Mr KELVIN THOMSON (4:46 PM) —In Budget Paper No. 1, at page 2-5, some measurements of household savings ratios are given. Household savings ratios are outlined as a percentage of GDP. The most alarming statistics can be found there. They indicate that, for 1996-97, the household savings ratio was 4.7 per cent, the estimate for 1997-98 was 3¼ per cent, and the estimate for 1998-99 is 2¾ per cent. So household savings as a percentage of GDP are falling, not rising. With public debt at the second lowest level in the industrialised world, just as it was when Labor left office, Australia does not have a public savings problem, but we do have and have had for some time a private savings problem. That private savings problem lies at the heart of our foreign debt worries and our structural problems with the current account deficit and so on.

Household savings are falling, and yet the government has been making irresponsible decisions concerning superannuation, ringbarking Labor's superannuation tree, and jeopardising our future retirement incomes and wealth and prosperity in the process. In my view, perhaps the single most irresponsible decision this government made was its abandonment of Labor's superannuation co- contribution scheme, which would have meant a combination of employer, employee and government contributions, growing eventually from the planned nine per cent that we have in place and in prospect now to 15 per cent—enough on Vince Fitzgerald's calculations to ensure that future generations of wage and salary earners would be able to retire on an income of around 70 per cent of pre-retirement levels. This not only would have given us a world's best solution to that universal problem of providing a decent retirement income for an ageing population but also would have translated over the period to 2020 into an addition to the national savings pool in the order of $400 billion.

Instead of that, we got the ill thought out, valueless, half-baked introduction of the government's saving rebate, at less than half the cost of the co-contribution scheme but still involving over $2 billion a year in government expenditure. That rebate rewards those with existing savings, even if they are run down during the course of the year. The government rebate is as likely to be spent as to be saved, so the overall impact of that rebate on total national savings is bound to end up negative. It takes some genius to devise a scheme which produces this result and at the same time is supposed to contribute to the development of a private savings culture in this country by providing a benefit you can get by not adding to your savings at all. Then the Prime Minister (Mr Howard) said that he was not going to accept the savings rebate, thus creating an Alice in Wonderland situation where apparently it was morally wrong for anyone who had a high enough income to actually get the rebate to then claim it.

Labor strongly favours superannuation as our preferred savings vehicle. No other area of savings policy can be harnessed to that great macro-economic task facing the nation of increasing national savings in the way which superannuation can. The point needs to be constantly made that superannuation remains a good investment for working people. Household savings have sunk to an historic low. Recently, ASFA put out a fact sheet and, accompanying that, a blueprint for a national retirement income policy in which ASFA set out a number of concerns which it has about the situation in which we find ourselves concerning superannuation. ASFA said:

Most Australians anticipate that their retirement savings will leave them with 60 per cent of their previous earnings, but ASFA's calculations show that, with the nine per cent phased superannuation guarantee contributions and individual contributions at three per cent, the end superannuation benefit after 35 years would be about 45 per cent of a person's average weekly earnings and 50 per cent after 40 years of savings.

It says that contributions not of nine per cent but of 15 per cent of an individual's salary throughout that person's career would be required to reach the 60 per cent target and that higher contributions are needed if the individual works for less than 40 years.

ASFA's figures show that the only ways to achieve an adequate pool of savings for retirement are through a substantial increase in the contribution of individual workers, an increase in the federal government's nine per cent superannuation guarantee, a reduction in superannuation taxes and/or a better interface with social security to encourage voluntary savings. ASFA makes these important points in its blueprint for a national retirement income policy.

When ASFA talk about compulsory superannuation—the superannuation guarantee—they say:

Personal and employer contributions with a total in excess of 9 per cent of earnings and/or less onerous tax treatment of super are required to meet the income target.

Their retirement incomes blueprint is based on some quite interesting research in this area. They say that projections using the AMP model of retirement income suggest that superannuation guarantee contributions of nine per cent, which is the main compulsory element of the current government policies, would result in a replacement rate of 28 per cent after 30 years and a 43 per cent replacement rate after 40 years. So for a person on about average weekly earnings, this implies a total replacement rate of both superannuation and the age pension after 30 years of contributions of around 40 per cent. Their basic point is that that simply is not good enough. You need to have higher contributions in order to get the retirement outcomes that most of us would expect in retirement. They say:

In terms of the level of employer contributions required to generate retirement incomes of the order of these targets, ASFA considers that nine per cent of earnings will not be sufficient in most cases, that additional employer or employee contributions and/or government contributions and/or more favourable tax treatment will be needed if community expectations about incomes in retirement are going to be met.

That is the situation that confronts us as we look at this legislation concerning superannuation choice.

Not only have the government failed Australians by abandoning the government's contribution and the employee co-contribution in relation to superannuation but they have also failed Australians by introducing the superannuation surcharge, which continues to be a major debacle. In the last day or two, I have been sent a copy of correspondence by Ernst and Young to the Assistant Commissioner (Superannuation) of the Australian Taxation Office, Mr John Ryan. They continue to be concerned about the issue of defined benefit funds and, in particular, the defined benefit funds on what are referred to as a contributions holiday, that is, where no contribution is actually being made to the superannuation fund on behalf of the employee for a given year.

They have received correspondence from the tax office to say that the defined benefit funds on contribution holidays should be lodging superannuation surcharge information based on the tax office's interpretation of the surcharge legislation. The tax office sets out the possibility of liability to interest and penalties and so on if people fail to do this. Ernst and Young are convinced that the tax office's legal interpretation is wrong on this issue about whether defined benefit funds on a contributions holiday are liable to pay the surcharge. They have suggested:

Given the significance of such a challenge to the Commissioner's interpretation and the legislative uncertainty of these provisions, we recommend that the Tax Office actually fund a test case in order to clarify the issue. This would be the most effective and cost-efficient manner in which to clarify the issue.

So we have an ongoing nightmare in relation to the superannuation surcharge. There are many people who still have not been sent their surcharge accounts. When you get sent your surcharge account, you are put in the interesting position of deciding whether you will pay it now or allow it to accumulate at the long-term bond rate, which is a very interesting choice facing those put in this position. All one can say is that it is just as well the government stuck to its promise not to increase or introduce new taxes. That will certainly affect quite severely those who are liable to pay the surcharge. That is yet another way in which this government has failed Australia in relation to superannuation.

The legislation before the House concerns the choice of superannuation funds. This has been an absolute shambles. Pre-election, the government announced this idea of choice. It was announced again in the 1997 budget. The proposals they put forward in the 1997 budget were changed when the legislation was introduced as the Taxation Laws Amendment Bill (No. 7) late last year. They included an unlimited choice of fund model after strong lobbying from employers. When the Taxation Laws Amendment Bill (No. 7) came before the House of Representatives in April this year, the government moved 80 amendments to that bill. The Taxation Laws Amendment Bill (No. 7) 1997 became the Taxation Laws Amendment Bill (No. 3) 1998, confusing a large section of the superannuation industry, which could not understand why choice had disappeared. They then announced in May this year a change to the start-up date, which was going to be 1 July this year. Most recently, they withdrew schedule 5 of the Taxation Laws Amendment Bill (No. 3) 1998 before the Senate even had the chance to debate this bill or consider the proposed amendments by the Labor Party, the Australian Democrats and the Greens.

In the legislative game of snakes and ladders, this bill got to the Senate, but it did not even get voted on. It hit the big snake, so it came down to No. 3, and we had to start again. As a result, we have had a considerable waste of resources. We have had the government using public resources and creating untold uncertainty in the superannuation industry, uncertainty amongst working Australians and uncertainty amongst employers. Frankly, the government's treatment of superannuation makes the nursing home debacle look like a model of sound public administration.

Australia has a world-class retirement income system, notwithstanding the damage that this government has done to it. This was recognised by the World Bank in its 1994 report on retirement incomes policies. The rest of the world is looking at Australia as a world's best practice model.

So why does the government want to change it? Basically, it is because the government wants to undermine industry funds. Government, with the ideological blinkers on, believes that unions benefit from superannuation at the expense of, for example, the government's banking friends who want a slice of the superannuation action. This view is frankly wrong. As no less a person than the former head of the MTIA, Mr Bert Evans, points out, industry superannuation funds are not union funds as the government wants us to believe and as the member for O'Connor (Mr Tuckey) was suggesting last night. They are jointly operated on behalf of members by trustees representing both employees and employers. Industry superannuation funds operate on a not-for-profit basis. They have returned market leading investment returns to members. They have the lowest fees and charges in the marketplace. They are there to look after the members and the members' interests. Compared with banks and vested interests who are trying to reap returns for their shareholders, the industry funds are only there to look after the members' superannuation for the benefit of the members.

In our view, for the government to deliberately seek to undermine these funds is outrageous. People are sick of governments fiddling with superannuation policies. We in the opposition have learned that lesson; the government, however, has not. It has constantly changed superannuation since it came to office, to the detriment of confidence in the system. I was talking earlier about the surcharge tax debacle. We have had changes in terms of the retirement savings accounts, the RSAs. We have had the inclusion of superannuation in the means test for over-55s. This is a very unfortunate and unsatisfactory development which the Labor Party has promised to reverse on coming to office, because what it effectively means is that if you are over 55 and you do not find work during a nine-month period, that retires you for good. Including superannuation in the means test means that you are ineligible for social security support, so the only way you can feed yourself is to access that superannuation, and in order to access that superannuation you have to retire. That is a policy which is shabby in its impact on those concerned. It is also poor policy in terms of retirement incomes because it guarantees that a person's superannuation will be eaten up in the years after they are 55 instead of accruing interest, therefore they will be on the pension from age 65.

We have seen the government endeavouring to abandon award superannuation and take away superannuation as an allowable award matter. As I was saying in the House yesterday, this will mean that workers on low incomes—below $450 a month in some cases, like hospitality workers and textiles, clothing and footwear employees—will literally lose superannuation payments; the 3 per cent and so on they had previously been entitled to under their awards. It will also mean that instead of having monthly payments or three-monthly payments from awards, you will only get the yearly payment from the superannuation guarantee. Workers will be worse off as a result because over the course of a working life that can amount to around $16,000, or a couple of years' worth of pension payments. That is a substantial problem so far as we are concerned and we are not supporting it.

We have seen the government also endeavour to increase the threshold for opting out of superannuation from $450 a month to $900 a month. This is a move we also oppose as we think it will have a detrimental effect on workers with low incomes because they will have no access to superannuation in retire ment. We have also seen the government endeavouring to undermine the Public Sector Superannuation scheme, closing off the scheme that Commonwealth public servants can join, to the detriment of Commonwealth public servants.

The government has undermined confidence in superannuation. Yesterday we were debating this bill which would remove superannuation from awards, undermining the conditions and superannuation entitlements of thousands of workers, particularly part-time and casual workers. The government did not win the argument on that debate and, similarly, it has not won the argument concerning choice of fund. They have barely entered the argument to convey just what it is they would have us do. They have claimed the choice of fund will drive down the costs of superannuation funds but all of the evidence suggests otherwise.

A survey of 354 superannuation funds by Sedgwick Noble Lowndes reported that the government's choice of fund model would lead to increased costs for fund members. That survey stated that 87 per cent of funds believe that choice of fund will increase fund administration costs by some 10 per cent. Alarmingly, around 10 per cent of the funds surveyed believed that costs could increase by up to 50 per cent. That view was confirmed by witnesses to the Senate Select Committee on Superannuation inquiry into choice of superannuation from Towers Perrin, the Australian Institute of Superannuation Trustees and the C+Bus industry fund, who all argued that superannuation fund costs would increase dramatically after the introduction of choice, particularly in areas such as marketing, administration and legal costs.

In addition, the government's choice of fund proposal is certain to disadvantage employers through increased administrative costs, which even the government acknowledges in its explanatory memorandum to the bill that introduces its choice model. This comes from the government which has been promising small business a 50 per cent reduction in red tape.

The opposition remains convinced that the government's bill before us today will do nothing to improve the retirement incomes of working Australians. Instead, what the government's choice of fund model will do is to undermine retirement incomes. People are not going to make informed choices. They will be forced into products which are not appropriate for them. We intend, during the consideration in detail stage of this debate, to move a range of amendments which we believe will offer employees real choice of superannuation fund, not forced employer choice, which is what the government is offering.

Labor's alternative choice of fund model provides for employee choice rather than the government's employer choice. It is a phased, two-stage approach. The first stage allows for member investment choice within funds. So, from 1 July 1999, we would be requiring those funds with more than 50 members to offer members a minimum choice of three investment options based on a low, medium and high risk return ratio or, if you like, capital backed, balanced growth options. This already happens in many industry and public offer funds and is referred to as member investment choice—that is to say, choice within existing funds.

One of the concerns we have about the government's model is that, although it says that employers must offer four different choices, there is no guarantee that those choices will not, in practice, be identical. So we are concerned to ensure here that people would in fact get different options from which they could choose.

The second stage of our model would provide for genuine employee choice. From 1 July 2000, we would allow employees to override award provisions which specify a superannuation fund, with the agreement of the employer. I will just set out the steps for the benefit of the House. The new fund nomination would be made in writing and be signed by the employee. Employers and employees who negotiate a certified agreement or an Australian workplace agreement would be taken to have exercised choice and would not be able to opt out of those agreements. Regulations would be drafted governing standard disclosure provisions applying to key feature statements offered by funds directly to employees, particularly to enable a simple comparison of fees, charges and fund earnings—and that is certainly an area of great concern to us.

In the event of a dispute between employer and employee, the Industrial Relations Commission would act as the independent arbitrator. Where a workplace is not covered by an industrial award or agreement, the default fund would be that to which the majority of employees at that workplace belong. In the event of a new business which is not covered by an industrial award or agreement, the fund that is specified in the designated award would apply.

The rationale for Labor's model is, firstly, that the overwhelming weight of evidence to the Senate select committee was that consumers of superannuation products are not yet ready for choice. The reason for our stage 1 is that the option for funds to offer choice of investment already exists—that is set out in subsection 52(4) of the SIS Act.

Secondly, investment choice within funds is a good way to begin to educate fund members about their retirement income options and control of their superannuation savings. Thirdly, investment choice provides real options for choice as opposed to the government's model, which could see consumers faced with identical choice options merely from different service providers. Fourthly, an added feature of investment choice could be a default investment option based on age risk profiles. This would ensure that fund members do not find themselves in inappropriate investment products which are not suitable to maximising their final retirement income.

Stage 2—a genuine employee choice of fund—firstly, would more accurately reflect the demand for choice of superannuation fund from workers rather than choice that is driven either by government or by vested interests. Secondly, it is simple to administer and avoids the complications of the government's model. Thirdly, it is broadly consistent with the choice of fund models which presently operate in the New South Wales and Queensland jurisdictions, therefore leading to less confusion and creating greater national consis tency between state and federal choice of fund models than the government is proposing.

Fourthly, employers and employees would have the protection of the Australian Industrial Relations Commission in settling disputes. Fifthly, employer liability would be limited compared with what the government is putting forward. It would also avoid the default fund problems that the government's model has, and it would also avoid some of the transitional problems with the two models that the government's bill contains.

Many in the industry believe that choice of superannuation fund is dead in the water, which is a logical assumption, given the government's decision to excise the choice of superannuation fund schedule from the omnibus taxation bill that it was originally part of. It was an extraordinary decision on the government's part to put the superannuation schedule, which is quite controversial, with the rest of a taxation bill which was not controversial.

The opposition has had some discussions with the government on choice of fund, although those discussions have simply identified the differences between the government's choice of fund model and that proposed by Labor. Key among those differences are those which concern the issue of award superannuation. It is our belief that the government is trying to undermine the role of awards in the regulation of superannuation through the Workplace Relations Amendment (Superannuation) Bill 1997 .

But it ought to be made clear that at no stage has Labor opposed the principle of choice of fund. Indeed, Labor adopted a constructive approach to choice by supporting a Senate select committee reference to examine the choice of fund legislation before it reached the Senate so that it could be dealt with immediately the parliament resumed. That was an unusual step. The Senate does not usually pre-empt the arrival of legislation by examining it first, but we took that step in the interest of getting the debate on choice going. That was to no avail because we are here again today on the same issue that we have visited previously.

While the retirement incomes policy established by Labor has been recognised elsewhere as world's best practice, that being put forward by this government—and certainly the way they have proceeded with it in the parliament—is now recognised as world's worst practice. Labor is not going to stand by and see the government undermine the retirement incomes of thousands of Australians.

We are going to be moving amendments to this bill designed to give effect to our choice of fund model. If they are not successful, we are going to seek to amend the government's bill to make it less likely that it will undermine retirement incomes. That is not simply an idle concern on our part. It is a concern based on experience in Great Britain, for example, where workers were inveigled into choosing second-rate and third-rate retirement incomes products, and in some cases they lost their savings altogether.

It is also a concern based on experience in Chile, where unfettered choice led to workers being persuaded to change from fund to fund on a year by year basis, or even more frequently than that, being given what amounted to bribes or gifts of various kinds—inducements—in order to change the fund to which they belonged. That, clearly, is to the detriment of superannuation and retirement incomes. Any way you look at it, superannuation is a form of deferred gratification. What was being put forward in Chile amounted to instant gratification, very much to the detriment of proper public policy. We will not be allowing that situation to arise here. The amendments which we will be putting forward at the consideration in detail stage will be designed to achieve those objectives.