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Economics Legislation Committee
01/06/2018
Treasury Laws Amendment (2018 Measures No. 4) Bill 2018

McCREA, Mr Glen James, Deputy Chief Executive Officer and Chief Policy Officer, Association of Superannuation Funds of Australia

STANNARD, Ms Julia, Senior Policy Advisor, Association of Superannuation Funds of Australia

Committee met at 09:31

CHAIR ( Senator Hume ): Good morning. I declare open this hearing of the Senate Economics Legislation Committee for the inquiry into the provisions of the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018. The Senate referred this inquiry to the committee on 10 May 2018 for report by 13 June 2018. The committee has received 17 submissions so far, which are available on the committee's website.

This is a public hearing, and a Hansard transcript of the proceedings is being made, although the committee may determine or agree to a request to have evidence heard in camera. I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of the evidence given to a committee, and such action may be treated by the Senate as contempt. It is also contempt to give false or misleading evidence to a committee.

If a witness objects to answering a question, the witness should state the ground upon which the objection is taken, and the committee will determine whether it will insist on an answer. If the committee determines to insist on an answer, a witness may request that the answer be given in camera, and such a request may also be made at any other time.

I would ask photographers and cameramen—who are obviously lined up outside the door today!—to follow the established media guidelines and instructions of the committee secretariat. Please ensure that senators' and witnesses' laptops and personal papers are not filmed.

I now welcome representatives from the Association of Superannuation Funds of Australia. Thank you for appearing before the committee today. I invite you to make a brief opening statement, should you wish to do so. Do you have an opening statement?

Mr McCrea : I do, so I might get straight into it. ASFA is a non-profit, non-political national organisation whose mission is to continuously improve the super system so all Australians can enjoy a comfortable and dignified retirement. We focus on the issues that affect the entire Australian super system and its $2.6 trillion in retirement savings. Our membership is across all parts of the industry, including corporate, public sector, industry and retail super funds and associated service providers, representing over 90 per cent of the 14.8 million Australians with super.

ASFA welcomes the commitment by government to lift retirement income payments by protecting workers' super entitlements as part of the TLAB measures No. 4. We are strongly committed to measures and policies that reflect and support the core role of the super system in providing adequate retirement outcomes for all Australians.

Compulsory super is an important part of retirement savings of employees, and unpaid super has a big impact on many individuals, 700,000 or more a year, often the most disadvantaged Australians. There are various estimates of the SG gap. We previously estimated in 2013-14 that it was 2.6, and we note the ATO's estimate of $2.85 billion, which is five per cent of all SG contributions for 2014-15. We have consistently raised the issue of SG noncompliance and options to improve compliance levels.

We support the government's commitment that the ATO increase its proactive compliance casework activity. This will be assisted by more regular reporting in terms of super contributions, which should make it easier to identify when an employer is in arrears with their payments. This should lead to greater compliance by employers.

The new recovery and penalty powers for the ATO will allow action to be taken when needed. Employers, when repeatedly failing to pay the SG entitlements of workers, should face consequences from such actions, particularly if phoenix company methods are being used by company directors. These actions include strengthening the director penalty rate regime and powers, and they will be an effective last resort when employers repeatedly fail to pay SG.

Consistent with these views, we strongly welcome the measures in schedules 1 to 5 directed at improving compliance with the SG regime. These measures will strengthen the options available to the Commissioner of Taxation to ensure compliance with employers' SG obligations and improve the timeliness of the information received by the ATO from employers and funds about the making and receipt of super contributions.

ASFA supports the extension to all employers from 1 July 2019 of the Single Touch Payroll, which will allow the ATO near real-time information about employees' SG entitlements. We are supportive of the proposed measures in schedule 6 that allow greater employee engagement. However, in relation to employee commencement, the details should be tightened, not merelycovered in the explanatory memorandum, so the legislation explicitly requires an employee's consent to each pre-filling of information by the Commissioner of Taxation.

ASFA supports the amendments proposed in parts 1, 6 and 7 of schedule 8 in relation to MySuper, the taxation treatment of deferred annuities and reversional transition to retirement income streams and the disclosure of information by the SCT to the new Australian Financial Complaints Authority. We note that some of these amendments are substantial in nature, and their need has been identified by industry to address inadvertent consequences or omissions from earlier reforms.

In summary, we expect that the passage of this bill would have a positive impact on addressing the $2.85 billion SG gap and look forward to working with the government and the ATO to ensure that people get their correct super entitlements in a timely fashion.

CHAIR: Thank you, Mr McCrea. I might kick off the questions. From ASFA's perspective, what benefits can ASFA see will result from the Commissioner of Taxation being able to disclose employers who fail to comply with their SG obligations?

Ms Stannard : Typically, employees who suspect that their employer may not have paid their full entitlements while they're still in that employment arrangement feel insecure to come forward to the ATO and raise a complaint. The ATO has reported that often an SG underpayment or failure to pay does not come to light for several years and often until after the employment relationship has been terminated. The ATO itself has noted in the past that it is constrained in the amount of information that it can provide to employees and former employees where it is investigating an employer for underpayment. To the extent that that information is able to be made available to employees, it may encourage others to come forward. It may help the ATO to assess the extent of the noncompliance, and it may lead to action being taken earlier to address it.

Mr McCrea : And I think the other thing to note is that the legislation does identify that, where a particular company is under scrutiny and an employee has identified, if others are in a similar circumstance, the ATO will have special powers to be able to potentially contact them, and I think that's a really positive initiative.

CHAIR: Excellent. In your submission, you note:

… the Bill does not stipulate any minimum requirements that must be met before an education course may be approved …

What sorts of minimum requirements does ASFA think would be appropriate?

Ms Stannard : It's difficult to provide criteria, I guess, with the little information that is available about education directions in this package. We would have expected that there would be some guidance provided or some prescription provided as to the extent of the learnings that the employer must undertake—so the level of, I suppose, technical understanding that the employer must form about their SG obligations. At the moment it is quite silent.

CHAIR: Right.

Ms Stannard : Providing some level of detail would have two benefits. It would allow providers of education courses to prepare courses for approval, but it would also provide a measure of transparency, because this is an integrity measure and, if there is evidence that the courses are rigorous and will actually lead to a beneficial improvement in the employers' understanding of their obligations, that does provide some level of reassurance to the general public that the integrity measure is working and it is actually going to lead to an improvement.

CHAIR: Can I ask why you believe—and again I'm citing your submission here—it's necessary for the Commissioner of Taxation to use the directions power to ensure that personal liability attaches to the director of a corporate entity. I'm just trying to find the page of your submission where it says that. I've got the page of the pack, which is no good to you whatsoever, so sorry about that.

Mr McCrea : That's all right. We'll get the relevant page. I think it might be on page 2, off the top of my head. Do you want to start on that, Julia, and then I can jump in?

Ms Stannard : Yes. The power for the commissioner to give a direction in relation to unpaid SG is imposed on the employer entity or the employer quite globally. It doesn't identify individuals who will have personal liability. We believe that the introduction of the direct penalty notification regime to SG and PAYG a few years ago supports the fact that there are circumstances where that level of personal liability is warranted and is in fact needed to produce the outcome. So we're concerned here that those powers may just need to be operated in tandem to ensure that, in case of a failure to comply with that direction, there is also some director liability attaching.

Mr McCrea : Yes, and I think that goes to the point that we see this as a package, and we're looking at it as an entirety. We think the various components of it and the way they interact with each other provide the right outcome.

CHAIR: Good. Just a couple more questions. How will the Single Touch Payroll increase compliance from ASFA's perspective? And I'm wondering if you've noticed an increase in superannuation payment compliance since you rolled out Single Touch Payroll for companies with 20 or more employees.

Mr McCrea : I might jump to that. I haven't seen any data in relation to 20 or more. The reality is that, by bringing smaller players into the market, it's a data issue and it allows data matching. Part of the broader reforms that are being undertaken by government is more regular reporting, so what the ATO will be able to do is effectively match the data they get from a small business in terms of what they think the obligation is against what's being received and accounts from funds. I think that will be quite a useful tool for the ATO to better identify where employees aren't doing the right thing.

CHAIR: Yes, terrific. I should ask if you think the bill would have any unintended consequences.

Mr McCrea : No, and as I said—I go to my opening statement—I think this is a step in the right direction to address an important issue. I don't think there's anything major from our point of view in terms of an unintended consequence.

CHAIR: Finally, can you just run through your concerns with schedule 6 for me again? That was the disclosure to an individual's employer of protected information. You wanted express consent of the individual for every incident of disclosure?

Ms Stannard : I guess this is an example where we have what appears to be a reasonably minor amendment in a bill which is part of a much broader measure that's being progressed through other means, such as the tax office and industry, at the moment: this notion of this employee commencement process and the business management software development. We understand the need for this provision, and we do agree with it. We noted, though, that there is no explicit requirement for consent or request from the individual in this process. We referred to the provision earlier in that schedule which relates to TFN declarations and which specifically does involve in the legislative provision itself that a request from the individual triggers this prefilling. We are not clear, to be honest, why a different approach has been adopted. We believe that there should not be any possibility that an employer has ongoing access to this information that is quite personal to the employee. Its access should be tied to a request and would normally be associated with one of the events that currently trigger a superannuation choice event—for example, the giving of a standard choice form or the employee requesting a standard choice form. It shouldn't be open-ended.

The EM to the bill did include some additional information around an expectation of consent that was not in the exposure draft explanatory material, so we did appreciate that, but we would prefer to see some comfort for employees in the legislation.

CHAIR: Thank you. Deputy Chair.

Senator KETTER: Firstly, Mr McCrea, on the issue of the size of the SG gap: I think you are aware that ISA has done its own research in that. You've quoted a figure different from the ISA figure. Are you familiar with the ISA's submission and its methodology?

Mr McCrea : No, I'm not. I'm quoting the number that the ATO have been using, which isn't far away from numbers we've done previously.

Senator KETTER: Okay. The ISA estimates that last year it was about $5.6 billion and says the reason for the difference is the amount of overpayment of SG, which masks the underpayment in the ATO's analysis. You're not familiar with that methodology?

Mr McCrea : I'm not familiar with how ISA calculate it, no. As you would be aware, with statistics, assumptions and methodologies make a big difference to what the actual number is. As I said, I know the ATO have come up with a particular number. I suppose that, at the end of the day, from our point of view there is an SG gap. Whether it's that number or a slightly bigger number, it's something that needs to be addressed. That's what we're most concerned about.

Senator KETTER: It's still a big number, yes. You've supported single-touch payroll being applied to all businesses, including small businesses.

Mr McCrea : Correct.

Senator KETTER: And you believe that ordinary-time earnings should be reported?

Mr McCrea : Yes.

Senator KETTER: You don't make it clear in your submission, but I'm implying that that information should be sent to the ATO at least on a quarterly basis. Is that your view? I'm talking about ordinary-time earnings and the report on it as part of the single-touch payroll.

Mr McCrea : At the moment, as I understand it, single-touch payroll data is certainly provided. The timing of SG payments does vary from business to business. From an ASFA point of view, the more regular the better, but we do think there is a positive initiative out of the bill today with the data going and allowing that to match with what funds are getting. We think we're heading in the right direction in relation to the provisions in the bill today.

Senator KETTER: But would you say that it should at least be on a quarterly basis?

Mr McCrea : We certainly support more regular provision of superannuation, yes.

Senator KETTER: And do you have a view that the ATO should make SG a higher priority in its actions?

Mr McCrea : Absolutely. We think it's an important issue because of that reason with the SG gap, and that's why we're very supportive of the bill today.

Senator KETTER: And, at the time of the Senate inquiry you were fairly dissatisfied with the fact that ATO was being reactive rather than proactive.

Mr McCrea : We're certainly pleased that they're being more proactive. Certainly in our dealings with the ATO there's a greater sense of urgency, and we're very pleased with that.

Senator KETTER: It's now over a year since the Senate's report. How do you rate the activity of the government in dealing with this issue?

Mr McCrea : We're positive. This legislation's a good sign, and I think the government is heading in the right direction. I know the ATO are working hard at this issue and working hard with industry, so I think it's very promising.

Senator KETTER: And what about how the government is tasking the Treasury, ATO and Fair Work Ombudsman to address the SG gap?

Mr McCrea : I haven't had intimate conversations with the Fair Work Ombudsman on that matter, so I couldn't comment on them. As I said, our main dealings are with the ATO, and on that one I would give them a tick.

Senator KETTER: Okay. On the issue of the single-touch payroll, is it your understanding that it's only going to be employees who are covered by that and not contractors or labour-hire staff?

Mr McCrea : I'd have to take that one on notice. I'm not aware of the treatment of contractors et cetera. As I understand it, it's looking at employees and, if they should be receiving SG, they are the ones who are covered. But, in terms of some of that detail and the relation of contractors, I would have to get back to you on that one.

Senator KETTER: Okay. Will this single-touch payroll establish monthly reporting of ordinary-time earnings? What's your understanding of the frequency?

Mr McCrea : Certainly there will be payments more regularly.

Ms Stannard : Single-touch payroll is predicated on the employer reporting the information at the time that it makes the payment to employees, so it will depend somewhat on the pay cycle for that employee.

Senator KETTER: Okay. Do you think that's going to be an issue if you've got the reporting of the wage base, the ordinary-time earnings and SG payments on different cycles? Do you see a bit of an issue with that? Does it make it more difficult for the ATO to detect underpayments?

Ms Stannard : It does add some complexity, yes.

Mr McCrea : It does add complexity, but I suppose we're looking at this very much as a case of whether this is moving in the right direction. Certainly we think the provision of the data is a positive move. So, yes, it does, but at the end of the day we're moving forward. I know that people like you were on the Senate inquiry about this a year ago, so I suppose I'm just a bit more optimistic than I was perhaps a year or so ago. There is a lot more work to be done, but I think we're heading where we should be heading.

Senator KETTER: Okay. I just want to get it clear in my mind what your view is on this reporting. Let me put it this way: would you support reporting on a monthly basis of key fields such as ordinary-time earnings, SG due and SG paid?

Mr McCrea : We would support that as frequently as practically possible. It is hard to give an exact time-frame on that, because, as we said, it does depend from business to business, but certainly more regular reporting can only be a good thing for trying to target SG compliance.

Senator KETTER: So you're supportive of the introduction of the penalties in schedule 1. Do you believe they will provide a sufficient deterrent given that it's only the repeat or recalcitrant employers that are going to be targeted?

Mr McCrea : My response to that again is stiffer penalties, you know, potentially have the ability for people to think twice about what they're doing, so we are supportive, and obviously time will tell whether more employers do the right thing. If this has an impact, that's a great outcome for people getting their appropriate money in their account.

Senator KETTER: Yes. Obviously it's highly dependent on people getting caught in the first place.

Mr McCrea : That's right, and that's why I think some of these initiatives in terms of data-matching et cetera are an important part of the package. We are looking at this as a whole package, and I think one individual piece by itself isn't enough, I think they all need to work in unison and I think that increased focus for the ATO is very important as well. This is certainly something we will be monitoring going forward to see how effective it is. We will be working with the ATO, government and others to see what else needs to be done or, if it's working, keep doing what's been done. So how confident are you that the measures like the single-touch payroll will actually assist in detecting nonpayment or underpayment?

Mr McCrea : When I look at the whole package, I am optimistic this will have an impact on SG compliance. I couldn't give you a quantum or number off the top of my head, but I think we are definitely moving where we should be, and that's moving forward, addressing this issue.

Senator KETTER: Okay. Given that we have evidence that small businesses use SG as a cash flow measure, do we still have a danger that this is going to be seen as a cost of doing business? If there is no real fear of being detected, is the situation is not going to improve materially?

Mr McCrea : My response to that is it is a complex issue. I note you've probably got some representatives from the small-business community later in the day, but I think that, when you look at this package in its entirety, if you are an employer and you are deliberately cheating people out of their SG, you should be a little bit nervous, because, if you do the wrong thing, as a last resort there are some significant penalties. So it's a bit of a big stick, but we think that that's appropriate. Will the SG gap go from $2.85 billion to zero? No. But will this make a difference? I'm optimistic it will. I think we need to look at this bill and the work of the ATO once the bill has been in operation and then swing back and see, as I said before, whether we need to do further work. But we think this bill should get through as soon as possible so we can get on with doing what needs to be done.

Senator KETTER: Okay. In relation to schedule 2, which goes to the issue of the disclosure of unpaid super, you support that mesh sure. Have you seen anything from the government that would empower superannuation trustees or employee representatives like unions to receive notice of these underpayments?

Mr McCrea : I'd have to take that on notice. That's not something that's come across my radar.

Senator KETTER: Have you seen anything which would allow these people to enable employees to go to trustees or employee representatives so that third parties could commence an action on behalf of the employee affected?

Mr McCrea : Again, that's not something that's come across my radar.

Senator KETTER: Would you support those types of measures?

Mr McCrea : To be honest, I'd really need to look at the detail and what it all meant. That's not something we've focused on, so I couldn't give you a yea or nay at this stage.

Senator KETTER: If you could take that on notice. Thank you. I don't have any further questions.

CHAIR: Thank you, Deputy Chair. Senator stoker.

Senator STOKER: I've got a question about the use of the words 'without reasonable grounds' in relation to the criminal offence. That language has been used without any detail being provided about what will amount to 'reasonable grounds', as is the case in other pieces of legislation as well. Is that generality something that you're comfortable with, or would your organisation be more comfortable if there were some prescription about what would amount to 'reasonable grounds'?

Mr McCrea : Just to be clear: what part of the legislation in particular were you looking at with the 'reasonable grounds'?

Senator STOKER: At the moment, I'm looking at page 2 of your submission—the first paragraph at the top of the page. Your submission articulates that there is an awareness that the criminal offence will only apply where the employer has failed to avail themselves of their last-chance opportunities to comply. That's certainly implied by the use of the words 'reasonable grounds', but would you feel more comfortable if there were some prescription about what 'reasonable grounds' amounted to, or are you comfortable leaving that to be a matter for, effectively, judicial determination?

Ms Stannard : Just to clarify: 'reasonable grounds' was our summation of the legislation. It is not the specific term used in the bill. The directions power does incorporate a number of checks and balances or safeguards before a direction can be issued to begin with. That requires the commissioner to assess against a number of factors. There is a defence that applies where the employer can show that they took all reasonable steps to comply with their underlying SG obligation and then with the direction. We do feel that there is sufficient clarity in that.

I guess it's also worth reminding ourselves that this provision will be triggered only where the employer has failed to comply with their underlying obligations. It's not a first-step measure. We're quite encouraged by the level of specification in the explanatory material around the sorts of considerations that the commissioner would take into account before using this power. It is made very clear that it isn't for minor or inadvertent breaches; it is for the serious noncompliers.

Mr McCrea : It's used as a last resort, so we're comfortable with what's in the bill in terms of the level of detail. Heading on Julia's point, there is a level of prescription before action will be taken, so we think on balance that the bill has got it right.

Senator STOKER: There is a recommendation on page 6 of your submission that, in relation to the disclosure of information, it be specified that 'consent is not ongoing and must be provided in relation to each disclosure'. Can you tell me something about why you're concerned to have consent required at each disclosure rather than have a global kind of consent?

Ms Stannard : What this exemption to the protected information provision is relating to is this new concept of the commissioner prefilling and then the employer making available information to the employee. As part of that the employer will have access to information about the employee's existing superannuation entitlements that they would not previously be aware of unless the employee specifically chose to share that information. Circumstances can change. We're not comfortable with ongoing, open-ended consent or for the employer to have that access on an open-ended, dip-into-at-any-time kind of perspective. We feel that it should be something that the employee shares when they choose to share, which would require a request or the giving of consent.

Senator STOKER: That may be the way to handle it, but I guess there are some other options as well. For instance, what if it were something that were required annually or what if an employee could opt-in on a global basis but also opt-out whenever they felt they needed to do so—would that be sufficient to address your concern? I'm not saying that your position is wrong. I just want to have an understanding of where in the spectrum the concern would be sufficiently dealt with.

Ms Stannard : We see a synergy with looking at the events when an employee might be seeking to utilise this service. It's typically going to be on commencement of a new employment arrangement or if at some point during that relationship they wish to change the chosen superannuation fund that the employer is paying into. We don't see it as appropriate for global or ongoing consent. It is something that should be much more event based and in reaction to that change in circumstances or the change that triggers the choice of fund.

Senator STOKER: Thank you.

CHAIR: Thank you very much, ASFA. We'll let you go.

Mr McCrea : Thank you.

Ms Stannard : Thank you.

CHAIR: I should say that questions on notice are due on Thursday, 7 June. Thank you.