Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Hansard source

I move:

That these bills be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

TREASURY LAWS AMENDMENT (FAIR AND SUSTAINABLE SUPERANNUATION) BILL 2016

SUPERANNUATION (EXCESS TRANSFER BALANCE TAX) IMPOSITION BILL 2016

These Bills implement the Government's election commitment to improve the fairness, sustainability, flexibility and integrity of the superannuation system.

We want superannuation to keep working for all Australians in their retirement as we move through the twenty-first century and grapple with some key challenges, including the ageing of our population and the need to return the Budget to surplus.

The measures in these Bills also reduce the extent to which the superannuation system can be used for tax minimisation and estate planning.

But the changes recognise that in a modern economy, working patterns are changing across the population and over the course of people's lives.

That's why our reforms will allow the system to work more flexibly for Australians; it will reflect their changing work-life patterns, particularly for those whose work patterns and incomes vary over time.

While some measures place limits on the amount of contributions that can be made to superannuation or amounts that will receive tax-free earnings status, at the same time these measures target the tax concessions to ensure they are fairer and more fiscally sustainable.

A key change to ensure the sustainability of the superannuation system is the introduction of the transfer balance cap, which is contained in Schedule 1 to the Fair and Sustainable Superannuation Bill. This introduces a $1.6 million cap on the total amount of superannuation savings that can be transferred from an 'accumulation account', where earnings are concessionally taxed, to a 'retirement account', where earnings are tax-free.

Importantly, the cap only limits the amount that can be transferred into the tax-free environment; once there, that amount can continue to grow through investment returns.

On top of introducing the transfer balance cap, the Government is also lowering the non-concessional and concessional contribution caps. As we look ahead, we want the superannuation system to give individuals strong incentives to make additional savings over the course of their working lives. At the same time, we want to make sure that these tax concessions are better targeted. This involves changes to both non-concessional and concessional contribution arrangements.

Schedule 3 to the Fair and Sustainable Superannuation Bill lowers the annual non-concessional contributions cap from $180,000 per year to $100,000 (or $300,000 every three years).

In addition a lower annual concessional contributions cap of $25,000 will apply from 1 July 2017 to all individuals, and will index in line with wages growth in $2,500 increments.

As with all caps that form part of the Government's superannuation reforms, the concessional cap continues to be set at levels well above the average and median contribution levels. For example, the median Australian worker currently receives annual concessional contributions to their superannuation of around $4,200 per year.

We are also reducing the income threshold above which high-income individuals are required to pay 30 per cent tax on their concessional superannuation contributions — commonly referred to as the Division 293 threshold — to $250,000 per annum.

To be liable for a total of 30 per cent tax, a person would need to have more than $250,000 in combined income and concessional superannuation contributions in a financial year.

We are introducing a number of important flexibility measures. First, we are abolishing the so-called '10 per cent rule'. This rule prevented anyone earning more than 10 per cent of their income from salary and wages from claiming a deduction for personal superannuation contributions.

As a result of abolishing this rule, more people will be able to claim a tax deduction for personal contributions to superannuation. Now all workers will have the flexibility to make concessional contributions up to their annual cap.

This reform will benefit up to 800,000 Australians, particularly self-employed contractors, individuals employed by small businesses and freelancers. It offers flexibility to people who are partially self–employed, partially wage and salary earners and in instances where employers do not offer salary sacrifice arrangements.

Take the example of a firefighter who works part-time. They might also be a contract tradesman. Under the current rules, they can't access the superannuation concessions available to most of the population because more than 10 per cent of their income comes from their firefighting wage. They wouldn't be able to make concessional superannuation contributions from their contract work as a tradesman.

The second important flexibility measure we're introducing is giving Australians the flexibility to make catch-up concessional contributions when they can afford it.

From 1 July 2018, people with superannuation balances less than $500,000 will be able to access any unused component of their concessional contributions cap on a rolling basis for a period of five years. This is a crucial step in providing assistance to those – particularly women – who have interrupted work patterns, whether it be to raise children, look after elderly parents, or seek to boost their retirement savings just before retirement.

Thirdly, we're expanding the current spouse superannuation tax offset to help more couples who make contributions to their spouses' superannuation savings. We're extending it by making the offset available to those whose spouses earn up to $40,000. This is up from the current threshold of $13,800.

It will encourage an additional 5,000 people to make contributions to the superannuation accounts of their low-income partners, who are disproportionately women.

Taken together, the removal of the 10 per cent rule, the introduction of the catch-up contributions measure and the extension of the spouse tax offset provide more opportunities for couples to jointly decide how to balance their superannuation savings between each other.

The superannuation system is designed to encourage Australians to save for their retirement. That's why superannuation is taxed at a lower rate than income outside of superannuation.

But, for low income earners, the 15 per cent tax on superannuation contributions means they pay more tax on their superannuation contributions than on their take home pay.

So, we are improving the fairness of the superannuation system by also introducing the Low Income Superannuation Tax Offset.

This offset will ensure most individuals with taxable incomes of $37,000 or less don't pay more tax on their concessional superannuation contributions than on their take-home pay.

It's estimated that the Low Income Superannuation Tax Offset will increase the superannuation savings of around 3.1 million low-income Australians, or one in every five fund members. Almost two-thirds of these beneficiaries are women.

We are also improving choice and flexibility for Australian retirees looking to better manage the risk associated with outliving their retirement savings.

Currently, innovative income stream products that could help people to better manage the risk of outliving their retirement savings are not available because they do not qualify for tax-free earnings status. This has restricted the ability of retirement income providers to develop and bring new retirement products onto the market.

Extending the tax exemption on earnings in the retirement phase to products like deferred lifetime annuities will also play its part in providing more flexibility and choice for Australian retirees, as well as helping them better manage consumption and risk in retirement.

We are also improving integrity by making a taxation change for people who have reached preservation age but are under 65 and not retired.

Those people will still be able to access a transition to retirement income stream ahead of their retirement but earnings on the amount supporting it will be taxed in the fund at 15 per cent.

Taxing earnings on these accounts at 15 per cent will provide the same tax treatment as that which applies to all other individuals who are not yet retired.

The integrity of the system will also be enhanced by the removal of the inconsistently applied and outdated anti-detriment provision.

As part of this package of reforms, the Government is also streamlining some of the ATO's administrative processes.

Notably, these reforms will replace the existing release authority requirements with standardised timeframes and processes. Schedule 10 to the Fair and Sustainable Superannuation Bill will also introduce a default process for individuals who do not make an election within 60 days when dealing with all release amounts from superannuation, ensuring that the majority of individuals will be better off if they do nothing.

Finally, unlike some previous changes to superannuation taxation, the Government has carefully analysed the impact of this package of reforms and is making changes to ensure commensurate tax impacts on members of defined benefit schemes.

Many of our superannuation tax reforms will make the system fairer and more sustainable.

These vital and important goals would be undermined if the tax treatment of defined benefit schemes and constitutionally protected funds was not similarly adjusted.

In the past, governments have baulked at the challenge of tackling defined benefit schemes.

But this Government can not only identify tough issues – we can deal with them in a way that's fair and workable.

Full details about these Bills are contained in the explanatory memorandum.