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Economics Legislation Committee
01/06/2018

GALLAGHER, Mr Phil, PSM, Special Retirement Policy Adviser, Industry Super Australia

LINDEN, Mr Matthew, Director, Public Affairs, Industry Super Australia

[10:04]

CHAIR: I now welcome representatives from Industry Super Australia. Mr Linden, Mr Gallagher, welcome back. Thank you very much for appearing today. I invite you to make a brief opening statement, should you wish to do so. Do you have an opening statement for us?

Mr Linden : I just wanted to make some brief remarks. I'd firstly like to thank the committee for the invitation to appear today about what is a very important bill, in our view. This is the third occasion that Industry Super Australia has appeared in front of the committee in relation to the issues around unpaid superannuation.

Industry Super stewards the retirement savings of around six million Australians—half of the Australian workforce. Since the inception of the SG system over 20 years ago, funds have had to deal with the growing problem of a minority of employers who don't pay, or underpay, the super contributions to which their employees are legally entitled. As the committee would be aware, ISA, in collaboration with Cbus Super, undertook some groundbreaking research around 18 months ago which exposed the extent of the problem, using unit record data from the ATO. It found that around 2.75 million Australians were underpaid or not paid an average of $2,000 each—a total of $5.6 billion—in 2013-14. Subsequent estimates were provided by the ATO which confirmed the scale of the problem, with cumulative underpayments totalling $17 billion over six years.

The bill the committee is considering today, the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018, is a product of inquiry work which this committee subsequently undertook, and its report Superbad. We thank the committee for its work and the subsequent response from the government to draft legislation which is before the parliament today. This legislation is a strong step in the right direction. However, on balance, it is not adequate to deal with the scale of the problem, particularly the changing nature of work and fully harnessing technological improvements that have occurred since the introduction of the SG a quarter of a century ago.

We do welcome the enhanced penalties and powers for the ATO contained in the bill. We do welcome the inclusion of small business and Single Touch Payroll to better track wages, salary and SG payments. However, inexplicably, the legislation will still permit businesses to use their employees' super as cash flow for up to four months, from when an SG entitlement is recorded on a pay slip. This is unacceptable in this day and age, and it will continue to provide the incentive and opportunity to some employers with poor cashflow management to use their employees' super for other purposes.

The legislation also does not address the archaic $450 rule, which results in many casual and part-time workers, particularly women, not receiving SG, or makes it difficult for them to relate SG payments to their work. Our submission presents evidence suggesting there has been nearly a fivefold increase in the proportion of the workforce working multiple jobs, each paying low earnings, resulting in a larger share of the workforce being impacted by the $450 rule than in the past, notwithstanding increases in real wages.

Finally, the architecture of the post-reporting regime has some flaws. First, the SG base won't be required to be measured and reported in a compulsory nature. Second, contractors who are eligible for the SG under the SG(A)A are excluded from the compliance coverage, potentially worsening the problem. Third, SG payments that are made won't need to be reported by employers, even though the payroll software could do this as a matter of course. Accordingly, we make two recommendations in our submission for further amendments to the Taxation Administration Act 1953 and the Superannuation Guarantee (Administration) Act 1992.

I now hand over to my colleague Phil Gallagher, who, briefly, will provide the committee with some updated research on unpaid superannuation.

Mr Gallagher : Back in December 2016, we released our first report on the underpayment of the superannuation guarantee based on the data in the two per cent sample files from the Taxation Office for 2013-14. We have just received the equivalent file for 2015-16. It is the case that the actions taken by the government won't have impacted on the 2015-16 file, which, of course, refers to a period before we produced our first report. But it is important to look at what has happened with SG noncompliance in the period. Back in 2013-14 the composite SG rate, allowing for the quarterly nature of the SG, was 9.14 per cent. In 2015-16 it is 9.5 per cent. We have estimated the number of eligible SG employees underpaid in 2013-14 at 2.76 million. Our estimate for 2015-16, which is largely about labour force growth, is 2.98 million. Back in 2013-14 the estimate was that 32 per cent of employees were affected. We are now saying 33.4 per cent. Senator Ketter referred to the figure of $5.6 billion earlier. The estimate for 2015-16 is $5.9 billion. In terms of the use of salary sacrifice to meet SG obligations, back in 2013-14 we estimated that 429,000 people were in that situation. We are now saying—and this is the only number that has gone down—it is 389,000. So it continues to be a significant problem.

As Senator Ketter said earlier when questioning ASFA, we believe that the aggregate method by the ATO to measure the SG gap—people who are overpaid superannuation guarantee or who have more generous super contributions from their employer—hides an extent of underpayment. In fact, if you look at the 2013-14 numbers—the gross gap from the ATO and our number—and put back in the amount overpaid SG, you get a number which is insignificantly different from our original estimate. So we think it is a serious problem. We are very glad for the committee's attention in helping us to address that serious problem and for the government's action.

CHAIR: Thank you, Mr Gallagher. I only have a couple of questions for you. I am very pleased to hear that the ISA think that this legislation is a strong step in the right direction—thank you for that, Mr Linden. Do you believe the bill will assist the ATO in more accurately assessing the amount of unpaid super?

Mr Linden : I will make some high-level remarks—and I know there is some detail in our submission which Phil can talk to. The legislation and the use of single touch payroll will now provide a framework from which compliance activities can be far better targeted and can occur in a more timely way. The use of STP as a compliance mechanism is a strong step in the right direction, noting that the existing compliance arrangements for unpaid super consist basically of two things: employers putting up their hand and declaring that they have underpaid their employees or employees coming forward to the ATO and declaring that their employers are underpaying them, which is completely unsatisfactory. The short answer is yes, the legislation does put in place a framework through which there should be the capacity to systematically observe the payment of wages and salary and then look at the superannuation guarantee which should be paid on that base—subject to a few concerns which we have in our submission which go to some of the technical detail of the legislation and whether the base is going to be reported. It is important that the base is reported and in a timely way. We think there are some gaps in the legislation in respect of that. But, overall, it puts in place a framework which we think will improve things greatly. Phil, maybe you would like to comment further.

Mr Gallagher : One of the things that has troubled me since I started working on this issue is the fact that the superannuation guarantee base, over ordinary time earnings, was not reported to the ATO. No data system actually captured it, and the lack of that information is reflected in the structure of the SG (Administration) Act because it calculates the reduction percentage based on ordinary time earnings but it also calculates the SG amount due based on wages. In other words, when it comes to levying the charge, they wanted the wages base, because they didn't have ordinary times earnings.

Last year I had four meetings with the ATO systems staff about the measurement of the ordinary time earnings base. Each time I was told it would not be measured as a matter of course. This change in legislation, and in particular section 389-5 of the Tax Administration Act and the amendments to that, requires the reporting of the ordinary time earnings base and the sacrificed ordinary time earnings base, but it's got a clumsy construction in my view. I'm not a lawyer but, as a statistician I work with logic all the time. It says: report either ordinary time earnings or sacrificed ordinary time earnings, or both. Reporting does not make you report the amount which is the applicable amount.

CHAIR: I don't think it says 'either'; it says 'or', doesn't it? It's not either? In fact, under existing law my understanding is that both amounts—OTE, and salary and wages—must be reported to the ATO. The word it uses is 'or'.

Mr Gallagher : If it were both amounts, all you need in the legislation is both. You wouldn't say 'either or both'.

CHAIR: I think it's the reference to the word 'or' that's confusing, because it doesn't say 'either'.

Mr Gallagher : If we go to 389-5, item 2 in the table, it says:

An amount that consists of either or both of the following.

We've helpfully included them in the submission and highlighted them for you. The intent is clear. Although I'm not a lawyer, I question whether that drafting will achieve the—I don't want any more wormholes for people to sneak out of these provisions. However, the legislation—

CHAIR: My understanding, Mr Gallagher, was that in an employment contract, where there are ordinary times earnings, that figure must be reported. However, you have a different interpretation?

Mr Gallagher : Yes. It would be nice if the committee and others could think about that drafting and whether it needs to be entitled. But certainly the language in the explanatory memorandum is very strong on the base being collected, and that differs very significantly from what is current practice and intended future practice as expressed by ATO systems officials last year.

Mr Linden : I think it would be a relatively easy, in our view, thing to remedy in terms of the legislation. It's just an issue of detail. As Phil said, the explanatory memorandum seems to suggest what the policy intent is. We question whether or not the drafting achieves that, and it would be a simple drafting amendment to fix it.

CHAIR: Terrific. I was going to ask you about contract workers—in particular, you mentioned that they weren't necessarily well covered by this legislation. Obviously, STP only covers the payroll system; it doesn't cover contract workers and labour hire who are paid through an accounts payable system as opposed to a payroll system, which is why they would be specifically included. Is that something you would like to comment on?

Mr Linden : Phil no doubt will have some more detailed comments. The Superannuation Guarantee (Administration) Act, subject to the circumstances in which someone's engaged, can mean a contractor is eligible for the superannuation guarantee. The legislation, as it's currently drafted for STP in terms of its coverage, will potentially exclude those groups. It may well be the case currently that contractors in many businesses will be paid through payroll, or there may be other systems. But what we're suggesting here is that here is a cohort or group of workers who, under the Superannuation Guarantee (Administration) Act, will be eligible for the super guarantee, but a key part of the compliance regime will exclude them. That really is not good enough.

CHAIR: The ATO already provides fairly significant guidance to employers and contractors about when they should be entitled to SG, though. The ATO uses that data from fund reporting, from the fund, to give employers a much better visibility over their payments. We live in an imperfect world, but to include contractors and labour hire under the same system would be an enormous compliance burden on employers, and I'm not entirely sure— you do speak in generalities. Somewhere in your submission it said that it encourages employers to structure in such a way that they would have more contractors rather than employees. I think that's almost hiding behind the grassy knoll.

Mr Linden : It is well known, and no doubt this committee and other committees have considered the changing nature of work and the way in which individuals are engaged with employers and the arrangements underpinning that employment relationship. It is certainly the case that there's increased use, and there's a lot of talk about the gig economy and the way in which contractors might be engaged and the use of contractors for work. And there are certainly circumstances where it's appropriate for employers to do that.

CHAIR: Do you think that people hire contractors as opposed to employees so they don't have to pay them superannuation guarantee or so they can get around these rules? I feel like that's drawing a bit of a long bow.

Mr Gallagher : I think there's been a general push to restructure work so that work arrangements that involve fewer entitlements are preferred.

CHAIR: Or more workplace flexibility.

Mr Gallagher : And there's certainly significantly more use of labour hire work—temps and contractors who effectively are only supplying their labour. That was recognised in 1992 in the SG legislation which covered those workers and still covers those workers. But the labour hire workers that I've met are actually paid from a payroll. It might not be the principal organisation's payroll; it could be that they're paid out of the labour hire company's payroll, but they're paid out of a payroll. So I don't think that they're independent contractors who are bringing their own tools and are responsible for the quality of the work. They're people who are employed for a short time to do a job. We'd like as much visibility as possible. We'd like not only that the tax office can see what the ordinary time earnings base is and what the SG contributions are. With the evolution of the tax office new MATS and MAAS system, the intention is that the employee themselves will be able to see what their super contributions have been and what their wages have been for a given time period, as the ATO moves to real-time disclosure. It would be a pity if a group of employees did not have that visibility, because the great problem we have at the moment is that people wait four months; if they find they've had some super, they tend to say: 'That's okay, I got something. I don't know what I was supposed to get, because I don't know the base of this payment is.' So they don't report. The ATO overadministers on people with nil payment, because the people with partial payment don't have the facility to complain.

CHAIR: How many people are we talking about here? Do you have any sort of sense of the size of the magnitude of this problem?

Mr Linden : There are a few things there. I think in our previous submissions to the committee we provided a breakdown of those in the data where there was a nil SG payment as opposed to an underpayment. It's fair to say the majority of underpayments by number are in the category of underpayments rather than no payments. And this is a key issue. So, in getting greater visibility between wages and salary, the base to which the SG applies, and then the SG payments, there needs to be far tighter alignment between those things. As Phil said, the default at the moment is people might see some money go into their super fund and think that's adequate. Unfortunately, the opportunity is not taken through the legislation to more tightly align wages and salary and the super guarantee payments.

CHAIR: I would think, given that unpaid super is essentially a leading indicator of unpaid wages, this legislation would, potentially, by publicising information about non-SG-compliant employers, lead to the identification of those potential employers for other government agencies as well, companies that don't pay their wages.

Mr Gallagher : That's an argument that we put in our submission on the fair entitlements guarantee, that I'm glad you've repeated. In actual fact, we do think that the non-payment of superannuation guarantee, or the understood payment of the SG, is a lead indicator that something will go wrong with wage entitlements down the line.

CHAIR: It's good, isn't it.

Mr Gallagher : In terms of the amounts reported for insolvent companies, the superannuation amount, even though it's less than 10 per cent not paid, exceeds the wages amount not paid, and that's because the wages are paid on a regular payment cycle and they're always visible to the employee. Keeping their super aside—we think putting a real-time focus on that will help—

CHAIR: A good red flag.

Mr Gallagher : with non-payment of wages as well.

Senator KETTER: I want to go back to some of the issues we've just been talking about. The problems that you identified in 389-5, in reporting of ordinary-time earnings and the salary sacrificed amount, should be easily remedied by just making clear that it's both that need to be reported.

Mr Gallagher : Yes. Simple.

Senator KETTER: Let's hope that that gets picked up. On the issue of other forms of workers, you talked about labour hire workers, for example. They could be paid on the payroll of the labour hire company, in which case there isn't a problem, I presume; it's when they're on the payroll of the host employer. Is that the situation you're highlighting?

Mr Gallagher : Yes. If that's the case, the legislation has a specific carve out for those workers to say that the Single Touch Payroll does not apply to them. That would be if they're on the payroll of the host company.

Mr Linden : Yes. I want to be clear about this. What we're saying here is that we think it's important that the compliance regime that's been put in place covers all those who are eligible for the superannuation guarantee. At the moment it does not, in the proposed legislation, because of the carve out. It ought to be easily remedied. I would add, perhaps, this is not just an issue for superannuation guarantee compliance. One of the reasons and rationale that the government has put forward for the introduction of STP is that it gives them much greater visibility around income and earnings for other purposes, including PAYG tax, including social security benefits.

The exclusion for this group of workers means also that government will not get visibility around that income and earnings for those classes of workers in respect to some other activities which the government may be interested in. So I think there's a broader issue here that's important. For the question that we're dealing with today, with unpaid superannuation, it's inexplicable that a particular cohort of workers who are eligible for the superannuation guarantee under the SGAA would be excluded under the STP regime.

Senator KETTER: I'm interested in your updated figures, which suggest that the problem's certainly not going away, and it's increasing—would you say?—generally in line with the size of the workforce.

Mr Linden : Yes. We've discussed today that the ATO's done some aggregate top-down estimates. We've explained that that understates the problem, because they're counting above-SG payments by employers, which offset below-SG amounts. Either way we're talking about an awful lot of money. We obviously have put forward a very strong view, backed by detailed analysis, that this is a problem now approaching $6 billion a year—which is around 10 per cent of existing superannuation guarantee payments which are made by employers. This is a big hole in our superannuation system, and remedying it and ensuring people get their entitlements means their superannuation savings will grow, they can have a dignified retirement and it will take pressure off the age pension in the long run. So getting this regime right, now that we have an opportunity, we think is vital.

Senator KETTER: Can you explain why you use an 11 per cent figure in terms of the cut-off for SG payments above the minimum?

Mr Gallagher : That's to make sure that we've got actual generous payments. There's a small degree of perturbation in the ATO data—it's not the original value; they slightly shift it—and this gets us beyond the point where they might have shifted those values. Similarly, when we were looking at the previous work on the SG, the underpayment cut-off was 8.5, not 9.25. So, we go below: we go 92 per cent of the stated number after an ordinary time earnings adjustment. It's just to make sure that any randomness introduced by the ATO has been taken out. Also there are timing issues—we don't want to get down to the dollar on a timing issue.

Senator KETTER: So it's a fairly conservative analysis?

Mr Gallagher : Yes, it's deliberately conservative below the line and above the line, because we put in two levels of adjustment to get away from wages.

Senator KETTER: How would you score this government's approach to unpaid SG if zero was at the worst end of the scale and 10 was at the top?

CHAIR: Deputy Chair, that's a terrible question.

Senator KETTER: Well, I ask this from time to time.

Mr Linden : I think it'd be a bit difficult to attribute a number to it. It has taken far too long to get on top of this issue. We're very pleased to see that there's legislation—a serious effort—that's now being made to address this issue. We can see, when we looked at the data, that this is a problem that has dragged on for far too long. We can see in the data that those people who underpaid superannuation in the sample file, when we look at their balances, are significantly lower than individuals in the same circumstances—their age, their sex, their income—than those who are being paid, which means there is some persistence around unpaid superannuation. It's typically not just a one-off thing which will happen one year or one quarter; it seems to be a persistent thing which suggests that some employers have been systematically gaming the system. Having a section or a cohort of employers who are not meeting their legal obligations and are able to operate their businesses at lower cost base than those who are abiding by the law is not good for employers generally

This is an issue which is relevant not just for employees, their entitlements and obviously their superannuation savings; it's an issue for competitive neutrality for employers and it's an issue for government. At the end of the day, when it comes to ensuring that the retirement system is achieving its objectives and people are retiring with private savings, it should, all things being equal, take pressure off the aged pension. So it's in everyone's interest to get this right.

Senator KETTER: You raise, as a shortcoming of the bill, the fact that it omits any consideration of the threshold per month of $450 for low-paid workers. I take it that your concern is that the composition of the workforce over the last 30 years or so, since the systems have been in place, has changed dramatically. Is that part of the explanation for that?

Mr Linden : Yes, it is. There's been a lot of debate recently about the changing nature of work, and it is certainly true. There are different reasons for the changes in the composition of the workforce, and some of those are to do with there being a big increase in labour force participation for women in particular—and that's a very positive thing. For many of them, they may not want to work full time, so part time will be a better solution for them. Similarly, employers want to have some enhanced flexibility around their labour needs. We're not suggesting that there's a need to turn back the clock in the way that people are engaged. There are obviously a multitude of different ways that people engage in the labour market. The key thing is to ensure that important policies like the super guarantee are keeping pace with these changes.

When the super guarantee was legislated, around eight in 10 workers were in full-time employment. That is not the case anymore. It's now getting down closer to two-thirds. So we've got a larger cohort of part-time employees and those working casually. And, disturbingly, as we've included in our submission, there is a significant increase in people working multiple jobs. These are people who would sit in that category of working part time or casually, but, in order for them to get enough money to pay for their needs and consumption, they have to hold down multiple jobs, and often those multiple jobs involve lower levels of earnings. Even though workers in those jobs may have total earnings which take them well above the $450 threshold, the fact that they have multiple jobs means that they will come in under it. It means that they're receiving less superannuation guarantee compared to someone else with the same earnings. It also makes it very difficult for them to relate their wage and salary income to their superannuation guarantee entitlement. If one of their jobs is not paying super, but another one is, it makes it difficult for them to track what's going on.

That is why we've argued strongly that there's a need, now that we're a quarter of a century along from the introduction of the super guarantee, to have far tighter alignment of wages and salary payments with superannuation guarantee payments. Getting this visibility between what people see on their pay slips and what arrives in their super accounts, in terms of both quantum and timeliness, is really important, we think. It's important for the engagement of members, too, that they can see that money. It means that, instead of waiting for months for a payment to turn up, or not, it's something which they can see regularly; and, if payment stops, they can potentially take some action and ask why. We think this is probably the main weakness in the proposals which are being put forward: the proposals really aren't taking into account the changing nature of work to ensure that payments are more timely, which means that there will be less opportunity, and we think overall that'll be good for business.

We know at the moment from our funds that in excess of half of small businesses currently pay fortnightly or monthly, and that's really positive, because the law only requires them to pay every quarter. But, clearly, there is a good cohort of businesses that can see that it's important to keep on top of their cash flow. We think that the time is right to ensure that superannuation guarantee is paid in real time, at the same time as wages and salary, and the system would be the better for it.

Senator KETTER: You're supportive of the introduction of the penalties in schedule 1. But, given that these penalties depend on employers being caught in the first place and then being recalcitrant and then having the penalties applied, how confident are you that measures like the Single Touch Payroll are going to lead to detection of non-payment or underpayment?

Mr Linden : We've identified some shortcomings in the Single Touch Payroll framework. We discussed the issue around the reporting of the base, which we think is important. There are issues also around the timing of that information being transmitted. In order to relate the SG payments to the base, we need to get alignment of when the two are occurring, and at the moment there's a mismatch in the way the reporting framework will work. Under the proposed legislation, Single Touch Payroll won't require employers to provide information through STP around what super guarantee they're paying. Instead, what the regime is going to rely upon is the funds reporting that information. We pointed out that a big gap here will be that anyone who is contributing to a self-managed super fund will be effectively outside the compliance net for this regime. I think that ought to be a concern. There are some key changes which we think are necessary in respect to the framework for Single Touch Payroll in order to ensure it achieves its objectives. I think that goes to your point of is it going to be an effective compliance regime? And if there are employers who do the wrong thing, will it be effective in detecting that underpayment and then, if necessary, are there penalties and action required to remedy it?

Senator KETTER: I'm interested in your views about the question I've asked ASFA. Have you seen anything that would enable or empower trustees or representatives of employees to commence an action on behalf of a worker who is experiencing underpayment? I know from the Senate inquiry there is a lot of work that has already been done to recover unpaid super, but can you see any developments in this regard to make it easier for trustees and representatives of employees, third party groups, to act on behalf of employees to get some redress here?

Mr Gallagher : No, the disclosure requirements apply to the ability of the ATO officer to alert an employee that they've been underpaid. It doesn't allow them, on my reading, to alert an employee representative. Cath Bowtell, a very serious individual from Industry Fund Services, is very much of the view that the funds themselves can do more in terms of underpayment of superannuation guarantee and to assist the tax office. This legislation gives the funds a much stronger role because it is the quarterly reporting by the funds which is the only source of information about super contributions made. The previous legislation had a provision that employers would report the super contribution and that's been removed. So funds have a role, but they're only seeing half of the story. The issue is whether it's possible, potentially, with consent for them to play a more active role.

Mr Linden : Just to add to that, one of the key issues here is whether or not there is legal standing for them to take action in any case, and currently that's not the case. The SCG regime, ultimately, means that the only party that has legal standing when it comes to unpaid superannuation is the ATO, unless of course there is specific superannuation guarantee obligations written into an employment contract. But under the SGC regime, it is the ATO, even for individuals.

If an individual realises that they are being underpaid—this is obviously an issue which the committee is aware of, having gone through the inquiry—they do not have legal standing to recoup that money from their employer in ordinary circumstances. That is a bit of an anomaly which we think perhaps should be remedied. The ATO is a resource-constrained organisation. Notwithstanding this enhanced reporting framework which will give them better visibility of what's occurring, they have resource constraints, we are concerned that still one issue which is not addressed here is that there's precious little power for individuals themselves and also those who act on their behalf, whether that be a union or whether it be some legal representation as well, if they have been underpaid, to take action to remedy it.

CHAIR: Sorry, you don't want the unions becoming the debt collectors. That's a bit frightening for a small business.

Senator KETTER: They already do that in terms of unpaid wages.

CHAIR: But you wouldn't want the union to be the debt collector for unpaid superannuation.

Mr Linden : One of the issues that you would be aware of, which we did find when we did this work, was that unpaid superannuation and issues around unpaid wages and wage theft tend to affect parts of the workforce which are more vulnerable, who may not be aware of their entitlements. It would be a very daunting task for them to go to an employer and say, 'You're underpaying me.' Many have had experiences where they've lost their employment as a consequence so there is a valid role for unions in some circumstances.

CHAIR: I agree with you, but maybe the role for unions should be to report it to the ATO and pursue it through the ATO as opposed to becoming the debt collector themselves.

Mr Linden : Senator, if the ATO had the capacity to act promptly on every complaint being made, that would be an ideal outcome. However, our experience to date has been that that is not the case.

Senator KETTER: Has there been any improvement in the last 12 months, to your knowledge?

Mr Linden : Not that we can see from the data. We've provided evidence to the committee before. Obviously some collective work which our funds do through industry fund services, with a much smaller team of members, has been able to raise and recoup significantly more, based on those resources, unpaid superannuation than the ATO. The ATO is a large organisation and we do recognise that they're making efforts to improve their work in unpaid superannuation. There's a long way to go, though, in getting this new information and being able to use it to act promptly and effectively.

Senator KETTER: What needs to change within the ATO for that to happen? It's one thing to have access to the Single Touch Payroll information and trustee reporting obligations—it's one thing to have those tools—but it's another to actually implement them and to become more proactive in this area. What—

Mr Linden : Historically, this has been a very labour-intensive task. Getting the data right and getting the data reporting right is absolutely central to addressing this issue. In other areas of the ATO's business, they take this very seriously. There's the collection of the GST and other taxes which businesses pay. Obviously some time ago, with the new tax system a decision was made to have far more frequent payment. A policy position was put that, in fact, it was in small businesses' interests to be able to manage their business better and account for tax liabilities when they are due and when they accrue. We think the same framework should be applied to superannuation. If the quality of the data is there and the framework is right, then there's the capacity to intervene earlier, which we think would be a good thing. That's why I'd encourage the committee to focus very much on the detail of the legislation to ensure that the framework is right and that it will enable the ATO to take that information and respond in a timely way when there are underpayments.

Senator KETTER: Thank you, Chair. I think my time—

CHAIR: I note that Senator Stoker has a couple of questions too.

Senator KETTER: I have other questions that I'll put on notice.

Senator STOKER: I can keep it down to one.

CHAIR: Terrific, and we can put the others on notice.

Senator STOKER: Great. You've given some really good reasons in favour of real-time reporting which I really value. Thank you for putting that together. I've got in my mind that there's a tension between the desirability for perfect information for an employee and the need to ensure that we don't overburden businesses, especially small businesses, with compliance activity that has a time cost and an outlay cost as well. Have you done any research or is there any data that we might be able to use about the expected size of the increase in the regulatory burden and having that approach for small businesses—the kind of data that might make it easier for us to understand how much of an imposition we're talking about?

Mr Linden : Sure. I'll have a look to see what further information we can provide to the committee. I mentioned earlier that, at the moment, we can observe from our funds when they segment their businesses into large, medium and small businesses. They can see at the moment that in excess of 50 per cent of some of our large funds, which we think would be representative of the small businesses, are already reporting. Obviously there's a large proportion of small businesses that are already paying much more frequently, close to real time, which is great. The key issue here, I think, is technology. There have been significant technological improvements since 1992. Even microbusinesses will now have software—you can put it on an iPad or iPhone—which manages invoicing and payroll. That software has been built with STP in mind. It is built currently with the capacity for employers to pay SG more frequently, in the course of each payroll or monthly. In fact, in some of those software programs currently it's simply a decision to click one button or the other. So, it isn't a compliance burden, surely, when the existing payroll systems that those businesses are using—and are very affordable and cost-effective and benefit those businesses to run their businesses better—currently enable them the opportunity to in fact pay more frequently without any additional compliance burden.

Mr Gallagher : If I can quickly add to that: the superannuation guarantee clearly fits with the payroll system and payroll system timing. There's no particular reason that it should fit with BAS system and GST system timing at all, but for some reason the quarterly reporting reflects the timing in that system, not the timing of the payroll system.

Senator STOKER: I take your point entirely for those small businesses that are tech savvy and that are using electronic mechanisms. But it's my qualitative experience, I guess, that there are many small businesses that are still using handwritten invoice books and things like that, so I wonder how they will adapt. If there's any data, then I'd be interested in it, but no pressure.

Mr Gallagher : The explanatory memorandum has a significant assessment by the tax office in terms of the impact. They've analysed in depth the impact of Single Touch Payroll on businesses and the extent to which businesses comply. Obviously the way the legislation is drafted and the inclusion of small employers in that legislation is something they've considered in detail, and on balance we have the legislation in front of us that says to include it and have reporting of not only wages but also the SG base with the pay cycle.

Mr Linden : The ATO Commissioner, Chris Jordan, a few estimates ago was asked some questions generally about unpaid superannuation and timeliness of payment, and he expressed a view at that committee hearing that he thought that in fact all businesses should be moving towards making SG payments at the same time as wage and salary income. And, as I said, even for very small businesses, payroll software, if they've got more than a few employees, is very cost-effective and I think on balance actually makes their job easier, compared with trying to do it by hand. So I think potentially issues around compliance costs associated with more frequent payment are overplayed, given that the technology currently allows it.

Senator STOKER: I can see where you're coming from, and I can see why the ATO would have an alignment in their argument, too. I just worry that the people who are operating from, for instance, the handwritten system are people who aren't as heard in this process; that's all.

CHAIR: Thank you very much to ISA for appearing before the committee today. We'll let you go home.