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Tuesday, 16 September 2003
Page: 15297

Senator HOGG (4:55 PM) —Having listened to Senator Watson speak on the Superannuation (Surcharge Rate Reduction) Amendment Bill 2003, the Superannuation (Government Co-contribution for Low Income Earners) Bill 2003 and the Superannuation (Government Co-contribution for Low Income Earners) (Consequential Amendments) Bill 2003, I must acknowledge that Senator Watson, as a long-term Chair of the Senate Select Committee on Superannuation, is probably far and away the most knowledgeable person on superannuation on the other side of the chamber. Having said that, when one looks at the issue of superannuation, it really gets to the heart of the third plank that I outlined in my original speech in this chamber about giving people dignity in retirement. I will lead on later to just where the shortfall in superannuation will be in giving people the dignity that they would expect. There is a difference, I will acknowledge, between expectations and what actually can be achieved but, having said that, let us look first at the initiative in the co-contribution.

The co-contribution is going to be available to a maximum of $1,000 where an employee contributes $1,000 over 12 months to a superannuation fund or RSA. That maximum is going to apply to people who earn less than $27,500. Therein lies one of the fundamental problems of this government initiative. Whilst it is welcome, and it is targeting low-income people, it is targeting people who have the least capacity to contribute in their own right. I know that from being a long-term trade union official. The figure quoted there is getting close to the figure that a number of people earn in the retail industry and the fast food industry, where I have vast experience and know that many of these people live from hand to mouth. They do not have a great deal of discretionary income available to them to salt into something such as a co-contribution.

Whilst it appears attractive on the surface, the first issue that I must raise about the co-contribution is that, even if these people can afford to contribute the maximum of $1,000 and receive the maximum $1,000 contribution from the government, that in reality will be $850, if I read the legislation correctly, because that $1,000 will be subject to the contributions tax. That is something that has not been clarified to date in spite of the inquiries that I have made. You shake your head, Mr Acting Deputy President Watson, but you should not be participating in the debate from the chair. Having said that, though, I have asked sources to clarify that. If it can be clarified in this debate, it will be helpful indeed. But if that is true then it is not the boon that it is made out to be. And if the $1,000 that the person pays in themselves—and that the government pays—is subject to the contributions tax then how is it going to be exempt from the contributions tax? Where in the legislation is it exempt from the contributions tax? Even if the $1,000 is put into the account in full, the fact of life is that, for many of those people, $1,000—which does not sound a great deal to many people—is $20 a week out of discretionary income and $20 which many of them would not have.

If one looks at the sliding scale, as was indicated by an earlier speaker, it cuts out at $40,000. Those people are on a weekly income of about $800 per week. Whilst they may well have a greater capacity to pay, because of the sliding scale from the $27,500 per annum income up to the $40,000, they will not attract anywhere near the same benefit as those who earn less than the $27,500.

Senator Watson —It is an after-tax contribution.

Senator HOGG —Now that you are interjecting from your spot, Senator Watson, if it is an after-tax contribution it has not been made clear and has not been obvious to date. If that is the case, it is still but a mere bandaid in giving people a decent retirement benefit. Those people who have had a cursory look at this could come to the conclusion that this is something that will benefit those who are in a partnership where one of the partners is a high-income earner and the other earns less than $27,500. Of course, in that set of circumstances, it will be quite easy for $1,000 to be contributed on behalf of the lower income earner. But where the household income is only at a level of $27,500—and that was the point made by Senator Wong—then those people are going to struggle greatly to make a contribution anywhere near $1,000 and get the benefit of it.

As I understand it, and this is something else that needs to be clarified for me, the money, once placed in the superannuation fund, is preserved, as are all superannuation funds. I have no problem with that, but I do not know if the public understands that. I do not know if the public understands that these funds, once placed and once having attracted the benefit, are preserved. I am not saying that it is improper; I am just saying that there may well be confusion out there and that some people will see it as an opportunity to salt away some money for a time of need and then apply to get hold of it. You know and I know the difficulties—

Senator Watson —It's not a bank account.

Senator HOGG —That is right. I take that interjection from Senator Watson. It is not a bank account, but I just hope the public understands that. This effort, on the part of the government, is not about giving people access to a facility whereby they will be able to get a co-contribution and then, at some later stage, access it. There is no explanation that I can find, in relation to this bill, of the impact on the adequacy of the investment for the retirement of the superannuant.

Senator Watson —Just one measure.

Senator HOGG —Yes, but there is no projection as to how that will pan out for the individual in the longer term. There is obviously a cost to the government of this initiative, and I do not believe that the initiative will be taken up with the force that the government is hoping for at this stage. It would be interesting to see if there is a model floating around which shows what impact this will have on pensions in the longer term. That would be interesting indeed, but I do not think it is available at this stage.

I recall when we were looking at the adequacy of superannuation, and I was then a member of the superannuation committee, we did get a fair deal of modelling of what the benefits would be under certain circumstances, and a range of circumstances were covered. I am not going to go into them in this debate, but we did see the impact that making different changes in the superannuation mix had and how that would benefit individuals in the longer term. From my reading of the information that is around, that is not available. I would suspect, from what I am going to mention in a moment from an earlier report of the Senate Select Committee on Superannuation, that the benefit is not going to impact greatly on the retirement benefit that is available for these people when they do reach retiring age.

On that note, I am going to look briefly at the report of the Senate Select Committee on Superannuation entitled Superannuation and standards of living in retirement. It is a report on the adequacy of tax arrangements for superannuation and related policy, and it is dated December 2002. There are some interesting statements on page 140 in the report, where the committee looks at the modelling that was done by Treasury. At 12.30, the report says:

Treasury's modelling of retirement incomes reinforces the Committee's concern. As noted, Treasury's modelling using standard assumptions indicates that a single male aged 65, retiring in 2032 following 40 years in the workforce at 1.5 times AWOTE will draw 82 per cent of the age pension.

The report goes on:

For a single male in the same situation drawing exactly AWOTE, Treasury's modelling indicates that he will draw 90 per cent of the age pension.

That was the modelling that was done in that instance. The report, at 12.31, goes on:

By 2050, with a mature superannuation system, it is expected that the proportion of people aged 65 and over not receiving the pension will rise to around 25 per cent, and of those that do receive the pension, only about one third will receive the full rate.

The question that I have posed is: how will this initiative of the co-contribution impact, given what we have heard in terms of modelling that was done by Treasury, in terms of one and 1.5 times AWOTE? If my recollection is correct, we looked at 0.75 of average weekly ordinary time earnings as well.

Senator HOGG —But, Senator Watson, that has not been supplied this time around. It would be handy to see the impact of this measure and just how much it really will bite. The advisers might have it there, but to my knowledge it certainly has not been made available at this stage. The committee report went on to say:

However, in the Committee's view, to reduce pressure on the age pension, through a heightened emphasis on individual self-reliance, the Government should continue to strive for universal and adequate superannuation coverage for all Australians including employees, the self-employed and non-working people, with a focus on assisting low and middle income earners.

I think that that had it right, but I do not think that the prescription we have been handed up in this bill has got it right. Whilst it is laudable—and the co-contribution is there—and whilst it is targeted at people who are earning in round figures less than $550 a week, as I say, for many of those people the capacity even to start to maximise the return out of the co-contribution is going to be very limited indeed. So the expectations that the government have built around this cause some concern.

The other issue that I want to raise very briefly before I get onto the surcharge is about the indexation of the threshold. Again, this is not clear in what I have read to date in the bill. As I understand it, the threshold of $27,500 will not be indexed until the 2007-08 year. That is when the intention is to move the rate from $27,500. I am not sure what the indexation will be at that time or what it will take the rate to, but if one projects even a three per cent movement in salaries over that period of time then the way I read the initiative of the government at this stage—and I stand to be corrected—is that there will be people slipping down the schedule in the period between now and when the threshold is indexed in the 2007-08 year.

If that is correct—and I have to say that I am basing it on a three per cent increase in wages each year—it means that someone who is currently able to receive the maximum of $1,000, for example, on a salary of just less than $27,500 would move to a salary of roughly $28,000, which would see their co-contribution fall from $1,000 to $960. If the same three per cent applies in the 2004-05 year—if I am interpreting the bill correctly—their co-contribution will fall to roughly $880, then to $800 and then to $720. That is for someone who was just within the maximum limits to start off with. If that is not the case, what protection will there be in the bill for those people, to ensure that their rate of co-contribution is protected in the period between now and 2007-08, when I understand that the rate will be changed?

Of course, it affects those at the other end of the scale—let us say those earning around the $36,000 mark. If the scenario that I have painted there is correct, some of those people will fall off the co-contribution scale by 2007-08. If that is not the case then that needs to be cleared up. But all the inquiries that I have made to date have not had an answer that indicates that what I am saying is incorrect. So, whilst it is an effort on the part of the government to address the issue of long-term superannuation to give people security in their retirement, it falls well short of the mark in achieving what needs to be achieved in this area. A massive government commitment indeed will be needed to fund pensions in the longer term. Any action that can be taken now to alleviate that need is welcome. But, whilst this is an attempt on the part of the government to do so, it certainly does not go far enough.

I turn to the surcharge. One has to say that that is a very disappointing action by the government. As my colleague Senator Sherry has already indicated, the surcharge was a complex tax in the first instance. As Senator Sherry said, we opposed it because it broke the promises of the government. It took the government a long time even to admit that the surcharge was a tax. It took them a great deal of difficulty to come to grips with that. But, now that the government have gone down that path—now that we know that it is a tax—I must say that, in my view, it is a tax that targets people with the greatest capacity to pay. I know that that is not the government philosophy; it is the philosophy that I and my colleagues believe in: that those with the greatest capacity to pay should pay the greatest amount of taxation. It was a bungling tax that was put in place in the first instance—as you know, Senator Watson. It was a tax that was very complex. It was going to be very costly to collect and it was going to be costly to the funds.

Senator HOGG —But it was costly to all the people in the fund; therefore, reducing it and giving those people who are at the lower end of the income scale no benefit whatsoever, and giving those in the middle in particular absolutely no result out of this package, leaves a lot to be desired indeed. Senator Watson knows that when we did some of the modelling—and I am glad Senator Watson is here because he is helping me in this and it is always good to have his help—and looked at the adequacy of superannuation, we saw how the issue of contributions tax could be addressed to ensure that the accumulation that was coming to the superannuants was working to their benefit. The proposal that has been put forward in the second reading amendment by Senator Nick Sherry is commendable indeed because he advocates that there should be a cut in the contributions tax without specifying the amount. (Time expired)