Mr COX (5:30 PM) —This afternoon we are dealing with the Superannuation (Government Co-contribution for Low Income Earners) Bill 2002 and the Superannuation Legislation Amendment Bill 2002. These cognate bills introduce the co-contributions scheme and reduce the surcharge on high-income earners. Labor support the co-contributions measure, with certain amendments, but do not support the measure to reduce the surcharge tax for only four per cent of working Australians. We consider the current co-contribution to be a pale imitation of the much more extensive co-contribution arrangements proposed by the ALP government in the May 1995 Saving for our future statement.

Those 1995 proposals included that the government match contributions of up to three per cent of average weekly ordinary time earnings, about $1,342 per annum in current levels, which did not phase out until the member achieved a wage of twice average weekly ordinary time earnings, or $89,492 per annum currently. The current Treasurer committed an incoming coalition government to implementing the 1995 ALP co-contribution proposals. The coalition government subsequently reneged on that promise and implemented instead a savings rebate, which in turn was quickly abolished.

This was a very important measure proposed by the previous Labor government. It was designed to get superannuation contributions up to a level which would ensure that people had a decent standard of living in their retirement. When it was put into the budget in 1995, it was to take effect from 1998-99 and, in that year, it was to cost the taxpayer $1,080 million. That was contained in the budget papers. When the current Treasurer decided to abolish it—in contravention of his election promise—he recorded in the document `Budget measures 1997-98', which was circulated with his budget in 1997, the following financial implications of removing it. It was going to have a cost in 1997-98 of $1 million, make savings of $1,079 million in 1998-99, save $2,414 million in 1999-2000 and save $3,980 million in 2000-01.

We are now a couple of years on from that, and one could expect that the savings produced by that measure would probably be around $5 billion a year. We had a Treasurer who decided that he needed to make some public savings, and he decided to do it very much at the expense of private savings and very much at the expense of the future retirement incomes of a great many working Australians. I think it was one of the most pernicious savings options that the Treasurer took.

In the previous year he had made some quite substantial savings which in the third out year were worth about $7 billion. In the subsequent budget he was very keen to hold the line, but it seems that the only way he actually held his savings line in that year was to abolish this co-contributions scheme. It is a matter of great regret to me and I think it is one of the most dreadful things that Peter Costello has done to Australians who were saving for their retirement. It is absolutely scandalous. He then proceeded to declare victory over the budget black hole that he had postulated. Having declared victory over it, he has gone on something of a spending rampage ever since.

Of course, 1998 was an election year so he had to spend several billion dollars that year. Normally, treasurers who are sensible about these things take stock after they have got through an election and perhaps make some savings; but not this Treasurer. No, he went right on spending in 1999 and he went right on spending in 2000. The spending in 2001 was absolutely unbelievable; there were tens of billions of dollars spent to try to buy another election. He promised then that we were going to be in surplus after the 2001 election but, as we have found out, we are in fact in deficit by $1.3 billion in cash terms and in deficit by about $3.7 billion on an accrual basis.

After 11 years of almost continuous economic growth, the Treasurer is running up deficits. He has spent every dollar he has ever saved. He has spent all of the proceeds of fiscal drag. He has spent basically everything that he can lay his hands on.

Mr Murphy —The cupboard is bare.

Mr COX —The cupboard is somewhat bare, as the member for Lowe has pointed out, and we are now dealing with a measure which is supposedly designed to give some low-income earners a co-contribution for superannuation. But it is a co-contribution that is of absolutely minuscule proportions: we are talking about a couple of hundred million dollars here. The measure that he took away some years ago was worth $4 billion then, in the last out year, and would be worth considerably more than that now.

The co-contribution is an excuse for the surcharge cut. It is one of the most highly inequitable measures that have been brought in by this government. It only fully affects those on surcharge incomes of around $100,000 in 2002-03—a group that represents approximately four per cent of the working population. We need to remember that the surcharge is the Liberal government's very own tax which they introduced in 1996. They broke their promise, coming into the 1996 election, not to introduce new taxes. Mr Howard made a promise on behalf of his party on 1 February 1996 when he said:

Mr Murphy —They lied!

Mr COX —That was a pretty clear promise—a lie, as the member for Lowe says— which they broke just six months later by announcing a new tax on superannuation. That is something else that makes this a very significant bill. At the time, the government justified the surcharge as an equity measure. Peter Costello stated in his budget speech on 20 August 1996:

How right he was! He continued:

... ... ...

It was an equity measure then, and reducing it is an inequity measure now.

There was another important feature of Mr Costello's justification for this measure in his comments on 27 August 1996. He said:

Where did he say this? He said this on the Midday Show, when he was dancing the macarena. He will be dancing the macarena now because he has reduced the surcharge. The iniquitous thing is that the reduction is going to provide a significant benefit for people on relatively high incomes by Australian community standards—not just treasurers. It is going to provide a benefit to all people in our profession as politicians. I think most people in the community would agree that that is fairly iniquitous.

One of the biggest problems with the way this government tried to hide the fact that the surcharge was a tax was that it made it extremely difficult for superannuation funds to implement. In terms of administrative costs, the surcharge was unacceptably expensive. In its first year of operation, some superannuation funds incurred as much as 30 per cent of the revenue paid as associated administrative overhead. I do not imagine that that has gone on forever, but it was an extremely administratively expensive tax to implement. If it had been done in perhaps a more straightforward way, that problem could have been reduced for the superannuation funds and, therefore, ultimately for their beneficiaries. To that must also be added some of the collection costs incurred by the ATO and some, though much less, employer costs.

The administrative burden of the surcharge means that all fund members meet increased costs regardless of their incomes. One way or another, the associated monitoring, collection and compliance costs must be met and are likely to reduce the overall accumulations of all fund members, not just those on whose behalf the surcharge is levied. Reducing the rate of the surcharge does absolutely nothing to redress the situation. If anything, a 10 per cent reduction in the surcharge rate each year for each individual surchargeable member turns up the heat on the average administrative costs.

Labor's plan to cut the contributions tax is the best way to deliver higher retirement incomes to millions of working Australians. Labor have proposed two fairer options and urges the government to redirect the Treasurer's superannuation tax cut away from the few and to all the superannuation fund members who pay the contributions tax—which is, of course, all of them. Peter Costello believes it is impossible to cut the contributions tax burden. He said in a radio interview on 22 October 2001:

I think it would be considerably less complicated to unravel it now than to unravel the superannuation surcharge, which the Treasurer seems to believe desperately that he needs to unravel because it applies to high-income earners, whereas the contributions tax applies to all earners. We do not agree; we know that cutting the contributions tax can be done with a minimum of fuss, as confirmed by the many industry representatives we have spoken to over the last few months. Indeed, they would be very enthusiastic about cutting the contributions tax.

We now have an opportunity to implement a fairer proposal which will improve the budget and boost retirement savings, but this chance will be lost if the government gets its way with these unfair changes. Labor's alternative propositions are: option 1, cut the superannuation contributions tax for all Australians who pay it from the present 15 per cent to 13 per cent; or, option 2, cut the tax to 11.5 per cent for people aged 40 and over. These are the people who are coming up to retirement who have had less time in the work force, in many cases, making superannuation contributions and who would probably benefit enormously by having their contributions tax reduced for up to the last 25 years of their working lives and would then be able to accumulate a larger nest egg for their retirement.

I will give a few examples of how people will be benefited by Labor's measures. The first is Matthew, who is 20, and earns $40,000 a year over his career. He gets an extra $7,128 in a retirement nest egg under option 1 and $4,748 under option 2. Matthew would receive nothing under the Liberal government's proposal to reduce the surcharge. Another example, for someone already well into their working life, is Heather, who is 40 and earns $60,000 a year over the rest of her career. She gets an extra $4,069 under option 1 and $7,122 under option 2. Heather would receive nothing under the proposal to reduce the surcharge. These examples are in present value, so they reflect the value in today's terms. The benefits would be substantially more in the dollars of the future.

These outcomes provide a powerful incentive for Australians to invest in their own future, helping us to cope with our future needs. The Labor package for a fairer superannuation system is revenue neutral. This is achieved by opposing the reduction in the superannuation surcharge and the proposal to allow the splitting of superannuation contributions, which effectively doubles the 2002-03 reasonable benefit limits of $1,124,384 for pensions or $562,195 for lump sums, which we expect to see in another superannuation bill in the spring sittings.

The government's response to the ALP's plan was almost immediate. They did not like it because it meant they had to start arguing that a tax cut to the select few was better than a tax cut to millions of working Australians. So they chose a different route; they went with what they thought would be much easier: they said that Labor got the figures wrong. During the estimates process, Treasury officials admitted they had made mistake after mistake in that 17 May costing, yet they still refuse to hand over the revised costings they gave the Treasurer when they realised just how wrong they had it.

Even now, five months later, the government will not allow Treasury to publicly correct the record and release the figures which would prove our plan is affordable. Since we exposed the Treasury costings for the fraud they were, the government have fallen pretty much silent. They do not seem interested in debating the measure anymore, and we all know why: it is pretty hard to enter into an argument about how it is better to cut taxes to the top four per cent of taxpayers than to cut them for millions of working Australians.

Unfortunately, it appears that the Democrats will argue the surcharge tax cut for them. After a spectacular backflip in September, the Australian Democrats are set to deliver the rich a massive tax windfall while leaving millions of Australians with nothing. The deal offered by Senator Cherry on the government's superannuation package will still see a cut to the super surcharge tax that applies only to those on more than $90,500 per year. While a smaller cut to the surcharge in return for a more generous voluntary co-contribution is an improvement on the government's package, it remains grossly unfair compared to Labor's alternative: a cut in the contributions tax to benefit all super fund members who pay it.

Under the Democrat proposal the affluent are all guaranteed a tax cut. Those earning $46,000 or less will receive a contribution from government only if they voluntarily make additional contributions to superannuation. Treasury estimates indicate that only 75,000 Australians will receive the full co-contribution, even under the Democrats' new proposal. This is out of the more than five million working Australians who should be eligible but simply do not have the money left over after servicing their mortgages, feeding their families and paying the bills. It is an absolutely typical measure by this government. It promises something to a group of people on relatively low incomes and, when the people on low incomes read the fine print, they find that they are not eligible or, in this case, not financially able to take advantage of what the government is purporting to offer them.

The only justification Senator Cherry could offer for cutting the surcharge is that it is an administrative nightmare. Everyone knows that. Cutting the tax rate does not solve that problem; in fact, it makes it worse in average administrative terms. Democrat senators have previously staunchly opposed this tax cut for the rich, including on 27 June 2002, when they supported a Labor motion calling on the government to withdraw the measure. I expect the Democrats to keep their commitment, but doubtless they will not.

The inquiry of the Senate Select Committee on Superannuation into these bills heard many submissions that raised concerns in relation to the effectiveness and equity of the proposed co-contribution scheme, as well as in relation to access to the co-contribution by particular groups of persons and the administrative costs of the proposals. The Labor Party is concerned about submissions to the committee that the proposed co-contribution arrangements leave considerable scope for abuse, in that comparatively well-off people will be making contributions in respect of family members in part-time employment. The ability of single or sole breadwinners in the salary target range to afford to make contributions to superannuation in order to qualify for the matching co-contribution is untested and, as attested to before the committee, unlikely for most in that range. The number of people estimated to receive the full $1,000 is only 75,000, according to evidence provided by ASFA. This is from a total pool of 4.4 million people with incomes of less than $32,500, according to ATO evidence.

Another important consideration is the government's announcement on 20 June that they intended to remove the surcharge reduction amendments from the superannuation bills they had before the Senate at the time and shift them to the bills we are considering today. Senator Coonan stated that change was due to the government's desire to highlight the fact that the government's superannuation initiatives were designed as a balanced set of measures. That is, it was a blatant political stunt which was aimed at trying to justify their unfair tax cut to the well-off by pretending the measure was linked to co-contributions. This is a complete furphy. If the government were serious about helping those most in need of assistance in accumulating a retirement nest egg, they would have placed the co-contributions measures in separate bills.

Against that background, the Labor Party will move an amendment to the Superannuation (Government Co-contribution for Low Income Earners) Bill to include in the legislation a provision that would require the government to closely monitor the operation of the co-contribution arrangements. The purpose is to ensure that only those who are genuinely in need receive the co-contribution and to establish the proportion of the target group who are accessing the co-contribution. I have to say, based on the government's previous performance of not releasing Treasury's revised costings of our measures, I think it is very unlikely that we will get satisfaction from the government on this amendment. In relation to the surcharge, I will move the amendment, circulated in my name, to the Superannuation Legislation Amendment Bill 2002 requesting that the government withdraw these bills from the House, remove the unfair proposals and replace them with the ALP's fairer superannuation plan. If the government will not do this, I intend to move further amendments to the bills which will specifically oppose the reduction in the surcharge. I urge the members of this House to support my amendments.