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Monday, 18 November 2002
Page: 6561


Senator SHERRY (12:31 PM) —We are dealing with both the Superannuation (Government Co-contribution for Low Income Earners) Bill 2002 and the Superannuation Legislation Amendment Bill 2002 cognately. One introduces a co-contribution scheme for low-income earners and the other reduces the surcharge tax for high-income earners. Labor supports the bill to introduce a co-contribution measure for low-income earners, with a certain amendment that we will obviously get to in committee, but Labor will not support the measure to reduce by approximately one-third the surcharge tax on contributions which will apply only to those Australians who earn more than $90,500 surchargeable tax income. In other words, the Liberal government's proposed tax reduction will apply only to high-income earners.

Let me deal with the surcharge tax reduction first. The particular provision that the Liberal government is proposing is highly inequitable. It will only apply to those on a surchargeable tax income of over $90,527 in 2002-03—a group that represents approximately four per cent of the working population. The highest tax cut applies to those on a surchargeable income of over $109,900. The tax surcharge is the Liberal government's very own tax, which they introduced in 1996. In the lead up to the election in 1996, it was Mr Howard, the Prime Minister, who promised on behalf of the Liberal Party on 1 February 1996:

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

That was a very clear promise which the Liberal Party broke just six months later by announcing a new tax on superannuation. At that time, the Liberal government justified this new tax as an equity measure. The Treasurer, Mr Costello, stated in his budget speech on 20 August 1996:

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.

Another important feature of the Treasurer's justification for this measure is contained in his comments on 27 August 1996, when he said:

... the point I'd like to make is that on Budget night the first Treasurer in history—me—stood up and put a surcharge in respect to high income earners and applied it to himself and every other politician, you know, we're the good guys in relation to this.

The Treasurer, who was on TV, then went on to dance the macarena. It is a matter of fact that the current Liberal government is cutting the tax by almost one-third, and it is the judges and politicians that Mr Costello referred to earlier who are the most significant beneficiaries of this tax cut because of the particular design features of their own scheme. Of course, Labor opposes this surcharge tax cut so, hopefully, there will be no benefit to any parliamentarian or judge as a result of this proposal and, hopefully, there will be no benefit to anyone else who is on a surchargeable tax income of more than $90,500. This is a very exclusive tax measure that only the Liberal Party could dream up—a tax cut for the top four to five per cent of Australian income earners.

I am sure that those who are following this debate will want to know if the Liberal government will rule out this outrageous windfall at a time of considerable budget pressure—indeed, the budget was in deficit last year. We know that this year the Treasurer, Mr Costello, discovered that we have an ageing population. It was a centrepiece of the budget that he released earlier this year. Of course, the Liberals' way of tackling the ageing population is to offer an exclusive tax cut on superannuation to high-income earners. Labor believes that this is not a fair approach, given the problems that we face with the ageing population.

One of the biggest problems with the way the Liberal government tried to hide the fact that they were increasing taxes back in 1996 was that they called it a surcharge and this so-called surcharge is extremely difficult for superannuation funds to implement. In terms of administrative costs, the surcharge is unacceptably expensive. It is in fact Australia's most expensive tax to collect. In the first year of operation, superannuation funds incurred as much as 30 per cent of the revenue collected from the tax as associated administrative overheads.

While that estimate reflects implementation costs as well as ongoing costs, ongoing costs are themselves very onerous. To this must be added the collection costs incurred by the Australian Taxation Office—which are considerable—and also the significant employer costs. The administrative burden of the surcharge means that all fund members meet increased costs regardless of their incomes. One way or another, the associated monitoring, collection and compliance costs must be met and are likely to reduce the overall accumulation for all fund members, not just those on whose behalf the surcharge is levied. So reducing the rate of the surcharge tax on superannuation does absolutely nothing to redress this situation. If anything, a reduction in the surcharge rate each year for each individual surcharge member turns up the heat again on administrative costs.

As I said earlier, Labor is not simply being negative in opposing this exclusive and unfair tax cut that will apply to high-income earners. Labor has put forward a positive and fairer alternative approach to the reduction of tax on contributions, and we believe this is the best way to deliver a higher retirement income to millions of working Australians, not just to high-income earners.

The Treasurer, Mr Costello, believes it is impossible to cut the contributions tax. He said in a radio interview on 22 October 2001:

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 ... So 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.

The Labor Party does not agree. We know that cutting the contributions tax can be done with a minimum of fuss, as confirmed by the many industry representatives we have spoken to over the last few months. We now have an opportunity to implement a fairer proposal which will improve the budget and boost retirement savings. However, this chance will be lost if the Liberal government get away with these unfair changes.

Labor has proposed two alternative propositions. Option one is to cut the superannuation contributions tax for all Australians who pay it—which is most of them—from the present 15 per cent to 13 per cent. An alternative, option two, is to cut the current 15 per cent tax to 11.5 per cent for people aged 40 and over. Either option would add many thousands of dollars to retirement incomes. Both are economically and budget responsible.

Let me give an example. Matthew, aged 20, earns $40,000 a year over his career. He gets an extra $7,128 in a boosted retirement nest egg under option one—that is the general contributions tax cut. Under option two, he gets $4,748. Matthew would receive absolutely nothing under the Liberal government's proposal to reduce the surcharge. Another example for someone already well into working life is Heather, who is 40 and earns $60,000 a year for the rest of her career. Heather gets an extra $4,069 under Labor's option one and $7,122 under option two. Again, Heather would receive nothing under the proposal to reduce the surcharge. These examples are on present values so they reflect the value in today's terms. The benefits would be substantially more in the dollars of the future. The Labor package for a fairer superannuation system is revenue neutral.

Of course, the Liberal government's response to the ALP plan was almost immediate. They did not like it because it meant that they had to start arguing that a tax cut for the select few was better than a tax cut for millions of working Australians. They chose a different route. They went with what they thought would be much easier: that Labor got the figures wrong. However, during the estimates process, Treasury officials admitted that they had made mistake after mistake in their 17 May costing, and yet they still refused to hand over the revised costings that they gave the Treasurer when they realised just how wrong they had got it. Even now, six months later, the Liberal government will not allow Treasury to publicly correct the record and release the figures which would prove our plan is affordable and revenue neutral.

Since we exposed the Treasury costings for the fraud they were, the Liberal government have fallen pretty silent about this particular issue. It is fairly difficult to enter into an argument publicly about how it is better to cut taxes to the superannuation of only four to five per cent of Australia's taxpayers— those earning surchargeable incomes of more than $90,500—than it is to cut the superannuation tax for millions of working Australians.

Let me turn to the co-contribution measure. The current co-contribution offered in the second bill is a pale imitation of the much more extensive co-contribution arrangement proposed by the Labor government in May 1995—Savings for our future. Those proposals included the government matching contributions of up to three per cent of average weekly ordinary time earnings, and these did not phase out until the member achieved a wage of twice average weekly ordinary time earnings or $89,492 per annum currently. The current Treasurer, Mr Costello, committed an incoming Liberal government to implementing the 1995 ALP co-contribution proposals. The Liberal government subsequently reneged on that promise in 1997, implementing instead a fairly wacky savings rebate which in turn was quickly abolished.

The inquiry into these bills by the Senate Select Committee on Superannuation heard many submissions that raised concerns in relation to the effectiveness and equity of the proposed co-contribution scheme, as well as in relation to the access to the co-contribution by particular groups of persons and the administrative costs of the proposal. The Labor Party is concerned about submissions to the committee that the proposed co-contribution arrangements leave considerable scope for abuse in that comparatively well-off people will be making contributions in respect of family members in low-income, part-time employment. The ability of single or sole breadwinners in the salary target range to afford to make contributions to superannuation in order to qualify for the matching co-contribution is untested, as was attested before the Senate committee, and unlikely for most people in that range. The number of people estimated to receive the full $1,000 is only 75,000 out of 4.4 million.

The Liberal government are offering an incentive of $1,000 to those Australians who have incomes of $20,000. The major problem with this incentive is that there are very few Australians on an income level of $20,000 who can actually find $1,000 to put into superannuation in order to achieve the maximum matching contribution from the government of $1,000. I reiterate those figures: only 75,000 out of 4.4 million Australian taxpayers with incomes of less than $32,500 will be able to take maximum advantage of this scheme.

Another important consideration is that the Liberal government announced on 20 June this year that they intended to remove the surcharge tax reduction amendments from the superannuation bills they had before the Senate at that time and to shift them to the bills we are considering today. Senator Coonan stated that the change was due to the government's desire to highlight the fact that the government's superannuation initiatives are designed as a `balanced set of measures'. That is just a blatant political stunt which is aimed at trying to justify their unfair tax cut for higher income earners by pretending the measure was linked to co-contributions. This is a complete furphy and if this Liberal government were serious about helping those most in need of assistance in accumulating a retirement nest egg, they would have placed the co-contributions measure in a separate bill.

Let me highlight the contrasting impact of the two particular pieces of legislation. The tax of high-income earners earning more than $90,500 in surchargeable income—we know it is between four and five per cent of Australian taxpayers—will be cut by one-third. It is an exclusive tax cut of $370 million for those high-income earners. For people earning between $32,500 and $90,500 there is absolutely no benefit at all in this particular legislation. Again, that involves millions of Australian taxpayers. If those 4.4 million Australians who earn less than $32,500 can find $1,000 to put into superannuation, then this government propose a maximum of $1,000 in matching superannuation contributions. Out of those 4.4 million Australians, we know that only 75,000 will access the maximum $1,000. This legislation is highly skewed, highly biased, towards an unfair tax cut—a guaranteed tax cut—for high-income Australians.

The Labor Party will move an amendment to the Superannuation (Government Co-contribution for Low Income Earners) Bill 2002 to include in the legislation a provision that would require the government to closely monitor and report to parliament on the operation of the co-contribution arrangements. The purpose is to ensure that only those who are genuinely in need receive the co-contribution and to establish the proportion of the target group who are accessing the co-contribution.

In relation to the so-called surcharge tax reduction, I move:

At the end of the motion, add “but the Senate is of the opinion that the bill should be withdrawn and redrafted to:

(a) ensure that the proposed surcharge tax reduction to high-income earners, the splitting of superannuation contributions and the closure of the public sector funds do not proceed; and

(b) provide for a fairer contributions tax cut that will boost retirement incomes for all superannuation fund members to assist in preparing the nation for the ageing population”.

Before I conclude, I reiterate: here we have a Liberal government proposal at its very worst. It is extremely unfair and I am a little concerned that the media, in particular, have not focused any attention on this issue whatsoever. We have a Liberal government proposing to slash taxes on superannuation for high-income earners by almost one-third. It is an exclusive tax cut for high-income earners which delivers them an additional $370 million on their superannuation savings. It applies only to high-income earners who earn more than a surchargeable income of $90,500. The remaining Australians—well over seven million Australians—who earn incomes of less than $90,500 do not get a cent.

This is a highly unfair measure. All it does is boost the retirement savings by reducing the tax of those earning more than $90,500 a year in this country. You could not have a more stark, more unfair tax cut. It is one of the most unfair tax cuts that has ever been presented before this Senate. I say very firmly that the Labor Party will not be supporting such an exclusive tax cut. We have offered a fairer and positive alternative to apply a tax cut to most Australians who pay tax on their contributions and the Labor Party will not be backing down from this. I make it very clear: we will not support an exclusive tax cut which is only for high-income earners.