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Tuesday, 12 June 1984
Page: 2858


Senator JACK EVANS(8.35) —The Income Tax Assessment Amendment Bill (No. 3) 1984 is a complicated piece of legislation. There are 16 amendments to the Income Tax Assessment Act. I think I am already well established on the record of the Senate as one who abhors band-aids placed on band-aids placed on band-aids on a tax Act which is already almost impossible to understand. Certainly, for the lay person, it is impossible to understand. For the professional, for the accountant, for the solicitor, unless working with it day after day, it is still impossible to understand. For the experts, it may be possible to understand, but it is almost impossible to get agreement on what it means. I believe that these amendments, coming through again in a rather ad hoc way, will complicate the tax Act even further. For that reason I understand people who condemn the Government for another complicated series of amendments, particularly those which may not be necessary for the function of government, for the function of revenue collection or for the function of the production of equity in the community.

However, I think that some of the amendments are needed, and some are necessary right at this moment, to support Government initiatives. I will touch briefly on those that I believe the whole of the Senate should support. For instance, I refer to the amendments to provide for the management investment companies and to provide incentives for investment in these sunrise industry companies. I have no quarrel with that and the Australian Democrats wholeheartedly endorse the concept of this Government getting behind-in fact getting in front of and leading the way for-the introduction of management investment companies which in turn will not only encourage and foster new inventions, processes and industries but also give some incentives to the marketing of these new inventions, processes and industries and, in assisting the marketing, will ensure that they are viable industries and that they are given the chance of competing in a very difficult market, both within Australia but more particularly overseas, in sunrise industries.

The amendment dealing with taxation of friendly societies has been controversial and, particularly over the past couple of years, has been quite apparently needed because of the fact that friendly societies have been competing in some areas quite unfairly with the life insurance companies. I believe, and I think I speak for all the Australian Democrats in saying this, that the tax rate of 20 per cent is as close to a fair and equitable tax rate as the Government could probably come up with. Certainly, the Government is winning no applause from the friendly societies because, obviously, they would rather it were lower. Similarly, the Government is winning no applause from the life insurance companies which think it should be higher. It is rather interesting to me that I received very strong representations from both friendly societies and insurance companies before that rate was set. Now the general attitude seems to be that we can all live with that rate of 20 per cent. That seems to indicate that the Government has hit the target pretty fairly; it may be a point or two out but only time will tell us whether it is a spot on figure or just a very close to spot on figure.

As a member of the Senate Standing Committee on Finance and Government Operations, I applaud again-I have done this previously when earlier measures were taken-the Government's move to reduce further the paperwork for the prescribed payments tax system. As honourable senators will appreciate, the prescribed payments system was introduced to get at those people who were evading their tax obligations in the black cash areas. In those areas it was possible to get work done, pay under the counter for that work and avoid paying any tax whereas a competitor down the road, who may have had employees for whom he had to pay pay-as-you-earn tax, had to charge higher rates and was not getting work simply because he was acting legally and properly. The prescribed payments tax has, to a degree, put an end to that situation. It certainly has not ended it. Plenty of that sort of tax evasion is still taking place but at least it has made people aware of the fact that government officers are out there having a close look at them and the day may come when they have to cough up all the money of which they have robbed this country.

I simply make the point that the more we can reduce the paper work for the prescribed payments tax system the more equitable it will be for all parties concerned who have to pay that way. The prescribed payments tax system was an inequity when it was first introduced simply because it imposed a massive amount of additional paper work at additional cost on those enterprises which came under its net. There was a lot of resistance to it at the outset. Members of the Standing Committee on Finance and Government Operations should feel justly proud of the fact that they were able to sit down with industry leaders and the Commissioner of Taxation and work out ways of reducing the paper work. Following that, the Commissioner of Taxation promised the Committee that he would pursue other ways of reducing the paper work that was considered unnecessary or could be subsequently proven to be unnecessary. This legislation is evidence of the fact that he is pursuing that objective and that we will have a further reduction in that paper work.

Section 26(a) of the Income Tax Assessment Act, the fourth major area of amendment, is a form of capital gains tax because it provides that any person or organisation which purchases property with the objective of making a profit on the sale of that property within a reasonable period will pay an income tax. Obviously, there has been a loophole in that section of the Act. The amendment which is part of this Bill will, hopefully, close that loophole and prevent certain arrangements from continuing which, under the old legislation, could be made to evade or avoid tax obligations. So, that is again an item of tax legislation that the Australian Democrats applaud, that is, the tightening up of tax legislation to get at the tax avoiders or evaders. We are quite consistent in pursuing those who would avoid and evade their tax obligations.

I want to spend the bulk of my time talking about the most controversial part of this legislation, the lump sum superannuation provisions. Those provisions are controversial partly because of the way in which the Government has handled them. I have spoken on this subject before. The Government will always draw flak if it gives notice of its intentions and allows the community to debate, criticise, analyse, lobby, to get on the bandwagons, soapboxes and the mass media and criticise, whether fairly or unfairly. If it does so it will always draw the sort of flak that it has drawn. I hope that it will continue to do just that, not so that it will destroy the Government's intentions but so that it gives the community the opportunity to get into the debate when it is to be affected in such a major way as this legislation will affect it.

The modifications which have come out of that debate are, I believe, fruitful and beneficial. I for one compliment the Government on the amendments that have been made to the original proposal. In some areas the Government has not gone far enough. I will touch on those in a moment. I believe that in other areas it has gone a long way down the track towards resolving problems and towards overcoming some very important objections of principle and of equity. Those objections will be overcome in the way that the Government has modified this legislation. To put this lump sum superannuation legislation into context, one should recognise some of the reasoning and philosophy behind it. I think it is fair to say that the Australian Labor Party regards superannuation as funds to assist people in retirement. I hope I do not misrepresent the Party's position; I am trying to put it objectively and fairly-that superannuation funds are aimed at helping people in their retirement. If that is so, it is fair to suggest that the Labor Party does not see superannuation as a means of funding an enterprise or of re-establishing oneself in a new vocation. That may well be the objective some people had when they took out superannuation. I am not suggesting for one moment that that is not a valid, fair and just reason for taking out superannuation, but from the point of view of the Government, particularly from reading old debates, the whole objective of putting into place the superannuation fund system was to help people when they retired. Most people were then likely to retire at 65 or perhaps 70. The retirement objective then was to ensure that people who, through their working lives, were able to provide for their term of retirement could do so and would not call on the Government, whether it be through charitable institutions, pension funds or whatever, to look after them. That was a long time ago, but I think that is a fair assessment of the reasoning behind the establishment of superannuation funds.

Things have changed over the years and most importantly it needs to be recognised that it probably has not been the governments that brought about those changes; in the main, it has probably been the life assurance companies. I do not say that in any criticism of the life assurance companies because I think they recognised that there was an opportunity not to help themselves but to help their clients, whether they be clients who wanted funds on retirement at 65 or who wanted funds at some time before their final retirement from five days a week working. The companies gave them an avenue of saving which coincidentally happened to have hefty support from the government of the day in that investors did not have to pay tax. This support did not come just from the government of the day; it came also from the people of Australia. People were allowed to put their savings into superannuation funds and they did not expect to pay tax. Similarly, employers were able to make the same sort of move and they did not have to pay tax on the money that was put into those funds.

As a result of that change, over the years there has been an increased expectation and anticipation that the superannuation funds were absolutely untouchable by any government. Over those years that perception has never had the overt support of any government of which I am aware. That is a very important factor. Governments have not encouraged this attitude, because nobody in any government can promise that nothing will ever change in terms of imposing tax in the future. So nobody has ever been able to say, and as far as I am able to ascertain nobody has ever said: 'Your superannuation funds will remain unchanged forever. Nothing will ever happen to the tax system relating to those superannuation funds'. Despite that, the belief has grown in the community and has become quite well entrenched that superannuation funds were inviolate, that nothing could ever happen in regard to the taxation of those funds beyond the existing system of taxing 5 per cent of those funds at the time they were drawn or they became due for payment.

Given all of that, one can understand the disappointment in the community when a government says: 'The coffers are in the process of being emptied. In the next 10 or 20 years we will have only one of two options: Either we will have to increase taxes massively to support the superannuation and pension funds of this country or we will have to change the whole superannuation and pension system so that people can no longer rely on it for their retirement'. There was a third alternative and that was to endeavour to have from here on a superannuation system which did provide for people to be able to save their funds through superannuation, pay a much lower rate of taxation when the funds were withdrawn and still, in the vast majority of cases, be able to draw some sort of pension.

The Government's strategy in this matter is obviously to endeavour to persuade people in a variety of ways to convert lump sum superannuation to some form of annuity. This simply means that instead of drawing out one's lump sum superannuation in one payment one draws out one's superannuation progressively over a period. If it had been announced from day one many years ago when the superannuation funds were introduced and if people had repeated it from time to time, that the whole point of the exercise was not to allow superannuation to become a tax avoidance measure but to provide for people on their retirement at age 65, I do not think we would have had anything like the resistance to these moves that we have had over the last few weeks and months. It is the building up of an expectation in the community that has caused the problem.

The Government has, I think quite responsibly, made changes to its assets testing system to remove the opportunity for double dipping. It is interesting that this legislation also contributes towards the removal of double dipping. It needs to be said that the Government could have paid the courtesy to a couple of ongoing committees of waiting just a little longer for their reports to come down. Very important deliberations are taking place right now on the whole future of occupational superannuation in particular. It is a pity that the report on that matter could not have come down before the legislation was brought forward. I recognise that the Government, having made a commitment to make changes before the next election, has very little time in which to implement those changes now that it has announced the aborted time span of this Parliament so that it can have an election later this year. This, in turn, has caused this legislation to be brought forward.

I think that it would have been helpful if the Government had let the matter sit on the back burner for a little while to allow it to do the one thing that would make many people breathe much more easily; that is, to allow it to conclude its deliberations and consultations on the introduction of indexed bonds. Not only could indexed bonds make this system work better but also they would allow those people who are about to be forced to convert from lump sum superannuation entitlements to annuities to go into them knowing that they are not on a depreciating annuity.

Let me describe briefly the effect of the existing system: If a person converts to an annuity from a lump sum settlement tomorrow, from tomorrow that annuity will have less value. Every time that person draws his annuity cheque, whether weekly, monthly, quarterly or annually, each succeeding annuity cheque will have less value. That will be the case until the day the Government, the life assurance companies and whoever else will be involved introduce the indexed bonds that this country needs. An indexed bond will allow people to convert their lump sum superannuation into an annuity based government bonds which are indexed to the consumer price index or some other similar measure. That means simply that if one's first annuity cheque comes out at the rate of $800 a month in 1984, the next cheque, in 1985, will come out at the rate of, let us say, $ 880 a month, if the CPI rises by 10 per cent, and subsequent cheques will be similarly increased to take into account the increased cost of living. People can then make a judgment, based on the day that they convert their superannuation lump sums to annuities, as to whether or nor they can live on that certain value of dollars, as at the date of their retirement, and from then on until they die. If they cannot, they may take alternative measures. If they feel they can comfortably live on that amount they will be encouraged, and I suggest by this legislation, enticed in a variety of ways, to convert to annuities.

I stress the value of annuities simply because they are the alternative path to paying the new tax rates which are part of this legislation-the new tax rates of 15 per cent up to $50,000 and 30 per cent beyond $50,000 for that proportion of lump sum superannuation which is drawn from the date of this legislation. The proportion-and this is an important point-is a proportion of time, not money. The Minister, the Attorney-General (Senator Gareth Evans), has spelt that out quite clearly; that the time after the legislation is announced is one part of the equation, and the time before the legislation is announced is the other part of the equation. Those two proportions determine the amount which is going to be subject to taxation under this new legislation. The proportion which comes into the pre-legislative era will be at the old rate, that is, only 5 per cent of the amount will be taxed, and that will be at the marginal rate of taxation of the person receiving the sum.

I would like to touch briefly on a couple of problems that I see coming out of this legislation. One of them is the problem of the whole thing being bundled together into the Income Tax Assessment Act. The Defence Force retirement and death benefits fund is an anomaly which simply does not belong in this legislation. I plead with the Government to introduce a special Act right now, as quickly as possible, to cover service people under the Defence Force retirement and death benefits fund. The Jess Committee on the Defence Forces Retirement Benefits Legislation made this comment:

. . . the justification for the inclusion of the computation provision in the original DFRB legislation was that a serviceman often had a requirement for a capital sum on his retirement to assist in his resettlement and re-establishment in civilian life.

That is not a retirement fund, it is a resettlement fund and it should be established in resettlement legislation. It should not be part of this superannuation legislation. I ask the Government please to look after the people to whom we have a responsibility as a parliament. It is not a large number of people, as only about 1,500 are eligible for that fund per year and only about 50 are not between 40 and 50 years of age. There are, nevertheless, important people in our community, people who have served this community in accordance with all of the provisions of the defence forces of this country and many of whom have suffered the handicaps of serving in the defence forces in this country with that knowledge and understanding that nobody would ever touch their fund. It is about to be touched. I think that the Government, when it recognises the injustice that it will do to these people, will follow the advice and the recommendation that I have put to it.

The position is not quite the same in the case of airline pilots although there is an anomaly in respect of an airline pilot whose services are terminated on medical grounds. He loses all rights to employment and licences in that field. Special provision should be made in respect of the age and length of service of airline pilots who are in a quite different category from most of the rest of us . However, as I indicated earlier, they are not in the same category as members of the defence forces.

I would like to conclude by asking the Government to accept some recommendations that I have put in good faith on behalf of the Australian Democrats. We have taken note of the amendment moved by Senator Dame Margaret Guilfoyle on behalf of the Opposition. That amendment is pathetic-there is no other word to describe it. The amendment deplores, it notes, it condemns and it regrets. But there is not a word of substance in the whole amendment. Therefore, I would like to add some backbone to that amendment so that the Government knows exactly what the Senate feels. I move:

At end of amendment, add 'but the Senate-

(1) calls on the Government, in its implementation of this legislation, to-

(a) ensure that the threshold figure of $50,000 in the definition of 'residual amount' in clause 52 is indexed to the Consumer Price Index and adjusted annually;

(b) provide that bodies which issue Approved Deposit Funds have uniform financial safeguards to protect Approved Deposit Fund investors;

(c) amend the Social Security Act 1947 so that it is compatible with changes in this legislation to ensure that annuity holders are not disadvantaged through having capital repayments treated as income for pensions; and

(2) calls on the Government not to proclaim this legislation until a system of indexed bonds has been introduced'.

While allowing the legislation passage through the Senate this amendment is a clear guide to the Minister and the Government that the Senate is not satisfied with the content of the legislation as it stands, that there are a number of anomalies and that we believe that these anomalies need to be resolved. I hope the Opposition will support our amendment as we will support theirs. I ask for that support because the Opposition has let the side down by announcing in advance that it has no intention of opposing the Government's legislation or amendments to the Government legislation in the Senate. The Opposition has made it quite clear that it sees this as an opportunity for a cynical political exercise. It will let this legislation go through but announce to the electorate at large that if ever it gets elected to government again it will repeal the legislation knowing that it will not be elected at the next election. The Opposition expects the pensioners of this country to bleed for the next four years while they wait for the Opposition to get re-elected; it will then repeal the legislation. I find that quite cynical and hypocritical for an Opposition which, together with the Democrats, could make changes to this legislation.