Senator KEMP (Minister for the Arts and Sport) (4:24 PM) —I table a revised explanatory memorandum relating to the Superannuation (Government Co-contribution for Low Income Earners) Bill 2002 and move:

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows—

SUPERANNUATION (GOVERNMENT CO-CONTRIBUTION FOR LOW INCOME EARNERS) BILL 2002

The Superannuation (Government Co-contribution for Low Income Earners) Bill 2002 will enact legislation that will establish the arrangements for the Government to pay superannuation co-contributions to eligible low income earners. This legislation will outline how the Government will determine those who are eligible for a co-contribution and the amount of the co-contribution; the method of payment of the co-contribution and of adjustments where necessary; information gathering arrangements by the ATO; review of decisions; and, other administrative matters.

This bill, together with the Superannuation Legislation Amendment Bill 2002 will fulfil an election commitment, announced on 5 November 2001 in `A Better Superannuation System' to further assist low income earners to save for their retirement. The Government co-contribution is expected to increase the numbers of low income earners making personal superannuation contributions, and increase the levels of contributions being made by existing contributors. More generally, the Government co-contribution will boost the retirement savings of low income earners.

The Government co-contribution will replace the existing taxation rebate for personal superannuation contributions made by low income earners. However the co-contribution will be more generous than the rebate it is replacing. The maximum co-contribution of $1000 compares with the maximum rebate of $100.

Low income earners who are not entitled to claim a deduction for their personal superannuation contributions will be eligible to receive the co-contribution if they meet the eligibility criteria.

The Government co-contribution will match personal superannuation contributions made on or after 1 July 2002 by eligible people with incomes less than $32,500. The maximum co-contribution of $1,000 will be payable for those on incomes of $20,000 or less. The maximum co-contribution will reduce by 8 cents for each $1 of income over $20,000, with some co-contribution available for those with incomes up to $32,500. A minimum co-contribution of $20 will also apply, as long as the person is below the income thresholds and has made some personal superannuation contributions during the year.

The income test for the Government co-contribution will be based on assessable income plus reportable fringe benefits. This is consistent with the existing rebate. To be eligible for the Government co-contribution, a person will need to have employer superannuation support, be aged less than 71 on 30 June of the year in which the personal contributions were made, and, not be eligible for release of benefits upon permanent departure from Australia.

Small business people who are self employed will be unaffected by this proposal, as they will continue to be able to claim a tax deduction for personal superannuation contributions. One of the Government's other election commitments increases, from $3,000 to $5,000, the amount of personal superannuation contributions that is fully deductible for this group. Similarly, those with superannuation support, but not employer superannuation support will be eligible for a taxation deduction for superannuation contributions.

The Government co-contribution will be treated as an undeducted contribution. This means that the co-contribution will not be subject to contributions tax when paid into the fund and will also not be taxed when paid out to a person as an end benefit. In situations where it is paid directly to the person it will be treated as exempt income and will not attract income tax.

The ATO will use contribution and account details provided by superannuation funds, together with the income details from low income earners' tax returns, to assess and pay the co-contribution directly to the person's fund. That is, there will be no need for eligible people to apply for the co-contribution. This delivery mechanism is the most seamless option for low income earners and is designed to ensure that low income earners who are eligible for the co-contribution receive their correct entitlements.

While funds will need to report new information from that currently required, this requirement will not commence until 1 July 2003. This will provide superannuation funds with a window in which to implement any necessary system changes.

Full details of the measures in the bill are contained in the explanatory memorandum.

I commend the bill.

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SUPERANNUATION LEGISLATION AMENDMENT BILL 2002

Over recent years there has been a growing realisation throughout Australian society of the importance of retirement planning and saving for the years ahead. Superannuation is seen as a vital element in planning for a comfortable and secure retirement.

This bill, together with the Superannuation (Government Co-contribution for Low Income Earners) Bill 2002 will fulfil two election commitments, announced on 5 November 2001 in `A Better Superannuation System' to make superannuation more attractive and support the Government's retirement incomes policy.

The Government co-contribution is expected to increase the numbers of low income earners making personal superannuation contributions and increase the levels of contributions being made by existing contributors. More generally, the Government co-contribution will boost retirement savings for low income earners.

The details of the arrangements for the Government to pay superannuation co-contributions to low income earners are contained in the Superannuation (Government Co-contributions for Low Income Earners) Bill 2002.

The Superannuation Legislation Amendment Bill 2002 will amend a number of taxation and superannuation laws. In particular, this bill will deal with the following aspects of the Government co-contribution measure: eligibility for and taxation treatment of Government co-contributions; arrangements for certain Defence personnel and Commonwealth public servants regarding co-contributions; use of the Superannuation Holding Accounts Reserve for co-contributions in some circumstances and a review of certain decisions. This bill will also repeal the existing personal superannuation contribution taxation rebate found in the Income Tax Assessment Act 1936. In addition, this bill will reduce the maximum superannuation and termination payments surcharge rates from 15% to 10.5% over the next three years.

Full details of the measures in this bill are contained in the explanatory memorandum.

Debate (on motion by Senator Crossin) adjourned.