatory structures. This was recommended by the Cooper review for simplicity and to reflect the top marginal tax rate.

The Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill introduces civil and criminal penalties for promoters of schemes that result in or encourage illegal release of superannuation. It also makes superannuation rollovers into self-managed funds subject to the Anti-Money Laundering and Counter-Terrorism Financing Act.

This range of measures was again recommended in the Cooper review. The anti-money laundering act also applies to APRA-regulated funds and this extends the application to funds being rolled over from an APRA fund to a self-managed super fund. It requires the people involved to be identified to ensure or lower the risk of money laundering and terrorism financing. This ability to use the safe harbour procedures will mean that transferring funds will not have to collect and verify the full range of customer information.

Superannuation is taxed at a preferential rate to encourage people to save for their retirement. This goal is undermined if people illegally access superannuation savings early, and it is also undermined if money released illegally goes in whole or in part as fees to promoters of these illegal schemes, or is channelled into other illegal activities. The measures contained in these bills are broadly supported across the superannuation industry and would not be opposed by the coalition.

There are other issues that also need addressing within the superannuation environment. A large and increasing number of Australians are confronted with excessive and disproportionate tax penalties as a result of genuinely inadvertent errors leading to voluntary superannuation contributions in excess of either their concessional or non-concessional contribution caps. Some Australians have, in effect, been forced to pay an effective tax rate of up to 93 per cent at times, and these actions have been taken completely out of their control by others. This is why we on the coalition side seek to introduce an amendment to give the tax office some discretion to allow those penalties not to be enforced in the event of an inadvertent breach of the regulations. It can be as simple as a contribution being paid at or near the end of June being processed by the superannuation fund early in the new financial year, when it related to that previous financial year. In the following financial year they make their $25,000 contribution, but because the carryover of the previous contribution—or because it was processed in the new financial year—those two amounts are added together and consequently, inadvertently, those people have breached those contributions caps. The coalition proposes to move an amendment to give the ATO discretion to allow taxpayers to correct those inadvertent errors. As the member for Bradfield rightly pointed out, there are some 66,000 Australians who have been caught in that position over the past financial year and they have paid some $174 million in excess super contributions tax, none of which goes to assisting them in accumulating superannuation benefits for their retirement.

The reason for putting this amendment in is that the ATO argues that they do not currently have this discretion, and these inadvertent errors, for example, can occur where an individual has multiple employers and the cap is breached without any possibility of rectification. An employer contribution may be paid a few days earlier or later than expected, and unexpected bonus payments or redundancy payments can also impact on the contributions. Where salary sacrifice arrangements are in place they similarly can have an impact if caps are altered and not changed in time. Before my time in this place I saw that occur firsthand on a number of occasions. We had to quickly review and ensure that clients who were on salary sacrifice arrangements made those adjustments to the salary sacrifice arrangements to avoid getting caught with changes to these contribution limits. The tax penalties involved are clearly excessive, delivering a tax rate of up to 93 per cent.

This measure should have no impact on the budget as the government should not have been planning its budget revenue estimates based on the assumption that people saving to achieve a self-funded retirement will make inadvertent errors and be taxed at up to 93 per cent on their retirement savings. Taxpayers in this situation who are doing the right thing by saving more voluntarily to achieve a self-funded retirement and take the pressure off the public purse, as a result are currently being unfairly and disproportionately penalised.

In the coalition amendments, guidance is given to the commissioner about the circumstances in which the discretion should be exercised. This is a discretion that should be exercised when the excess contributions are the result of inadvertent errors. Can this government stand up and state in good conscience that their forward estimates are based on the assumption that they will take money from people who have made inadvertent mistakes? Given that the government speakers on these bills have been loudly proclaiming the superannuation framework, the fact that they were responsible for introducing superannuation and the fact that they want people to accumulate funds for retirement—a notion that we on this side absolutely support—it is perfectly reasonable for us to ask the government to give the ATO this discretion.

We know that the government needs all the tax revenue that it can get its hands on. That is not because the people of Australia have done the wrong thing over the past five years; it is because we have a government whose profligate spending has created a situation in which it needs to find money in every single nook, cranny and crevice that it can.

When we take a longer term view and consider that we have an ageing population and an ever-increasing call on government resources in a wide variety of areas, and are faced with a government whose only inclination is to continue to tax the very people with the capacity to provide wholly or at least significantly for themselves, the cruel irony is that the very people we should assist and provide a hand up to lose out. This is because we have a government that creates hurdles and disincentives to saving via super for those who want to plan for a self-sufficient retirement. The government applies ridiculously low concessional limits to superannuation while at the same time increases taxes on those who have already done the right thing by seeking to become self-funded in their retirement.

Self-funded retirement is the ideal outcome for any retirement income strategy. The more people who are either fully or partially self-funded, the more funds that are available to assist those who do not have the capacity to fund their own retirement. That is the risk with the short-term nature of some of the decisions made by this government to prop up its budget revenue because of its profligate spending. It appears that this government simply does not understand this. Over the past five years, some $8 billion has been withdrawn from the superannuation system through higher taxes under this government.

I genuinely hope that we are able to see a superannuation system that maintains its integrity and strength for the long term and that the government is not seeking to profiteer further from future self-funded retirees through the proposals set out in these bills that apply to people who inadvertently exceed their contribution limits and finish up potentially paying up to 93 per cent in taxes.

Alan Griffin (Bruce, Australian Labor Party) Share this | Link to this | Hansard source

It is a pleasure to follow on from a speaker such as my friend the member for Forde. We often spend some time together on a Thursday morning endeavouring to try and get fit, remembering what we were—well, at least what he was—once like many years ago when it came to the question of sport. I am consistent. I am as bad as I was then: still pretty bad.

This legislation makes a series of amendments to our superannuation law. Schedule 1 of the legislation implements the government's reforms relating to penalties for illegal early release schemes as part of the Stronger Super reforms. The bills will introduce civil and criminal penalties for persons who promote schemes for the illegal early release of superannuation benefits.

Schedule 2 of the legislation allows rollovers to self-managed superannuation funds from regulated superannuation funds that are not SMSFs to be captured as a designated service under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. This amendment will ensure that consideration is given to the money laundering and terrorism financing risks associated with the rollover of assets to an SMSF and that appropriate customer identification and reporting obligations exist when assets exit the prudentially regulated superannuation sector.

Schedule 3 of the legislation provides for administrative consequences for trustees of self-managed superannuation funds by given the Commissioner of Taxation the power to issue education and rectification directions and impose administrative penalties for contraventions of the Superannuation Industry Supervision Act 1993 and the superannuation industry supervision regulations. These amendments will provide the Commissioner of Taxation with effective, flexible and cost-effective mechanisms to deal with non-compliance with the law.

The ITR bill introduces the superannuation fund non-complying rate of 45 per cent to amounts released by illegal means. The Commissioner of Taxation retains the discretion to determine that it is unreasonable to subject amounts released by illegal means to the 45 per cent rate, having regard to the nature of the fund and the circumstances of release.

Superannuation is an incredibly important part of the financial system for the future of generations of Australians, now and in the future. It is a system that the Labor government has been proud to support over the last 20-plus years and is proud to support at this time. It is an important part of the future security of generations as they get older. I commend the bills to the House.

Bill Shorten (Maribyrnong, Australian Labor Party, Minister for Financial Services and Superannuation) Share this | Link to this | Hansard source

Firstly, I would like to thank those members who have contributed to this debate, including the eloquent words of the member for Bruce. Schedule 1 to the Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012 introduces civil and criminal sanctions for a person who promotes a scheme that has resulted, or is likely to result, in the illegal early release of superannuation benefits. The Income Tax Rates Amendments (Unlawful Payments from Regulated Superannuation Funds) Bill 2012 imposes the superannuation non-complying fund rate of 45 per cent on those amounts that are released early by illegal means. These measures will further deter promoters of illegal early release scheme from undermining the government's retirement policy and harming members in the process.

Schedule 2 to the Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012 amends the Anti-Money Laundering and Counter-Terrorism Financing Act to require that superannuation benefits that are rolled over into self-managed superannuation funds are captured as a designated service. This requirement will assist in reducing the risk that superannuation benefits that are rolled over for self-managed superannuation funds are used for illicit purposes.

Schedule 3 amends the Superannuation Industry (Supervision) Act 1993 to introduce administrative consequences for contraventions relating to self-managed superannuation funds. This measure will give the Commissioner of Taxation, as regulator of self-managed superannuation funds, effective flexible and proportionate powers to address non-compliance with the superannuation laws. These tools will support the ongoing integrity of the superannuation system, and I commend these bills to the House.

Question agreed to.

Bill read a second time.