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Tuesday, 16 September 2003
Page: 15301


Senator COONAN (Minister for Revenue and Assistant Treasurer) (5:16 PM) —I am very pleased indeed to be able to sum up this debate on some landmark superannuation legislation to deliver some real and significant benefits to a wide range of Australians trying to save for their retirement. The government first foreshadowed the superannuation co-contribution for low-income earners and the surcharge rate reduction measures in its pre-election superannuation policy statement, A Better Superannuation System. The Prime Minister announced this policy on 5 November 2001, almost two years ago. The statement was designed to provide greater incentives for voluntary superannuation contributions and to make superannuation relatively more attractive compared with other forms of non-concession taxed savings. It also included measures to remove inequities in the system to improve security of superannuation benefits, to broaden the availability of superannuation to more Australians and to promote the value of lifelong saving.

Among the measures to provide greater incentives for voluntary contributions was the government's superannuation co-contribution scheme. The government recognised that more incentives were needed for low-income earners to increase their level of voluntary superannuation saving, thereby achieving greater self-reliance in retirement. The scheme will replace the previous $100 low-income earner superannuation contribution tax offset. Another component of this package of measures was the proposal to reduce the maximum superannuation contribution and termination payment surcharge rates to encourage those who can afford to save for their retirement to do so and thereby take pressure off the future age pension system.

As I announced on 7 September 2003, the government negotiated an agreement with the Australian Democrats to enable passage of both these measures, following the failure of the Superannuation (Surcharge Rate Reduction) Amendment Bill 2003 to obtain a second reading in the Senate on 24 June this year. Savings generated from the smaller reduction in the superannuation surcharge rates will be applied to the co-contribution measure, thereby enabling the government to extend the parameters of the co-contribution scheme. The changes mean that the total pool of money spent on the co-contribution and surcharge rate reduction measures is now applied in favour of low-income earners in the proportion of 66 per cent to 34 per cent over the budget years 2004-05 to 2007-08.

I foreshadow that in the committee stage I will move amendments to these bills to give effect to this agreement. In passing, I do commend the Democrats for the constructive approach that they have taken towards ensuring that the government can deliver these very important measures to Australians saving for their retirement. The co-contribution amendments will mean that people earning up to $40,000 will now qualify for a co-contribution if they make eligible personal superannuation contributions. This measure is a significantly greater incentive than the current tax offset it is replacing, which phased out on an income of $31,000, and will be a direct injection into the retirement savings of this category of people.

In addition, the thresholds will be indexed from the 2007-08 income year onwards to maintain the relative target group of the measure. The co-contribution amendments also provide for the measure to now apply to eligible personal superannuation contributions made on or after 1 July 2003. Further to this, the date that superannuation providers must give statements for the purposes of the co-contribution will be prescribed in regulations to enable the government to provide industry groups with time to implement the necessary alterations to their systems.

Finally, the co-contribution amendments also provide for additional reporting to the parliament on a quarterly and annual basis. These reports will cover the operation of the co-contribution measure, including details about the recipients and payments made. The surcharge rate reduction amendments will provide for a smaller reduction in the superannuation surcharge rates. Rather than reductions of 1.5 per cent per year for three years, the maximum surcharge rates will now be reduced by half a per cent in the first year and by one per cent in each of the two subsequent financial years. The reduction in the surcharge rates will also be delayed. Consequently, the reductions will commence from 1 July 2003. Together, these measures—that is, the revised co-contribution and surcharge measures—are significant steps in improving the availability and the attractiveness of superannuation. The measures remove some of the disincentive of the extra charge facing those who are able to save more for their retirement and will no doubt do so, and it will significantly boost the savings of lower income earners. I do commend these bills to the Senate. Whilst I seek the support of the Senate for the requests for amendments and the amendments in the committee, I note that the Labor Party will be opposing some of the amendments.

In the time left to me in my summing-up speech, I want to deal with some of the points raised by earlier speakers. The first point I wish to deal with was made by Senator Sherry. He said that reducing the surcharge rate is inequitable and provides an exclusive tax cut—which I think is what he said—to high-income earners. One of the main themes of the government's superannuation policy statement, A Better Superannuation System—launched during the election—was to make superannuation more attractive and to encourage all Australians, no matter what their income, to save for their retirement. The government's measure to reduce the superannuation surcharge is indeed a modest reduction in the charge over and above the tax that affected Australians pay on their superannuation. The surcharge rate reduction will go towards removing the disincentive facing employees who have the ability to save for their own retirement. This will—and is designed to—take the pressure off the pension system as our population ages so that those who really need it will be able to avail themselves of it.

When you consider whether or not it is equitable to reduce the superannuation surcharge, a measure the government introduced—and, Senator Sherry said, boasted about—it is important to point out that, due to the budget surplus resulting from the economic and other good management of the government, the government can reduce a disincentive facing employees who have the ability to save for their retirement. It is no secret that I would have liked to have reduced the superannuation surcharge much more—and I think Senator Cherry said that he would have preferred to have not reduced it—but politics is all about compromise and about getting outcomes that are ultimately to the benefit of the Australian people. I feel very confident that we got that with this measure.

The next point dealt with by Senator Sherry, I think, was that parliamentarians will benefit from the surcharge reduction. Senator Sherry well knows that members and senators are treated no differently from other taxpayers and that parliamentarians also pay the charge over and above the tax that everyone pays. If the measure is criticised on that ground, there is absolutely no need for any parliamentarian—from the other side or, indeed, in the other place—to accept this reduction. I throw out this challenge to each and every one of you who criticises it: stand up, identify yourselves and say that you are going to give it back and that you will not accept it. I am very surprised that the Labor Party would oppose this modest cut. With all the sound and fury at the time the surcharge was introduced, it seems quite extraordinary that there is now a backflip—a U-turn—and that even a modest cut is opposed. The surcharge reduction is just part of a package of measures that quite rightly includes a generous government co-contribution of up to $1,000 per year that is available only to lower- to middle-income earners. That is why the package is fair.

I think Senator Wong said that only those taxpayers earning more than $94,000 will benefit from the surcharge reduction. I wish to take issue with that because it shows some misunderstanding of how the surcharge works. The surcharge thresholds relate to an individual's adjusted taxable income. The ATI—or adjusted taxable income—is a combination of taxable income, surchargeable contributions and reportable fringe benefits. Consequently, an affected individual's income could be significantly less than $94,691 but the individual could still be subject to the surcharge. I think Senator Cherry said that one concern about this is that the people who pay the surcharge are not all from the big end of town; some who pay the surcharge get tipped into doing so by circumstances. They may have had an interrupted work pattern, and that particularly affects women and part-time workers, or they might have been retrenched, got another job and tried very hard to save for their retirement but run up against the surcharge. That is not a desirable outcome. It is important that this is on the record so that those listening to this debate know that at least the Democrats and the government are concerned to try and alleviate some of the burden from that category of person facing the surcharge.

Senator Wong also said that in her view it would be difficult—and, if I heard correctly, she said extremely difficult—for families to save any money so as to qualify for the co-contribution. It is hard to take this as a serious criticism. To assume that somehow or other those on low incomes are too poor to really count and to qualify for the co-contribution is very patronising. The government want to help ordinary workers save for their retirement. We think this is an honourable aim. We think it is important that those on low incomes are treated with some dignity and are given the opportunity to make what contribution they can to their own retirement, to their own savings, and that they should be given some assistance to do this.

The co-contribution measure provides an opportunity for low-income earners to take advantage of greater incentives than those that currently exist—and I have already explained the measure it is replacing—to improve their self-reliance in retirement by saving through superannuation. If they start early, they will do very well out of the co-contribution. Even if they are some way into what one might call their superannuation life—their time of making contributions to superannuation—every bit helps. Once again, it will mean they can have a better outcome than they would have if they were relying on the pension alone. As I have said, the government think this is important. Our estimate is that 540,000 low-income earners will receive a co-contribution in 2004-05. It is not only the government's view that this is a very positive thing; the Investment and Financial Services Association says that the co-contribution is likely to produce a significant increase in the number of people making voluntary contributions, and the Association of Superannuation Funds of Australia—ASFA—claims that the measure has the potential to boost retirement savings for people on lower incomes. Indeed, they showed us some very high figures with respect to how retirement income could be enhanced by the co-contribution.

Senator Wong also spoke about the inadequacy of retirement savings. I must say I am completely taken aback that Senator Wong can stand in this place, suggest that retirement savings are inadequate and then suggest that the attempts of the government—and indeed, the Democrats—to increase savings should be opposed. It is more like a co-contradiction than a co-contribution. The co-contribution will provide a significant increase in the savings of lower-income earners and the modest surcharge reduction will encourage those who can afford to save for their retirement to do so. That is as it should be. Both of these measures are costed and on the table. It is up to the Senate now to recognise this package and to support these measures.

Senator Sherry also talked about wealthy households being able to use the co-contribution as a tax minimisation vehicle, which would be an important point if it were not jumping at shadows. The co-contribution is not a tax break; it is a contribution to retirement savings. There is also no evidence to support any assertion that only wealthy households will benefit from the co-contribution. Indeed, there is no evidence to suggest that the co-contribution will somehow become a tax minimisation vehicle. If there is some evidence, bring it forward. There is no evidence at all, so far as I can tell, that it is likely to be abused.

The co-contribution was said by Senator Hogg to be subject to contributions tax—at least he raised that question, which to a large extent proves that Senator Hogg is just spouting a speech rather than looking at the proposed legislation. Neither the original undeducted contribution nor the government co-contribution will be subject to the contributions tax. If Senator Hogg is listening, or if he cares to go back to the Hansard, I draw his attention to items 4 to 6 of schedule 1 part 1 of the Superannuation (Government Co-contribution for Low Income Earners) (Consequential Amendments) Bill 2003, where he will find his answer. It indicates that those opposite have probably given this legislation a cursory look, or it would have been pretty obvious. Senator Hogg also wondered whether co-contributions are preserved. Of course, co-contributions mirror the treatment of the eligible personal superannuation contributions that they match. All personal contributions since 1 July 1999 are preserved until retirement and so are co-contributions.

Some of the speeches made on the other side took what I would describe as a pretty churlish approach to a landmark agreement that is capable of delivering super benefits to Australians. It is surprising that these measures, which are overwhelmingly in the interests of a broad range of Australians, are opposed at all. Then again, we have to understand that superannuation and everything to do with it seems to excite opposition. The measures that are being brought forward in these bills have been welcomed generally in the community. They are overdue; they should have been delivered earlier than they have been. In the circumstances, it is incumbent on the Senate to support them.

Question put:

That the amendment (Senator Wong's) be agreed to.