Katy Gallagher (ACT, Australian Labor Party, Minister for the Public Service) Share this | Link to this | Hansard source

I table the explanatory memorandum relating to the bill and move:

That this bill 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—

PUBLIC SECTOR SUPERANNUATION SALARY LEGISLATION AMENDMENT BILL 2022

SECOND READING SPEECH

The Public Sector Superannuation Salary Legislation Amendment Bill 2022 repeals paragraph 5(e) of the Superannuation (Salary) Regulations with effect from 1 July 1986 and provides that the effect of the repeal does not apply to individuals where limited circumstances are satisfied.

The changes in the bill are only relevant to current and former Commonwealth public sector civilian employees.

The default superannuation salary of a member of the Commonwealth Superannuation Scheme established under the Superannuation Act 1976 includes the value of any allowance that, under the regulations, is to be treated as salary under the act.

Prior to 1 March 2022 paragraph 5(e) of the regulations provided that the rent-free use of housing made available to a person by reason that they held a particular office or performed particular duties or work was an allowance that was to be treated as salary for the purpose of the act.

The value of rent-free housing as per paragraph 5(e) of the regulations flowed through to the default superannuation salary of members of the Public Sector Superannuation Scheme, and members of the Public Sector Superannuation Accumulation Plan and certain members of non-Commonwealth choice funds.

At the time the regulations were made in 1978, an employee's assessable income was taken to include the value of rent-free housing. With the introduction of the fringe benefits tax regime in 1986, the tax burden in relation to rent-free housing shifted from the employee to employer.

Following this change in 1986 the Commonwealth has typically not treated rent-free housing as forming part of superannuation salary and generally neither employers or employees have made superannuation contributions that have taken into account the value of rent-free housing.

A recent case before the Federal Court has exposed differing views on the operation and scope of former paragraph 5(e) of the regulations. If the interpretation as argued by the applicants was accepted, it would have significant financial impacts for the Commonwealth and inequitable financial outcomes for differing cohorts of individuals.

Some individuals would receive an unexpected windfall increase in their superannuation benefits while others could incur potentially large unexpected debts for unpaid member contributions with little or no corresponding increase in their superannuation benefit.

These outcomes would be a consequence of the reliance by all relevant parties on a view that rent-free housing at the time it was provided did not form part of superannuation salary.

Retrospectively repealing paragraph 5(e) of the regulations will regularise the past administrative practice of Commonwealth employers and employees by effectively restoring the position with respect to rent-free housing that all relevant parties have treated as governing the Commonwealth civilian public sector superannuation schemes since 1986.

The repeal of paragraph 5(e) of the regulations will commence from 1 July 1986, the date of the introduction of the fringe benefits tax regime, and therefore regularise the change in practice that seemingly occurred after that time.

As the purpose of the retrospective repeal of paragraph 5(e) of the regulations is to regularise the longstanding practice of employees and employers, the bill makes provision for cases, if any, in which paragraph 5(e) was applied historically in particular employer relationships in a way that included the value of rent-free housing in superannuation salary.

The bill does this by excluding a limited cohort of individuals from the effect of the repeal of paragraph 5(e) of the regulations where no-one was acting pursuant to a mistake as shown from the actions of both Commonwealth employers and employees as evidenced by contributions having been made on the basis, in the period 1 July 1986 to 28 February 2022 that the value of the rent-free housing received by the employee was included in their superannuation salary.

The exclusion end date of 28 February 2022 reflects that paragraph 5(e) of the regulations was repealed with prospective effect from 1 March 2022.

Jane Hume (Victoria, Liberal Party, Shadow Minister for the Public Service) Share this | Link to this | Hansard source

I rise on behalf of the opposition to speak on the Public Sector Superannuation Salary Legislation Amendment Bill 2022. I note that the provisions that this bill seeks to amend are currently the subject of an action in the Federal Court of Australia, and so I will limit my remarks out of respect for that process. Schedule 1 of this bill repeals section 5(e) of the superannuation salary regulations with effect from 1 July 1986. This will regularise the past administrative practice of the Commonwealth employers and employees by, effectively, restoring the position, with respect to rent-free housing, that all relevant parties have treated as governing the Commonwealth civilian Public Sector Superannuation Scheme since 1986. Schedule 2 of this bill contains exemptions that will ensure that individuals where explicit arrangements were in place about the treatment of rent for salary purposes will not be affected by the repealed provisions.

I note that the quantum of financial impacts is presently unquantified and that the administrative task involved in quantifying the financial impacts is prohibitive. However, based on the briefing that we have received from government, we accept that the quantum would involve a significant unintended cost to the federal budget, a significant unintended cost to the taxpayer. So, in putting on the record the opposition's support for this bill, I would like to note that the government has provided assurances that this is the most preferred option to resolve this unintended anomaly, that it is not a precedent for retrospective legislation or for such legislation to be rushed through the parliament and that this is the earliest possible that this legislation could be considered, with an urgency that it must pass before we head into a four-week break between sitting weeks.

I thank the government very much for making officials, from the Department of Finance, available to brief the opposition on this legislation and the cooperative way that they have approached this matter, particularly the minister and her office. I commend this bill to the chamber.

Barbara Pocock (SA, Australian Greens) Share this | Link to this | Hansard source

This is not my first speech. I rise to speak on this bill to make a few comments from the perspective of the Greens. I appreciate the briefing we had yesterday from a group of public servants who attempted to illuminate the complexity that is before us, but it was a very short presentation—less than 35 minutes—and it illuminated a number of elements in this bill that illustrate its complexity. So I rise to express and reinforce the concerns that my friend Senator Hanson-Young has put before us.

This is a very rushed consideration of a complex question. It's one of the first bills that I've had the opportunity as a new senator to deal with. I'm surprised that we didn't have before us an analysis that showed, as they suggested, there would be some people who benefited from this bill but others who would be disadvantaged. The general analysis about how those numbers would fall and what the characteristics were, of people affected, weren't put before us. So I am surprised that the analysis was thin and inadequate for the complexity of the matter in front of us.

Superannuation is complex. The schemes that we are dealing with, several of them, are complex. So I am resisting the notion that this is an urgent question which doesn't allow consideration of the proper facts, the full facts, before us. We don't have adequate information about the bill. We don't know who will be benefited and who will not, who will be disadvantaged, and we need that full analysis for the consideration of bills in this place and certainly on this issue. So a rushed process, lacking a fulsome briefing, is problematic. Secondly, it's not clear to me why this needs to be rushed through with such urgency. What's the reason? We haven't had a full explanation, and I think that setting a precedent for the urgent and very quick consideration of this matter is a mistake.

We've been here in this parliament, in this sitting, for a week and a half. To find ourselves suddenly dealing with this, at this pace, is a mistake—an issue that's been around, certainly in the court, for over two years, we heard yesterday. That's long enough for us to have had a proper briefing around it, and it hasn't arrived. The bill is retrospective for 30 years. That's a long time. And it's a real concern to us that that will create some retrospectivity and a precedent around an important piece of legislation, one that we still don't understand the negative or unforeseen implications of. The bill, it seems, will overturn, possibly, a court outcome in a case that's not yet been concluded. It's important that government doesn't interfere with the courts and that we have a deliberate and clear separation of powers in what we're doing.

We understand, here, in the Greens, the importance of superannuation. It's a really important issue that affects the lives of so many Australians, and we care about making sure that system works properly, especially in this case, and works well for the hardworking public servants, over many decades, as this bill would affect them. So we're unable to support this bill, given that Labor haven't given us enough information about how it would affect people, especially our public servants.

We want to ensure that those who do all of the work in the public sector, with their commitment to service, are not inadvertently disadvantaged through the rapid progress of a bill that's not well understood, even in this place. Our public sector has been cut to the bone. We have to make sure everything we do rewards and supports and protects public servants, increases their pay and conditions, and does no harm.

Katy Gallagher (ACT, Australian Labor Party, Minister for the Public Service) Share this | Link to this | Hansard source

I'll start by thanking senators for their contribution. In particular, I'd like to thank Senator Hume for her cooperation and for engagement over this issue—and Senator Birmingham, prior to Senator Hume's appointment. Also, I thank the senators who had briefings yesterday afternoon.

We accept that this is an unusual way of dealing with legislation. I don't bring this legislation to the chamber lightly and have no intention of treating the chamber with any disrespect at all, but the Public Sector Superannuation Salary Legislation Amendment Bill 2022 is urgent. That is the very, very clear advice from officials to the government. The financial risk to the Commonwealth is high and in the order of billions of dollars. I have responsibilities to ensure that we are protecting the interests of the Commonwealth and balancing that with a whole range of other pressing needs.

I would say that this is not mine or the government's general way of operating—to be introducing retrospective legislation. The unique circumstances of this issue leaves us with very little choice if we are to avoid the unintended and inconsistent outcomes that would be at odds with the community's expectations about what is reasonable in terms of superannuation payments. I don't think anyone could come into this chamber and argue any other case. I want to thank senators for engaging on this, accepting that it is unusual, but I think anyone who is engaging on the content of the bill understands why we are taking this action.

The bill ensures that the superannuation entitlements of current and former Commonwealth public sector civilian employees remain as they were understood to be by Commonwealth employees and employers over many years prior to the commencement of a superannuation claim in the Federal Court. I think this goes to one of the concerns that Senator Pocock raised around the retrospective nature of the legislation. Prospectively, this issue has been dealt with under Senator Birmingham, when it was brought to his attention. The relevant section of the superannuation regulations was repealed prospectively from I think 28 February 2022, but we do have this issue going back to 1986.

The important point for the Senate to understand here is that the retrospective nature of this bill enshrines the administrative practice that has been followed since 1986. Employees were not making member contributions. Employers were not making employer contributions on rent-free housing that was provided to employees on top of their salary and conditions as free. The taxpayer pays the rent. The employee gets their salary. Super is paid on their salary but not on their rent. This is the issue here. The rental payment was over and above their salary, and this is the issue that's now in question. It has been the administrative practice of the Commonwealth since 1986 to pay super on employees' salary but not on the rent-free accommodation they were receiving as part of their posting.

Going to the question of urgency, if this matter were not resolved by this week, the different views about the operation of paragraph 5(e) of the regulations would not be definitively resolved, and that could perpetuate the possibility of widely variable and inequitable outcomes for different cohorts of employees. I have been briefed by the department and have spent some time looking at this. For example, you could have a situation where an employee, depending on their postings, the point in their career and a range of other things, which is why it does vary widely, could go from receiving a lump sum payment of $1.2 million to one of $11.7 million. That is the consequence of not dealing with this. It will also leave other employees with potentially hundreds of thousands of dollars in unpaid member contributions that would need to be dealt with. Another situation is that a person on a different posting and a different stage of their career who is receiving an annualised pension in the order of $200,000 could see that increase to over $1 million a year. That doesn't pass the pub test. It's out of line with community expectations about the adequacy of superannuation arrangements. That is why we are dealing with this today.

On Senator Barbara Pocock's concerns about numbers and how they are affected and about the analysis that she's arguing should have been done, there is some uncertainty about that because, if we were to do that level of detail, it would require going back individually from 1986 onwards for everybody who has had a posting in order to provide that analysis. That would take a lot of time and resources, and I'm not sure it's particularly useful when we know that this bill is about ensuring that the administrative practice that has been followed since 1986 is essentially reflected through this legislation.

I'm not sure we need to fully understand every individual circumstance, because every individual will be slightly different, based on length of service, posting, point in their career—things like that. We do know that we have had thousands of public servants who have served overseas and had a posting overseas in the last 30-odd years. We know that the potential reach in terms of numbers affected is in the order of 10,000 public servants, but we can't be exact on that. Again, I'm not sure that understanding every individual situation is relevant to the broader question of this legislation, which is: do we need to deal with this? We would argue yes. Is there an issue about the different impacts and the way the variable and inequitable outcomes would apply if we left this the way it is now? We would say yes. That's what this bill before you does.

Repealing the regulations regularises the past administrative practice of Commonwealth employers and employees by effectively restoring the position with respect to rent-free housing that all relevant parties have treated as governing the Commonwealth civilian Public Sector Superannuation Scheme since 1986. As the purpose of the repeal of paragraph 5(e) of the regulations is to regularise the longstanding practice of employees and employers, the bill makes provision for certain cases, if any, in which paragraph 5(e) was applied historically in particular employer relationships in a way that included the value of rent-free housing in superannuation salary. The bill does this by excluding a limited cohort of individuals from the effect of the repeal of paragraph 5(e) of the regulations where contributions have previously been paid on the basis that a person's super explicitly included the value of rent-free housing. That is to say that, where your employment arrangements did explicitly include rent-free accommodation counting for superannuation purposes, those arrangements are not affected by this bill.

This is an important piece of legislation, and I do thank other senators for their contributions to this debate.

James McGrath (Queensland, Liberal National Party, Shadow Assistant Minister to the Leader of the Opposition) Share this | Link to this | Hansard source

The question is that the bill be read a second time.