DAVIDSON, Mr Peter, Senior Policy Officer, Australian Council of Social Service

GOLDIE, Dr Cassandra, Chief Executive Officer, Australian Council of Social Service

[14:07]

CHAIR: Welcome. Would either of you like to make an opening contribution?

Dr Goldie : Thank you. I thank the senators generally for the opportunity to appear before you this afternoon. ACOSS is the peak body for community services in Australia and the national voice for people who experience poverty and inequality. At the heart of it, that is the principal reason that we were very keen to appear before you this afternoon, in particular to talk about our submission in relation to the superannuation reforms. ACOSS has a long history of being involved in economics and tax policy and we were a major contributor to the Henry tax review work. Our submission on superannuation draws on the best thinking that was developed at that time about how to ensure that we have a sustainable, fair and equitable retirement system into the future. We face some big challenges on that front.

As you know, our superannuation and retirement income system is based on essentially three pillars. We have our age pension, which is a very important part of our social safety net. We were a strong supporter of the increase in the rate of the age pension at the time and the addressing of the adequacy of the indexation arrangements over the age pension; it is very important. Of course, the second part of it is our compulsory employer contribution system for our superannuation. We do not have a social insurance system; we have an important superannuation system that ensures that to the largest extent possible the Australian population is able to independently secure adequate retirement income post their paid working life.

The third part of it is the tax concessions associated with the superannuation system. I think that in the public mind this is often not well understood; nor is it easily identifiable in terms of the level of government revenue lost or spent, however you like to look at it, which is invested in that part of our retirement system. In the OECD we rely the most heavily on the tax concession arrangements in relation to superannuation. It is valued at about three per cent. I think on the 2007 figures it is three per cent of GDP on those tax concessions. The next highest is Canada at 2.2 per cent. On the latest figures available to us, the tax concessions associated generally with contributions into the superannuation system amount to about $30 billion a year. That is about the same as our spend on the age pension, which is $32 billion. So it is significant. Of that, about $16 billion of the tax concessions are directly related to the employer contributions. That is the part at the heart of some of our proposals before you today.

I particularly want to take you to graphs 1 and 2 in our submission, which illustrate for you the way in which we have the $16 billion spend being poorly targeted and at its heart being most generous to those who are on the highest incomes in Australia and who are likely to a large extent to be able to secure their economic security post paid working life independently. I particularly want to highlight this. As we know, the general tax arrangement for the compulsory employer contributions is that there is a flat 15 per cent tax on those contributions. What that means—if you look at graph 1—is that the people who are in the highest income brackets get a significant tax break of about 31.5 per cent compared to tax in the hand on your marginal tax rate. This is in stark contrast to people who are in the lower income brackets. We have given you a couple of examples there. If you are earning $20,000 it is 1.5 per cent, so you really do not get any significant tax benefit if you are foregoing the income in your hand to invest it into your superannuation arrangements to secure your retirement future.

You will see in our submission that we certainly support the government contribution proposal which is a part of this package. It will help to redress some of the poor tax benefits for people who are on lower incomes, but we certainly do not think it goes far enough. Of the $16 billion in tax breaks associated with those contributions, our modelling, based on the Treasury work, is that almost 20 per cent goes to the top two per cent of higher income earners and almost 50 per cent of those funds go to the top 12 per cent—people who are earning over $80,000. We really need to question whether at this time, with the kinds of changes we are facing in our demographic and the ongoing pressure that there will be in terms of social spend, Australia can afford to continue to target those tax concessions for high income earners when in fact the people who really need those kinds of tax benefits are the low and middle income earners.

I really want to highlight today—and I do not think it is a surprise to anybody—that people’s fear of what will happen to them in the future once they are not able to be in paid work is very real. It is a widely held community concern. I particularly want to highlight the experience for women. When the superannuation system was designed, it was premised on the idea that you were a male, full-time worker in one job for 35-plus years and superannuation was seen as being essentially of benefit for people on higher incomes.

CHAIR: The three per cent system?

Dr Goldie : The original design of the superannuation system.

CHAIR: I was involved in those negotiations. It was not.

Dr Goldie : The way it works is that if you are—

CHAIR: Those negotiations were not about that. It was not designed around that. It was not argued about that and it did not seek to achieve that. I was involved in every one of those cases.

Dr Goldie : Senator, if you look at the way in which—

CHAIR: You can reinvent history if you like, but it is not right.

Dr Goldie : The way the system operates in terms of its benefits, it is premised on you being in paid work, obviously, and on the amount of income you will earn. So on the data that we have—and it is in our submission—you will see that working-age women on average are typically securing less than half of the retirement income of men. Our 2004 data, which we understand is somewhat old, really sounds alarm bells in terms of adequacy, particularly for people who are not able, for a range of reasons, to be in full-time paid work or who are on lower incomes. So at the heart of it we see the opportunity to secure greater equity in the tax concessions as a key part of what we should be doing if we are moving towards the increase from nine per cent to 12 per cent in our superannuation guarantee. There are a number of other proposals. I will pass to my colleague Peter Davidson to talk you through a few of those, and then obviously we would be very happy to enter into discussion about our proposals.

Mr Davidson : We propose that in conjunction with an increase in the super guarantee to 12 per cent the present tax concessions on contributions be replaced with a simpler and fairer system similar to that advocated by the Henry report. First, employer contributions would be taxed in the hands of the employer at each employee’s marginal tax rate, not at a flat rate of 15 per cent. But the tax would be deducted from the employer’s contributions to the fund rather than from wages, as the Henry report proposed. Second, all public support for superannuation contributions would be replaced by a simple annual rebate on all contributions regardless of source. So five or six different tax treatments would be replaced by one, paid by the tax office to the nominated account at the end of each financial year. This is outlined on page 15 of the submission. In our view it is that structural reform that matters—restoring the progressivity of the system—rather than the specifics of the rebate. We have put forward an illustrative option which in our view would leave 80 per cent of super fund members with current contributions better off in retirement at no cost to them or to public revenue. However, to ensure that reform is revenue neutral, the annual cap on concessional contributions would need to be significantly lower than $25,000. In order to increase tax concessions at the bottom end something has to give in a revenue-neutral reform, and in our view it would be the caps. They would need to be significantly lower than $25,000, which after all is a high proportion; it is about a third of average earnings. Not many people on around average earnings or below are contributing that much. For this reason we do not support the proposal, which I do not think is in these bills but which the government has flagged, to raise the cap to $50,000 for people over 50 with over 500 grand in super. The cap should, however, be high enough to encourage people on around average earnings and below to make modest voluntary contributions to super in order to attain an adequate retirement income.

I would just like to comment quickly on the ASFA submission, because I know they are appearing after us and they have commented on ours. We have had a friendly disagreement with them for many years on superannuation tax breaks. I just want to make two quick points. First, our estimates of the distribution of concessions to which Dr Goldie referred are calculated on a different basis. We look at all contributions and they look at employees and self-employed separately. When you compare like with like, they are not all that different. We both conclude that the top two per cent receive around 15 per cent of the value of all tax breaks on contributions. We say the top 12 per cent get around half; they say the top 20 per cent get around 60 per cent. Whichever way you look at it, they are skewed towards high income earners.

My second comment is that ASFA acknowledges that the top 20 per cent receive more in tax breaks over their lifetime than if we had paid them the maximum rate of age pension. That comes from Treasury modelling, to which they refer. They say that is okay because everyone gets about the same level of public support. The obvious question to ask is why we should provide more support to people on high incomes than the age pension. Why would you do it? It cannot be justified on fiscal savings because more is being spent than is being saved in the pension. It cannot be justified on grounds of retirement income adequacy and it cannot, in our view, be justified on the grounds of encouraging saving because, as the Henry report notes, high income earners are relatively likely to save with or without the tax breaks. If you want to boost private saving, you target tax breaks to the middle or bottom. So why should we continue to do that?

CHAIR: I have a number of questions related to the bills. The Minerals Resource Rent Tax applies at certain cut-off points to producers of coal and iron ore. The government sees the Australian people—via the state governments or territory governments—owning the minerals under the ground. It sees it as an argument of redistribution and equity that some of that super profit be taken into consolidated revenue and returned to the Australian people in various forms. That being the basis of the MRRT, does ACOSS support the government’s intent in that respect?

Dr Goldie : You will see in our written submission that ACOSS has been clear supporter of the principles in the Henry tax review in relation to ensuring better equity in the taxation system, particularly in an area where there is a significant boom and a need to ensure that we have sustainable investment into the future more broadly for the community. The bill is more limited, obviously, than what was originally proposed but we do see it as an important part of our continuing with the ongoing tax reform. We need to ensure the kind of revenue base that will be essential for us in terms of our social safety net and securing jobs into the future. So we are a supporter.

CHAIR: Okay. I will ask about a couple of specific aspects of bills that are part of the package. There is a proposal to increase the superannuation contribution by employers from nine per cent to 12 per cent. I think it starts three years out from when the bill is passed and will be phased in over six- or eight-year period, so by 2020 or 2021 it will be fully operational. To the extent that you represent low income people, many of whom will be employed in low-income jobs, do you see this shift from nine per cent to 12 per cent over time as providing significant benefit to that group of workers when they come to leave the workforce?

Dr Goldie : When we were involved with the Henry tax panel and then last year the tax forum, we urged the parliament to approach tax and transfer reform through the lens of some key social policy outcomes. One of them, there is no question, is about the ongoing challenge of how we secure adequate economic security for people in post working life. It is a big question for us, particularly when we are looking at the rising costs of our health and aged care services. These are really tough questions for the country. In our view, if we are to move from nine per cent to 12 per cent at this time with the overall tax concessions the way they are, we lose an opportunity for that money to be best targeted to those people who are most in need of the benefit of it. We see the nine per cent to 12 per cent measure as being important if we address the tax concession arrangements that sit behind it, because they are two parts of the same picture in terms of who will actually benefit from the spend now and in later life.

CHAIR: When you say tax concessions, you are referring to the comments in your introductory remarks about what you believe to be a skew towards higher income earners?

Dr Goldie : It is clearly a regressive arrangement.

CHAIR: Okay. I just wanted to make sure of what you are saying. Putting that aside—because it is not the purpose of this committee to either determine government policy or have a view at this stage on the matters you have raised—we have a bill before us increasing from nine per cent to 12 per cent over time. The government it thinks it will benefit in particular low income workers when they come to leave the workforce. We see it as a positive equity move. Putting aside the other debate, do you share that view?

Dr Goldie : Senator, I am not sure we are able to put the tax concession issues to the side, because in our view—we have been talking with the government and parliamentarians generally about our submissions about the May budget broadly—we need to look at this broadly in terms of overall expenditure and priorities in relation to tax reform on the one hand and government spending on the other hand. In our view, if we are to move from nine per cent to 12 per cent we should be fixing the cash concessions so that overall this is money well spent in terms of securing adequate retirement income for people on low and middle incomes who are really struggling right now in order to do that.

CHAIR: That other measure is for the Treasurer and the executive to decide in due course, as you are well aware. We have a bill before us that proposes to increase over time the superannuation guarantee levy from nine per cent to 12 per cent. We believe it has a substantial equity consequence, and that is indeed its purpose and, while it may not be perfect, we regard it as a significant improvement on the current system. So I will ask you again: does your organisation support that increase?

Dr Goldie : As you know, we have been a supporter of the government establishing a superannuation roundtable which will have the tax concessions as part of its field of inquiry. Our preference would be, if we are unable to address the tax concession arrangements now, to defer the increase until we ensure that we have greater equity in the tax concession arrangements.

CHAIR: That is fine. These bills have gone through the House. I think they are scheduled to come to the Senate in the next week or fortnight when we return. So we have to make a decision then. Do you support the passage of the bills in the Senate?

Dr Goldie : In relation to the superannuation guarantee we would prefer to see a delay in the move from nine per cent to 12 per cent until we fix the tax concession arrangements.

CHAIR: The government’s position is to have the bill go through the Senate in the next fortnight. Are you telling me your organisation does not support that?

Dr Goldie : I think I have answered the question on the tax concessions.

CHAIR: No, I am asking the question squarely. I have never heard of a low income organisation—

Dr Goldie : As you can see from our submission, we have identified clearly our support for the Minerals Resource Rent Tax arrangements. We also support the government contribution. We certainly see that as a step absolutely in the right direction. But we would like it to go further and we think there is scope for addressing that in this particular reform. We would like to see that taken up by the committee.

Senator CORMANN: The Henry tax review, which had a close look at our retirement policy framework, made a recommendation that compulsory super should remain at nine per cent and made the observation that to increase it further would hurt low and middle income earners the most because it would force a reduction, effectively, in their pre-retirement living standard in order to achieve an increase in retirement savings. Of course they recommended that that was not a good thing to do. Why do you take a different view? Why do you think that Henry is wrong in relation to that?

Dr Goldie : In some ways I think the answers I have given to Senator Bishop are probably as relevant to the question that you are asking of us. The change in the Australian demographic—with some very notable exceptions, obviously, in relation to our Australian and Torres Strait Islander peoples—is a good news story in terms of people’s longevity. We need to be thinking very carefully about how we can ensure that we use our tax and revenue arrangements now in order to ensure the kind of adequate retirement incomes that we will need as the balance of the working population compared to those who are no longer of working age changes. Our view is that this is a package that we would prefer to see go through together so that we are getting investment now because, as you know, the sooner money goes into superannuation in your working life the better the result will be for you in post working life. But we do think that the tax concession arrangements are a big part of that picture and we would like to see it done as a package.

Senator CORMANN: You talked about the three parts of our retirement policy framework—pensions as a safety net, compulsory super and of course voluntary savings. The government has significantly reduced incentives to encourage voluntary savings. You are saying that we should reduce them even further. So you have no issues with the government for example reducing the co-contribution for low income earners to provide an additional incentive to save more? You have no problems with that?

Dr Goldie : We expressed some concern about that at the time. But we did not see the co-contribution arrangements as being the best measure for us to address the current inadequacy in the retirement savings of low and middle income earners. The compulsory employer contribution is the big part of the picture here. If you look at the expenditure related to the co-contribution arrangements you will see that it is very small. The vast majority of people on low incomes do not have the ability to take up the benefits associated with that. We support compulsory employer contribution arrangements. We know that it gets factored into the wages arrangements. There was a discussion about that earlier and we may come to that in our submissions as well. But we do say that the big part of the picture relates to the compulsory contributions and to the tax concession arrangements associated with that.

Senator CORMANN: Do you support any incentives to encourage voluntary savings—that is, to strengthen that third leg of the retirement policy framework—at all, or do you think that all of the tax incentives should go?

Mr Davidson : We favour not only compulsory super but also tax incentives to encourage voluntary saving. What we are saying is that the present tax breaks are not well targeted to that end. Our proposals would be revenue neutral—that is, not a reduction in the overall concessionality of superannuation contributions but shifting the incidence to those who are more likely to increase their savings rates in response to the incentive: low and middle income earners.

Senator CORMANN: I will just ask a final question, because I am not sure how much further we can take this. The cost to the budget from the increase in compulsory super is in effect—which is ironic—actually a reduction in income tax revenue as more of the revenue of higher income earners is forced into compulsory super, where it is taxed at 15 per cent rather than up to the top marginal tax rate. Is that the crux of your criticism? Are you saying that the government should not incur this cost to the budget which effectively sees higher income earners paying less tax as more of their money is forced into compulsory super? Is that what you are trying to put forward to us?

Dr Goldie : The heart of the critique for us is that on the current arrangements we have almost 50 per cent of the tax concessions going to benefit those on higher incomes in the country. We need to be fixing that. We need to be turning it into a progressive tax arrangement and not a regressive one. Of course ACOSS’s tax policy is built on the principle of progressivity but it also recognises the fact that our superannuation funds are a really important national resource that we are building. We must ensure that the tax arrangements around it are really well targeted to those people who we want to ensure will not necessarily need to rely on the age pension. These are the difficult questions we must face into the future. At this point we see that the change from nine per cent to 12 per cent should be also done through addressing the tax concession arrangements so that it is really well targeted and the country and the individual people get the benefits out of that measure into the future.

Mr Davidson : We also want to ensure that the system is working for the bottom end before it is expanded. We would support its expansion if it were working for the bottom end. But even with the government contribution the tax breaks available to someone below the tax-free threshold increased from minus 15 per cent to zero. That is the problem we face in developing our position on this issue.

CHAIR: I do not quite follow what your problem is. Would you mind explaining that a bit more?

Mr Davidson : The increase in the super guarantee will ultimately come out of wages. Hence it will not have the employment impacts that some people are concerned about—the economic impacts. In the end it comes out of wage increases. So if people on low and middle incomes are foregoing wage increases then the system of tax support has to work for them for it to be a good deal, especially for people on the very lowest incomes. The government contribution is a major attempt to redress that inequity for the bottom end, but the tax break for a person below the tax-free threshold is still zero compared to the tax on their wages.

CHAIR: Because, by definition, below the tax-free threshold they are not paying tax, so you cannot have a deduction?

Mr Davidson : Exactly. So it is currently minus 15 per cent. There is a 15 per cent penalty if their income switches from wages to super. The co-contribution removes that penalty, which we welcome, but there is still no benefit. At the top end the benefit is 32c per dollar invested.

Senator THISTLETHWAITE: Doesn’t the low income super contribution effectively operate as a bit of a tax break for low income—

Dr Goldie : It addresses some of that concern for people on very low incomes. But in our view it does not go far enough. The proposal that we have modelled for you and presented is built on the design from the Henry report but is designed to be revenue neutral. From the best resources we have available, our assessment is that if our proposal were to be taken up as part of the move from nine per cent to 12 per cent, probably people earning of the order of over $100,000 would be particularly affected by this. So we are really trying to move the tax concession benefits towards low and middle income earners at key stage in the ongoing reform of superannuation in our country.

Senator CAMERON: Isn’t that the key point—the ongoing reform? These are institutional issues and political issues that have been embedded in the superannuation system for many years. That reform might take some time. You have made clear where you see a weakness in that system. I do not think anyone here is under any illusion. What I am still not clear about is whether you wait to give support to that increase until the unfairness in the system, as you see it, is resolved or whether you get the extra three per cent in now and say, ‘That is more money in the system, and we will fix the other in reform down the track.’ What is your position?

Dr Goldie : It is probably trite to say before this committee that tax reform is never easy.

Senator CAMERON: Tell us about it.

Dr Goldie : This is a major change, from nine per cent to 12 per cent. If you were to push for the tax concession reform, parts of the industry would clearly be opposed to that because it would be changing some of the contribution arrangements from their perspective. The problems with the tax concessions have been well identified. In our view it is a real opportunity for us to have these two measures put together—

Senator CAMERON: We are clear about that. We are clear on what you want. What we are asking you is whether we should hold the bill up until we get the structural change that you are after.

Dr Goldie : We would prefer to see a delay in the move from nine per cent to 12 per cent until we fix the tax concession arrangements.

Senator CAMERON: I think that is bizarre, to be honest, from a former union official’s point of view, when we have an opportunity to increase superannuation to 12 per cent. It is a bit like being super pure: ‘Unless we get absolute purity in terms of the policy we are not going to do anything.’ We have seen examples of that in other areas of legislation over the last few years. We lose opportunities. Here is an opportunity to get more money into the system and then come back to the structural issue down the track. Why don’t we do that?

Dr Goldie : Because I think the structural issues are major and they have the potential to be very politically difficult. We understand that. This is a real opportunity for us to grapple with that at this time as well.

Senator CAMERON: I saw some figures recently showing that most low-paid workers do not have a lot of superannuation. The figure I saw was something like $15,000 in their accounts.

Dr Goldie : It is in our submission, and I referred earlier to the particularly gendered nature of this inequity. The figures we have—

Senator CAMERON: But it is not just a gender issue. Gender is an issue but this is for male workers as well. I have had people come to me who have had $20,000 in super. They are 55 years old. They could be retiring in five years time, or sick, and they have very little in their superannuation. Why would ACOSS not support a boost in that because you have, from your point of view, a legitimate complaint about the structure? Go back to when superannuation came in in 1992. In the eighties I was a blue-collar worker and did not have superannuation. As a fitter I did not have any superannuation. I finally got superannuation when I went to the electricity commission. But when I left the electricity commission after working there for seven years, all I got was my contributions. The employer kept the contributions they put in because there was no vesting. So if you talk about unfairness—I think we have come a long way in terms of unfairness. That was $17,000 off the bottom line for me, gone. So we have come a long way. There are still some problems to deal with. Why would you not argue to get the money and continue to fight for that point?

Dr Goldie : I think there has to be a recognition that there will be an impact on wages associated with this reform. There may be different views about exactly when that will kick in and what form it will take but there will certainly be an argument that will come forward that will mean that there will be less wages in the hands of low-paid workers. So we need to—

Senator CAMERON: That is miniscule.

Dr Goldie : ensure that we have the tax concession arrangements addressed at the same time so that we can ensure that there is greater benefit from that investment for people on lower incomes in later life.

CHAIR: Dr Goldie, we heard from the NFF earlier today representing employees. It was $350,000, I think they said, in agriculture around Australia. They said they were regularly engaged in high competition to attract and retain unskilled labour, skilled labour, technical grades labour and management labour. All of their members were regularly paying high over awards to attract and retain labour. They also made the point that a minimal amount of the three per cent increase would be displaced from wages. They had to pay the market rate in a heap of regional and country areas to attract and retain labour. Your argument—I think you are saying that most of the three per cent would come out of the wages pile—is not supported by the empirical data to date.

Dr Goldie : We know that we have quite a variable labour market. On the one hand there are areas with serious skill shortages and then there are other parts of the economy where it is a different picture. Our concern is that over time this measure will be factored in to wage negotiations and so—I know I have said already—our view is that tax concessions is a critical part of the reform.

Senator THISTLETHWAITE: Isn’t the key point here wage negotiations? For most low-paid workers there are no negotiations. It is simply, ‘This is what you get paid.’ Their wages are adjusted by the Fair Pay Commission each year through the national minimum wage case. So I do not see the connection there. That system will continue and wages will be adjusted for those low-paid workers through the minimum wage case. We heard evidence this morning that some employer associations will make the claim that there should be a trade-off in their submissions, but there is no statutory obligation on the Fair Pay Commission to discount the increase to superannuation and the effect on wages.

Dr Goldie : Time will tell in terms of how those submissions are dealt with by the fair pay process.

Senator BOB BROWN: Thank you very much for your excellent contribution. You are not the first people before us wanting a delay in the superannuation provisions. The Association of Superannuation Funds of Australia has, as you already know, cavilled at your figures of 12 per cent top income earners getting 50 per cent of the breaks. They say it is 20 per cent. That is quite a difference. Have you had a look at their figures? Do you have any response to that?

Mr Davidson : I spoke to that earlier. Their figures are not greatly different to ours for the top 12 per cent.

Senator BOB BROWN: The outcome is very different.

Mr Davidson : Yes. We are looking at contributions as a whole and they are looking separately at employer and self-employed. When you put the two together, on their figures roughly—and this is back-of-envelope—60 per cent of the concessions go to the top 20 per cent. On our figures roughly 50 per cent go to the top 12 per cent. So it looks a little less skewed to the top end in their figures but not dramatically different, and not dramatically different for the top two per cent when you compare our figures and theirs. You get around 15 per cent in both calculations.

Senator BOB BROWN: You will know that the Greens have put forward a proposal for a tax of 15 per cent below the marginal rate. What do you think of that option?

Mr Davidson : We think the discount would need to be somewhat higher than 15 per cent to ensure that low and middle income earners are better off than the status quo. But we like the idea of a discount off the marginal rate rather than a flat 15 per cent tax. Your proposal is progressive. The current system is regressive.

Senator BOB BROWN: If that change were made—is that the sort of change you are looking for as part of the package going ahead? Or do you have an alternative? Do you have a clear suggestion as to what the tax rate should be?

Dr Goldie : The key elements of the proposal that we have presented to the committee involve 100 per cent rebate on about the first $300 in, then about 20 per cent on the balance of that up to about $8,000 to 10,000. We appreciate that we might need to refine the modelling on that with those that have the resources to do it. But we assess that the people who would be better off compared to those who would be worse off would be people earning income of about $100,000 plus.

Senator BOB BROWN: The Minerals Council said they have $10 million income a year. Would that be the sort of resource that might help you do that job? I am concerned because we have heard from a number of other witnesses that one of the problems with the current proposals is that they attract more people into superannuation rather than more money from big income earners and that that is expensive in terms of administration. Do you have any comment on that?

Dr Goldie : Can you ask the question again?

Senator BOB BROWN: If you are attracting more low income earners to be involved in superannuation—bringing them into the superannuation stream—that is putting a disincentive on money of high income earners. It becomes more expensive to administer. You simply have more people in there. It would be easier if you had the money coming into the superannuation funds from high income earners attracted by good tax rates. Do you have any idea of what the burden of administration from the changes here will be for the superannuation funds?

Mr Davidson : The reality is that most of the increase in contributions coming in on behalf of high income earners these days is going into self-managed funds, so there is no trickle-down effect in lower administrative costs for bottom and middle. They keep the benefits in their self-managed fund. I think this is one of the reasons why both the industry super funds network and the ACTU have supported reforms along the lines that we are advocating and have put forward their own proposals along those lines. They recognise that not only will low and middle income individuals be better off with more of the tax breaks going to them but also the funds in which they hold their accounts will be financially better off as well. So it is actually the opposite of what you were indicating at the beginning.

Senator BOB BROWN: You have said in your submission that you are concerned about folk who are on low incomes overall because they have had breaks from the workforce—including mothers. Do you have a solution to those citizens facing poor superannuation when they retire from the workforce?

Dr Goldie : The proposals that we are putting before the committee would, we believe, contribute to addressing some of that. Obviously there are a range of complex factors that lead to people who have family and care responsibilities—predominantly women but many men as well—not being able to have a full working-age life in paid work. There have been some important reforms supported by the government which we believe are absolutely in the right direction. As to the equal pay reforms, obviously part of that is addressing the gender pay gap so that when you are in the paid workforce in gendered work you are being properly valued for that and receive an income, and therefore the flow-on to your superannuation contributions is an important part of that.

CHAIR: You say it would flow to their superannuation—but not to the proposed increase in superannuation that is the subject of this bill, if you had your way.

Dr Goldie : As I say, we would like to see the tax concessions addressed as part of it.

CHAIR: You do not want the recent huge increase in wages those workers have had to flow through to an increase in superannuation at this stage?

Dr Goldie : I wish it was a huge increase in wages. We welcome the equal pay decision but we have to recognise that those increases will be staged over an eight-year period. I am highlighting the range of different ways for inadequate retirement incomes—people who have family and caring responsibilities are particularly affected by that. That is one of the reasons why the age pension is a very important part of the social safety net in ensuring adequacy in that system. I have highlighted, for example, the arrangements around paid parental leave—those are really important in ensuring that there is a connection back into paid work—and adequate child care. But obviously we do see the superannuation system as a key part of the retirement income picture. People have an aspiration to secure independence post working life. We believe that our proposals are a sensible package that could be added to the bill that is before the committee at the moment.

Senator BOB BROWN: I know that you support the superannuation for parental leave. What about people who are caring and the other people you mention? Is there a plan flagged to cover them so that superannuation payments are accruing for them while they are doing that part of the nation’s required maintenance?

Dr Goldie : Sure. There are examples of where that has been put into place. For example in the UK and Europe there are arrangements where you have credits associated with caring work that then flow into other social insurance schemes and bolster your retirement income. This is one of the reasons why we do not have before you, for this package, clear policy proposals; nor is there anything in our current bid before the parliament for the May budget work. However, at the Tax Forum we strongly urged for adequate retirement income to be a core social policy outcome that we should consider when we are looking at tax and transfer reform, and the role of carers in society is a key part of that. We would encourage the efforts of the parliament to continue to work on that front.

Senator THISTLETHWAITE: The Association of Superannuation Funds is coming in to give evidence next. In their submission they make some commentary on the Henry report proposals and taxing at a marginal rate associated with income. They are of the view that that would actually result in reductions in take-home pay which in many cases would be substantial. They point to a Treasury analysis released in 2010 indicating that there would be an aggregate reduction in disposable income for 13 million Australians of the magnitude of $12 billion and that there would be a cost to government of $3 billion in revenue. Are you aware of that report? What are your comments about that?

Mr Davidson : That is where we differ from the Henry report proposals. Essentially the Henry report proposed that the tax for super contributions come out of wages—that is, a form of forced saving that would reduce disposable incomes. That is because the Henry panel did not want to increase the super guarantee. They wanted to increase compulsory saving by that other route. We have not gone down that track in our submissions. We would like to be able to support an increase in the super guarantee instead as the way to raise compulsory saving, so we have advocated that tax come off, at the marginal rate, the funds the employer sends each quarter to the super fund. It is coming off savings and then that is offset in full or in part by a rebate from the ATO to the fund at the end of each financial year. So disposable income is not affected at all.

CHAIR: Thank you.

Pro ceedings suspended from 14 : 58 to 15 : 10