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Wednesday, 6 June 2001
Page: 27339


Mr REITH (Minister for Defence) (9:31 AM) —I move:

That the bill be now read a second time.

This Governor-General Legislation Amendment Bill 2001 is to set the salary to be payable to the next Governor-General. Section 3 of the Constitution precludes any change to the salary of a Governor-General during the term of office, and whenever a Governor-General is to be appointed, changes to the salary of the office must be made by way of amendment to the Governor-General Act 1974 prior to the appointment. The salary must be set at that time at a level that will be appropriate for the duration of the appointment.

On this occasion, in conjunction with the prescription of the salary to apply to the next Governor-General, the government has taken the opportunity to update the taxation provisions applying to the Governor-General and to state governors. This will involve removing the exemption from income tax that has long applied to official salary and overseas sourced income. The exemption will be removed for governors with effect from the next appointment of a governor in each state. Removal of the income tax exemption makes it necessary to set the salary for the Governor-General at a higher level than has previously applied.

The bill also makes a number of changes to ensure that the superannuation surcharge on the retirement allowance payable to governors-general will apply in the same way that it applies to the rest of the community. It also provides an option for post-retirement commutation of the allowance to meet surcharge liabilities as is being done in other defined benefit superannuation schemes.

Salary

The salary proposed in the bill has been set in line with the convention applying since 1974 under which the salary of the Governor-General has been set with regard to the salary of the Chief Justice of the High Court of Australia. In the past, the Governor-General's salary has differed from that of the chief justice in being exempt from income tax and in not being able to be changed during the period of an appointment. Because of these differences, the comparison of the two salaries has necessarily been of after-tax equivalent incomes over a notional term of appointment.

The salaries of successive governors-general have been set by calculating the after-tax equivalent of the chief justice's salary at the time of appointment of the Governor-General, projecting its likely future movement, and then estimating the average after-tax salary for a notional term of appointment of a Governor-General of five years. The practice has then been to set the Governor-General's tax-free salary at a level estimated to moderately exceed the projected average after-tax salary of the Chief Justice of the High Court over the notional five-year term of the Governor-General. In proposing a salary for the next Governor-General, the government has maintained the link with the salary of the chief justice. I note that the chief justice's salary is determined annually by the Remuneration Tribunal, a body that is independent of government.

The tax-free salary calculated for the Governor-General when Sir William Deane was appointed in 1996 was $135,000, which was reduced to $58,000 to take account of a pension he received as a former High Court judge. This represented an increase of $40,000 from Mr Hayden's salary of $95,000, set in 1989, on the basis that Mr Hayden's parliamentary pension was suspended during his appointment. When the change in tax treatment is taken into account, the increase now proposed in the Governor-General's salary will be of the same order as the increase in 1996.

It is proposed that the Governor-General's before-tax salary should be $310,000. This compares to the present salary of the chief justice of $276,800 and takes account of the fact that the chief justice's salary will be adjusted periodically while the Governor-General's salary will remain unchanged during the Governor-General's term of office. If, as anticipated, the salary for the chief justice continues to increase in line with recent trends, it will be significantly ahead of the salary being proposed for the Governor-General at the end of the notional five-year term.

Income Tax

Section 51-15 of the Income Tax Assessment Act 1997 presently provides for exemptions from income tax of the official salary and any income derived from outside Australia of a taxpayer who is a vice-regal representative. The proposed amendment will remove these exemptions by the deletion of section 51-15 of the Income Tax Assessment Act.

The exemption for the official salary has existed at least since 1922 and the exemption for income from outside Australia at least since 1936. When these exemptions were introduced, vice-regal appointees were normally drawn from the United Kingdom and for income tax purposes they were treated in the same way as non-diplomatic representatives of foreign governments or organisations. Today, the Governor-General and state governors are invariably Australian citizens and there is no longer any reason to continue to treat them like foreign representatives.

There has also been an additional change relating to taxation payments by the Crown. In the 1920s, the Crown did not pay income tax but since 1993 Her Majesty the Queen has voluntarily paid both income tax and capital gains tax.

In the context of these changes, the government considers it appropriate to remove the income tax exemptions for vice-regal representatives.

Transitional provisions will ensure that the amendment does not apply to the current Governor-General or to incumbent state governors. Removal of the exemption will take effect with the appointment of the next Governor-General and, in each state, when a new appointment is made to the office of Governor.

Superannuation

The current provisions in the Governor-General Act relating to superannuation require amendment. In addition, and as is being done in other public sector defined benefits superannuation schemes, it is desirable to provide for post-retirement commutation of pension to meet surcharge liabilities. In general, the changes will ensure that the surcharge applies to the Governor-General in the same way that it applies to the rest of the community.

The Governor-General Act was amended in 1997 to implement the superannuation surcharge. Under these provisions, the extension of a Governor-General's term of office or an early retirement could cause some anomalies in the recovery of surcharge liability. I note at this point that this scenario is by no means hypothetical, as three of the five most recent governors-general have had their terms of office extended and one retired earlier than the notional five-year term used to calculate salary and retirement benefits.

The amendments proposed in this bill would ensure that the rate of reduction in a Governor-General's retirement allowance would not exceed the maximum 15 per cent surcharge rate, regardless of the timing of retirement. Changes with similar intent are being considered for the Judges Pension Act scheme.

It is also possible in some circumstances that a notice or notices of assessment of surcharge liability may be issued after the retirement of a Governor-General and at present there is no provision for payment of these liabilities by reduction in the retiring allowance. The bill proposes such a provision, and I note that provisions with similar intent are increasingly common in defined benefit superannuation schemes and are being made in other Commonwealth public sector schemes.

I commend the bill to the House and present the explanatory memorandum.

Debate (on motion by Mr Horne) adjourned.