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- Start of Business
- PERSONAL EXPLANATIONS
- INTERSTATE ROAD TRANSPORT CHARGE AMENDMENT BILL 1998
- INTERSTATE ROAD TRANSPORT AMENDMENT BILL 1998
- CUSTOMS TARIFF AMENDMENT BILL (NO. 1) 1998
- VETERANS' AFFAIRS AMENDMENT (MALE TOTAL AVERAGE WEEKLY EARNINGS BENCHMARK) BILL 1997
- TAXATION LAWS AMENDMENT BILL (NO. 4) 1998
TAXATION LAWS AMENDMENT BILL (No. 7) 1997
- Second Reading
- Consideration in Detail
- CHAMBER PROCEEDINGS: PHOTOGRAPHS
QUESTIONS WITHOUT NOTICE
(Macklin, Jenny, MP, Smith, Warwick, MP)
(Bartlett, Kerry, MP, Howard, John, MP)
(Lee, Michael, MP, Howard, John, MP)
(Draper, Trish, MP, Smith, Warwick, MP)
(Lee, Michael, MP, Howard, John, MP)
(Nelson, Dr Brendan, MP, Costello, Peter, MP)
(Beazley, Kim, MP, Costello, Peter, MP)
- Aged Care
- DISTINGUISHED VISITORS
- QUESTIONS WITHOUT NOTICE
- DISTINGUISHED VISITORS
QUESTIONS WITHOUT NOTICE
(Billson, Bruce, MP, Ruddock, Philip, MP)
(Lee, Michael, MP, Evans, Richard, MP)
(Lee, Michael, MP, Howard, John, MP)
Department of Foreign Affairs and Trade
(Kelly, Jackie, MP, Downer, Alexander, MP)
(Beazley, Kim, MP, Howard, John, MP)
Hindmarsh Island Bridge Case
(Gallus, Christine, MP, Howard, John, MP)
- PERSONAL EXPLANATIONS
- QUESTIONS TO MR SPEAKER
- DEPUTY LEADER OF THE OPPOSITION AND HONOURABLE MEMBER FOR BANKS
- MATTERS OF PUBLIC IMPORTANCE
- SPECIAL ADJOURNMENT
- ABORIGINAL AND TORRES STRAIT ISLANDER HERITAGE PROTECTION BILL 1998
- BILLS RETURNED FROM THE SENATE
- ASSENT TO BILLS
- TELSTRA (TRANSITION TO FULL PRIVATE OWNERSHIP) BILL 1998
- National Student Leadership Forum on Faith and Values
- Aged Care
- Industrial Awards
- Grafton Meatworks
- Economic Rationalism
- Aged Care
Hindmarsh Island Bridge
National Student Leadership Forum on Faith and Values
- Start of Business
- STATEMENTS BY MEMBERS
- CHILD SUPPORT LEGISLATION AMENDMENT BILL 1998
QUESTIONS ON NOTICE
Child-care Centre: Joint Venture
(McClelland, Robert, MP, Smith, Warwick, MP)
Department of Defence: Australian Chamber of Commerce and Industry Grants
(Ferguson, Martin, MP, McLachlan, Ian, MP)
Department of Veterans' Affairs: Australian Chamber of Commerce and Industry Grants
(Ferguson, Martin, MP, Scott, Bruce, MP)
Cartage and Transport Contracts
(Tanner, Lindsay, MP, McLachlan, Ian, MP)
Department of Veterans' Affairs: North Queensland Office
(Ferguson, Laurie, MP, Scott, Bruce, MP)
ANZAC Ships Project
(Morris, Allan, MP, McLachlan, Ian, MP)
- Child-care Centre: Joint Venture
Thursday, 2 April 1998
Mr WILLIS (11:04 AM) —I rise to speak in support of the amendments moved by the Deputy Leader of the Opposition (Mr Gareth Evans) and the member for Wills (Mr Kelvin Thomson). In doing so, I want to address my remarks to those aspects of Taxation Laws Amendment Bill (No. 7) 1997 which relate to savings. There is no doubt that improving savings in this nation is an important policy issue. We all know that the deficiency of savings lies behind our relatively high balance of payments current account deficit. What is perhaps not so well recognised is that our savings deficiency is not in the public sector but in the private sector.
In the public sector, when the Labor government left office, our budget deficit was one of the lowest in the OECD—well below the OECD average—only about four out of 22 OECD countries having a lower budget deficit. Our savings problem is not in the public sector but in the private sector. The Labor government sought to address that, by spreading superannuation across the whole of the work force instead of the less than half of it which was the case when we came into office, and doing that through award superannuation, and then, secondly, spreading it further through the superannuation guarantee charge, which provided not only for a wider coverage still of superannuation but also for a progressive increase in the employer contribution from three per cent of an employee's pay—which was initially established under the award superannuation—to nine per cent by early next century.
That, of course, was seen as giving a considerable boost to national savings. The retirement incomes modelling task force of Treasury estimated that that would eventually increase savings by some 2.3 per cent of GDP, which is a very substantial boost indeed.
Then, in the 1995 budget, we proposed to extend that dramatically by using the second leg of the tax cuts to introduce a co-contribution for employee contributions, making employee contributions to superannuation compulsory, and then matching that with a matching grant from the government on a means tested basis, the combined effect of which would have been to considerably enhance savings, by another 1.7 per cent of GDP. This would have meant a four per cent boost in savings as a proportion of GDP, taking it up by another four per cent eventually—a very considerable change to savings behaviour in this country. Of course, it would also have greatly improved the retirement income of ordinary workers. In fact, for many of them, it would have meant they would have retired eventually on 100 per cent of their pre-retirement income—a tremendous economic and social reform.
What have this government done after promising at the election to implement Labor's policy announced in the 1995 budget that they would introduce the co-contributions for employee contributions? They said they would do that at a cost eventually to the budget of some $4 billion but that would all go into savings, so there would be no savings lost. They have now welched on that promise. Having welched on that promise, they are saying, `We are doing other things which will rectify that.' The major thing that they are doing is in this bill, and I will talk about that.
The government has broken that fundamental promise to the Australian people—a $4 billion promise. That is scandalous; it is also, of course, very damaging in terms of its impact on national savings. This government has acted in a very retrograde way by undertaking that step and also in relation to the superannuation contributions tax, which is scaring higher income people out of superannuation, by allowing low income people and casual employees to opt out of super, and by its precipitate introduction of the choice of fund for superannuation which is in this legislation now before the House. All of those actions are tending to undermine private savings in this country.
Let me refer in more detail to the savings rebate which is part of the legislation now before us. There are two key weaknesses in this proposed tax concession. It will do nothing to improve national savings. In fact it will have a negative impact on national savings. The way it is proposed to operate is quite inequitable. As a measure to promote national savings this proposal is a sick joke. It will not improve national savings because, when it is fully introduced, it will cost the budget over $2 billion, which is a reduction in national savings. There would be a plus to national savings only if the additional private sector savings were induced by more than $2 billion. But there are no indications that this will happen.
During the Senate estimates hearings after last year's budget, when Treasury officials were asked for their estimate of the impact of the rebate on promoting private savings, they were completely unable to give any figure at all. They said that it was all just a matter of judgment, and they could not say what the impact would be. So this government is introducing this measure supposedly so that it will improve national savings, without any official advice that it would have such an effect. That is an absolutely extraordinary situation. In fact, if the truth be known, it is more than likely they have been told by Treasury that it will have a negative impact on savings, but Treasury officials refrained from saying that at the Senate committee hearings. Certainly they would not say that it would have a positive effect.
This is utterly irresponsible behaviour by this government, especially as it has abandoned its promise to introduce Labor's co-contribution policy, which would certainly have boosted national savings. It is not hard to see why Treasury was not willing to say that this would do anything to promote national savings, because it is so easy to obtain the rebate without undertaking any additional saving. If you already make personal superannuation contributions, you can get the rebate without making any further increase in your personal contributions at all. If people have substantial income already from other savings, such as interest income, dividends, rental income, capital gains, and income from trusts, they can obtain the rebate without any increase in their savings at all, so it is just a handout.
There is no incentive for people who already have sufficient savings to get the maximum rebate to increase their savings at all. In fact people who reduce their savings in a year can obtain the rebate. As long as they still have sufficient savings to claim the rebate, they can reduce their savings considerably in a year but still claim the full rebate, which is an utterly perverse and ludicrous result. You can get the full benefits that this legislation gives, the full savings rebate, for doing the exact opposite of what the legislation is supposed to produce—that is, an increase in savings. What a perverse and ridiculous piece of legislation! It is no wonder that Treasury refused to state that this measure will have any positive effect on national savings.
Furthermore, this measure is also further encouragement for people to split their income through devices such as trusts because, if they do so, not only can they reduce their personal income tax by income streaming in the conventional way, where income that would otherwise go to one person gets split amongst several people and they all get the tax free minimum area and then lower marginal taxes after that, but also now they have available a further $450 rebate for each trust beneficiary as long as the trust income is over $3,000 for each person.
So it is a major further incentive for people to avoid tax by splitting their income through trusts—that is, to follow the example of the 19 ministers in this government who have family trusts. They will be able to do what they are doing and use trusts to reduce their income tax. This is a real substantial incentive to go down that path. Not only is there no gain to national savings in this case; there is a loss to national savings because people will access the rebate without saving any more and, in so far as it induces more people to utilise trusts to reduce income tax, it further reduces national savings. As a measure to improve national savings, this savings rebate is a complete and utter disaster.
No wonder there are reports in yesterday's Financial Review that business and industry groups are discussing with the government, and apparently quite intensively so, the scrapping of the savings rebate. The government is talking with business about scrapping the legislation that is just coming through the House now and utilising the $2 billion for reducing marginal taxes as part of their tax reform. No wonder they are doing that. Business and industry groups all recognise that this savings rebate is a joke. Everyone recognises that except, apparently, this government. Maybe even it does now, following those sorts of discussions.
It is quite clear that this savings rebate is utterly inequitable. To save time I will not go through the detail of that but, because there is no means test on it, it is utterly inequitable, and that point has been made by the Deputy Leader of the Opposition and will be made by other speakers on this side.
I turn now to the choice of superannuation fund which, in relation to private savings, is another major piece of the legislation now before us. The government claims that the provision of choice for new employees from 1 July this year and for existing employees from 1 July 2000 will be beneficial because, through competition, it will reduce costs and increase investment returns. In fact, there is no certainty at all that such benefits will result.
Indeed, especially given the way that choice is being implemented in this bill, there is a strong reason to believe that the opposite will result. This is partly because the costs may well be increased by choice. This in turn follows from the fact that, firstly, increased marketing and administrative costs for funds will result from choice. Marketing costs will increase because funds will be forced to sell their wares, to market themselves to employees and employers so that they will be the fund of choice. That is not something the funds have generally had to do before. These costs could be very considerable indeed because banks, life offices and various other public offer bodies—other financial institu tions—will be anxious to attract more of the superannuation business, so the industry funds and others will have to defend their territory. That will mean considerable additional marketing expenditure.
There will also be the costs of people switching funds. Choice will mean more movement between funds so there are more administration costs of taking on new people and having people leave. These costs can be considerable, as shown in the evidence to the Senate Select Committee on Superannuation in regard to Chile. Evidence was given that in Chile, which has a compulsory superannuation scheme and a vigorous choice regime, costs of switching funds accounts for an extraordinary 38 per cent of the entire cost of managing the superannuation system—38 per cent. Thus additional costs of people switching funds may be very substantial indeed.
The question is, therefore, whether the absolute certainty of substantial additional costs for the industry through increased marketing, administration and legal costs will be offset by possible inducements to efficiency and improvement through competition. The government's advisers clearly do not have any idea what the outcome will be. In evidence to the Senate Select Committee on Superannuation, the Assistant Commissioner (Policy) of the Insurance and Superannuation Commission told the committee:
We have not undertaken any specific research on the impact on industry compliance costs in terms of marketing for choice of fund.
If the specialist regulator body does not know what will happen to costs, how can the government simply assume that costs overall will be reduced?
We also have to take into account costs to employers of the choice regime being implemented. There will be considerable additional costs for employers. The reason why the Labor government provided little in the way of choice in the past was in large part to keep costs to employers as low as possible. The employers will now face the cost of having to give each employee a choice once a year. They will face costs of deciding what choice to offer and trying to ensure that they are offering appropriate funds; costs of ensuring that employees receive sufficient information on which to make an informed choice; costs of notifying each employee of the choice available; costs of ensuring that an employee's choice in an unlimited choice offer is in fact a complying funds for the purposes of the act; and costs of having to make payments to a whole host of different funds instead of just one fund as generally applies at present.
These are additional costs on employers. They are therefore certain to face additional costs as well as the strong likelihood that costs will be considerably higher for the funds. Apart from higher costs, there are other factors that mean that members may well receive lower returns than they currently do. One of these factors is that people may well be induced by slick sales agents acting on a commission basis to make bad choices. There is an example of this happening in the United Kingdom.
Evidence given to the Senate committee showed that, when the Thatcher government in the United Kingdom allowed member choice of funds in the late 1980s, the result was that about half a million people were duped into making extremely bad choices, especially—and almost incomprehensibly—leaving employer assisted defined benefit schemes for personal superannuation schemes that relied entirely on the employees' own contributions. To be induced to go into a scheme where they left behind employer contributions and relied entirely on their own and on an accumulation basis against some defined benefit is almost unbelievable. But a large part of the half a million people who made a bad choice to move did that and were thus worse off.
It seems extraordinary, but the fact is that it has cost something in the order of $10 billion to rectify the mess in the United Kingdom. After such a disaster, one would think that the Australian government would have learnt from this experience, but the government seems to be relying on appropriate disclosure statements being available to employees to enable them to make an informed choice. This is no guarantee at all.
For instance, Professor Goode, the Oxford University professor who chaired the United Kingdom inquiry into the pension fiasco, said when he was in Australia last October, as reported in the Age of 13 October 1997:
The more bits of paper, the more information people are given, the more confused they become. All this volume of disclosure is counterproductive because it gets to the stage where nobody reads anything.
That is the British experience. In the light of that, clearly we should be very cautious about moving to choice, and certainly we should not do it until there has been a large, intensive and effective education program to alert people to the dangers of choice and to ensure that they understand what is involved as well as possible. That is not happening.
We are rushing to the introduction for new employees by 1 July this year—that is just three months away—with no education program in place. The Taxation Office has only recently completed tendering for the conduct of such an education campaign by an advertising agency, and that is yet to come into place. The funds available for education are not large. The government has allocated only $12 million over four years to deal with the administration of introducing choice of fund, including an education campaign.
There will be a lot less than $12 million for education. In 1997-98, the amount is only $2 million for all the administrative costs for choice, so much less than $2 million is to be spent on education in 1997-98. Goodness knows what is going to be spent this year, as I understand there is no specific allocation for a campaign in the rest of this financial year. Potentially this is quite disastrous, especially as some two million people change their jobs each year and a couple of hundred thousand others enter the work force. Well over two million people will qualify for choice in 1997-98, but there will be no adequate education in place for them.
Evidence to the Senate committee also made it clear that the employers were not ready for this change. For instance, Coles Myer, one of the largest employers in the country, said that they were not ready for this change; they would not have their administra tion ready in time for a 1 July start. A survey published in the Australian Financial Review on 22 December of last year showed 42 per cent of employers were not aware at all about the choice of fund regime to be implemented by 1 July this year.
Clearly, as well as employers not being ready, the superannuation industry itself is not ready. For example, where an employer offers a limited choice of four funds to an employee, they will be required to provide the employee with a key features statement for each of the offered funds, but details of these key features statements are not yet known and will not be known until regulations are issued after this legislation has been passed by the parliament later this month, presumably, or maybe later. So again there is simply no time for all this to be decided, conveyed to funds and employers, for them to understand it and for employees to be educated as to what it all means for them.
It was the overwhelming view of the evidence to the Senate select committee that the timetable is too tight. Even David Connolly, the former Liberal MP and coalition spokesman on superannuation, the author of their policy, said he was concerned about the lack of time and suggested that either it be put off for six months or it be optional for the first six months. So, too, said the Institute of Actuaries and various others.
It is also the case that this choice regime will mean reduced outcomes for people in other respects, particularly in relation to insurance. David Connolly again said it was cause of great concern to him that there was not compulsory insurance provision in this legislation and people could lose their insurance cover. Also, in relation to a default fund, there is grave danger that people will be worse off by being put by employers into a default fund—where they do not make a choice, as will happen in many cases—and that fund will be utterly inadequate because no standards will apply for it. (Time expired)