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Economics Legislation Committee
12/06/2018

CARNELL, Ms Anne Katherine (Kate), AO, Ombudsman, Australian Small Business and Family Enterprise Ombudsman

LAWRENCE, Ms Jill, Advocacy Manager, Australian Small Business and Family Enterprise Ombudsman

CHAIR: The meeting will now reconvene. Welcome, Ms Carnell and Ms Lawrence. Thank you very much for appearing before the committee today. I invite you to make a brief opening statement, should you wish to do so.

Ms Carnell : It's an absolute pleasure to be here to respond to the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018. We are very positive about this initiative. The issue of unpaid super is a real concern to us, as it is, I'm sure, to everybody, and the challenge of getting up to date, particularly in the small business space, is a real one. This, as we see it, is a method of getting unpaid super—which, we understand, from various work that has been done, is quite significant—up to date. Going forward, I think there are some other policy initiatives that need to be looked at, including penalties for people who don't use this opportunity to get up to speed and addressing some of the issues that have delivered the level of unpaid super that we understand exists. Generally we see this as a very good initiative.

There are a few issues we've raised such as the issue of how long it's going to take the legislation to pass, and whether the 12 months should run from the time of passing the legislation rather than from the time of the announcement. It is important for small business to have enough time to go through and do things like audits and have a look at past payments to ensure that they've either got a clean bill of health, or, alternatively, they have addressed and identified all of the unpaid issues that they might have. That's not something that most small businesses are going to be able to do overnight; it will require a level of work. But, until the legislation is passed, it is pretty hard for them to get their heads around whether it's actually going to happen. It's really hard I suppose for all of us to publicise it, because we're not sure that it's actually going to happen until the legislation is passed. We think that needs to be looked at.

We think that it needs to be very clear that small businesses can identify the amount of unpaid super that they've got and pay it either in a lump sum or, in agreement with the ATO, over a period of time. We should remember that not too many small businesses have lazy chunks of money sitting in their bank accounts, but I understand that the ATO is willing to do that. Its need to be really clear what the rules around it are. Tax deductibility and those sorts of things need to be in place for the whole period of the payment schedule. The other issues that we've raised are around promotion—making sure that small business knows about it, if this is going to happen, and if there will be significant penalties at the other end for those who don't take this opportunity. We need to make sure that all small businesses are aware of this issue and use it to get up to speed.

CHAIR: Thank you, Ms Carnell. Ms Lawrence, do you have anything you want to add to that before we start questions?

Ms Lawrence : No, I don't. Thank you.

CHAIR: I suppose the questions I want to ask you are similar to the ones I asked Mr Strong from COSBOA. The first is: from your perspective, what do you see is the main reason that small and family businesses might not already be complying with the superannuation guarantee?

Ms Carnell : The way super is currently paid is fairly complex. We know that 97 per cent of businesses have fewer than 20 employees. Of those, 70 per cent have fewer than five employees. These are not people who are terribly savvy in the requirements. But I don't think it's actually about paperwork; I think the dilemma here is small businesses often have a challenge with cash flow. I think it's the fact that, for small businesses, there is BAS, there's PAYG and there's superannuation to pay, and if you have a couple of bad weeks, or a couple of bad months, it's incredibly easy for super to—

CHAIR: lose priority.

Ms Carnell : slip—to lose priority. It shouldn't, so, going forward, we've got to make a system that makes it much tougher and much, much more difficult for things to just slip. But I think that's actually what happens: the money's just not there. 'Something's broken, and 'I've had to get it fixed.' 'The council dug up the pavement in front of my shop, and the customers can't get in.' 'It's rained for two weeks.' There are a million reasons why cash flow suffers for small businesses, and, when the day for super is due, you don't have the money. At the moment, once it's slipped, you end up in the penalty space where you're not being tax deductible and a range of things, so it's very tempting to go, 'Hopefully, if I don't look, it's going to go away.' That's dreadful, and it's dreadful for the people whose super it is. It's their money. We fully accept that, and I think most small businesses do too. But you're running your business. That's what happens.

CHAIR: There is conjecture about the size of this particular problem—what the unpaid superannuation guarantee and liabilities actually are—but do you have a sense of what proportion of your constituents have unpaid superannuation because of those issues, as opposed to their being unscrupulous employers?

Ms Carnell : They're just crook?

CHAIR: Yes.

Ms Carnell : I suspect it's the same as it is with a whole range of things. Those who do the wrong thing and mean to do the wrong thing range somewhere between five and 10 per cent. Even the ATO would suggest 95 per cent try to do the right thing and five per cent are crooks.

CHAIR: So that 95 per cent will hopefully get picked up in this net of an amnesty and have a chance to redeem themselves, for want of a better expression?

Ms Carnell : Yes.

CHAIR: You were saying that one of your concerns is the timing of the implementation of the amnesty. Can you talk us through that a little bit more, about what you'd be looking for in terms of appropriate timing?

Ms Carnell : We think 12 months is fine but we think it should be from the time that the legislation is passed. At that point a lot of small businesses, when they're confident this is going to happen, are probably going to have to go to their accountants or their financial advisers and ask for an audit. Alternatively, they're going to have to do it themselves. They don't have a lot of time and these sorts of things take a bit of time, so, if this is going to work, we've got to give them as much time as possible and make it as simple as possible.

CHAIR: For those employers who haven't complied with their superannuation guarantee obligations and who would take up the opportunity of amnesty, what are the chances of them becoming compliant in future years after that? Do you think there's a chance that they'd become recidivists or do you think there's a better chance that they would become compliant?

Ms Carnell : I think once we get them back on track, there's much more of a chance of making them compliant, particularly with a bit of carrot and a bit of stick. I think the plan going forward is to have more dramatic penalties, which is reasonable as long as we give them a chance to catch up. But I have to say: we've got to think outside the square a little bit and make it simpler for small businesses to pay what they owe. Single Touch Payroll will help with that but that's not a payment thing; it's about reporting. I really wonder, with small businesses, whether we shouldn't let small businesses send both the tax they owe the ATO and the super together, just to the ATO, and the ATO can then send it to super funds.

CHAIR: That's the COSBOA solution, isn't it?

Ms Carnell : It is the COSBOA solution. At one stage I couldn't quite get my head around it but when you think about it, what actually happens in a small business is: you pay your staff, you sit down and you take off the tax that has to come out and the super. From your perspective, you pay them this amount of money and off of that comes 9½ per cent, which is the super that goes to the super fund, and the money that goes to the ATO. That's what you do. If, at that point, you just bundled the two and sent it to the ATO with a tax file number, the ATO could link tax file numbers to superannuation and so on. It makes it simpler. If you make it simpler, you've probably got more chance of compliance. When we in the office talked about it and thought it through, we thought, 'Well, again, why not, if it makes it simpler and there's less chance of lack of compliance.' It might mean, of course, that businesses have to pay quicker but if you leave it too long, there's a chance that the money's been spent. So I think it's about a balance in that space.

CHAIR: You mentioned the importance of promoting the amnesty. You're not the first witness to suggest that; I think the FSC also said that that was particularly important. How do you envisage that amnesty being promoted?

Ms Carnell : I think it needs to be done in a whole range of different ways, because our experience of communicating with small business is it's really a challenge. The ATO have their small business showcase, their newsletter, which goes to 1.2 million businesses, I think. That's probably the best database around but even that, although it has a very good rate of opening, is still not that great. Our experience is that, unfortunately, Facebook is a really good method to get to lots of small businesses, as are other social media sources, but you need to use industry association significantly—chambers of commerce and others. But that still misses another group, which is the reason why social media and the ATO generally is a good way to go. Every one of those methods is going to have to be used, and it will need to have that mixture of—you have an opportunity here but if you don't use it, the wrath of God or the wrath of the ATO—

CHAIR: Yes, the wrath of the ATO, I think, is scarier sometimes!

Ms Carnell : It's absolutely scarier! The wrath of the ATO will fall on your head, so make sure you use it.

CHAIR: Finally—I did ask this question to each of the other witnesses, and I think you might have already answered it—from your perspective, do you consider that compliance with the superannuation guarantee is onerous for your constituents?

Ms Carnell : Yes.

CHAIR: There was a mixed bag of responses. The superannuation funds representative said, 'No, it's not onerous,' whereas most of the business representatives said, 'Yes, it is onerous.' Funny that!

Ms Carnell : Funny that, yes! I think it is onerous. We've got to put our heads in the space of the majority of small businesses in Australia: less than five employees, running their business, head down, bum up—that's what they do. These sorts of requirements are on top of everything else they're doing to run their business. In a perfect world, it's really hard to work out why it's small business's job to collect and pay GST, to pay PAYG, to pay super and to do the paperwork around all of these things that are really nothing to do with running a business; they're to do with government requirements. That said, we know that if you gave people their whole salary and said, 'Now you pay the ATO the tax you owe them and you pay the 9½ per cent to the super fund,' it wouldn't happen. So you end up back with the person who's actually paying the salary. In small business terms, we've got to make it as simple as possible, which is the reason I've come to the view that the single transaction approach that COSBOA is suggesting is probably the best way to go.

CHAIR: Thank you.

Senator KETTER: Can I start, Ms Carnell, by exploring that last point you were making; that you agree it is onerous for small businesses to pay super. Would you agree that there are myriad software packages out there that facilitate these sorts of things very, very cost effectively; sometimes $5 a month or something of that nature?

Ms Carnell : You're absolutely right. We've been involved with the ATO in the possible implementation of Single Touch Payroll for employers with under 20 employees—I understand that that's another tranche of legislation. What's fascinating to me is the number of meetings I've done with small business owners around Australia where I've asked people, 'So who uses business software?' There was a meeting not so long ago with about 25 people there, and about five people put up their hands and I said, 'Why?' It's exactly what you said. This makes life so much easier, and all the rest of it. They were all quite small businesses—subbies, and ranges of people who didn't have a lot of employees. Their view was: 'Well, what I'm doing now works for me. I don't use a computer in my business. I don't want to have to learn a software package.'

I have to say: having run some small businesses and run some of those packages, they're reasonably intuitive but you've still got to learn how to use them. In the payroll part of them, you've still got to set up the payroll and make sure all the right stuff's in place. It's not something where you just push the button and it does what it needs to do. You've still got to learn the package and you've still got to use it properly—rubbish in, rubbish out, all that sort of stuff. There are still a lot of businesses out there that, maybe for reasonable reasons, don't use those packages. We'd like to see everyone use them but I tell you what: there are a lot of businesses who don't and have got very good reasons not to.

Senator KETTER: You've indicated that you support this bill, and I just wanted to give you the opportunity to tell us, outside of the schedule that deals with the amnesty, if you have any suggestions or amendments that you think should be made to other parts of the bill?

Ms Lawrence : I am just thinking about the clarity of it. For a small business to comply, they have to read that bill and we've just said they even struggle using what you and I might consider easy software. Some of that language took me probably three reads to understand whether or not the benefits of the amnesty last the length of, for example, a payment plan with the ATO. It doesn't; it's only payments made during the amnesty period. Yet several of the clauses—I don't remember the numbers, I apologise—gave the impression that it might do. The complexity of that language is not a tool to convey these things to small-business owners. So, on the promotion side, how are you going to convey the complexities of it?

Senator KETTER: On the issue of the amnesty, did you advocate for this policy to government before the amnesty was announced?

Ms Carnell : No. Not in this role. When I was with the Australian chamber, we did.

Senator KETTER: That's ACCI, is it?

Ms Carnell : That's ACCI, yes.

Senator KETTER: When did you first become aware that the government was working on a bill that would include an SG amnesty?

Ms Carnell : When I was at the small business stewardship consultative group and the ATO ran us through the proposed bill, which was maybe the day that the minister put out the press release. So there wasn't any lead time; although, we were given a heads-up on the day the media release went out.

Senator KETTER: I've asked this question of a number of witnesses. Do you support the notion of superannuation as deferred wages?

Ms Carnell : Yes, simply. From an employer perspective, I pay my staff this amount of money; this is the cost to me. Nine-and-a-half per cent of that goes into enforced savings for that person, for their old age, another chunk goes to the ATO and then there are other bits that can come out as well, based upon what people tell me I've got to take out. So I suppose I look at wages and salaries from a perspective of a cost to me, so the 9.5 per cent is enforced savings.

Senator KETTER: When it comes to wages, would you support a wage-theft amnesty, where employers underpay people's wages?

Ms Carnell : What you're saying is actually right. This is money that belongs to employees and it should have been paid. There's no doubt about that. We've got to find a way to get that money that is owed to those people where it's supposed to be, in superannuation funds, going forward. I don't think it helps, though, to make this more punitive than it has to be. I think the way of getting that money paid is to encourage, to make it simple, to cajole, to request and then to have a big stick to show what happens if you don't.

Senator KETTER: But governments have a suite of options available to them, and it's a question of what's the most effective for getting to the outcome that you want.

Ms Carnell : I think at the moment the most effective with small business is for them to see this as an opportunity to comply. I think most small-business people see this as money they should have paid. They just didn't have the money or whatever.

Senator KETTER: What about all those small businesses that do the right thing and do pay on time that then see others who have not done the right thing getting a tax deduction for it?

Ms Carnell : I understand what you've said, but this is a very large amount of money, if the figures are anything like right—even if it's half right. And I think the opportunity to have this moment in time where we can get those businesses that haven't done the right thing, for whatever reason, up to speed, and then have a system going forward that is easier to comply with and has solid penalties for not complying is the right way to go. There's no point in going down this path and not using language that will encourage small businesses to take it up.

Senator KETTER: Would you support a general tax amnesty for people who have inadvertently not been paying their taxes? Should we have an amnesty for that?

Ms Carnell : That's just a totally different scenario. The reason we support this is that this is money that belongs to a whole lot of Australians and it hasn't been paid and we want it to be paid. We all want it to be paid. All Australians, hopefully, want people to get the money they are supposed to have. This is about people's money, rather than the ATO's money or general tax or whatever. I think it's important to focus on what we're trying to achieve here, and that is to make it simpler, to make it possible, particularly for small businesses, to pay the money that they should have already paid—there's no doubt about that—to do so in the next 12 months, and hopefully put in place mechanisms to make it tougher for this to happen in the future.

Senator KETTER: You've highlighted the fact there are large amounts of money involved in terms of unpaid super—

Ms Carnell : I can only go on what the ATO's estimates are. We have no idea what it might be, but, if it's anything like what has been suggested, then it's a lot.

Senator KETTER: At least one of the witnesses today has described it as a systemic issue. Does this send the right message, if you have an amnesty on something which is such a widespread problem?

Ms Carnell : If the message is, 'You have an opportunity in the next 12 months to get up to speed, to pay what you owe, to ensure that those people who have worked for you end up with the money that they should have and, at the end of that period of time, the wrath of the ATO will fall upon you if you haven't', I think that is exactly the right message. It says to small business: 'You have an opportunity. Use it. Do the work you have to do. Do the audits, get up to speed, pay the money. If you can't pay it in one go, talk to the ATO and get a payment schedule in place', because we do have things like Single Touch Payroll coming online and plus penalties and so on, so this will not be an option in the future. It shouldn't be an option now. I don't think most small businesses mean it that way. I think they just end up not having the money that they should have paid and then, when they don't pay it, they're in breach, and then there are penalties and they don't have the money for that either. So it just becomes a bit of a domino effect. As I said before, I don't think the majority of people even meant to get behind; they just did.

Senator KETTER: If the ATO was as fearsome as you suggest they are, would we really be in this situation now? We've got systemic underpayment.

Ms Carnell : I suspect that that's why the ATO has put in place Single Touch Payroll and other methods of identifying the amount of super that is owed, fundamentally in real-time, or along the same time lines that payroll is done. I think the ATO has identified—not that I'm an apologist for the ATO—that there are some quite systemic problems with identifying unpaid super, and things are being put in place to overcome that.

Senator KETTER: Have you advocated for any other amnesties to government?

Ms Carnell : No.

Senator KETTER: Have any other small businesses called into your office and asked for this policy, for an amnesty?

Ms Carnell : I don't think so.

Ms Lawrence : I don't think so, no.

Ms Carnell : Mind you, that would mean they would have to say, 'We haven't paid our super,' and there's probably not too many people who are likely to tell us that.

Senator KETTER: Without disclosing their own personal circumstances, they could say, 'We think it's a good idea if we have an amnesty and we don't have to pay for it'.

Ms Carnell : No. But, if you look at the stats, as I said, if there's even half that much unpaid super, then you've got to find a way. It's important from a public policy perspective to address that.

Senator KETTER: What percentage of small businesses do you think will come forward and make use of the SG amnesty?

Ms Carnell : I don't know, but we'll do our best to make it as many as we can. If it is true that 95 per cent of small businesses, as the ATO used, try to do the right thing, then you'd hope that 95 per cent of the people who haven't paid, who have outstanding super, use the opportunity to fix it—and then we throw the book at the other five per cent.

Senator KETTER: Do you have a view as to how many employees you think might be affected?

Ms Carnell : No idea; absolutely no idea.

CHAIR: Thank you very much, Ms Carnell and Ms Lawrence, for joining the committee today.