Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Hansard source

The Senate is considering a package of some 11 bills—the Tax Laws Amendment (Simplified Superannuation) Bill 2006 and 10 others—to implement important changes to Australia’s superannuation system. The earlier motion was to provide exemption from what is known as the ‘cut-off’ to allow these important pieces of legislation to be dealt with expeditiously—because they are important pieces of legislation. I indicate, on behalf of the Labor Party, as the shadow minister responsible for superannuation matters that Labor will be supporting these bills.

We support them for a number of reasons. Firstly, Labor strongly supports superannuation. We have championed superannuation for some two decades and the reforms of the Labor government in the 1980s and 1990s were some of the most profound economic reforms in Australia’s history. Compulsory superannuation, and I emphasise the word ‘compulsory’, is still contributing to the economic health of our nation and the impact is compounding—just like the retirement balances of almost all employees.

In addition—and this has not been remarked upon enough in this public debate about superannuation—Labor’s superannuation guarantee has been one of the greatest fairness measures for the distribution of wealth in this country that has been seen since the introduction of a decent industrial relations system 100 years ago. If we, Labor, had not made superannuation compulsory and comprehensive, more than half of today’s workforce—low-middle income, casual, part-time, contract and women workers, in sectors such as hospitality, retail, transport and manufacturing: some 92 per cent of the workforce—would not have superannuation today. It would have remained the preserve of the higher paid, of executives in the public sector, rather than becoming the great national system we now enjoy.

Secondly, we also support this package because it includes measures which will help simplify a very complex system. This government has been unable to resist unwieldy, complex regulation. We have seen it in taxation, we have seen it in financial services reform and we have seen it in superannuation. Red tape and enormous compliance costs, particularly in the area of financial services, have been the hallmark of the Howard Liberal government. So anything that reduces the load that they in part are responsible for is welcomed.

Thirdly, in this area of economic policy, we must plan for the long term. And, with bipartisan support, these reforms will maintain stability and certainty around an area of long-term public policy, the environment for savings and investment, and retirement income planning.

Fourthly, Australia can now boast of one of the strongest funds management industries in the world. We now have the fourth largest volume of savings under management per capita, and we are growing very strongly. Australia—and I can say this proudly—is a world leader in many aspects of financial services because of our long-term strategy of superannuation. These are high value added industries, paying higher than average salaries and enmeshing Australia with the world’s leading economies. This will further underpin our prosperity throughout this century.

Finally, these changes will improve the retirement incomes of many Australians. For the group of Australians I referred to earlier, the majority low-middle income earners, the superannuation savings they see when they read their annual superannuation statement today—although the average balance is still modest at about $19,500—are down to Labor’s introduction of compulsory superannuation. If it had been left to the approach of the current Liberal government, who opposed that fundamental reform, the current balance on superannuation statements for the majority of Australian workers would read ‘zero’.

Despite the changes in this package, Labor believes that fundamental superannuation reform challenges remain, and I will touch on those briefly later. I will put some issues on superannuation in perspective. The primary purpose of the Australian superannuation system is to allow Australians to provide a comfortable standard of living for themselves in retirement. It is fundamentally an add-on to the age pension for most Australians. And a strong superannuation savings system has several economic consequences.

Firstly, by encouraging people to save for their own retirement, an effective superannuation system will increase retirement incomes, thereby improving living standards in retirement. Secondly, in the context of future budgets, these reforms will take off some of the pressures that will be generated by the ageing of our population. And I note the personal assurances of the Treasurer, Mr Costello, that this will occur as a consequence of this package. In this context, Labor would like to see the long-term impact of revenues modelled in the Intergenerational report. We would certainly like to see evidence that would underline the usefulness and fiscal responsibility of this particular package.

As Australia’s population ages, a super system that provides adequate incomes in retirement will ease fiscal pressure and ensure we continue to deliver budget surpluses and lock in our economic prosperity. That is consistent with Labor’s budget rules, the first of which is that Labor will keep the budget in surplus on average over the course of the economic cycle. Secondly, a large and growing pool of superannuation savings has supported the growth of Australia’s equity markets, boosting returns for investors both through superannuation and through other investment vehicles. The total pool of superannuation savings under management is large and growing. APRA reported in September last year that it had reached $945.6 billion, and on one projection it will reach $1.8 trillion by 2011 and $3.3 trillion by 2017.

There are important economic consequences which flow from this enormous accumulation of savings. As Australians’ superannuation assets continue to grow—and a brief note of caution with one year in seven on average being a negative rate of return in a defined contribution system—Australian superannuation funds are investing directly in overseas assets and through foreign debt and equity markets. In some ways it is disappointing that some of the funds of Australian workers’ savings go offshore for want of Australian projects to invest in, but this is necessary from a diversification and maximising rate of return perspective. It also demonstrates Australia’s financial maturity and economic power as we invest globally to secure future prosperity.

The fact that superannuation funds today hold assets equivalent to 95 per cent of our gross domestic product—that is, our gross economic output—proves that Labor is the real party of wealth creation. It is fundamentally an outcome of Labor’s introduction of compulsion some 20 years ago. It was only Labor that had the foresight to introduce a superannuation system that would underpin the retirement incomes of Australian families and provide a valued source of capital for Australian business. Along with the micro-economic reforms of the 1980s and 1990s, superannuation was one reform that turbocharged the Australian economy and led to the prosperity we enjoy today. More than anything else, we must recapture that reforming zeal and embrace a new productivity agenda. Labor introduced compulsory superannuation in exchange for wage restraint as part of the historic accord with Australian workers and, in the process, built superannuation into the remuneration package of almost every Australian employee. It is a wealth creation legacy that Labor is proud of.

At a time when households face the burden of the highest ratio of interest payments to household income in Australian history, the contribution of superannuation savings to Australian household balance sheets is very welcome. As I said earlier, it is a fundamental vehicle not just for fairness but for spreading the prosperity of economic reform throughout the whole community.

Australia’s retirement income system is based on three pillars: the government aged pension, indexed to male total average weekly earnings—means tested; the compulsory nine per cent superannuation guarantee; and additional voluntary superannuation contributions underwritten by a range of incentives. These pillars were, in the main, introduced by Labor governments. They were widely recognised internationally as best practice—a fair, affordable, sustainable system for ensuring dignity in retirement and underwriting our economic performance. I watch with amusement as the Treasurer, Mr Costello, desperate to find an economic reform legacy, claims authorship of the superannuation system. The inescapable fact is that he opposed the system. He has called these changes:

… the biggest reform to superannuation Australia has ever seen.

I sat in this place back in 1992 when the then Liberal opposition, including the current Treasurer and the current Prime Minister in the other place, vociferously opposed compulsory superannuation in this country. They voted against it. The Liberal Party’s record on superannuation has been very poor to date. They opposed the introduction of pension means testing, they opposed the initial three per cent compulsory superannuation in 1987 and they opposed the nine per cent superannuation guarantee bills of 1992. Their defeat would have been disastrous both for individuals and for the economy. As I said, both the Treasurer and the Prime Minister vociferously opposed compulsory superannuation and voted against it in the other place.

We have seen a very erratic display with respect to superannuation policies. We can recall the then Liberal opposition’s 1995 pledge to maintain the three per cent government co-contribution system, taking contributions to 15 per cent. They dropped that in 1997. They introduced the failed savings rebate, which only operated for six weeks. The Treasurer also introduced a so-called superannuation surcharge, a tax by another description, on higher income contributions—another broken election promise—and the Treasurer deemed superannuation holdings an asset for social security purposes. Again, that measure was dropped a few years later. They are just a few examples of the Treasurer’s rather erratic policy approach to superannuation.

Despite all that, Labor has had to put up with the Assistant Treasurer’s rather bizarre fortnightly press releases designed to goad Labor into supporting what is a massive set of legislative changes without even being given the ability to see the bills. We have now seen them and have come to the considered conclusion that we will support them. There was a fundamental lack of information provided not just to us, which is par for this government, but also to the public, particularly when it came to the costing of some of these policies. It is still quite scant in providing a breakdown of costing estimates. I am informed the government is resisting a freedom of information application by one of our newspapers for long-term forecasts of superannuation tax revenue. If the Treasurer is so keen to prove his economic management credentials and is confident that his reforms are warranted, there is no reason for him to refuse access to information.

The package contains some important changes. The primary change is that from 1 July 2007 superannuation benefits paid from a taxed fund, either as a lump sum or an income stream such as a pension, will be tax free for people aged 60 and over. Benefits paid from an untaxed scheme, mainly affecting public servants, will still be taxed; however, at a lower rate than they are now. For people aged 60 and over, the application of a 10 per cent rebate will do that.

Reasonable benefit limits will be abolished. Individuals will have greater flexibility as to how and when to draw down their superannuation in retirement. Under the current rules, funds were forced to pay out the benefits of members who had reached age 65 and who did not meet a work test. Under these changes, superannuation funds are no longer forced to pay benefits.

The concessional tax treatment of superannuation contributions and earnings will remain. Age based restrictions limiting tax deductibility concessional contributions will be replaced with a new set of simpler rules. The self-employed will be able to claim a full deduction for their contributions as well as being eligible for the government co-contribution for after-tax contributions. The tax exemption for invalidity payments will also be extended to the self-employed. The ability to make deductible superannuation contributions is extended to age 75. It will be somewhat easier to find and transfer so-called lost superannuation between funds.

To increase further the incentives to save, from 20 September 2007 the pension assets test taper rate will be halved to $1.50 per fortnight for every $1,000 of assets above the assets test free area. The superannuation preservation age will not change.

Let me turn to some of the impacts of the package. The total cost of the package is $7.2 billion over the next four years. The beneficiaries of the tax-free treatment will be those Australians who have or will have $136,000 indexed or more in super savings. For Australians with substantial retirement savings, this package will provide welcome additional retirement income. At present, neither exit tax nor, in most cases, income tax apply to individuals below that level of $136,000 in superannuation savings.

Research from the National Centre for Social and Economic Modelling shows that in 2004, for baby boomers aged between 45 and 60, the average male had $87,000 and the average female had just $35,000 in super savings, with median retirement savings of just $30,700 and $8,000 respectively. To add a dose of reality to this debate: the majority of baby boomers do not benefit from this package because they have relatively low levels of superannuation saving. Effectively, battlers retiring now or in the near future will receive little or no benefit from this particular package. That is not a reason to oppose the package; it is a reason for pointing out that a touch of reality is needed when looking at the impacts of this package. Of course those retiring in future, depending on their age, will receive varying levels of benefit from these measures. The measures in the package both expand and rationalise incentives for small business by applying the same rules and including them in the voluntary co-contribution scheme. Labor welcomes that. These changes will assist people in this vital and growing sector of our economy.

It should be noted that trying to get these costings from the Treasury officials was like extracting teeth. I do not blame the Treasury officials. They do their best but they have their political orders: ‘Don’t provide information to the public or to the opposition of the day about detailed costings.’ They have their orders, and I understand that. Of the estimated $7.2 billion cost of the package, there will be a $4.2 billion direct input to superannuation over four years. That means the government is putting in just over $1 billion extra each year into super. Combine that with a further $1 billion each year from the existing voluntary co-contribution, and a total injection of some $2 billion a year—and that is welcome—is being provided by the government. The incentive approach is likely to see ongoing additional voluntary contributions of $2 billion to $3 billion a year. That is important in helping some Australians to improve their retirement incomes, but it hardly matches the Treasurer’s boast: ‘The biggest reform to superannuation that Australia has ever seen.’

The new flows to super are put starkly into the shade when they are compared to Labor’s compulsory nine per cent superannuation guarantee, which underwrites some $65 billion into superannuation every year. Credit for that achievement should be given to previous far-sighted and visionary reforms, which, I might say, were supported by the Democrats—and Senator Murray is in the chamber. They supported those reforms against the trenchant opposition of the now Liberal government. I think particular personal credit should be given to the vision and drive of the then Treasurer, and subsequently Prime Minister, Paul Keating, in this regard. The reforms laid a strong foundation in respect of our retirement income system and are recognised by the World Bank as global best practice.

The Senate Economics Committee unanimously identified a number of concerns. There is a tax increase in this package. It is quite a nasty tax increase for those to whom it will apply: a rate of 46.5 per cent on contributions—up from 15 per cent—where there is nonprovision of an employee’s tax file number. The Senate Economics Committee looked at this issue very carefully and considered that the exemption rate below which this new tax will not apply, of $1,000 a year, is too low. It represents an annual income of only $10,000. It should be set higher otherwise hundreds of thousands of battlers will face a higher tax rate, not a lower tax rate. That was a unanimous recommendation of the committee.

Labor are not proposing specific amendments to the package in the committee stage. We support the package. Our proposed second reading amendment notes the strong foundations laid by Labor governments in the context of compulsory superannuation, notes the positive nature of the measures, notes the unanimous concerns of the Senate Economics Committee and, I think, is a useful adjunct that should go on the record in terms of this debate. I should also indicate we will be supporting the second reading amendment that Senator Murray is to move in this regard as well. I move Labor’s second reading amendment:

At the end of the motion, add “but the Senate notes:

(a)    that Labor governments laid the foundation for Australia’s modern superannuation system by introducing compulsory superannuation contributions;

(b)    that, in supporting the bills, the measures will:

              (i)    improve the retirement incomes of many Australians,

             (ii)    enhance simplicity of the compulsory superannuation system, and

            (iii)    give certainty and stability in the critical public policy area of savings for retirement;

(c)    notwithstanding support for the bills as a whole, the unanimous concern by the Senate Economics Legislative Committee in respect of:

              (i)    the tax increase from 15 per cent to 46.5 per cent of contributions where an employer fails to provide an employee or member tax file number,

             (ii)    the treatment of Australian Defence Force disability pensions,

            (iii)    the disparity in income tax treatment of non-superannuation income for members aged 60 and above of ‘untaxed’ funds compared to members of other funds, and

            (iv)    the need for a subsequent amending bill before 30 June 2007 to address any issues that require further consultation;

(d)    that both the Government’s own projections of new benefit lump sum and pension outcomes indicate a nil or very small improvement in retirement income for those with small retirement savings; and

(e)    the need to develop and implement further policy to improve the retirement savings of middle- and low-income Australians”.