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

The legislation before the Senate is seeking approval for a one-off additional government co-contribution into the superannuation accounts of those people who made eligible contributions in the 2005-06 income year. The legislation will effectively double the government co-contribution for those who have already made voluntary contributions in the 2005-06 financial year. It passed the House of Representatives yesterday, where Labor supported it, and we are supporting it here today.

The cost is estimated at $1.1 billion, with most payments being made in this financial year at a cost of $990 million and a further estimated cost of $80 million in the 2007-08 financial year. This, along with a number of other measures, characterises a very clever and cunning strategy by the government to disburse lump sums in significant ways in the lead-up to the election. Right on the lead-up to the election, six months out, we see these dollops of lump sums being distributed throughout the community.

In retirement incomes policy there are two approaches to increasing the level of retirement savings in a community. One is what is commonly known as compulsion. You compel people to save for retirement; that is done in a number of ways, such as compulsory superannuation. A government age pension is a form of compulsion. The other, which is usually a part of a retirement income system mix, is the incentive approach, where you reward people for future saving—with the emphasis on ‘future’.

A combination of measures has been adopted in Australia: tax concessionality and the co-contribution itself for future saving. I must say I cannot recall an example in any other country where they are significantly rewarding people for past saving, not future saving. It is a unique approach and probably a world first. Nevertheless, that in itself is not a reason for opposing the payments. Labor supports the payments because the payments will result in a one-off addition of just over $1 billion flowing into the superannuation savings accounts of about a million people. It is up to $1,500; not everyone gets $1,500. To that extent there is an improvement of about a billion dollars on the already $1 trillion of saving in the country.

I will describe briefly the operation of the co-contribution scheme. It grants up to $1.50 of government contribution for $1 of employee voluntary contribution, capped at a maximum government payment of $1,500. The current scheme allows the maximum government co-contribution of $1,500 to be paid up to the income threshold of $28,000 and then it phases down at the rate of 5c for every dollar of income above the threshold, completely phasing out at $58,000.

Co-contribution policies have a somewhat chequered history. The original policy of a co-contribution was announced by the Keating Labor government in 1995. This was to be a compulsory co-contribution—three per cent employee and three per cent government—to be phased in between 1996 and 2002. It would have delivered an extra $4.6 billion per year in 1996 dollar values when fully implemented. It was to build on Labor’s compulsory nine per cent superannuation guarantee, initially introduced at three per cent in 1987 and phased up to nine per cent by 1 July 2002.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

And supported by the Democrats.

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

I take the interjection; it was supported by the Democrats. I was just about to remind the Senate: it was vociferously opposed tooth and nail, month after month, by the present government. I can recall some of the comments at the time by Mr Costello, Mr Howard and Mr Downer. The current foreign minister claimed that it was going to be socialism of the economy if you introduced compulsory superannuation: ‘You’re going to wreck small business, wreck employment.’ Now, the way they talk and the way the Treasurer boasts about his credentials on superannuation, you would think they had actually introduced it. My, how times change!

Brett Mason (Queensland, Liberal Party, Parliamentary Secretary to the Minister for Health and Ageing) Share this | Link to this | Hansard source

I thought we had.

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

You thought you had! Well, just to remind you: you were not here. I remember the months and months of debate. I do not think Senator Murray was here, but I remember the months and months of trenchant opposition to compulsory superannuation.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

I am a student of these things.

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

I know you are, and a well-versed and well-read student, Senator Murray. Labor is unapologetic about a combination of compulsion and a voluntary incentive approach. In fact, Labor is proud of compulsory superannuation.

Up until 1987 the benefits of superannuation generally flowed to about 40 per cent of the workforce, in the main middle- and high-income earners in occupations such as management and the public sector. The majority of low- to middle-income earners, often casual and part time in occupations such as retail, hospitality and transport, of which over 60 per cent were women, did not receive superannuation payments. As I have said earlier, Labor introduced compulsory superannuation. It was a matter of fundamental fairness. We are proud of that, and we stand by it.

Of course it represents not just critical social policy but also major economic policy. It adds to savings, helps investment and strengthens the Australian economy. I cannot think of a single measure in the Hawke-Keating period, the 13 years of Labor government, that was any better in terms of fundamental social and economic policy than compulsory superannuation. As I have said, it was trenchantly opposed by the current government.

Today there is in excess of $1 trillion in superannuation savings, and it is overwhelmingly driven by compulsion: the superannuation guarantee. As important as the co-contribution is and as important as voluntary top-up contributions are, with incentives in the system, I think over $60 billion a year—the considerable majority of superannuation flows—is a consequence of compulsion: the superannuation guarantee.

As I have said, in 1995 former Prime Minister Keating wanted to add to it with a co-contribution of three per cent from the government for three per cent from the employee. I was very pleased, actually, by an election promise made by the coalition in 1995. They promised to retain Labor’s commitment on the three per cent and three per cent co-contribution, albeit that they said they might deliver it in a different form. But what happened? In 1997, not in 1996, the current Treasurer, Mr Costello, abandoned the co-contribution—it must have been one of those non-core promises—and therefore abandoned the additional $4.5 billion that would have resulted from the compulsory co-contribution. He did replace it partly with what was called a ‘savings rebate’. The Parliamentary Secretary to the Minister for Health and Ageing is looking a bit puzzled, and I am not surprised, because this savings rebate introduced in lieu of the compulsory co-contribution only lasted six months. So it is no wonder that the parliamentary secretary is looking a bit puzzled; very few people can remember what happened to that savings rebate which was intended to replace the co-contribution.

However, things did get better in the saga of the co-contribution. We acknowledge that the government introduced a voluntary co-contribution in 2002. Of course, it is voluntary, so it costs a lot less, but let us put that issue aside. We took a $4.5 billion step back and then we took a $1 billion step forward, so some progress has been made. The initial co-contribution was dollar for dollar, within the parameters I have mentioned. Interestingly and, I think, usefully—and I give credit to the government—in last year’s budget the co-contribution was extended to the self-employed. I give credit to the government for expanding it further. That will probably bring the cost of the co-contribution to about $1.3 billion going forward. This gives vital assistance and encouragement to low- and middle-income earners. It is welcomed by Labor and, if Labor is elected to government, it will be retained.

As I mentioned, we have seen a one-off increase retrospectively in the co-contribution. I have to say again for the public record that it does represent somewhat of a rebuff to the current Assistant Treasurer, Mr Dutton. I was pleased to see him—and again, as a Labor member, in a bipartisan, positive way, I pay tribute to the Assistant Treasurer, Mr Dutton—publicly arguing this year for an expansion in the parameters of the co-contribution, specifically targeting people under 45 years of age, and not for a one-off retrospective payment. I think that was a legitimate, positive policy parameter change that the current Assistant Treasurer, Mr Dutton, was pursuing. But unfortunately Mr Howard, being the fairly cynical, clever politician that he is, obviously overruled Mr Dutton and said: ‘Look, there is an election coming up. Let’s be clever and cunning. Let’s drop a billion dollars and reward past saving one-off, because we do not want to increase the cost of this scheme in the years going forward.’ So, regrettably, the Assistant Treasurer, Mr Dutton, was overruled by the Prime Minister and the Treasurer.

As I have said, Labor supports the measure of an extra billion dollars to increase superannuation savings. But it does highlight the government’s lack of vision in what should have been a tackling of some fundamental design issues of the co-contribution. Mr Dutton’s positive suggestion was one that was made. I know the Association of Superannuation Funds and a number of others made positive suggestions around adding to the incentive for additional middle-income earners to contribute through the co-contribution. But we have had a short-term, cunning and clever political lump sum dropped in for one year instead. There is another design issue—and I know that ASFA looked at it—in that the cut-off point for middle-income earners is $58,000. ASFA are arguing for an extension of the cut-off point to higher up the income scale. I say on behalf of Labor that this is an important issue. If you look at when the scheme was introduced, you see that the 30c marginal income tax rate cut off at about $58,000. It has now been significantly increased, and therefore there does need to be a reconsideration of the design of that cut-off threshold.

I want to touch on a critique, and it is not my critique alone. There is concern about having a lump sum retrospective saving rather than trying to redesign the system to encourage future saving. It is a critique that has been made by some others. I have mentioned ASFA. Ms Smith, the CEO of ASFA, stated:

... there is disappointment because it is only a one-off for past contributors, so—

the budget—

missed an opportunity to change savings behaviour ...

She went on to state:

This initiative rewards individuals who accessed the co-contribution a year ago, but it is difficult to see how it will encourage younger people to invest in their retirement future.

As I have said, I think that is a legitimate concern. There was another critique from a Mr David Knox. He is not from the Labor side of politics; he is generally a supporter of the government. I think he was involved in the infamous Fightback design. He is an actuary of some renown and I have considerable respect for him. He is quoted as saying:

“I think the co-contributions payment is timed to be an attractive benefit in the lead up to the election,” Mercer principal of retirement David Knox said.

“We endorse any further support for savings, however, our disappointment is that this one measure won’t change future behaviour because it’s based on decisions people have already made.”

There are a number of other people who have pointed out a similar flawed approach, lacking in imagination, to examining the fundamental redesign of the system.

As I have said, Labor is supporting the Superannuation Laws Amendment (2007 Budget Co-contribution Measure) Bill 2007. There is an extra $1 billion going into the superannuation accounts for 2005-06 of low- and middle-income earners who qualify. There is one other group which, importantly, has missed out and which I did refer to earlier. The co-contribution scheme is to be extended to the self-employed. Frankly, I am somewhat surprised that the government did not pick this up: the co-contribution scheme is being extended to the self-employed, but it did not apply to them in the 2005-06 year. Therefore, the low- to middle-income self-employed people have missed out. I was taken aback by the fact that the government has totally ignored, with its retrospective one-off application, the needs of the self-employed in this area. That is an issue that I do not think anyone has pointed out so far in the public debate. Nevertheless, $1 billion is going into superannuation for low- and middle-income earners. It is a cunning and clever political ploy and we admire the cunning and cleverness of the Treasurer and the dash for lump sum cash in the run-up to the election—surprise, surprise, six months out from the election. That cunning and cleverness is all timed for the election. That is all part of politics, but the bottom line is that there is a billion dollars going into super. That will compound over time for those people. It will improve the retirement circumstances of those individuals and it should be supported.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

With respect to the Superannuation Laws Amendment (2007 Budget Co-contribution Measure) Bill 2007, the co-contribution scheme is designed to boost the superannuation of low- and middle-income Australians. The scheme works by matching a qualifying employee’s eligible personal superannuation contributions with a government contribution at $1.50 for each dollar contributed by the employee, up to a maximum government contribution of $1,500. The maximum government contribution of $1,500 is available for qualifying employees on incomes up to $28,000 for co-contribution purposes and who voluntarily—if they can—save up to $1,000 annually. It then phases out at the rate of 5c for every dollar of income above $28,000 and phases out completely at $58,000. I was reminded by the shadow minister earlier that it was the Democrats who, with the Labor Party, ensured that the compulsory superannuation guarantee scheme was introduced to this country, against trenchant coalition opposition. The foresight of the Labor government at the time and of the Democrats deserves to be applauded over the decades to come, because no single measure has done more for Australians than that one.

I then thought about the co-contribution scheme. I had a look back at former Senator Cherry’s remarks—Senator Cherry was a senator from Queensland whom I sorely miss—with respect to the Superannuation Laws Amendment (2004 Measures No. 1) Bill 2004. At that time he was talking about the fact that the co-contribution scheme happened because of the Democrats combining, in this case, with the government. It was the Democrats’ agreement with the government that permitted this measure to go through. In his remarks on the bill I just mentioned, Senator Cherry said the following:

The Senate would be aware that this particular measure passed through the Senate last year after negotiations between the government and the Democrats which established a doubling of the initial funding for the government co-contribution for low-income earners. As a result of those discussions—and I should acknowledge the very positive role that Senator Coonan played in that discussion—the funding for the low-income earners co-contribution for the next four years was increased from $460-odd million to $920-odd million.

So we not only helped to pass the measure; we also helped make it the size and strength that it is today.

This bill provides for an additional one-off government superannuation co-contribution to eligible persons in the 2005-06 income year only—which will double the amount already received. For instance, a person eligible for a co-contribution of $1,500 in the 2005-06 income year will receive an extra $1,500, making a total of $3,000. If the eligible co-contribution amount is $500, then they will receive a total of $1,000 all up. Interest will not be payable on amounts that arise solely from this one-off payment—which is an important consideration. The cost of it is high, but of course it is a payment towards the future of the Australians who receive these benefits. But I found it quite odd that this bill was introduced two days after the budget. The budget papers and the bill were obviously designed at the same time. Budget Paper No. 1, item 1-16 states:

This will improve superannuation savings for low income earners at a cost to the Budget of approximately $1.1 billion in 2006-07.

But the explanatory memorandum for the bill says:

This measure is expected to result in a cost of $990 million in 2006-07 and $80 million in 2007-08.

For those who can do their maths, there is a cool $30 million difference, in two days, between those two figures. That is pretty sloppy. Budget papers do not round up to the nearest billion or hundred million; they round up to the nearest million. Suddenly there is $30 million more that the government has put into its budget papers, available for it to do other things with, when the EM is much more specific and indicates it will be $1.07 billion. So we have a cool $30 million difference in two days. I would be grateful if the Parliamentary Secretary to the Minister for Health and Ageing could perhaps indicate just why that has happened.

The other thing we should recognise is that undoubtedly this measure only affects a select group of Australians—a lucky number—and the problem for us is that neither the budget papers nor the explanatory memorandum indicates the number of Australians who will be affected by this measure. Once again—through you, Mr Acting Deputy President—I would ask the parliamentary secretary to indicate to us in his closing remarks how many Australians he thinks will benefit from this. Although this one-off payment increases superannuation balances for those who are eligible, by a set amount which then compounds over the life of the balance—making it a very attractive gift that grows over time—one cannot help but suspect that its main motivation is as an election sweetener. As soon as you see a one-off gift at this time in the electoral cycle, it does, unfortunately, provoke such impure thoughts.

Among other measures, the Democrats support superannuation savings being encouraged through government co-contributions targeted at low- to middle-income earners. So we support this bill, and we support it without amendment. We have not quite understood why it is non-contro early in this session and why it could not have waited until June. There is no real need for urgency that I can see, except for the government’s desire to get an immediate feel-good response for the coalition when those eligible are advised of their nice gift from kind John and helpful Peter. However, it does not really matter, because we would pass it today and support it today and we would pass it and support it in June. You are entitled to get your government bills on the Notice Paper as you see fit. As you noticed, we did not oppose the cut-off being exempted in this matter.

In closing: I suspect your motive, but anything which improves the superannuation savings available to Australians and therefore prevents later government payments at a far higher rate occurring—because this is an early payment and compounds over time it saves the government money later, strangely enough—is a good idea and is supported by us.

Brett Mason (Queensland, Liberal Party, Parliamentary Secretary to the Minister for Health and Ageing) Share this | Link to this | Hansard source

I thank Senator Sherry and Senator Murray for their considered remarks. Sadly, I cannot help the honourable Senator Murray in relation to his questions to me, except to say that, importantly, this measure will affect roughly two million Australians. The Superannuation Laws Amendment (2007 Budget Co-contribution Measure) Bill 2007 will boost the superannuation savings of low- and middle-income Australians by doubling the government’s superannuation co-contribution payable in respect of eligible contributions made in the 2005-06 year. For example, if a person was otherwise eligible for a co-contribution of $1,500 made in the 2005-06 year, they will now receive an extra co-contribution of $1,500, bringing the total co-contribution for that year to $3,000. This provides a substantial reward to eligible low- to middle-income Australians who have saved for their retirement and builds on the already successful government co-contribution. These changes also build on the substantial improvements to superannuation made by the government through the recent Simplified Superannuation reforms.

This government first introduced the co-contribution scheme in 2003-04. It then increased the co-contribution from $1 to $1.50 in the 2004-05 year and raised the upper income threshold from $40,000 to $58,000. From 1 July 2007 eligibility for the co-contribution scheme will be extended to the self-employed, and the income thresholds will be indexed each year in line with the growth in wages. Over 2.7 million co-contribution payments, worth approximately $2 billion, have already been paid under the scheme. This measure will increase payments under the scheme to $3.1 billion.

This is an important budget measure. It has been made possible only because of this government’s very strong economic management. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.