Senator SHERRY (12:22 PM) —The measures in the Taxation Laws Amendment (Superannuation) Bill (No. 1) 2002 and the Income Tax (Superannuation Payments Withholding Tax) Bill 2002 form part of the government's superannuation election package. They will allow persons who have entered Australia on a certain class of visa and who then permanently depart Australia access to their superannuation benefits. The benefits accessed under this new regime will be subject to withholding arrangements. That is a new tax—or perhaps I should call it a new departure tax to return the tax concessions already provided for the superannuation benefit. In providing for a new tax, these measures evidence the breaking of the Prime Minister's promise before the election that he would not introduce any new taxes. On 1 November 2001, Prime Minister Howard made his promise during an interview with Neil Mitchell on 3AW. Mr Mitchell asked:

The Prime Minister replied:

Yet, just a few days later, on 5 November 2001, the Prime Minister outlined the first of his new taxes, that being an effective departure tax imposed by these bills. The date of effect of these measures is 1 July 2002. It is worth noting that the government originally promised they would commence on 1 January 2002 but straight after the election announced a deferral of six months.

This is interesting, because Senator Coonan, the Minister for Revenue and Assistant Treasurer responsible, stated that the deferral was required because legislation needed to be passed and the industry must be given time to implement the changes. I would be interested in hearing an explanation from the minister as to why the government was not able to understand the basic requirements in November—before the election—when the government made the promise. It does not ring true that it suddenly realised that changes such as this require legislation and consultation. Perhaps, given its lack of attention to such matters during the process of tax reform, it is conceivable after all.

The failure to introduce these measures by 1 January this year is the second broken promise these bills represent, in addition to the promise not to introduce any new taxes. This is not a great start in the area of tax for this government's third term. It is possible that the delay was due to the minister's attitude towards the government's superannuation election package, as indicated by the comments she made on ABC radio in December 2001. In relation to the government's election promises, she said:

Perhaps this is one of the changes she thinks is very good; perhaps it only rates as moderately good or even just okay. Under the new arrangements, a person who receives a departing Australian superannuation payment is liable to pay tax on that payment at the rate decided by parliament. Under the bills, it is proposed that the rates be: for so much of the payment as represents undeducted contribution or post July 1994 invalidity component, nil; for so much of the payment as represents an untaxed element of the post June 1983 component, 40 per cent; and for the remainder of the payment, 30 per cent. It appears that most payments will be taxed at the 30 per cent rate.

Many of the temporary visa holders affected by these measures are high income earners and, consequently, pay the surcharge tax of 15 per cent, in addition to the 15 per cent contributions tax, leaving the remaining 70 per cent of their money to earn interest in the superannuation fund. On departure from Australia, under this new system they will generally pay another 30 per cent in tax, meaning the effective tax rate will be 51 per cent. That has been confirmed by Treasury. This is the highest personal income tax rate since Labor reduced the then 60 per cent rate in the 1980s. This tax rate is far higher than the tax concessions currently allowed on superannuation for many people, including many of the claimants.

Treasury argued during Senate estimates in February, and again during the Economics Legislation Committee review of the bills this week, that because there is a timing benefit that accrues to the superannuation contributions a relatively lower rate of taxation than this 51 per cent tax rate is appropriate. Treasury officials further confirmed during the Economics Legislation Committee hearing on Tuesday that even for lower income earners the tax rate in many cases will be significantly higher than they would otherwise have to pay as personal income tax.

Due to the fact that in many cases the tax rate is relatively high and due to the bureaucratic process involved in actually getting their money, it is possible that some of the people eligible to access their benefits may put off doing so. That may mean the government will not realise the projected revenue, which is estimated at $255 million over three years. But the government are the ones with the access to the data. They have made some underlying assumptions, so I can just wish them all the best in collecting the money. Superannuation fund trustees will have to ensure the correct tax is withheld from the payments. They will also have to do considerable work to pay out the benefits as the regulations, at least in the draft form released by the government on 8 March, require a significant amount of paperwork to be completed.

The class of people eligible to access their superannuation under these provisions is not spelt out in the legislation but will be left to regulations to prescribe. The draft regulations currently provide for a substantial number of classes of eligible temporary resident visas—everything from the predictable inclusions, such as subclass 413 Executive, to the more unusual, such as subclass 499 Olympic Support. It is worth noting that the classes of eligible visas also extend to those that do not carry with them the right to work in Australia. Hence, it should be highly unusual for these people to have Australian superannuation funds. It would be interesting to see how many tourists apply for their superannuation under such circumstances, given that it requires an admission in most cases that they have been illegally working in Australia.

This new process for obtaining superannuation benefits differs significantly from the existing regime. Currently, individuals departing Australia, regardless of whether they have been Australian residents or temporary visa holders, on a permanent basis generally only have access to their superannuation entitlements at or after the preservation age. The preservation age is a minimum of 55 years, but for those born after 1 July 1960 there is a phased increase in the preservation age up to 60 years.

The explanatory memorandum to these bills states that the policy objective of this legislation is to reduce the administration and compliance costs that superannuation funds incur and pass on to all fund members in preserving the superannuation benefits of temporary residents who have permanently departed Australia. This contrasts with the apparent policy driver conveyed in the second reading speech that emphasises the fact that temporary residents who leave Australia will not be retiring here and so the government's intention is to fulfil their desire to take superannuation with them. I am sure, however, that the significant revenue to be gained—or that the government believe they will gain—from these measures is also factored in to the government's policy decision.

It should be noted that it was the government that tightened up the release provisions in 1998 for people permanently departing Australia. At that time, the Labor senators, including me, on the superannuation committee charged with examining the government's proposed changes strongly argued that temporary visa holders who permanently depart Australia should be given access to their superannuation. The government insisted that this should not be permitted. This proposal represents another U-turn in respect of superannuation policy.

Other measures announced in the government's election policy package include the reduction in the rate of the government's own superannuation surcharge tax, the introduction of co-contributions—which they promised to deliver before the 1996 election but then scrapped and now will provide for in a very limited way for low income earners—and the introduction of a requirement on employers to make quarterly payments of superannuation guarantee contributions. Yet again, this is a half-hearted change from the government, following their repeated refusal to pass our legislation over the past few years that would have ensured much sooner that contributions were made quarterly. The government's attempt at this policy will not see mandatory quarterly contributions until July 2003. In response to this, Labor introduced a private member's bill in the House of Representatives on 11 March 2002, which was aimed at providing protection for employee superannuation, commencing from 1 July 2002. It is yet to be seen whether the government will support this significant improvement on their proposal.

It is interesting to note that the people we are talking about—who will be paying a tax rate percentage effectively in the low fifties when they transfer their superannuation out of Australia—do not vote. While Labor believe that these measures highlight the inconsistency of the government's approach to superannuation and include two significant broken promises, we will be supporting the bills in the Senate.