ACTING CHAIR (Senator Hogg) —Welcome. We have received a submission from the ACTU. Would you like to make some brief comments, and then we will ask questions. There is one thing we should make you aware of, because you were not here at the start. The issue of the surcharge has been removed from the current bills that were referred to this committee. It is going to be put in with the co-contribution bill, but we are continuing to ask questions on that today anyway.

Ms Rubinstein —I understand that. I did not know about the withdrawal of the surcharge, so thank you for informing me about that.

ACTING CHAIR —Please still comment on that, though.

Ms Rubinstein —Yes, I will. The ACTU has a view, which I think has been expressed previously, that the government's general direction in relation to superannuation—and that would include issues that are not currently before the committee; choice of fund being one and possibly the co-contribution being another—essentially has two objectives. One is to assist high-income earners to receive benefits, including taxation benefits, from investment in superannuation. The other is to facilitate a shift of superannuation savings from not-for-profit industry and corporate funds to the retail products, particularly the master trusts offered by the banks and life companies. That is the context. It is a view that we have held for some time about the general direction of the government. Unfortunately, very little in what we see would persuade us to depart from that view.

Having stated that at the outset, I will turn quickly to the issues that are the subject of these bills. They are covered in what is, unavoidably, a very brief submission, given the time frames. First of all, I should say that the ACTU supports the proposed requirement that superannuation guarantee contributions be paid at least quarterly, rather than annually. The ACTU believes that this ought to be monthly, but certainly the quarterly contributions are a major change. They will assist with compliance and insurance matters, and the proposed requirement is to be supported. We also support the requirement for employers to report to employees the amounts and destination of their superannuation guarantee contributions. The lack of that information until a statement is received from industry funds twice a year—and for many funds only once a year—means that employees are not in a position to even check whether their employers are complying.

In relation to changing the earnings threshold for the superannuation guarantee, the ACTU is strongly opposed. The government itself, in the comments of Senator Coonan, states that the purpose of the change is to take superannuation away from seasonal and casual workers, particularly in the rural and retail sectors, because that would make compliance easier for employers. That is not an adequate justification as far as the ACTU is concerned. It is very difficult to establish the precise number of employees who would be affected. It is unlikely that the ABS would be able to help even if unpublished data was obtained, which the time for this submission did not enable us to pursue. Perhaps there would be information about seasonal workers and people who work over relatively brief periods, but it is very difficult information to get. I have also made inquiries of one of the large superannuation fund administrators as to whether they would be able to get an idea and, again, it would be very difficult to do—although something could be done on a sample basis, and they were going to look at that.

What we do know is that there is a very large number of employees who work a small number of hours on average per week, who are employed on a casual basis and who earn not much more on average than $100 a week. We know that earnings vary, that hours change for a large number of these employees and that they are predominantly female. The figures that we have, which I have set out in the submission, give you an idea of the scale of that type of employment. For example, almost half a million employees earn less than $100 a week and there are one million workers who work between one and 15 hours a week. There are 413,400 people who earn less than $200 a week—that is, they are well within that $450 threshold—and who receive superannuation contributions.

The ACTU estimates that at least 25 per cent of those people are likely to be affected by this change. That is because a very large proportion of people on such low earnings are working quite spasmodically, such as over university holidays and as seasonal workers in the hospitality industry or retail industry over the summer period. We have put a figure on it of at least 100,000 mostly casual employees who we believe would be affected. We cannot put that in blood, but it is the best estimate that we have been able to come to. It needs to be understood that the numbers of people affected are swelled by the way in which this works. A quarter is not just any three-month period: they are defined quarters starting in January, April, July and so on. That means that it would be possible, for example, for somebody to work across November, December, January and February in the retail industry or hospitality industry, or May, June, July and August in the snow type industry situation and miss out on superannuation entirely.

They are not paltry amounts. In some of the examples I have talked about where somebody was earning $660 a month in those four months there would be a superannuation entitlement of $237.60 that they would miss out on. It would also affect employees who work for a number of employers, as often happens. People will work for a couple of months here and a couple of months there or a bit here and a bit there, so they may not make that amount over the quarter, and they will be affected.

An obvious risk is that some employers will seek to structure their employment patterns so as to avoid the obligation to pay superannuation, which will be nine per cent from 1 July. For those employers in industries like hospitality, catering, retail and some of the agricultural and pastoral industries where there are large numbers of casuals employed, the incentive to do that could be quite significant. It is sometimes suggested that the amount of superannuation is so little that it is not worthwhile and it will all be whittled away in fees. However, some things are forgotten there. First of all, there are very few Australian employees who do not already have superannuation accounts. They actually have money in superannuation. So whatever would go in from now on would go to an already existing balance. The more that goes in, the less that is whittled away. Of course, some small account holders—those with less than $1,000 in their accounts—have the advantage of member protection, so fees cannot erode away the absolute money value of their balance, although it might mean that they would not receive earnings. There is no suggestion in this that the employees would receive the money as cash. It is not as if the employees would get the benefit in some other way. The benefit would be entirely with the employers.

Senator HOGG —Can I just stop you there? That is the case now for those who do not receive superannuation, isn't it?

Ms Rubinstein —It is the case for those who, for example, do not earn $450 a month. The benefit of that is entirely with the employer. It is also the case that many employees work part time or on a casual basis for particular periods of their lives. For example, women raising small children might already have significant superannuation accounts, which they have got from the period before they had children. These amounts might be very small but, when we consider that it is the time out that women have from having children which contributes so greatly to the problem of their lesser savings in retirement, we see that to take even more away from women in their situation is really quite unconscionable. Of course, even small amounts put away for 40 years or so can, through the miracle of compound interest, do quite amazing things. That is why every dollar that goes into superannuation, particularly with young people, will help to produce adequate retirement incomes further down the track.

To the extent that this proposal is being sold not as simply a benefit to employers but as some sort of answer to the problem of low account balances and low income employees, we would say that removing the entitlement is not the issue; it is putting more resources into educating superannuation fund members to consolidate their accounts. There is also to be a campaign started soon, if it has not already—the ATO and at least one of the preservation funds is having a lost members week where they are encouraging people to come to find out if they have lost superannuation accounts, to match these and consolidate them. That is the kind of initiative that ought to be taking place.

On the surcharge, I have a very small comment. The ACTU was opposed to the decision to reduce the surcharge because we believe that any cost to revenue in relation to superannuation ought to be distributed more fairly than a cut to the surcharge would be. For that reason, we support the proposals of the Labor Party in relation to the use of the $370 million to reduce the contributions tax for all superannuation fund members. While I think there is some merit in the proposal that was discussed with the earlier witness of reducing the tax for lower income employees, it is possible that the administrative complexity of that would outweigh any benefit. We all have to be very aware of the problem with the complexity of the superannuation system.

I agree that superannuation for children is unlikely to be taken up to a very great extent because the money is locked away not until the child has reached the age of reason, say at 25 or 30, but rather probably until they are 65. I cannot see many people doing that. However, taken together with the co-contribution, and bearing in mind that many of these young people will work, it is quite possible that parents and grandparents will invest this money for children and then, once they get their first job on a paper round or with McDonald's, they will invest their co-contribution for them.

In a sense, there is nothing wrong with that, except that it is a cost in terms of taxation issues and also with the co-contribution in direct contributions. The ACTU would argue that, although the funds set aside for this are so modest as to lead us to assume that there is not much of an expectation of take up, funds that are available ought to be used more equitably and that this is not the best way of helping children and young people. The ACTU finally supports the proposed ability for people aged 75 to make contributions to superannuation funds.

Senator HOGG —On the second last matter, you see that just as something for the big end of town?

Ms Rubinstein —Clearly it is for the big end of town because most people do not have a lazy $1,000 that they can invest for their children—possibly for their grandchildren. But, by and large, I think that it is. Also, if you are not from the big end of town, even if you are only modestly comfortable, you are going to want to provide for your children at the age when they are likely to need it, in their 20s when they are establishing themselves. It is only if you know that there is going to be so much money for them to have houses, school fees, cars, university expenses and everything else that you will take advantage of everything that is going, including this.

Senator HOGG —I have three kids who are 21, 19 and 17 and I find the expense on them goes up exponentially with their age. I do not know how anyone else has money to—

Ms Rubinstein —I have similar experiences and the age of independence seems to be moving further and further ahead these days.

CHAIR —Ms Rubinstein, I know a couple of young mothers who do some part-time work and reckon this is going to be the best investment in town.

Ms Rubinstein —What is?

CHAIR —The co-contribution. You know yourself the sacrifices that some parents are prepared to make for children in terms of giving them a good education. The ability to get $1,000 for $1,000 is quite attractive to them and we are not talking about big income earners here.

Ms Rubinstein —The company-contribution is the best investment in town. There is no question about that.

CHAIR —They say they might not be able to do it every year.

Ms Rubinstein —But the people who will do it every year are not the women who are working a few hours a week, who will do it, by and large, out of their own income.

CHAIR —Yes, they are the people I am talking about.

Ms Rubinstein —Are they the sole providers for their family?

CHAIR —Not always. Some are.

Ms Rubinstein —I cannot imagine a young mother working part time, being the sole source of support for children, being in a position to put $1,000 into superannuation. That is $20 a week for someone who is earning maybe $300 or $400 a week and from that has to pay housing costs, education costs, running a car and all of the other things. Where that work is ancillary to the main breadwinner, then of course that is going to happen. That is precisely the point we will make when we come to making submissions on the co-contribution. We support the principle of co-contribution but ways need to be found to make it fairer so that low-income people who are supporting families on their low incomes would be in a position to attract some of that contribution. We have not worked out a detailed position on that because the issue has not arisen as yet.

CHAIR —You seem to be a bit unhappy with the coalition's attitude to superannuation, thinking it is discriminatory against non-profit superannuation. From my discussions with some of the very big non-profit superannuation people who have 600,000 plus members, they reckon in this low-income environment it is going to turn hundreds of thousands of people towards them because with low costs, a low return environment, industry funds are going to be the big winners. I just cannot see the basis. Obviously, for small funds that are not performing well, I can understand that. But some of the big funds with whom, for example, you must be associated are telling me that they think they are going to be the big winners.

Ms Rubinstein —That may well be the case.

CHAIR —Obviously, they were not so much big winners when returns were high and you could get 30 per cent overseas, but in the environment we are likely to be in in the next few years they reckon they will be big winners.

Ms Rubinstein —That may well be.

CHAIR —What is the basis for your—

Ms Rubinstein —The basis is essentially the position on choice of fund that we have put consistently. We believe that, if you remove the protections that exist in awards in the current environment, the choice of fund will be exercised most commonly by employers and employers' concerns may be less about the costs that their employees pay and more about the kind of contra deals that they can get from the banks and the life companies. That is not the subject of the submission but by and large that is our position.

CHAIR —I thought I would raise it so that the contrary view is on the public record.

Ms Rubinstein —I think it is fair to say that more attention will go on fees in a low return environment, so low fee funds will be in a somewhat advantaged marketing position, but that only means anything if choice is exercised genuinely. We do not believe, in the employment relationship, that individual choice—whether it is about wages, working conditions and AWAs, to introduce another matter that is not in the submission, or whether it is about superannuation—can effectively be exercised by employees.

Senator ALLISON —I would like to ask about the surcharge. You suggest that, instead of reducing the surcharge contribution, you support the idea of reductions in contributions tax. You have also suggested that targeting those might be difficult administratively. Given the huge discrepancy between superannuation savings of men and women, what if this measure was to remove contribution taxes or lower them significantly for all women?

Ms Rubinstein —I think in those circumstances you would have to relate it to income, because there are obviously women in different situations. By and large, women have lower superannuation savings for two reasons. One is that they learn less, and that needs to be addressed. The other is the period out of the work force. Really this is not any kind of official policy, but, for example, superannuation could be linked into a system of maternity benefits. Although it is complicated, the government with its baby bonus system has proposed that that would be able to be used also for superannuation. The problem with that is that the more you earn the more you get, and if you are already out of the work force you do not get anything. Leaving that aside, there might be grounds for something creative that could be done in that way. Simply to divide it up amongst all women irrespective of their incomes would have some problems with it. It would be a fairly rough reallocation.

Senator ALLISON —On the same subject, what do you think $370 million would buy in terms of tax on contributions? Would that lower contributions tax by one per cent, six per cent?

Ms Rubinstein —I think the Labor Party have said that they could decrease it by 1[half ] per cent.

CHAIR —Not on that alone. The Labor Party's measures involved other issues of raising money. That is where their position on budget night was quite misunderstood. The general populace felt that this $370 million could reduce the contributions tax by X amount, but when you looked into the detail there were other factors built into it. It is fair enough to put that proposition.

Ms Rubinstein —It is. What we really say, without endorsing any particular kind of package of measures, is that an approach that says that you should try to increase superannuation savings on a basis that is at least equitable between all employees, if you cannot do particular things to assist those who are most in need, is the right approach. The government's approach is the complete opposite of that: it is about reducing the tax for the very small proportion of people who are affected by the surcharge.

CHAIR —But hopefully with a view to getting rid of it eventually, which will affect everybody.

Ms Rubinstein —Well, it won't. The only people affected by the surcharge are people who earn a high amount.

CHAIR —The costs of administering the surcharge are borne by all members of the fund.

Ms Rubinstein —That is true.

Senator HOGG —That has always been the point of the tax.

Ms Rubinstein —I cannot see how reducing the surcharge would affect the administration cost, so essentially you are still going to have the same administration cost for a third less revenue.

CHAIR —But it is the beginning of a desirable end, surely? Don't you want to look at it from the long-term point of view? You cannot suddenly take big taxes off in one go, can you?

Ms Rubinstein —No. But you could in fact shift to collect the surcharge in the way we had originally proposed, which was through the payroll system, through the ordinary tax system. Dealing with problems in the way the tax is collected by abolishing the tax does not seem a very smart way of doing things. There must be better ways to address that.

CHAIR —You just do not think it is worth sending that signal to the community?

Ms Rubinstein —To send which signal?

CHAIR —That it is desirable to knock off the surcharge.

Ms Rubinstein —But the signal that is being sent to the community is that it is desirable to reduce the taxes of those who are most well off. That is a principle to which I believe the government is committed, so perhaps that is the message that it wishes to send to the community. But that is the message.

Senator LIGHTFOOT —But, with respect, it is not reducing the tax back to what is considered to be a level of the average taxpayer. It is only reducing the surcharge less than a third over three years back to 10 points—which is still a surcharge.

Ms Rubinstein —Yes, there is still a surcharge.

Senator LIGHTFOOT —And a significant surcharge. I think that ought to be made clear, don't you?

Ms Rubinstein —Of course. But it is perfectly clear. What the government is doing is giving up revenue in one area to reduce the taxes on those who are the wealthiest of all superannuation fund members.

Senator LIGHTFOOT —But, with respect, they are still paying that 10 per cent.

Ms Rubinstein —Yes. To say that they will still be paying some additional tax is true but it is equally true that they will not be paying as much as they were before, and that is a cost to revenue.

Senator HOGG —If the contribution tax was reduced, they would still get the benefit of that.

Ms Rubinstein —Yes, they would still get the benefit of that.

Senator HOGG —We are going down the path of having a debate here—which we should not be—as to whether you give people the benefit of the tax right across the board through something off the contribution tax or whether it is honed in and refined to those people who have had to cop the surcharge. That is where the report is down to, isn't it?

Ms Rubinstein —Yes.

CHAIR —There is nothing wrong with having debates with witnesses, Senator Hogg.

Senator HOGG —I am not saying that.

CHAIR —They come from a perspective and we can look at that.

Senator HOGG —I mean amongst us. I am not talking about the witness.

CHAIR —Any further questions?

Senator HOGG —Yes. You quoted the comment of a press release made by Senator Coonan in respect of the change to the threshold.

Ms Rubinstein —Yes.

Senator HOGG —In her press release she says:

The quarterly threshold should reduce the compliance impact on business, particularly those with seasonal or casual workers (e.g. rural and retail sectors);

How do you believe the compliance costs will be reduced, if that is the case?

Ms Rubinstein —First of all there will be a saving of nine per cent on the wages. That is the key cost. It is not the paperwork. I would think that most employers would not have their entire work force in that category. They would still have to pay some superannuation for somebody and so the paperwork is happening in all of that. It is a bit like saying if you cut wages by 10 per cent it would reduce the compliance cost of paying wages. I mean, if you cut anything it would reduce the cost. But it does not go any further than that. It could not be described as a cut in red tape or bureaucracy.

Senator HOGG —When one considers that we have an ageing population, do you find this initiative of the government at odds with setting up reasonable retirement benefits for people?

Ms Rubinstein —I think it is very short-sighted, because I believe that a large proportion of the people who would be affected are comparatively young. That means that the earnings on their superannuation would accumulate for a very long time and would contribute to that. Also, they are people who would have superannuation but would be likely to have relatively low balances, and adding to those balances at this point in time is absolutely critical. As we know, the length of time that every dollar is in your superannuation account makes a big difference to the final payout because of the way compounding operates.

Senator HOGG —I refer to the change from the monthly to the quarterly threshold. As you know, I am an active member of a trade union; I am still branch president of the SDA in Queensland, so I have a bit of a feel for this. Earlier this afternoon, I raised with a witness my belief that the majority of major employers remit on a monthly basis. Is that a fair assessment?

Ms Rubinstein —It may be; I do not entirely know. Certainly, the industry funds which have a very large proportion of the total membership of superannuation funds generally require monthly payment of contributions.

Senator HOGG —If it becomes a quarterly situation, this could become an administrative nightmare for a number of those employers. I raised this issue earlier this afternoon. If someone earns $600 one month, $600 the next month and nothing the following month—as was one of the instances given to us—to make $1,200 in total, the employer could have to pay on the $450 threshold for the first two months and then find out that the employee has no employment in the third month and therefore falls below the $1,350 threshold.

Ms Rubinstein —Presumably they would not pay until the $1,350 had been reached. But yes, they would have to do a bit of rejigging of their computers to do that; that is true.

Senator HOGG —One would see a disruption to an established practice that has protected the rights of a number of people over a long period.

Ms Rubinstein —That is very well understood. Yes, I think that is right.

Senator ALLISON —Given the large percentage of big employers who pay monthly contributions—all of those contributing to industry funds, for instance—do you see any problem with requiring monthly contributions for employers of, say, over 100 employees?

Ms Rubinstein —No, not at all. I am not sure that it is just large employers who pay monthly. Funds like C+Bus and Host-Plus, for example, have a very high proportion of employers with fewer than five or 10 employees. Certainly, I cannot see that there would be an issue with that. One of the problems with this—which is really an education issue—is that I get the impression that a lot of employers who pay monthly because the fund or award requires it now think that they can pay quarterly. They do not understand that this is a change from the ability to pay annually. This will affect employers who are bound by the award, the deed that they have signed with the fund or both to pay monthly. Of course, it will not change—we know that—but there is a bit of an expectation that they can now pay quarterly. So that is something that will have to be dealt with.

CHAIR —I have some good news from the government for you. It is part of a response to a report which we put down a little earlier; that is, the government response to the Senate Select Committee on Superannuation and Financial Services report: Enforcement of the superannuation guarantee charge. I am sure that you will be delighted at this:

In implementing quarterly Superannuation Contributions, the Government will require employers to report to their employees the amount and destination of SG contributions.

That is good news, isn't it?

Ms Rubinstein —I think I have already noted that. I said that the ACTU supports that. We are capable of supporting initiatives by the government that are worthy of support.

CHAIR —That was as a result of some of the committee's work.

Ms Rubinstein —Yes. I am a great admirer of the work of the committee, as you are aware, Senator Watson.

Senator HOGG —Do you have any estimation of how many people currently fall below the $450 threshold each month? I know you have done some exercises as to what would happen.

Ms Rubinstein —It is approximately half. If you have 400,000 people earning less than $200 a week, about half of those get superannuation, so it is probably 200,000 people who do not get superannuation.

Senator HOGG —What you are saying is, that figure of 100,000—

Ms Rubinstein —Would be the ones who are affected by this. I would make the point that there are difficulties with statistics and comparisons across categories and different ABS studies, but that would be approximately how we would see it.

Senator HOGG —In respect of the changes that came in, we have heard from other witnesses that some of them were consulted prior to budget night. Were you consulted?

Ms Rubinstein —No, we were not, Senator.

Senator HOGG —That does not surprise me. I have no further questions.

CHAIR —Thank you very much. We always enjoy your presentations.

Ms Rubinstein —I always enjoy appearing.