Tony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | Link to this | Hansard source

I rise on behalf on the shadow Treasurer, the member for North Sydney. The coalition will be supporting the passage of these two bills. The government introduced them into the House of Representatives yesterday. The government has sought coalition support to expedite the passage of them through the parliament.

The coalition has taken a stance on rushed legislation in the past. I was speaking about this issue on amendments that were made necessary by rushed legislation on the unclaimed money and other measures bill earlier in the week. As I said at the outset, the coalition will assist supporting these. They form part of the government's superannuation changes announced back in April of this year and were also included in the budget delivered just last month.

The bills belatedly remove the extreme penalty that arises when individuals inadvertently exceed their annual superannuation concessional contribution cap, currently at $25,000 per year for all taxpayers. When this occurs, more often than not, it is an honest mistake. Currently excess concessional contributions are subject to contributions tax at a rate of 31½ per cent, adding to the 15 per cent contributions tax rate and taking the total to 46½ per cent, regardless of the individual's level of income or the marginal tax rate. These contributions are generally not included in an individual's taxable income.

The amendments will instead include excess concessional contributions in an individual's taxable income which will then be taxed at their marginal rate, not at 46½ per cent indiscriminately. As a result this excess is not effectively subject to concessional contributions tax at 15 per cent or excess concessional contributions tax at 31½ per cent. The bills also allow individuals to elect to release an amount of excess concessional contributions from their superannuation interests.

The associated cognate bill, the Superannuation (Excess Concessional Contributions Charge) Bill 2013 imposes a charge on taxpayers who have concessional contributions in excess of their annual cap. This will ensure that individuals do not receive an advantage over taxpayers who do not exceed their annual cap. To achieve this, any tax shortfall that an individual has for a time or might hold and therefore benefit from will be charged the shortfall interest charge for the period that it is held.

The tax shortfall or potential benefit is in effect the excess contribution for the year multiplied by the difference in tax rates between the individual's marginal tax rate for that year and the 15 per cent concessional contribution rate. The shortfall interest charge is based on the 90-day bank-accepted bill as published by the Reserve Bank, plus a three per cent uplift factor.

The coalition has been on record with our position on this policy for a very long time, particularly through our shadow spokesman, Senator Cormann. At present, people who inadvertently breach their concessional caps are hit with a top marginal rate of 46½ per cent irrespective of what their actual tax rate is on their income taken as take-home pay. The situation is even worse in relation to inadvertent breaches of non-concessional contribution caps. Non-concessional contributions are made in after-tax income, which has already been taxed by up to 46½ per cent. After the penalty is applied, even for inadvertent breaches of those non-concessional caps, the government effectively imposes a tax of up to 93 per cent. We have made the point that this is hyper-punitive, to say the least.

It must be remembered that this tax of up to 93 cents in the dollar is targeting people who are trying to do the right thing by saving more towards their retirement to get themselves into a position where they can look after their own needs in retirement and do not have to rely on the public purse. Yet the government hits them with a tax of up to 93 per cent when an inadvertent error is made, often in circumstances, of course, outside of their control.

This should not be imposing a cost on the budget either. The point that our shadow spokesman has made repeatedly is: surely the government is not planning its revenue estimates on the basis of an assumption about people saving for retirement making errors so the government can collect revenue. The government is still not fixing this problem in this legislation, and we maintain that it should have.

Finally, I am advised that the minister's officers have been asked by our shadow spokesman for an explanation as to the difference between the costings provided in the budget—which came in at the cost, I am told, of $60 million over the forward estimates—and outlined in the explanatory memorandum to the bill. The explanatory memorandum states that these measures will have a cost to the budget of only $10 million. I am also advised that no detailed breakdown or background as to the differences within these costings have been provided, and so we would ask in good faith that, as the minister sums up, he address this issue and reconcile the difference, out of respect for the parliament.

As stated at the outset, the coalition will be supporting the passage of both of these bills.

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

First of all, I would like to thank the members who have contributed to this debate. Currently, excess contributions above the concessional contributions caps are generally taxed at the top marginal rate of 46½ per cent regardless of an individual's income. This is unfair for lower- and middle-income earners. The changes contained in the legislation will enable excess concessional contributions to be included in an individual's taxable income and allow them to be taxed at the individual's marginal tax rate, plus an interest charge, regardless of their income or the cause of the breach. In addition, individuals will be able to withdraw excess concessional contributions from their super provider.

This is the latest in a long line of financial services amendments bills that this parliament has passed. I believe fixing up excess contributions is an appropriate outcome for this parliament and it is one which will stand the test of time. This Labor government has achieved a lot in superannuation in terms of legislative reform. We have tackled adequacy by lifting superannuation over the next seven years from nine per cent to 12 per cent. We have improved fairness for people who earn less than $37,000 a year. They do not pay a 15 per cent tax on their superannuation. We do not see the point in perpetuating the gender gap in savings between men and women for retirement. We believe that low-paid workers who go to work every day should have a chance to save money for their retirement. So adequacy has been tackled and fairness has been tackled.

We also believe that these concessional contribution issues that we are dealing with in this bill tackle the issue of fairness. We have seen downward pressure on superannuation fees and charges through the development of MySuper. And also through the SuperStream proposals we believe we are making the system of superannuation more efficient and effective in the back-office transactions, decreasing pressure on people's savings accounts. We have also tackled conflicts of interest and improved public confidence in the system through our Future of Financial Advice reforms and indeed through our MySuper changes and also through improvements to the governance arrangements, giving power to APRA to be able to look behind the arrangements of superannuation trustees such that people can have renewed confidence in the system. We repudiate the attack on industry funds perpetuated by those in the coalition. We believe that, for good governance, it should be about giving APRA the powers to intervene directly in specific matters rather than just going after a class of superannuation fund altogether.

When you look at the extensive list of legislation, I would like to acknowledge, in case I do not get this opportunity again before the end of the parliament, the hardworking people from Treasury, APRA, ASIC and indeed the Australian Taxation Office. I also acknowledge the work of all those in the industry who have provided so much advice and counsel and pragmatic, business focused advice. I believe what motivates the vast bulk of the debate in superannuation, as it should be, is the best interests of consumers.

Furthermore, when we look at the budget measure of the 15 per cent low-income superannuation charge being abolished, it was costed on the basis that individuals would receive a refundable tax offset, where applicable, for the 15 per cent tax already paid on contributions within the fund. The refundable offset may result in individuals paying a lower rate of tax on excess contributions than their contributions under the cap. This is not the intention of the reform. The offset is now non-refundable. The measure was costed on the basis that the interest charged would apply from 1 July of the year following the year in which the contribution was made. However, to deter individuals from deliberately breaching the caps—which, by the way, I do not think happens a great deal; it is for the sake of policy consistency—the new interest charge will be applied from 1 July of the year in which the contribution is made. There are also some other parameter variations related to other interactions with the personal income tax superannuation systems. I commend this bill to the House.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.

Ordered that this bill be reported to the House without amendment.