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Monday, 11 February 2013
Page: 658


Mr FLETCHER (Bradfield) (15:50): I am very pleased to rise to speak on the Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012 and the Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012. The purpose of these bills is to increase penalties for those involved in the unlawful early release of superannuation moneys. These bills, in a sense, go to the bargain which exists between the Commonwealth and its citizens in relation to superannuation. The bargain is that the Commonwealth says to citizens, 'We will provide you with tax concessions to assist you to save and build up a balance that will provide for you in retirement,' and, in exchange, your part of the bargain as a citizen is that you will use the money only for the designated purpose of providing for your retirement. Hence, efforts to, for example, release the funds early are breaching that bargain, and that is, it would appear, the rationale for the measures in the bill today.

However, there is one aspect of the bargain which the Commonwealth is not doing a very good job of keeping. Indeed, the Commonwealth has, quite frankly, breached its side of the bargain when it comes to the situation of citizens who, in good faith, make contributions into their superannuation fund and find themselves inadvertently paying extremely high rates of tax—as high as 93 per cent—when they inadvertently breach what are highly technical and complex rules.

The result is that money, which has been paid in by the citizen in reliance on the bargain with the Commonwealth with the intention of saving money to provide for that citizen's retirement, is in fact seized by the government and put into general tax revenue. Regrettably, and quite extraordinarily, the Rudd-Gillard Labor government has been content to let this situation fester for years while collecting tens of millions of dollars in tax revenue in excess contributions tax each year—much of that revenue collected essentially by tricking citizens. That is why the coalition has moved an amendment to this bill which is designed to fix this problem—which is designed to prevent citizens being tricked into paying punitive rates of taxation on monies which they thought were going to contribute towards their retirement income.

I would like to speak to the amendment and I want to make three points in the brief time available to me this afternoon. Firstly, I want to point out that the current rules are unfair and capricious in the way they operate. Secondly, I want to highlight the fact that the Rudd-Gillard Labor government has allowed this situation to fester for a number of years and has grabbed at revenue which has been received from citizens under a misunderstanding. An inadvertent error by citizens has led to them paying excessive rates of tax. Thirdly, the coalition, in the amendment we are moving to the bill this afternoon, are proposing an effective and workable solution to this problem.

Let me turn, firstly, to the proposition that the current rules are unfair and capricious in the way that they apply to citizens. When you state that a particular payment could attract a rate of tax of up to 93 per cent, most Australians would be very, very surprised. They would be particularly surprised to learn that you can be subject to a tax of up to 93 per cent, not because you have made a deliberate attempt to obtain benefits to which you are not entitled but because, through inadvertent error—and in some cases through factors which are wholly beyond your control, as I will go on to explain—payments have been made, in some cases, just days before 30 June or days after 30 June, with the result that the total amount being paid in a particular financial year exceeds an arbitrary limit and then very, very high rates of tax can apply. Let me explain how this can occur. The starting point is that the limit on concessional contributions into superannuation is $25,000 a year. I note that this contribution limit has dropped very, very sharply in the five-and-a-bit years of the Rudd-Gillard government. For many citizens it was $100,000; it is now $25,000. Of course, that sharp and continuing reduction in contribution limits has been a factor in leading many citizens to be confused and surprised and to find themselves inadvertently in a position where they have breached the contribution limits. The Rudd-Gillard government's poor administration of the contribution limits has been a factor in many citizens finding themselves caught up in this mess.

The second thing that happens is that, if you make contributions which are intended to be in contact concessional contributions but exceed the $25,000 limit, then further contributions are treated as incurring the excess concessional contributions tax of 31.5 per cent. They then fall into your non-concessional contributions limit which is $150,000 in one year or $450,000 over three years. The risk is that, if you are already at your non-concessional contributions limit, then any dollar over the $25,000 which fails to be treated as a concessional contribution picks up additional tax because you have also exceeded the non-concessional limit. I think you will agree it is crystal clear. Even as I explain it, it is very easy to see how Australians can inadvertently find themselves breaching these highly complex and technical rules. This is the situation that a disturbingly large number of people find themselves facing.

The key point is: you can breach these rules through no fault of your own, because, if a payment that you thought was going to be made by your employer by 30 June of a particular financial year ends up being made on 1 or 2 July, thus falling into the next financial year, you can trip-wire these limits in that next financial year. There is a whole range of circumstances in which, for reasons wholly outside of your control, you can end up as an employee breaching these contribution limits. One situation is where an individual has multiple employers and the cap is breached without any possibility of rectification. Another possibility is where an employer contribution is a few days earlier or later than expected. There can also be the situation of unexpected bonus payments or redundancy payments. So you might have developed a strategy to contribute up to the $25,000 limit and no more, but then, unexpectedly, you are made redundant, a redundancy payment comes in during the financial year and then you are suddenly rocketing through that contribution limit and that money, which ought to be your money, is being seized as a very large percentage in tax. Of course, another possibility is if a late voluntary contribution you intend to have made in this financial year is not processed by the superannuation fund or by your financial institutional until the following financial year. As I have explained, the consequence of any one of these highly technical errors and errors which are made for reasons which, in many cases, are outside of the control of the citizen—outside of the control of the taxpayer—can lead to you being hit with tax of up to 93 per cent. That is, on any view, completely unreasonable and unacceptable.

You would have thought that merely explaining this problem would immediately create, in any government, an urgency to fix it. You would have thought that no government would want to be in the position where it was, in essence, collecting taxes from its citizens by trickery. But, remarkably, the Rudd-Gillard Labor government has made no serious attempt to fix this problem. Let us just look at the scale of this problem. In the 2008-09 financial year, 35,000 Australians breached the contribution rules. By 2010-11 it was 50,954, and by 2011-12 it was 66,435 Australians paying excess contributions tax—in many cases due to inadvertent error. And that dramatic increase from 35,000 to 66,000 in three years is undoubtedly related to the fact that the Rudd-Gillard Labor government has systematically reduced contribution limits, all the while incidentally, telling Australians they were going to be doing the opposite—all the while telling Australians that the reduction to $25,000 was only temporary and that for those above 50 their contribution limits would not be maintained at a low level.

The Labor government, it is true, in 2010 passed some legislation which was designed to give the commissioner a certain degree of discretion to deal with this matter. But the degree of discretion is extremely limited. It is only available in respect of excess contributions of up to $10,000. What the commissioner says is that citizens or taxpayers in that situation may be eligible for a once-only offer to have their contributions withdrawn from their fund, added to their assessable income and taxed at the marginal rate.

Why such a piecemeal solution has been proffered by the present government is difficult to understand unless we recognise the troubling possibility that this government is so desperate for revenue that it is willing to collect tax revenue by trickery. And in 2011-12 the Rudd-Gillard government raised $174 million in excess contributions tax. It is clear that in significant measure some of this money has effectively been tricked out of ordinary Australians seeking to comply with the fiendishly complex rules governing contributions and contribution limits, and have found themselves—for reasons in many cases beyond their control—paying tax on their contributions, of up to 93 per cent.

Now, the Rudd-Gillard government has been content to let this situation fester. The coalition is putting forward an amendment which is designed to fix this problem; it is designed to end this tawdry behaviour, on the part of the present government, of essentially taxing Australians through trickery.

The proposed provisions in our amendment would add new subsections to the existing section 292-465 of the Income Tax Assessment Act. They would authorise the commissioner to make a determination to reverse contributions where a taxpayer has made an inadvertent error and would allow the commissioner to consider, in determining whether to exercise his discretion, several factors that typically have caused taxpayers to make these kinds of inadvertent errors. For example, having more than one employer is the first factor set out in the proposed subsection 292-465(6A) and then whether contributions were made by the taxpayer's employer at a time that was earlier than the time the taxpayer expected; whether they were made at a time that was later; whether the taxpayer received an unexpected bonus payment that had an impact on the amount of his or her contributions, and a range of other factors, which, experience tells us, have led thousands of Australians to find themselves paying excess tax for reasons which are beyond their control—reasons which they could not take into account. I repeat, in 2011-12, 66,435 taxpayers paid an excess contributions tax. So this is a large and growing problem—a problem that the Rudd-Gillard government has been quite happy to let fester.

Will this measure have a budgetary impact? Potentially it will. I have indicated that the revenue collected in the last full financial year was $174 million. But if the reduction in revenue occurs because Australians are no longer being tricked by their government into paying an excess contributions tax of up to 93 per cent because of their failure to comply with technical and complex rules, and in many cases exacerbated by factors beyond their control such as the timing of payments from their employer—if the reduction in revenue occurs because that kind of trickery is no longer able to be perpetrated by the Commonwealth on its citizens—then that is a reduction in revenue that this parliament ought to welcome.

And it would be a shocking thing indeed if the Rudd-Gillard government were to say to the people of Australia, 'We are quite happy to keep raising revenue, to keep taxing through trickery.' That would be a shocking thing indeed. And unless that is what the Rudd-Gillard government wants to say to the people of Australia, then I cannot see any reason why the government would not support this amendment which the coalition has moved, which is designed to ensure that Australians no longer find themselves in that position, through inadvertently breaching highly technical and complex rules and being taxed at up to 93 per cent on money that they thought they were setting aside to provide for their retirement. I commend this amendment to the House.