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Wednesday, 13 June 1984
Page: 2896


Senator WALSH (Minister for Resources and Energy)(10.57) —In regard to Senator Jack Evans's amendment, there is something to be said in principle for indexation. If that principle is adopted, it could be argued that the same principle should be applied to the income tax schedule as a whole. Indeed, we did have for a very short time a government which indexed it even though it used to fiddle with the indexation figure and discount it for all sorts of questionable reasons. But that Government, despite a solemn election undertaking, very quickly reneged on the indexation of the tax schedule. The Government's view is that this is not the time to apply it, certainly not in isolation, and as Senator Grimes said last night annual reviews would be the Government's preferred policy.

An additional reason for not supporting Senator Evans's amendment is that I am advised it has been taken from another piece of legislation having something to do with motor vehicles-I am not sure of the details-and it is technically defective when applied in this case. The reason for its technical deficiency is that it indexes the whole of the $50,000 as it is in this case. Other provisions of the legislation allow somebody to take a lump sum of, say $40,000, which qualifies for the 15 per cent concessional rate of tax assuming that the $40,000 entitlement accrued entirely after 1 July 1983, the intention being that if any subsequent lump sum is taken it will be added to the $40,000, which had previously been taken for assessing tax liability.

However, in this case Senator Evans's indexation proposal would index the entire $50,000 rather than the residual $10,000 entitlement of the concessional rate. That is, assuming there was the one indexation adjustment of 10 per cent bringing the $50,000 threshold up to $55,000-bearing in mind that in this hypothetical case $40,000 of that concessional rate had already been drawn-the $ 10,000 residual would effectively be indexed not by 10 per cent but by 50 per cent because it would be increased from $10,000 to $15,000.

Senator Dame Margaret Guilfoyle asked what the cost to revenue would be if those provisions were applied only to new schemes instead of, as is the case in this legislation, applied to all entitlements which accrue after 1 July 1983. I do not know precisely the answer to that but I can make general and fairly accurate observations. As the second reading speech states it is estimated that the revenue yield in 1984-85 will be $70m, of which $20m effectively is revenue lag which otherwise would have been collected in this financial year had the legislation been operative throughout this financial year. The actual revenue yield applicable to liabilities incurred in 1984-85 will be of the order of $50m . If Senator Dame Margaret Guilfoyle's hypothetical proposal were adopted almost all of that $50m would be lost to revenue; I would think in excess of something like 90 per cent, given the average duration of participation in a superannuation scheme. The revenue yield from this legislation increases year by year at probably a fairly steady rate. That $50m or thereabouts-probably less than $50m-in 1984-85 which would be collected as a result of liabilities incurred during 1984-85 will grow by a similar amount year by year. Therefore the initial cost of Senator Dame Margaret Guilfoyle's proposal to revenue will be something like $50m. The annual increment in cost would be less than $50m but the absolute cost would continue to increase for a very considerable period. I hope I have explained that clearly.

Senator Messner referred to clause 15 of the Bill relating to proposed new section 27A (j) (ii) concerning audit requirements for superannuation funds. For the sake of the record I say that that proposed new section applies to approved deposit funds rather than superannuation funds per se. The advice I have received is that auditors for superannuation funds already are required to observe a great number of conditions and that although this provision will marginally increase the responsibilities of auditors it should not be too onerous.

Senator Harradine referred to his hypothetical widow who could also, as far as the law is concerned, be a widower. If I understood him correctly he said that at the time of death this legislation requires a surviving spouse to make a decision whether a pension entitlement will be taken as a pension or as a lump sum. He said that, if the surviving spouse did not make that decision almost immediately, the option would be lost. That is wrong. The correct situation is that where a fund provides for an option to a surviving spouse of either a lump sum or a pension this legislation imposes no time limit on the period for which this option may be taken. The rules of the fund may be a separate question and probably do provide a time limit; I expect they would provide a time limit. But this legislation provides that in the case where an option may be exercised, if the option of taking a pension is taken up, that pension may not subsequently be commuted to a lump sum without subsequently exposing that lump sum payment to taxation under the general provisions of this Bill for the taxation of lump sum payments.

Amendment negatived.