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Wednesday, 18 June 2003
Page: 16871


Mr COX (5:50 PM) —Today we are considering the Superannuation (Surcharge Rate Reduction) Amendment Bill 2003. This bill is the government's third attempt to introduce a tax cut for those earning more than $90,500. The bill reduces the rate of the superannuation surcharge tax from its current maximum of 15 per cent to 10½ per cent over three years. What makes this an unfair measure is that it only benefits those on surcharge incomes of more than $90,500 in 2002-03, with the greatest benefit flowing to those on more than $109,900.

The benefits in this bill flow to less than five per cent of working Australians. It does nothing for the millions of low- and middle-income Australians who are struggling to save enough for retirement. Labor argues that, in a time of negative returns and a record tax take from super, the government should put its resources into cutting superannuation taxes for all working Australians, not just for the small minority who benefit in this bill. Later I will outline the details of Labor's fairer proposal to cut the contributions tax for all.

First, it is worth recalling previous occasions on which this bill has been before the House. What we saw both times was a chorus line of government backbenchers telling us what a terrible impost the surcharge tax was on high-income earners and that it should be reduced to encourage them to save more for their retirement. What those members did not say was that the surcharge tax was a child of their own government, back in 1996. In introducing this tax the Prime Minister broke the promise he made on 1 February 1996 when he said:

We are not going to increase existing taxes and we're not going to introduce new ones.

That was a pretty clear promise, which the government broke just six months later by announcing a new tax on superannuation contributions. At the time, the government justified the surcharge as an equity measure. Peter Costello said, in his budget speech on 20 August 1996:

The measures I am announcing tonight are designed to make superannuation fairer.

A major deficiency of the current system is that tax benefits for superannuation are overwhelmingly biased in favour of high-income earners.

For high income earners the superannuation contributions will still be highly concessional but are more in line with concessions to middle and low income earners.

The same government that introduced the surcharge tax as an equity measure now wants to reduce it. Something else that no government member cared to mention the last time we debated this issue was how, and by how much, they stood to benefit from this relatively exclusive tax cut. This is despite the fact that, back in 1996, the Treasurer could not stop talking about his decision to impose a tax on high-income earners, including himself. On 27 August 1996 Mr Costello said:

... the point I'd like to make is that on Budget night the first Treasurer in history—me—stood up and put a surcharge in respect to high income earners and applied it to himself and every other politician, you know, we're the good guys in relation to this.

Where did he say this? He said it on the Midday Show when he was dancing the macarena. The Treasurer has not been dancing the macarena since the Prime Minister's announcement about his future, but what we are likely to see today is a whole line of macarena dancers from the government, arguing passionately for a tax cut for themselves. I challenge each and every member of the government who rises to support this bill to explain to the vast majority of voters in their electorates—and it is a majority, even in the most blue-ribbon Liberal seats—who get nothing under this proposal, why they as a local member should get such a generous tax cut. I issue this challenge because that is the reality of this bill. The unfair reality is that this bill will provide a significant benefit for people on relatively high incomes by Australian community standards—not just treasurers' standards. It is going to provide a benefit to all people in our profession. I think that most people in the community would agree that that is iniquitous.

One legitimate criticism of the surcharge was that, in terms of administrative costs, it was unnecessarily expensive. In its first year of operation some superannuation funds incurred, as associated administrative overheads, as much as 30 per cent of the revenue paid. I do not imagine that that has gone on forever, but it was an extremely expensive tax to implement. The administrative burden of the surcharge falls on all fund members, regardless of their income. 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 each year for each individual surchargeable member probably raises the average administrative costs.

Since the last time we debated this tax cut for high-income earners we have seen a lot of huffing and puffing from the government. The Minister for Revenue and Assistant Treasurer, Senator Coonan, recently argued that the measure was designed to enable those who are able to save for their retirement to do so. Here we have a minister caught out by her own rhetoric. Starting from the reasonable premise that high-income earners are already able to save for their retirement, she makes the absurd argument that they need a tax cut to enable them to do what she says they are already able to do. We on this side ask the minister: what about those middle- and low-income earners who, right now, are struggling to provide for their retirement? What are you doing to enable them to save for their retirement? The minister accuses us of playing the politics of envy. Is she accusing ordinary Australians of being envious of those, like herself, on higher incomes? Ordinary working Australians are not envious; they are, justifiably, angry at a government that gives them nothing but is prepared to throw millions more at high-income earners.

No doubt someone from the government will tell us that the low-income co-contribution is the government's measure to help those struggling to provide for their retirement. While the co-contribution will be debated at greater length at a later stage, let me reiterate that Labor support the low-income co-contribution. Furthermore, we welcome the government's decision to introduce it as a separate bill—a sign that it has abandoned its cynical tactic of linking it to the surcharge reduction in order to get the surcharge reduction through. That said, the contrast between the surcharge reduction and the co-contribution could not be starker. This contrast goes to the heart of the iniquity of the government's approach. The co-contribution is only payable when low-income earners—those earning less than $32,500 a year—can find the extra cash to make voluntary super contributions. The surcharge reduction, on the other hand, will benefit everyone earning more than $90,500 a year, regardless of whether they make extra contributions.

The government claims that its measures constitute a balanced package. What does the government mean by a balanced package? What it means is a benefit for low-income earners that they cannot afford to access, a guaranteed benefit for high-income earners and nothing for middle-income earners—the millions of Australians earning between $32,500 and $90,500. So much for balance. No doubt the government will also try to huff and puff about the Senate obstructing its mandate to reduce the surcharge reduction. This rhetoric is a clear sign that the government has lost the policy debate on this issue. What it is secretly asking itself is: which proposal do the Australian people support—a tax cut for four or five per cent of taxpayers, or a tax cut for everyone?

I think the government knows the answer to this question, and this explains why the Treasurer chose not to mention this unfair tax cut in his budget speech. What the budget kept hidden but what this bill now shows is that the government's tax cut is much more expensive than it first thought. As stated in the explanatory memorandum, this measure will cost some $525 million over three years—some $155 million more than in the last budget. While not disclosed by the government, the cost in 2006-07 is at least equal to the $290 million in 2005-06. With this included, the total cost over four years is even higher. Clearly the government is giving more to high-income earners than it admitted a year ago. We now have an opportunity to implement a fairer proposal to boost retirement savings, but this chance will be lost if the government introduces its unfair changes.

In contrast to the Treasurer's embarrassed failure to talk about super on 13 May, Labor has shown leadership by presenting a detailed and fully costed plan to cut the superannuation contributions tax paid by all working Australians. Labor's plan to cut the contributions tax is the best way to deliver higher retirement incomes to millions of working Australians. Peter Costello believes it is impossible to cut the contributions tax burden. In a radio interview on 22 October 2001 he said:

It's pretty complicated. The taxing of contributions on the way in started back in the mid eighties.

Thanks, Greg Smith. He went on:

... and I think now that it's started that's going to always be with us ... So it's still better to put money into superannuation, than to take it as income. But that system having commenced 15 years ago would be incredibly complicated to unravel now.

I think it would be considerably less complicated to unravel the contributions tax than the surcharge, which the Treasurer seems to believe desperately that he needs to unravel because it applies to people on as high an income as he is on. The Treasurer probably does not want to admit that under his government superannuation taxes have reached a record level of almost $5 billion, compared to $1.6 billion when the Howard government was elected. He is, of course, the highest taxing Treasurer in Australia's history.

At a time when negative returns and high fees and charges are eating into super nest eggs, action is needed to ease the superannuation tax burden on all working Australians. Another reason why the Treasurer is refusing to cut the contributions tax may be that he does not really believe in superannuation as a policy to increase retirement incomes for ordinary Australians, nor does he believe in superannuation as a policy for preparing Australia for the challenges of an ageing population. As with Medicare, the Liberals opposed compulsory superannuation from opposition and are determined to undermine it in government.

Labor proposes that this bill and unfair and unnecessary changes to Commonwealth public sector superannuation be set aside and the money redirected into cutting the contributions tax from 15 per cent to 13 per cent, phased in over four years. As outlined in a statement by the shadow minister, Senator Nick Sherry, this plan is affordable and will add thousands of dollars to the retirement savings of ordinary Australians over their working lives. I will give a few examples of how people will benefit from Labor's measures. Matthew is 20 and earns $40,000 a year over his career. He gets an extra $7,128 in a retirement nest egg under Labor's plan to cut the contributions tax. Matthew would receive nothing under the Liberal government's exclusive tax cut. Another example, of someone already well into their working life, is Heather, who is 40 and earns $60,000 a year over the rest of her career. Under Labor's fairer tax cut, she receives an extra $4,069. Heather would receive nothing under the Liberals' proposal. 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. At a time of negative returns and widespread dissatisfaction with excess fees and charges in some funds, Labor's plan will boost confidence in superannuation. Labor's plan has received the endorsement of a number of superannuation industry bodies, including the Association of Superannuation Funds of Australia and the Investment and Financial Services Association. They recognise Labor's policy as an important step on the road to reforming superannuation, in contrast to the government's piecemeal approach of minor, ad hoc changes. The government's weak changes included the laughable policy of children's superannuation accounts—a policy that formed the centrepiece of the government's pre-election super package.

In launching the package on 5 November, the Prime Minister said that the Liberal policy `trailblazes particularly in the area of superannuation for children'—a policy that would teach children `the wonders of compound interest' and produce a `strong savings and investment culture'. He said that $42 million had been set aside to provide for the cost to revenue of 470,000 of these accounts. Then things started to change. Treasury officials admitted in June 2002 that they varied their original costings for the measure down from $42 million to $3 million after the election. Treasury had revised its assumptions about who would benefit down to 47,000—10 per cent of what was first thought. Even this target proved way too ambitious. Labor has been informed by industry sources that as of early March just one account has been opened, and there are even doubts about the authenticity of this single account. Few funds have gone to the trouble of setting up the infrastructure for children's accounts because they have had no interest from members. Yet Senator Coonan still thinks it is a great policy. She said on 14 February this year:

... I think it is a very sound and good policy ... There is obviously a very good underlying policy rationale for it. It is a good policy, and I will be doing everything I can to talk about it.

But it seems that nobody is listening or nobody is interested. Treasury's absolute failure to produce accurate costings of the children's accounts policy is one explanation for why the government quickly abandoned their policy of attacking Labor's figures on our plan to cut the contributions tax. This was their initial tactic when they realised what a hard time they would have convincing Australians that their exclusive tax cut was better than our tax cut for all, but this was soon abandoned when the Treasurer's costings of our policy, released on 17 May last year, were proved to be wildly inaccurate and deliberately misleading.

Even now, 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 five per cent of taxpayers than it is to cut them for millions of working Australians.

The government's approach to this debate is a bit like Basil Fawlty's famous comment, `Don't mention the war.' Instead, it is `Don't mention the surcharge reduction,' or `Don't mention bracket creep.' The last time this measure was debated in the House, I expressed Labor's concern that the Democrats would agree to this exclusive tax cut for high-income earners. In September last year the Democrat spokesman, Senator Cherry, backflipped on his party's earlier position by offering the government a deal, whereby the Democrats would agree to a reduced surcharge reduction in return for a more generous co-contribution.


Mr Hardgrave —Senator Sherry is the Labor spokesman, not the Democrat spokesman.


Mr COX —Cherry.


Mr Hardgrave —Oh, Cherry. I thought you said Sherry.


Mr COX —No; Cherry. While this deal would have been an improvement on the Liberals' package, it still suffered from the central contradiction of this package: it offered a guaranteed benefit for high-income earners and yet it required those on lower incomes to make voluntary contributions to receive any benefit. Fortunately, the Democrats appear to have abandoned this position after the government refused to deal with them. In their post-budget press release, the Democrats indicated that they will oppose the government's unfair tax cut. We hope that this time they stick to their guns and, more than that, we hope that they come on board and support Labor's plan for a fairer tax cut to benefit all superannuation fund members.

The contrast between the Labor and Liberal parties on superannuation could not be clearer. The Liberal Party do not believe in superannuation and are only prepared to offer an exclusive and unfair tax cut to those earning $90,500 or more. Labor believe all Australians can aspire to a comfortable income in retirement and are prepared to offer constructive policy solutions to achieve this. That is why we have put forward a tax cut to boost retirement incomes for all working Australians. With this in mind, I move:

That all words after “That” be omitted with a view to substituting the following words:

“the bill be withdrawn and redrafted to:

(1) ensure that the proposed surcharge tax reduction to high-income earners, and changes to public sector funds do not proceed; and

(2) provide for a fairer contributions tax cut that will boost retirement incomes for all superannuation fund members to assist in preparing the nation for the ageing population”.


The DEPUTY SPEAKER (Hon. L.R.S. Price)—Is the amendment seconded?


Mr Albanese —I second the amendment and reserve my right to speak.