Senator SHERRY (11:51 AM) —We now commence debate on the Superannuation Laws Amendment (Abolition of Surcharge) Bill 2005. This is the other element of the government’s tax package, which was presented in the budget a few weeks ago. The issue we are dealing with here is the proposal to abolish a tax, not a surcharge. It is a tax, in this parliament’s view, so my first point is that the bill is incorrectly titled. This is a very exclusive tax cut because it relates to high-income earners only.

Senator McGauran —We have you in Hansard railing against this surcharge.

Senator SHERRY —We will get to the railing in a moment, Senator McGauran, because I have some other interesting quotes from Hansard that I will get to. This tax applies to superannuation contributions and it commences at a surchargeable tax income level of $99,700, at the rate of one per cent, increasing to the rate of 15 per cent at an income level of approximately $21,400. I also make the point that those rates are indexed—they increase each financial year. This tax was introduced by the current Liberal government in 1996: the A New Tax system.

Senator McGauran —Let’s go through the history.

Senator SHERRY —I do intend to go through the history, Senator McGauran, and I intend to point out who benefits from the abolition of the tax. It is a tax that is being abolished for high-income earners. It is a function of both surchargeable tax income and contribution levels. This government introduced it in 1996 and called it a surcharge. That was the first dishonesty: they called it a surcharge, not a tax. It took about two years before we finally got an admission from the new Assistant Treasurer, Senator Kemp, who replaced former Senator Short, who had problems convincing anyone, frankly, that it was a surcharge, not a tax.

Senator McGauran —A minor detail.

Senator SHERRY —It is an important detail, Senator McGauran, because when this was introduced it was in direct contradiction to one of the government’s fundamental election promises of 1995: no new taxes, no increase in existing taxes. It has been claimed, and claimed falsely, that this new tax, which was projected to raise about a billion dollars a year—

Senator McGauran —Five hundred million.

Senator SHERRY —That is the current figure, Senator McGauran: a billion dollars.

Senator McGauran —No, that was the 1996 estimate.

Senator SHERRY —It started at half a billion but it got to a billion, which is approximately where we are at now. It was claimed that this new tax was needed to assist in balancing the budget, but it was a direct contradiction of a principle that government members signed up to in 1995. On that basis the Labor Party opposed it. You made a promise, going into 1996: no new taxes, no increase in existing taxes. That is the first reason why the Labor Party opposed it: you broke your promise. The second reason was the issue of administrative difficulties. It is an expensive tax to collect—I do not think there is any argument about that. However, those administrative difficulties—that was nine years ago—have now been overcome and the tax has been implemented and collected since that time.

Senator McGauran interjecting—

Senator SHERRY —What is interesting is that, in the 1996 budget, Mr Costello very shrewdly concocted one of the biggest cons we have ever seen. In the 1996 budget he included in future expenditure the moneys for the superannuation co-contribution. The total cost of that in the full year then would have been about $4.5 billion, and he kept that in the budget. He argued with high-income earners—I do not think he convinced them—that this new tax was needed to cover up the alleged black hole that Senator McGauran has interjected about. But in fact it was not. He kept the superannuation co-contribution in the forward estimates and he abolished it in 1997.

The other point I want to make is that if the argument is that it is no longer necessary to keep the superannuation surcharge tax, because the budget is now in surplus, what has happened to all the other programs that were cut in the 1996 budget? One example is the dental health scheme, which has not been reinstated. What we have is a priority from the government to remove one measure that they introduced in 1996: the surcharge tax. At that time the Treasurer went over the top. I think even he would acknowledge that his rhetoric at the time has come back to haunt him. There was nothing about it being temporary. This was not a temporary tax. That was not argued back in 1996. It is being argued now as one of the reasons for getting rid of the superannuation surcharge, but it was not a temporary tax when it was introduced in 1996. He did not argue that, even though he and others argue it now. In the budget speech the Treasurer argued:

that is, the superannuation system—

He went on to say:

That is what he argued at the time. He argued that the purpose of the superannuation surcharge was to make the taxation of superannuation fairer by reducing the relative advantage to higher income earners in the tax concession. That is what he argued at the time; that was his central argument. I seem to remember him going on TV and doing a bit of a rant about how it was fair and should be supported. He did little bit of a dance afterwards—that is when he did his macarena dance. The argument from the government was that this was a new, fair tax to reduce the relative advantage of higher income earners. There was nothing temporary about it. So here we are, nine years on, considering its abolition.

Senator McGauran —Nothing’s forever.

Senator SHERRY —Nothing is forever—that is certainly true, Senator McGauran—but the issue is the select nature of your tax cuts. This tax abolition delivers a very significant tax cut exclusively to high-income earners on a taxable surcharge base of more than $99,700 a year: about five per cent of the population. Where is the tax cut on superannuation for people earning less than $99,700 surchargeable tax income? Where is their tax cut on superannuation?

Senator McGauran —The co-contribution.

Senator SHERRY —I knew Senator McGauran would pipe up: ‘the co-contribution’. Senator, if you are earning more than $58,000 a year you do not get any co-contribution—none at all. So what we have here is a voluntary co-contribution that benefits some people. I accept that.

Senator McGauran —Lower income earners.

Senator SHERRY —Lower and middle-income earners—it would benefit some of them, Senator McGauran. If they put $1,000 in, they now get $1,500. We know that approximately one in seven or eight low- to middle-income earners will benefit from that if they put extra money in. But, in the case of the abolition of the surcharge tax, you do not have to do anything. You are a high-income earner and you do not have to put one extra cent into super, but you get the benefit of the tax cut. That highlights another inequity. To Senator McGauran, who is here on behalf of The Nationals, I say: where is the benefit for people earning between $58,000 and $99,700 surchargeable tax income? There is nothing; they do not get a co-contribution or a tax cut. So we have an exclusive tax cut delivered to all higher income earners, we have a co-contribution delivered to perhaps one in seven or eight low- or middle-income earners, and nothing in the middle.

This issue is like the GST. The Labor Party argued against the GST—we fought it tooth and nail. We argued against the surcharge tax on superannuation for high-income earners because it was a breach of an election commitment. The fact of life is that we have had it since 1996 and we have learnt to live with it, like we have learnt to live with the GST, which is also administratively cumbersome. It is now part of the Australian tax system. I do not argue with reducing tax on superannuation, but I do argue very strongly with an exclusive tax cut that only applies to high-income earners.

Let me give some examples. As I said, this is a function of contributions and income. There are some interesting figures. If you contribute nine per cent to superannuation—which is the standard contribution and the compulsory minimum level, and the employer contributes that—the consequence of the abolition of this tax will be approximately a $25 a week tax cut. But it gets a lot better for higher income earners, because they generally make higher contributions to superannuation. Let us look at a 15 per cent contribution to superannuation, as that is not unusual for higher income earners. If they make a 15 per cent contribution to superannuation, the abolition of this tax cut will mean $45 a week.

Let’s look at a fairly extreme example: us. It does not give me any pleasure to look at the outcomes for politicians, but I can remember Senator Kemp and Mr Costello wanting to look at us back in 1996, when we opposed this. So let’s look at us now. What is the impact on us? For members of parliament who are in the defined benefit fund it is an average $6,000 a year tax cut. Why is that the case? The levels of our contributions to the defined benefit fund are so much higher, so the tax cut is so much greater. If it was fair for Mr Costello and Senator Kemp to raise the impact on us back in 1996, I am going to raise it now. It should be an issue, because this illustrates the level of benefit conferred on people who are in defined benefit funds. It is true that a great number of high-income earners are in defined benefit funds, and the defined benefit fund can be paid an effective level of contribution of not just the nine per cent I have referred to but 15 or 20 per cent. That is relatively common for higher income earners. Higher income earners do very well out of the abolition of this tax.

Is that fair and reasonable? The Labor Party argues that it is not fair and reasonable. This government put forward the tax package which we debated earlier today and which has been amended, I am pleased to say, by a fairer proposal. But this government is asking the Australian people to accept that low- to middle-income earners get a $6 a week tax cut if they are earning less than $63,000; Labor is saying it should be $12 a week. The Liberal government is saying that a person on $125,000 should get a $65 a week income tax cut plus—and this is really the icing on the cake; that is the best way to describe it—another $30 to $40 a week tax cut. That is on top of the income tax cut. That is over $100 a week in income and superannuation tax cuts for higher income earners. The Labor Party argues that that is unfair and disproportionate.

I have dealt with the government’s claim that this was only a temporary tax, a temporary measure. It was not. The government introduced this and argued at the time that it was all about reducing the additional benefit that flows to higher income earners via the tax system. We have also had an interesting argument from the government that this will increase savings. That has been reflected in some of the press releases that I have read. I love the one from the Bankers Association which states:

It is almost word for word the government’s propaganda line. What they do not say is that, if this is encouragement to save, it is exclusively for high-income earners. It is not for people earning less than $99,700 surcharge taxable income; it is exclusively for high-income earners. I have noticed that publicly the Treasurer does not point this out. He talks about a tax cut on super, but he does not talk about it being only for higher income earners. He does not want to have that public debate. And, of course, I suppose you could not expect anything better from the Australian Bankers Association. Look at all the self interest. All of the press releases on this issue point out that this will encourage saving, but they do not go on and say, if indeed it does encourage saving, that it is confined to high-income earners only. I suppose you could not reasonably expect the Bankers Association to be interested in the savings levels of people who earn less than $99,700 surcharge taxable income.

Will it encourage saving? What is interesting is that it is a tax cut for doing nothing. You do not have to put additional moneys into your superannuation savings in order to get the tax cut. It is not like the low- to middle-income earners rebate, where, to get a benefit in terms of the low- to middle-income earners superannuation co-contribution, you actually have to do something: you have to save more in order to get the co-contribution from the government. This is a tax cut that you get whether or not you save one additional dollar.

There is another interesting thing I want to point out. I have mentioned defined benefit funds. As a matter of fact, every individual in a superannuation accumulation fund pays a 15 per cent contributions tax—everyone. There is one group that does not, and that is members of defined benefit funds. I have already used the example of the parliamentary superannuation scheme. However, they do pay the surcharge up to 15 per cent tax. If the abolition of the surcharge tax occurs there will be a significant number of people in defined benefit funds who pay no tax at all—not one cent of tax on their superannuation. They do not pay it, because it is a guaranteed benefit, and the employer is effectively paying the tax. So we are going to have a group of people on high incomes, in some defined benefit funds, who will not pay any contributions tax in any form on their superannuation. That is highly iniquitous.

Senator Watson —That is rubbish!

Senator SHERRY —Senator Watson, where is the contributions tax that you pay on your superannuation in the parliamentary fund? You do not pay it. The employer pays it—that is, the taxpayer pays it. The benefit is not reduced, because it is a defined benefit; it is a guaranteed outcome. The surcharge is certainly paid and I have already accepted that, Senator Watson. So we are going to have a unique group of people, in some defined benefit funds, who pay no tax at all. They do not pay the contributions tax either, because the employer pays it. They are, overwhelmingly, high-income earners, whereas the vast majority of Australians, if this bill is passed, will still be paying the 15 per cent contributions tax.

So this is a grossly unfair measure. It is grossly unfair, in the context of the government’s tax package, to confer a very exclusive benefit on high-income earners. What about middle-income Australians, who have received no incentive, tax or otherwise, in terms of the superannuation system? It is a very significant additional benefit on top of the income tax cuts that this government has proposed. If you are on more than $125,000 you get a $65 a week tax cut plus another $30 to $40 a week cut in the tax on your superannuation. That is fundamentally unfair. We deal with the tax system as it is at the moment, and it is unfair to support this legislation. I move: