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Thursday, 26 September 2002
Page: 5018

Senator SHERRY (3:53 PM) —I move:

That the Senate notes the Howard Government's third term failures on superannuation, including:

(a) the failure to provide for a contributions tax cut for all Australians who pay it, rather than a tax cut only to those earning more than $90,500 a year;

(b) the failure to adequately compensate victims of superannuation theft or fraud;

(c) the failure to accurately assess the administrative burden on small business of the Government's third attempt at superannuation choice and deregulation;

(d) the failure to support strong consumer protections for superannuation fund members through capping ongoing fees and banning entry and exit fees;

(e) the failure to provide consumers with a meaningful, comprehensive and compre-hensible regime for fee disclosure; and

(f) the failure to cover unpaid super-annuation contributions in the case of corporate collapse as part of a workers' entitlements scheme.

On behalf of the Australian Labor Party I have moved a motion pertaining to a number of policy failures by the current Liberal government. The superannuation system in Australia is very important to the vast majority of Australians who have superannuation. Approximately eight million Australians have superannuation. For employees, it is compulsory. It was a Labor government— and a very proud Labor government—that made superannuation compulsory in this country in order to ensure that the vast majority of Australians, particularly lower middle income earners who had no superannuation, were and are able to receive a higher retirement income, over and above the basic age pension, which is currently approximately $11,000 per year.

The issues that I wish to deal with in this debate relate to the taxation of superannuation and the Liberal government's proposal to cut the tax on superannuation—which is a tax cut that is confined to those who earn more than $90,527 a year. In Australia, contributions into superannuation are taxed at a rate of between 15 and 30 per cent, depending on your income level. On taking office, the Liberal government collected approximately $2 billion in tax from superannuation. In the last financial year, they collected approximately $5 billion from superannuation. In the year 2005, they will collect approximately $6 billion in taxation from superannuation. Of course, a tax on contributions into superannuation has the impact of reducing the final retirement income of those Australians who are taxed in that way. What is interesting is that the Liberal Party is proposing a tax cut on the contributions tax payable by Australians on their superannuation, but one that is confined to those who earn more than $90,527 a year. Approximately four per cent of Australia's working population will benefit from the Liberal Party's proposed tax cut which is confined to those on a surchargeable tax income of $90,527 or more a year.

What needs to be remembered about the so-called surcharge, or tax, on superannuation is that it is the Liberal government's very own tax. They introduced it in 1996. At that time, they broke the promise that was made by the Prime Minister, Mr Howard, coming into the 1996 election, when he said, on 1 February 1996:

We are not going to increase existing taxes and we're not going to introduce new ones.

That was the specific promise made by the Prime Minister, Mr Howard. It was a very clear promise, so when they introduced a new tax on superannuation they called it a `surcharge'. The Treasurer, Mr Costello, in his budget speech on 20 August 1996, said, in reference to the new tax on superannuation:

The measures I am announcing tonight are designed to make superannuation fairer.

A major deficiency of the current system is that tax benefits for superannuation are overwhelmingly biased in favour of high income earners. For a person on the top tax rate, superannuation is a 33 percentage point tax concession while a person earning $20 000 receives a 5 percentage point tax concession. High income earners can take added advantage through salary sacrifice arrangements that are not available to lower income earners.

The Government is remedying this situation.

... ... ...

For high income earners the superannuation contributions will still be highly concessional but are more in line with concessions to middle and low income earners.

One of the other major problems that the Liberal government had, in addition to trying to hide the fact that the surcharge was a tax, was the extreme difficulty that superannuation funds had in collecting and administering the new tax. The administrative costs of the surcharge are unacceptably expensive. I have pointed this out over many years. In the first year of the operation of the surcharge, superannuation funds incurred administrative overheads of as much as 30 per cent of the revenue paid. Whilst that estimate reflects implementation as well as ongoing costs, which are still onerous, added to this must be the collection costs incurred by the Australian Taxation Office and, of course, the administrative burden on employers.

The administrative burden of the tax which the Liberal government proposes to reduce is paid by all fund members, not just those earning more than $90,527 a year. Regardless of their income, all fund members bear the cost of the so-called surcharge tax. I point out to the Senate that the Liberal government's proposed reduction in the rate, confined to those earning more than $90,527 a year, does not solve the basic administrative and compliance burden of that surcharge tax. If anything, the Liberal government's proposal to reduce the tax rate for higher income earners will add to the administrative costs rather than solve the basic problem.

Where do we find ourselves today? We have the highest taxing treasurer outside wartime since Federation, Mr Costello, who in 2001-02 produced a budget deficit of $3 billion. We know we cannot rely on this government to come up with decent policies to help fund the retirement of anyone except a relative few. It is the Liberal government that refused in 1997, again after having made a specific promise, to make a three per cent government co-contribution, in addition to the current level of compulsory superannuation contributions, into superannuation.

I am not going to be negative and criticise the government for proposing a cut to the tax on superannuation just for high-income earners. The Labor Party has advanced an alternative proposition. The Labor Party has said that, rather than confining a tax cut on superannuation to high-income earners, it is much fairer and more equitable to apply a contributions tax cut to all Australians who are taxed on their superannuation contributions—and there are many millions of them. The Labor Party has proposed two fairer options. It has urged the Liberal government to redirect the Treasurer's exclusive superannuation tax cut for high-income earners away from the relative few to all superannuation fund members who pay the contributions tax. We know that the Treasurer, Mr Costello, believes that it is impossible to cut the contributions tax cut burden. In a radio interview on 22 October 2001 he said:

It's pretty complicated. The taxing of contributions on the way in started back in the mid eighties ... and I think now that it's started that's going to always be with us ... it's still better to put money into superannuation, than to take it as income. But that system having commenced 15 years ago would be incredibly complicated to unravel now.

In effect, the Treasurer, Mr Costello, has given up on reducing the contributions tax burden on Australian superannuation. He has given up, except they are proposing to reduce the contributions tax cut burden— which he said is impossible to reduce—just for those Australians earning more than $90,527. The Labor Party do not agree with the claim made by the Treasurer. We know that cutting the contributions tax for most Australians who pay it can be done with a minimum of fuss, and that has been confirmed by the many industry representatives we have spoken to over the last few months. Labor have suggested a fairer proposal which will improve the budget and boost retirement savings. As I said earlier, a reduction in the contributions tax paid by most Australians on their superannuation will increase their retirement incomes.

Labor has proposed two options. The first option is to cut the superannuation contributions tax for all Australians who pay it from the present 15 per cent to 13 per cent. The second option is to cut the tax to 11.5 per cent for people aged 40 and over. Either option would add many thousands of dollars to retirement incomes and both are economically responsible. Contrast Labor's options to the Liberal Party's proposal to simply cut the contributions tax surcharge to high income earners, to those Australians who earn more than $90,527 a year.

Let me give a couple of examples of the impact of Labor's options. An individual aged 20 who earns $40,000 a year over his lifetime would receive an extra $7,128 under option 1—reducing the 15 per cent tax to 13 per cent—or an extra $4,748 under option 2. Under the Liberal government's proposal this individual would receive nothing. Another example: someone well into their working life who is currently aged 40 and earning $60,000 a year until they retire would, under the Liberal Party, get absolutely nothing. Under the Labor Party's option 1 they would receive $4,069 and under option 2 they would receive $7,122 in additional retirement income.

These examples—in present value so they reflect the value in today's terms—show the substantial benefits to be gained by Labor's approach. Let me emphasise again: under the Liberal Party's approach to the tax cuts, no-one earning under $90,527 a year in surchargeable tax income will receive a tax cut from this government—no-one. Labor has proposed as an alternative a fairer and more equitable approach to the taxation of the superannuation system. And it is revenue neutral. Labor achieves this revenue neutrality by opposing the unfair reduction in the superannuation tax that is proposed for higher income earners and by opposing the Liberal government's very expensive proposal to shut down the Public Service superannuation funds.

The Liberal government's response to the ALP plan was almost immediate. They did not like it because it meant they had to start arguing that a tax cut to people earning more than $90,527 a year was better than a tax cut to millions of working Australians. They chose a different route. They went with what they thought would be much easier: they alleged that Labor had got its figures wrong. The Prime Minister on 17 May said:

You save about $50 million a year out of the surcharge if you lock that back, but I am told it is about seven times more than that, about $350 million, in order to fund a cut of two per cent in the contributions tax.

What he forgot to say was that his surcharge reduction would quickly climb to a cost of $200 million a year and that Labor was offering other cost savings to fund the Labor proposals. Then the Treasurer released Treasury costings later that afternoon—all done on an accruals basis. That was rather hypocritical given that the Treasurer constantly refuses to refer to the budget for this financial year as being $3 billion in the red on an accruals basis.

But the figure for cutting the contributions tax had also suddenly jumped from the one the Prime Minister had given earlier in the day, the $50 million, to $350 million. One might think the Prime Minister had access to some of the best advice that the government could muster, but apparently not. While it took all day, the Treasurer was able to get a figure for a two per cent tax cut that was $150 million more than the Prime Minister had suggested that morning. The Treasury had ignored the full cost savings of the ALP alternatives and the fact that our tax cuts were to be phased in from 1 July 2003. The Labor Party had never said that they were going to start the entire tax cut on 1 July 2002, as the Treasurer had alleged. We were proposing to phase in a fairer tax cut over the same length of time that the Liberal Party have proposed to phase in their unfair tax cut that only applies to Australians who earn taxable surcharge incomes of more than $90,527 a year.

My contribution to this debate is to highlight the unfair proposal of the Liberal government to reduce the tax burden on superannuation but to only reduce that tax burden to the four per cent of Australians who earn more than $90,527 a year. Of course, the government will argue that they are offering a voluntary co-contribution for Australians earning $20,000 a year. The government will contribute $1,000 if a person earning $20,000 a year voluntarily contributes $1,000 into superannuation. I contrast that with the fact that Treasury have said that only 75,000 Australians who earn $20,000, out of many millions of Australians, can actually afford to put $1,000 into superannuation.

So high-income earners get a guaranteed tax cut. Lower- to middle-income earners, at least earning just over $32,000, get a voluntary co-contribution, the vast majority of whom, on Treasury figures, cannot contribute anything because they do not have the financial means to make that voluntary contribution. That is a guaranteed tax reduction for high-income earners that they all benefit from, a benefit to only one in 10 Australians who earn up to $32,000 and, of course, nothing to those who earn between $32,000 and the taxable surcharge income of $90,527. It is a very unfair approach compared to the positive alternatives advanced by the Australian Labor Party.