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Standing Committee on Economics - 16/03/2012

CLARE, Mr Ross, Director of Research, Association of Superannuation Funds of Australia Ltd

COLLEY, Mr Graeme, Director, Education and Professional Standards, SMSF Professionals’ Association of Australia

DAVISON, Mr Michael, Senior Policy Adviser, Superannuation, CPA Australia

GABBITAS, Ms Ruth, Manager, Contributions and Accumulation Unit, Department of the Treasury

GARCIA, Mr Thomas, Policy and Regulatory Manager, Australian Institute of Superannuation Trustees

HAYNES, Mr David, Project Director, Australian Institute of Superannuation Trustees

HODGE, Mr Robert, Principal Policy Adviser, Association of Superannuation Funds of Australia Ltd

PETERSON, Mr Brett, Assistant Deputy Commissioner, Superannuation, Australian Taxation Office

SLATTERY, Mrs Andrea, CEO, SMSF Professionals’ Association of Australia

WESTOVER, Ms Elizabeth, Head of Superannuation, Institute of Chartered Accountants in Australia

YAZDAN, Mr Cambeez, Analyst, Department of the Treasury

Evidence from Mrs Slattery was taken via teleconference—

Committee met at 09:07

CHAIR ( Ms Owens ): I welcome witnesses to a hearing of the inquiry of the House of Representatives Standing Committee on Economics into Tax and Superannuation Laws Amendment (2012 Measures No. 1) Bill 2012. The bill makes a range of recommendations to the tax and superannuation laws. Two measures have featured in submissions. The first is pausing the indexation of the superannuation concessional contributions tax for 2013-14. The second is allowing individuals who have exceeded the cap by less than $10,000 to have the amount refunded to them to be subject to income tax rather than excess contributions tax. The measure is designed to give taxpayers who have a good compliance record some relief from a tax that aims to promote compliance rather than raise revenue.

The committee will also examine two measures that will help individuals better manage their super. Schedule 5 in the bill will allow the tax office to disclose details of an individual's super to super funds. This will help members find and consolidate their super accounts.

Schedule 6 will result in employers reporting on pay slips when they expect to pay their super contributions. This will help employees keep track of their super and make follow-up inquiries with their employers.

The hearing will conclude by examining schedule 7 in the bill, which allows the tax office to withhold high-risk tax refunds for the purpose of verifying a taxpayer's claims.

I remind witnesses that, although the committee does not require you to give evidence under oath, this hearing is a legal proceeding of parliament and warrants the same respect as proceedings of the House. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. The evidence given today will be recorded by Hansard and will attract parliamentary privilege.

Before introducing the witnesses, I refer members of the media who may be present at this hearing to the need to fairly and accurately report proceedings of the committee. I now welcome representatives of the Treasury, the Association of Superannuation Funds of Australia, the Australian Institute of Superannuation Trustees, CPA Australia, the Institute of Chartered Accountants in Australia and Self-Managed Superannuation Funds Professionals’ Association of Australia to today's hearing. Although the committee does not require you to give evidence on oath, I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses.

I propose that we proceed through schedules 3 to 6 of the bill individually. I now give each group an opportunity to make a short opening statement of a minute or two on schedule 3 if necessary before we proceed to questions on this issue.

Mr Garcia : Thank you for this opportunity. The Australian Institute of Superannuation Trustees represents trustees—that is, trustee directors, and also the staff of the not-for-profit sector. We represent about 80 funds—industry funds, corporate funds and government funds—that have about eight million members altogether and represent about $450 billion in funds under management. AIST broadly supports this bill. We will be commenting, as noted here, on schedules 3, 4, 5 and 6.

With regard to schedule 3, although we do not agree with the pausing of the concessional contributions, we understand that is due to the current fiscal constraints being experienced by the government. Our main comment would be that the indexation should not be reset and, from what we understand, it has been indicated in both the MYEFO and the explanatory memorandum that the cap is expected to increase to $30,000 in 2013-14.

CHAIR: Thank you.

Mr Haynes : Continuing on for AIST, I will make some comments in relation to the disclosure of superannuation provisions and pay slip reporting provisions. AIST supports bodies being able to access information about members—

CHAIR: Sorry, I might stop you there. We will try to focus on schedule 3 for half an hour—or less. We will come back to that. Does anyone else have an opening statement on schedule 3?

Mrs Slattery : The Self-Managed Superannuation Funds Professionals' Association is an industry body representing the self-managed super funds sector. The sector itself is one-third of the superannuation pool of savings. There are 458,000 funds and approximately 840,000 trustee members in the sector. We would like to make comment on schedules 3, 4 and 5.

With respect to schedule 3 we would like to state that, in relation to the pausing of the indexation, while we understand the reasons are fiscally based, we believe it disadvantages those that are close to retirement and those that have planned to be able to consider this as part of their retirement option and are unable to, so it is a disadvantage for those particularly who have broken work patterns—women and others that are nearing retirement, in particular.

Mr Davison : CPA Australia's views on schedule 3 are more around the caps in general, the operation of the caps. We believe they are too low and inflexible. Particularly with the halving of the contribution caps in 2009, it makes it very difficult for people to save adequately for their retirement. Our concerns are around people, often in their 50s, who have paid off the mortgage, paid off education costs and had their kids move out. They are the people who often would want to put extra money into superannuation to catch up on the contributions they have lost or missed out on over the years. First with the halving and now with the freezing of the indexation what we are seeing is that the value of what they can contribute is going backwards quite considerably. Whilst we recognise the fiscal restraints as to why this is being done, we are concerned about the negative impact it may be having on future retirement savings.

Ms Westover : A lot of frustration we have seen from a lot of Australians with their superannuation retirement savings is with the constant tinkering that has been going on. There are a lot of people who want to be able to rely on the rules as they are and they are lacking confidence that the rules will actually be the same when they go to retire. So in terms of this pausing of the indexation, a lot of people are just frustrated about the previous commitments that had been made as to what they were going to be able to put into their superannuation savings. The long-term impact on that may well be significant.

Mr Hodge : ASFA is pleased to be involved in the roundtable discussion today given that a number of provisions in the bill, if enacted, will have a significant impact on the operation of superannuation funds and, more importantly, on superannuation fund members. ASFA's membership is drawn from across all parts of superannuation—public sector funds, corporate funds, industry funds, retail funds and service providers to funds. Self-managed superannuation funds are also covered through service providers to such funds and through individual members of ASFA.

In addressing any superannuation issue, guiding principles for ASFA include whether the best long-term interests of the majority of fund members are protected, improved equity across the system is promoted, benefits of implementation outweigh the cost and the system is simplified rather than complicated. In this context, ASFA has an interest in four of the schedules contained in the bill. ASFA does not have a view on the provisions of the bill which are not superannuation related.

In regard to the pausing of indexation of superannuation concessional contribution caps in schedule 3, ASFA acknowledges that this decision was taken primarily in order to produce budget savings for the Commonwealth. The latest deferral in the indexation arrangements means it will most likely be 2019-20 before the standing contribution cap is increased from $25,000 to $30,000. This measure is not necessarily in the best long-term interests of fund members given its impact on potential contributions and on confidence in the superannuation system. It is also not in the best long-term interests of the economy, as with the rapidly ageing population Australia needs its retirees to be strong consumers on comfortable incomes.

ASFA's research indicates that the contribution caps have a significant impact on the ability of individuals to accumulate retirement savings sufficient to support a comfortable income in retirement while at the same time reducing calls on government expenditure on the age pension. However, there appear to be no technical defects in the drafting of the provision. ASFA suggests that the contribution caps be reviewed with a view to increasing them as soon as the budgetary position of the Commonwealth permits.

CHAIR: I have a question for Treasury. What is the point at which the cap would be expected to rise to $30,000?

Ms Gabbitas : Based on our estimates, it will rise in 2014-15. So it is just a one-year pause. I think the confusion might relate to the way the provision changes in one of the paragraphs a reference to 2009-10 to 2013-14 in schedule 3 of the bill. It does not reset the way indexation works; it just effectively turns it off for that year. The indexation works as a function of the change in wages since December 2008. So we have not reset the indexation.

CHAIR: So it comes a year later this time but on time next time?

Ms Gabbitas : No. It is just a one-off.

CHAIR: That is what I mean. So there is a six-year period this time and then a four-year period for the next one?

Ms Gabbitas : Effectively what we have done is that, if the indexation factor would have increased it this time, it will not, but it has no impact on any further indexation in whatever year the next—

CHAIR: So we are still on a five-year cycle. It is just one year—

Ms Gabbitas : Depending on the rate of wage growth.

CHAIR: I understand.

Mr Hodge : So what you are saying is that 2007 remains the base year?

Ms Gabbitas : Yes.

Mr Davison : Our concern is that, prior to the cap being introduced, the annual contribution limit for someone over 50 was a bit over $100,000. When the cap was introduced it was still $100,000. It got halved to $50,000, and the indexation was reset to that year, I believe—2008-09.

Ms Gabbitas : Yes.

Mr Davison : We now see indexation frozen again. We appreciate it is going to be frozen only potentially for a year, but it is just compounding the losses or the lack of catch-up on that original cap. The $50,000 is a lot lower than it probably should be.

CHAIR: But there is the increase to $50,000 for people over 50 extending beyond this financial year so that would be a plus.

Mr Davison : Again, we appreciate that, but if you look at five years ago it was over $100,000. A lot of the argument for halving the caps originally was that greater tax concessions were targeted towards high-income earners, so they brought them back. We are seeing a lot of couples when they have got the financial wherewithal to contribute more—a good example is two teachers earning $70,000 or $80,000 each—would salary sacrifice one member of the couple's income into their super to try and catch up. The way the caps work now is preventing them from doing so.

Mrs Slattery : The proposal for the over 50s to have a contribution balance at $50,000 if they have got less than half a million dollars in their account, I think, is one that is going forward, and there are a lot of issues that have been raised around that in a separate forum. I know it is not for today's forum but I believe that that is a costly administration exercise for the industry, and so there is some concern about that particular proposal separately.

I concur with Michael's comments in relation to the contribution cap and the changes. Also, when you consider that the people that are currently saving for their retirement have less opportunity due to the caps when they are closer to retirement, they are the ones that are currently disadvantaged. It is important that they have the opportunity to be able to contribute when they have planned to in particular based on the confidence in the system that it will not change. That is also a serious issue. This is just delaying the opportunity for people to be able to put a little more away and it is affecting those in particular with the current contribution cap limits that have the opportunity or the wherewithal when they may be able to put some more away as they are closer to retirement. I think it is very important to understand that, while there are other measures around, those measures are proposals and this particular measure is something that will have more of an immediate effect.

Mr CIOBO: Can I ask Treasury: what is the policy rationale for the pausing of the indexation?

Ms Gabbitas : There are two elements to the rationale. The main one is in a tight fiscal environment the government indicated that a one year pause in the caps is warranted, given the saving it makes to the bottom line. The other rationale is that the caps in the current environment are quite generous. As an example, someone who is on what is termed the maximum contribution base, which is a high-income earner who is just getting the superannuation guarantee contribution has scope to contribute in addition to their superannuation guarantee of around $9,000. Someone who is on a lower income level has scope to make significant voluntary salary sacrifice or other employer contributions and still fit within their cap. For the majority of people, the cap is more than they are able to, capable of or want to contribute to super, so I acknowledge there are a proportion who clearly would like to contribute more, but in general the cap accommodates the majority of people.

Mr CIOBO: When you say a tight fiscal environment, what do you mean exactly?

Ms Gabbitas : The government is committed to returning the budget to surplus in 1213 and, as part of that, it has had to look across the board, not just at super, to find a range of savings to deliver that goal. It thought that pausing the indexation of the cap was reasonable in that environment.

Mr CIOBO: When you talk savings of $485 million, do you mean increased taxation of $485 million?

Ms Gabbitas : In one sense it is because super is concessional and effectively means that people will be paying more tax.

Mr CIOBO: Is the government collecting an extra $485 million in tax as a consequence of this decision?

Ms Gabbitas : Yes.

Mr CIOBO: So the government is collecting an extra $485 million because the budget has been in significant deficit. Can you remind me what the deficit was last year versus the forecast?

Ms Gabbitas : Sorry, I have not got that in front of me.

Mr CIOBO: I do not have it, either. I think, from memory, the forecast was for a $20 billion deficit and it worked out at around $37 billion. Does that sound about right?

Ms Gabbitas : It is not my area of expertise.

Mr CIOBO: Treasury is not familiar with what the budget deficit was last year?

Ms Gabbitas : Treasury is as a whole. But I could take it on notice if you prefer.

Mr CIOBO: Okay. Is it possible then from a policy perspective that had we not seen, for example, $1 billion of wasted expenditure on the BER and a $1 billion on pink batts, it would not be necessary to have this extra $485 million of tax on concessional superannuation? Are they the kind of trade-offs that we are talking about?

Ms Gabbitas : That is a matter beyond the scope of my area of expertise.

Mr CIOBO: Let me put it another way—if we had not had to spend $1 billion extra on BER, would it be necessary to raise this $485 million in extra tax? Presumably, we would be in credit of around $515 million.

Ms Gabbitas : That is a matter for the government to make policy based on the fiscal environment it is in. As I said, it is beyond the scope of my expertise.

Mr CIOBO: Can I ask about the second aspect. You spoke about the current caps being, to use your words, 'quite generous.' I am just interested in getting some comments from the Institute of Chartered Accountants and CPA Australia. In particular I think you, Mr Davison, made comments that the caps are actually quite low in comparison to where they initially started. I just wonder how we reconcile the views of CPA Australia and the Institute of Chartered Accountants with Treasury's comments that the caps are actually quite generous, because they seem to be coming at opposite ends of the spectrum. Have you got some comments on that?

Mr Davison : Only to say that we would disagree with that. We believe the current concessional caps compared to the previous contribution limits, that is pre SimplerSuper, are considerably lower. The cap in 2006-07 was a bit over $100,000 for someone aged over 50. Now it seems to have been reduced to $50,000 and it has not been indexed since it was introduced. In fact, it has been halved since it was introduced. We would argue that it is not generous at all. It has certainly gone backwards.

Ms Westover : I would disagree with Treasury's comments as well. I think that the thing you need to understand about contribution caps is that it is a 'use it or lose it' regime. People do not have the capacity to put extra amounts into superannuation for a long time in their working lives—they are raising families, paying off mortgages and that type of thing. So at the time when they are able to, they are usually on a higher income. The kids have left school and the mortgage is paid and they need to be able to catch up. That is why it is important that these concessional caps remain at a level at which they can catch up.

Mr CIOBO: Currently, the average age of a woman having her first child is over age 30. If you think of a couple, say, in their mid-30s with small children, then presumably, by the time those children have left home, they have paid down the bulk of their mortgage, if not all of their mortgage, they will probably be about age 50. I take it from what you are saying—I am not wanting to verbal you, so correct me if I am mistaken—what I am hearing is that, more than likely for the average person, the time when they are seeking to maximise their savings into superannuation would be, effectively, from 50 onwards.

Mrs Slattery : That is correct.

Mr CIOBO: What exactly is the operation of what Treasury says are quite generous caps—and what you say are not quite generous? Have you done any modelling about if it had remained at the level it was introduced at by the former coalition government versus the caps as they now exist, what the impact is on the average superannuation account, for example? Has anyone done any modelling on that?

Ms Westover : We have not done any modelling, but perhaps I could defer to Treasury. When the caps were first introduced, my understanding is that modelling was undertaken.

Ms Gabbitas : Modelling was undertaken. I do not, unfortunately, have it here.

Mr CIOBO: Would you be able to perhaps take that on notice, if Treasury has done modelling. Can you provide to this committee what the impact would be on average super account balances, based on the scenario that we have just discussed here this morning?

Mrs Slattery : If I may interrupt, I would appreciate the modelling from Treasury. I know that that has been done. The modelling completed by Treasury is mainly on the tax concession provided to the member of the superannuation account, is that correct? There is no modelling done other than the tax concession payment, is that correct?

Mr CIOBO: That is a question for Treasury officials, is it?

Mrs Slattery : Yes, please.

Ms Gabbitas : The modelling that is done normally looks at both the number of people impacted as well as the fiscal cost. In some cases, we look at the impact on how much less or more, depending on the change, someone would contribute; hence the result on the balance. In this case, we may not have done, for this measure, the balance impact because it is just a one-year, once-off impact. So, while it might reduce someone's ability to contribute by $5,000 in one year, it is just a one-year transition. So, in aggregate, the difference would be quite small on most people's balances.

Mrs Slattery : There is a research paper prepared by David Knox at Mercer which looks at the tax concession and the government's spending on the age pension, and it is showing, when the caps were at $100,000 and $50,000 for those under 50, that there is very little difference in the payment by government for the age pension and the concessions provided to those who have not relied on any government support for a period—and that period was 40 years. I would like to suggest that report be tabled at this committee for your view as well.

We have also done a research project where we surveyed those people in the self-managed super fund industry. We conducted research asking the trustees what they would have or could have put away into super had the caps not been lowered to $50,000 and then to $25,000. The range there was: $15 billion was not contributed two years ago and $12 billion was not contributed in the last 12 months.

As another adjunct to that, the ATO has done research and statistics on the excess contribution tax issue. If you look at it in conjunction with the cap, it shows that 39 per cent of people who had excess contribution tax in 2008 were on the highest income bracket and 31 per cent were on 20 per cent or lower as an income bracket, and 30 per cent were between the 20 per cent income tax bracket and the highest income tax bracket.

So, if you look at those separately, they show different things. When you start to look at them in conjunction with each other, the impact of the contribution caps on the contributions that have been put into super in the last three years have been impacted quite significantly.

Mr Clare : ASFA has also been quite active in the research area. We recently released a paper on the equity of government assistance for retirement income, covering both age pension and tax concessions. Underlying that research was data from both the ABS and the HILDA survey—which you might be familiar with—which looked at the level and pattern of concessional contributions to superannuation both in 2005-06, where Treasury has also published through their retirement income modelling group material. We more recently have data on the amount of contributions going in. I can revisit that paper and I think I can extract or prepare estimates of what seems to have been the impact of the contribution counts. Aggregate concessional contributions are lower than they would otherwise be and the impact on certain account balances would be marked.

Mr CIOBO: Thank you.

CHAIR: Can I just ask one. I know Treasury when it talks about generosity is referring to the number of people who actually go to the cap as a proportion, which I suppose is relatively small. I understand from the super industry perspective exploring what people who can contribute above the cap might contribute is quite a lucrative area. But do you have any research on whether this majority of people who do not go anywhere near the cap are capable of actually lifting their contributions, because there are two sides to this, isn't there? There is whether people actually are using what is possible now, and the lucky ones who are actually capable of going further.

Mr Clare : Generous is a very value laden term. I worked at Treasury once and I understand—

CHAIR: I will take the word 'generous' out. My understand is that the people, for example, who go to the cap, whether because they cannot or did not think it is quite low. My question is: does the super industry explore how you get more people up to the cap; or are you focused on the more lucrative part of that industry which can exceed the cap if the cap was raised?

Mr Clare : From the point of view of ASFA, we are very much interested in having a much greater percentage of the population being able to achieve at least a modest standard of living in retirement and preferably comfortably. The thrust of ASFA's policies have been about improving retirement outcomes rather than decreasing them for a proportion of the population.

The other point to make about the claimed low percentage of individuals being affected by the cap says that you are only looking at a percentage in any given year, rather than the impact over the entire lifetime of an individual. We have already had comments this morning about the pattern of contributions for families, where due to child-bearing, saving for a house, starting your career, it is not very surprising that a 22-year-old with a part-time job and starting university is not really impacted by the contribution caps. But for that person when they are aged 48, 53 or even closer to approaching retirement, it is a very relevant concept.

In terms of generosity and the percentage affected, I think you need to have a look at the lifetime impact. We have also had mention of the offset through decreased aged pension expenditures, which are in the future as a result of saving superannuation now. We would argue that needs to be taken into account too in considering the claimed impact on the budget from the contribution caps, which have progressively been tightened over the years and through the effects of inflation. Even the current values have been eroded with pauses to indexation and resettings over the years and the like. Treasury has certain ideas and concepts of generosity in the community. We have surveyed the community. Those concepts of generosity are interpreted by others differently in many instances.

Mrs Slattery : I would supplement what I was suggesting around the SMSF sector. The majority of people who reside as trustees are small business owners, self-employed, professional, primary producers, et cetera. Our sector has varied life-cycle events and a range of opportunities or a lack of opportunities at various stages to be able to put away and use the caps, depending on who they are. I support the concept that we need to look at more than one year. As Liz said, the concept of 'use it or lose it' is very much one of the problems with the caps being lowered. The concept of the indexation being paused for 12 months is quite a serious issue for those who are much closer to retirement, and who had that option of being able to do just a little more towards saving for their retirement and to contribute towards some form of adequate retirement. The three objectives of superannuation were to create a pool of savings investments for Australia, to create a retirement income for Australians and to reduce the reliance on the age pension. With the caps being reduced considerably, and a significant bulk of population in Australia—the baby boomers—hitting retirement now, we have a problem.

Another point is that the age pension was reduced from an adequate pension to a poverty-line pension four years ago. We have an issue now that is more relevant to those who are currently around the retirement age, particularly those who are over 50 and over 60, where the opportunities are becoming less and less for them to be able to contribute towards having any kind of retirement. The restrictions on the caps, and things like indexation, are again significantly restricting the opportunities for those people who have the capacity to provide for a retirement to reduce the long-term and short-term burden on the government purse for the pension.

CHAIR: Yes, you really do need that longitudinal budget of a life, don't you, rather than the vertical ones, to make the case?

Mrs Slattery : Yes. That is why, as I said before, I am happy to provide our research to the committee, and I encourage you to get Mercer's research as well.

Mr Haynes : Ours is quite a different perspective. While AIST does not agree with the pausing of indexation, and we do not think the caps are overly generous, we are also of the view that this is not the main game as far as equity and superannuation. In discussions with our member funds, only one, two or three per cent of members in any given year are typically affected by the operation of the caps as they stand.

Mr CIOBO: That may well be true. What range did you say? One, two or three per cent?

Mr Haynes : One, two or three; it varies, obviously, from fund to fund.

Mr CIOBO: Sure, but I wonder whether it is an 80/20 rule. Correct me if I am wrong, but I suspect that what you see is that, as people get closer to retirement age and are perhaps in a better place to make larger contributions, the reason it is a small percentage of people is that people are doing the bulk of their saving later in life.

Mr Haynes : That is absolutely correct.

Mr CIOBO: Given that that is the situation, the effect and the operation of both the cap and the pausing of indexation is to deny those at the very point where they are seeking to maximise their potential to provide for their retirement from doing so—or not denying them from doing so but rather impeding them in their ability to do so.

Mr Haynes : That has an impact on a number of people. I certainly do not believe it is the majority of people, or close to a majority, but it does have an impact on some people.

Mr CIOBO: But this goes precisely to my point. I am not talking about the majority. This is exactly—

Mr Haynes : The majority of people in that age profile and cohort. Most people over 50 are not in a position to make a contribution of $50,000 or even $25,000. It only affects a minority of people in that situation. Our position is to support indexation and, not thinking that the rules are overly generous, we make the point that it does not have an impact on everyone in that age bracket approaching retirement.

Mr CIOBO: What percentage of people are fully self-funded in their retirement?

Mr Haynes : A very low proportion of people are.

Mr Clare : There are some figures that can be a bit more precise than that. Around about 20 to 25 per cent, you could say, are fully independent of the age pension. Around about two-thirds to 70 per cent of those of age pension eligibility age and above receive some part of the age pension or full age pension. So it depends on how you define self-funded retiree. But it comes down to between 20 and 30 per cent of that age cohort who are still working and have a public service or a corporate defined-benefit-pension, which might be of a reasonable level, or have sufficient own superannuation or other investment savings so that they do not qualify for the age pension. So it is a proportion of something in that order.

The Treasury estimates going forward have more a change in the mix of reliance on income sources in retirement, where you might have two-thirds to 70 per cent of people still receiving an age pension, but many more receiving a part age pension. The income and asset tests for the age pension mean that you need a reasonable level of income before you receive no age pension. We would argue that that is quite correct, otherwise you have effective marginal withdrawal rates of the pension of over 100 per cent, which we say is not equitable or sensible. It gives the wrong messages about private provision for retirement. But we can give you some more precise numbers. Those are just off the top of my head for the moment. We have some summary numbers readily available.

Mr Haynes : And presently the average retirement payment is of the order of $198,000 and at that level people receive a significant pension payment.

Mr Clare : ASFA also has prepared those average figures for account balances at retirement. We have a special extract from ABS data and a comprehensive paper on the distribution of account balances. We argue that there are far too many low account balances and far too few substantial account balances, and we have the data to indicate that at the moment.

CHAIR: We will move to schedule 4. Are there any opening statements.

Mr Clare : With regard to the refund of excess concessional contribution—schedule 4—ASFA supports the introduction of the arrangement whereby an individual can exercise an entitlement to have excess contributions of up to $10,000 removed from a superannuation fund and then be included in the individual's assessable income. Accordingly, it does not oppose the passage of the schedule. That said, ASFA considers that a more fundamental review of the contribution caps and the consequences of excess contributions should be undertaken, as the measure in the bill will not in itself be sufficient to deal with the inequities in administrative costs involved in the current concessional and non-concessional contribution caps.

One measure that would remove some current manifest inequities would be to de-link excess concessional contributions from the calculation of non-concessional contributions. The interaction between the two caps, particularly when an individual has made use of the $450,000-over-three-years rule, can and does lead to inequitable treatment of individuals, with massive tax penalties that are not commensurate with the initial contribution breach. More fundamentally ASFA considers that the concessional contribution caps are too low. We have had some discussion about that this morning.

I should touch upon the proposal that has come from ASFA in the past that a better alternative to the quite complex and difficult-to-administer arrangement of the higher contribution cap for those aged 50 and over linked to account balance would be to have a uniform $35,000 contribution cap for persons of all ages. That would have equivalent cost to revenue of the alternative mixture of contribution caps. Some persons aged over 50 would have a lower cap and some aged under 50 would be able to make use of the higher contribution cap. In summary, while any measure that assists in remedying inadvertent breaches is welcome, we say a more fundamental approach to the current problems is needed. Part of that would be restructuring the caps.

Ms Westover : In relation to the refund of excess concessional contributions, the institute appreciates the policy intent of this legislation, which is to provide some relief from excess contributions tax to those Australians who have inadvertently made, or indeed have had made for them, superannuation contributions above the upper limit of the concessional contributions cap. However, I would raise two issues. This particular measure, or the provision of this relief, we believe is very restrictive. It is too limited to truly provide any real relief. I am happy to discuss some of those points as we develop the conversation.

Secondly, and possibly the bigger issue, is the policy around excess contributions and the imposition of an excess contributions tax, the regime for which this legislation is attempting to provide relief. While the institute supports the contributions cap regime, we do not believe that the mechanisms dealing with, and the penalties for, breaches of the caps are fair or equitable.

The relief proposed in this legislation we are discussing today is far from being an appropriate or adequate solution to a flawed tax. Fundamentally, we need a review of the excess contributions tax regime and not really perhaps the bandaid solution this piece of legislation brings in.

Mr Davison : CPA is concerned about the operation of contribution caps in general. As we said earlier we believe they are too low. We believe they are inflexible in as far as it is a fixed amount each year. So, you are not necessarily able to contribute when you are most able to or contribute a higher amount when you are most able to. This is particularly so for people trying to catch up later in life when they have removed all of the other financial burdens; for women returning to the workforce; and, particularly, for the self-employed, who may have a number of lean years and then when they have a couple of good years will try to contribute to catch up and build up their superannuation.

It is also very complex—to understand both the caps. We are seeing a large number of people exceeding the caps, even by small amounts, and being subject to quite punitive tax penalties as a result. We understand that the government has put measures in place to try to reduce the impact of the caps, particularly the higher $50,000 concessional cap, subject to the $500,000 account balance threshold. Although, we believe that is essentially unworkable from an administrative point of view and that it will be costly.

The measure in schedule 4, which is the refund for amounts over $10,000—the concessional contribution. We support the notion of the refund; however, we are concerned that its one-off, use it or lose it nature is going to unfairly penalise people. If you contribute a dollar over your concessional cap you can have the dollar refunded, but it means you can never again seek a refund. Similarly, if you exceed the cap by $10,001 you will miss out on the refund. For people who are going to exceed the cap for reasons outside their control—for salary sacrifice of bonuses et cetera—if they exceed the cap on a regular basis they only get the benefit of this once. We believe, as does the institute, that this measure is simply another bandaid on what essentially is poor policy. We believe the caps should be reviewed in their entirety. Our proposal for the concessional cap is that we should have a lifetime cap at $25,000, where any cap that is not used in a particular year is rolled over to the next year. It accumulates over the lifetime. With the contribution reporting to super funds we now have the ability for the tax office to keep track of those caps and report back to contributors on an annual basis to control it. So it is a much tidier mechanism than we had under the old RBL regime.

Mr Garcia : With regard to schedule 4, AIST made submissions on the consultation paper last year and the exposure draft this year. In both submissions and also in the one for concessional caps over $50,000, we put forward an alternative solution—that is, to introduce the bring-forward rule for the concessional caps as well, the one that also works for non-concessional contributions.

Using the bring-forward rule for concessional caps as well would give individuals greater opportunity and flexibility to manage their concessional contributions. It could significantly reduce the excess contributions tax problems, as individuals who breach the cap will have two years to rectify the problem. It will also allow individuals nearing retirement the ability to contribute higher amounts, up to $75,000, if it is based on the current $25,000 cap.

As the bill stands, we broadly support the intent of the legislation to give opportunity. However, we, along with some of the other witnesses here, feel that it is unnecessarily harsh and inflexible. Firstly, we believe it should not be a one-off measure and that individuals should have the option each year to take up the commissioner's offer. If it is to remain a one-off offer then we believe that at least the individual should get the opportunity to choose when they take up the offer. At the moment they do not get a choice. It is a use it or lose it breach.

CHAIR: And on the phone.

Mrs Slattery : PAA is generally supportive of the policy intent. We have actually made a submission previously with regard to supporting the notion of a refund. In fact, our submission—of which I believe you have a copy—was supported and signed by nine associations, including the accounting associations, the financial planning associations and some other super associations,. But we do not support this current arrangement with a $10,000 amount. We are also very concerned about the contribution cap policy generally.

In relation to the matter of excess contributions, we look at it as part of a bigger picture. It is actually taxed on concessional and non-concessional contributions. We believe that non-concessional contributions which have already been taxed should be removed from this particular reform. We believe that the severity of the penalties applied, when the government is encouraging people to save for their retirement as the main savings vehicle in Australia, is not supportive of that particular objective.

We acknowledge the need to deter people from making excess contributions, but we believe that this solution falls well short of any form of solution that looks at the problems of excess contributions tax. It really is, as the others have said, only a bandaid. We do not like linking the dollar amount, as there will be substantial equity issues around who is in and who is out. There may only be a couple of dollars difference in relation to that particular area. While we are aware it is meant to address a significant proportion of the issues at a particular time, it does not address this issue, and I will use an example. Legally, an employer must contribute on behalf of an employee. Somebody might be working in the mining industry, working as a contractor, working at a university or might have a range of directorships et cetera. They have a range of employers and, legally, each of those employers has to now pay their SG to a certain point and often those certain points may allow those people to actually go over there cap. There is nothing that anybody can do.

So there are many issues where a once-off will not be addressed. Some of those issues are inadvertent, some of them are mistakes in the way that people have administered the issue and some of them are actually legally bound where there is no way out. So we believe that the once-off issue is inappropriate. We also would like to have a review of the excess contributions tax issue and the contribution caps together. We believe that review will be able to provide a solution for the problem rather than just have this solution address a few of the problems on a once-off basis.

CHAIR: In an attempt to pull this away from the discussion about what the cap should be, I would assume that, even if the cap were raised to $35,000, as long as you have a cap people will breach it. If we can talk about the process of what happens when a person breaches the cap, that might be helpful. I assume we all agree that if it were $100,000 someone would still inadvertently breach it. Why is it a one-off? What is the policy reason for a one-off?

Ms Gabbitas : There are two elements of the rationale for that. One is that a lot of people say they were unaware, that they were trying to do the right thing but they made excess contributions, that they should not be penalised the first time and should be given a second chance. That was a key part. The intent of the measure was that people should not be penalised, especially individuals who are on less than the top marginal tax rate because the difference of the taxation treatment really affects people on the top marginal tax rate. Whether they take a refund or not, the taxation arrangements will be identical. That was a broad part of it.

The other reason for it being a one-off is clearly that there would be a higher fiscal cost if you made it an ongoing measure and indeed it would differentiate between those who complied with their caps and those who view this as, in effect, raising the caps for a group of individuals.

CHAIR: What if an individual has an employer who pays the super late?

Ms Gabbitas : The government has a range of other measures being introduced, of which one of the latter measures is the start of the process of improving the reporting. People do not know the date their contributions are going to be paid so there is a margin where they may misjudge in which year a payment is being made. The government has in place and is working on reforms to address that and give people more certainty about when their contributions will be made.

Mr STEPHEN JONES: How much do we know about the cohort who are currently breaching the cap? For example, do we know how many employers are simply complying with their STL?

Ms Gabbitas : We do not have data about the reason someone exceeds the cap.

Mr STEPHEN JONES: Surely that would be interrogable if they are a wage and salary earner.

Ms Gabbitas : We have some broader data about the characteristics—wage, salary, how much they breached the cap—but we do not know the exact reason which led that wage or salary earner or self-employed person to exceed the cap.

CHAIR: On the other side, do you have an idea what proportion of people who breach the cap do so intentionally for fraudulent reasons or trying to hide something?

Ms Gabbitas : There is a group of people who occasionally will breach the cap as a deliberate strategy, as part of their retirement strategy. How or why they might do that, if they are an individual on the top marginal tax rate, if they had taken the money as salary instead of putting it into superannuation, the same taxation arrangements work in that year. There are a group of people who occasionally write ministerials to the government noting that this is part of their retirement strategy. It is not a large proportion.

CHAIR: But if there were not penalties, then a small proportion would understand it for cash flow management—being ahead this year and paying it next year.

Ms Gabbitas : Yes.

CHAIR: I understand that, but you do not have a sense what proportion of people who are inadvertently breaching are being caught under this regime?

Ms Gabbitas : No.

Mr STEPHEN JONES: To what extent do the pattern of contributions, where there is a breach of the cap, arise out of people dumping a significant proportion in the last quarter of a financial year or even in the last month of a financial year? Do we have any data on that?

Ms Gabbitas : Not on the profile, although you would expect that the contributions that are most likely to lead to you exceeding your cap are the last contributions you make.

Mrs Slattery : SPAA, when the excess contribution tax became an issue, did a survey of its members and asked for some real-life cases. We received 69 cases over a period of about a week from our members, of which one was deliberately breaching the caps. The other 68 cases all had other issues as to why the caps were breached. They ranged from mistakes made by the funds themselves in their naming conventions through to administrative errors; tax returns requiring cents on a tax return that led to 45c extra being on a tax return, which pulled up a $73,000 excess contribution tax bill because it was concessional and non-concessional; groups like university lecturers and professors who have been, as part of their contracts, been compulsorily putting away 17 and 18 per cent—they take two or three years to have wage negotiations and salary arrangements renegotiated to see whether or not those matters can be readdressed; and people not understanding the rules. I am happy to submit that to the committee. I have submitted it to Treasury in the past as part of our consultation and submission process, but it gives you a bit of a broader idea of the range of matters and how they occurred.

While this measure of a $10,000 addresses some of those issues, there are still a significant number that will continue to breach inadvertently because of legal issues, the legislation as it stands or matters in relation to their employment. For instance, there was one who was paid a bonus because he had been a 30-year employee . It was unexpected and it was paid in the July. He retired on the June 30, and it gave him $158,000 tax bill because they had prepared and planned for their retirement. It kicked them over because of the concessional and the non-concessional being included.

CHAIR: Thank you, that would be useful. Again, we will need anything that you are providing—

Mrs Slattery : I can get all of those things emailed to you today.

CHAIR: Thank you. We have got a very short time frame.

Mr CIOBO: A lot of the discussion has focused around people using it to manage cash flow et cetera. I am wondering whether in fact the majority of the reason why the excess contributions is a consequence of income volatility. I throw that open to anyone to respond to.

Mr Garcia : I think that the AGO has data on this: on the number of people that have breached the caps and the amount that has been breached. I believe the average breach is about $1,800 or something like that, and I am pretty sure that the ATO has this information. The reason why the $10,000 was nominated is that it would cover a significant proportion of the people who were breaching. I think some of the examples of income volatility come from there sometimes being an extra fortnight in the year of payment. People are not aware of that payment going in, and it goes in at the end of the quarter. As you say, as wages are increased with a WDI—I guess it links back to schedule three—and, if that does not move, then that will increase their salary sacrifice if they do it on a percentage basis rather than a fixed income basis. They might only be breaching by a few dollars, but it puts them into that excess tax. That is why we think it should be an ongoing provision.

Mr CIOBO: So am I right in drawing from your answer that the pause in indexation is likely to lead to an increased number of people putting in excess contributions?

Mr Garcia : It could do. There would need to be communication from the funds which they do each year. At the end of last year a number of funds put out that sort of communication, because there was an extra fortnight. So they were warning people: have a look at your salary sacrifice and anything else you are doing with regard to concessional contributions because you could go over.

Ms Westover : I would to refute one of Treasury's comments about the timing of the rationale for this one-off refund. The reality is that most people will have breached a second time before they become aware of the first time, and that is due to the reporting mechanisms of contributions into superannuation. The second year has already passed by the time all of the information has accumulated, which could be from a variety of super funds and indeed that person becomes aware of a breach. So the notion of a one-off only being required is questionable.

Mr CIOBO: You are saying there are other issues.

Mr Haynes : To follow up on that, I will make the general point that it is in fact hard to keep track of your individual contributions to super, and you do not necessarily know what is on your payslip is what is being reported to your superannuation fund. There is no current ATO facility where you can look at all of the contributions that have been recorded. There is the ATO super online, which is under development, but that is not available as yet. You do not necessarily know that if you go to a couple of the superannuation funds where you know you have got membership that that covers the universe or the funds that have received contributions on your behalf.

Mr CIOBO: That is what one of the measures of the bill goes to: base level reporting.

Mr Haynes : Yes.

CHAIR: That will take time but it sounds like there is general agreement that something needs to be done fairly quickly because of the number of people who are going caught now. So a bandaid is probably better than nothing, but you would like a bigger bandaid or two bandaids—more bandaids.

Mr Haynes : Exactly.

CHAIR: Is that a fair summary? And you want a longer term answer.

Mr Haynes : Yes.

Mrs Slattery : A bandaid measure is a costly measure to introduce. It is an administration burden on the industry as well as the ATO and it is not addressing the basic problem that is occurring. It is a solution that is a bandaid and it is a one-off. I would ask that you consider that this is certainly a move in the right direction, but if we do not address the actual problem then even the one-off will become a problem in itself going forward.

CHAIR: If one of the very real solutions is a greater ability for a person to manage their super contributions through better information et cetera, that is not something that is going to be easily made available. It will take a bit of time to do, and surely one of the most realistic answers is that people are better able to manage their own affairs.

Mr Garcia : The proposed ATO portal that is coming through SuperStream will provide a lot of that information for individuals and super funds to be able to manage these sorts of things, but that is still some time away.

Mrs Slattery : I think there is also the consolidation of the industry where organisations are buying old life policies and putting them into super policies. A range of things that are cropping up that mean that the caps are being breached where people are not aware that that was a super policy, for instance. There are many areas that are going to be hard to capture even in the new system. A solution to fix the problem is something that is still a better option, I think, to consider even though this is a progressive step in the right direction.

Mr Davison : Our understanding is that the excess contribution tax regime is there as a disincentive for people not to breach their caps, and people are inadvertently going to breach their caps. We should keep it as simple as possible to allow them, if they breach them, to make amends and get a refund or whatever to correct it. Having this measure where it is a one-off and then talking about having to introduce reporting and linking it to the individual to try and keep track of whether they have breached once or twice or whether they are going to breach et cetera is making it more complex. In many other regimes—even in the tax regime—if you pay the wrong tax amount or get your tax return wrong et cetera it is pretty simple to fix it. There are minor penalties. But you can correct it multiple times—it is not a once-off thing; it is not 'use it or lose it'. This is a bandaid, but it will alleviate a lot of problems with the current system. But our primary concern is that the one-off nature of it is adding more complexity. No matter how good the reporting is, people are still going to get things wrong. There is still going to be confusion. This will unnecessarily penalise people.

I want to pick up a point that Treasury made before when they talked about how there would be a fiscal impact if it was not a one-off thing. Given that this is supposed to be a disincentive, we are concerned that it appears to be becoming a revenue stream for the government. There should be no fiscal impact whether it is a once-off or multiple use thing. There was also the point about the tax position of an individual not being any different whether they breach it or not. Unfortunately, there is a flow-on effect if you breach your concessional cap and you happen to make non-concessional contributions up to the limit. The combined excess tax is actually 93 per cent, not the top marginal rate. As Ms Westover said, considering timing issues, you may have breached your cap once or twice before you find out about it and even if you get the refund once you may still be subject to a 93 per cent tax penalty for the subsequent breaches.

CHAIR: Is there any way to separate through some sort of regime the people who inadvertently do it and those who—and this would be a very small number—do it as part of their cash flow management on an intentional basis?

Mr Davison : People who do it intentionally gain no tax benefit. They are still paying the top marginal rate.

CHAIR: There is a serious cash flow benefit if you—

Mr Davison : That is probably the minority. It comes back to using a sledgehammer to crack a walnut. This is overcomplicating the law and regulation for—

CHAIR: A very small number.

Mr Davison : A very small number.

Mrs Slattery : Also there should be huge consideration given to taking the non-concessional contributions out of the calculation. That is where tax has already been paid. That will stop the 93c in the dollar. The ATO has some very good stats on this. The 2008 stats show that 61 per cent were below the top marginal tax rate and a significant number of those breached the non-concessional limits because they were able to do something at a certain time—it might have been a once-off—and they were able to deal with it. Taking the non-concessional contributions out of the calculation is very important. We have provided a submission recommending refunding the amount that is greater than the concessional limit. That was, as I said before, supported by nine different industry associations—in fact, the majority of the financial services sector industry associations. Graeme, would you like to add anything to that?

Mr Colley : The timing of those contributions is one of the issues that has been raised by other associations here today, along with the inadvertent thing of the contribution not being picked up as being excessive until that future year. That is why we support the idea that this should be an ongoing rule rather than a once-off rule.

Dr LEIGH: It would be useful for me if I could get a sense of the scale of this. Mr Peterson, the Treasurer's second reading speech says that 30,000 individuals will benefit from this measure. In the most financial year for which we have data, how many people breached and how many of those breached by more than $10,000?

Mr Peterson : The last complete year of data that I have is from 2009-10. The ATO issued a total of 46,746 assessments to individuals. In terms of percentage, that is about 0.5 per cent of the people who lodged an income tax return in that year.

Dr LEIGH: So 46,000 people breached the limit.

Mr Peterson : Those 46,000 had an assessment, yes. In terms of numbers over $10,000, if you apply the figure to that it would have cut about 70 per cent of the cases out.

Dr LEIGH: So with the 30,000, we are not multiplying the annual number by four when we think about forward estimates. That is the same 30,000 people over the four years.

Mr Peterson : Actually, let me correct that. We are looking at 2010-11, about 70 per cent of those instances that we see at the moment are under the $10,000.

Dr LEIGH: Thank you. That is helpful.

Mr Peterson : 2010-11 though is not entirely complete yet though because we have still got some lodgements from self-managed superannuation funds to come in May. It is largely there.

Dr LEIGH: Just to Treasury, there was a suggestion before of a lifetime cap approach instead. What are your views on how difficult that would be to administer?

Ms Gabbitas : The ATO might want to comment on part of the administrative side, but it would add complexity. One of the reasons, when the government moved in, I think, 2006 to simplify super away from the lifetime cap and make it simpler by having annual caps, was that hopefully it would be easier for people to be aware and know what their contributions were. It would be much simpler in that sense. A lifetime cap still has issues about people who exceed their caps, so whether you have an annual or a lifetime cap you still will have a proportion of people who exceed their caps. It would be quite complicated. It would involve both individuals' funds and the ATO monitoring people's contributions over a long working life, which means you could be looking at monitoring some people for 50-60 years.

Dr LEIGH: Is it that hard really? You have information about the taxpayer in your databases which does not change: their date of birth, their gender and presumably now also a flag for their lifetime superannuation contributions.

Mr Peterson : It is prone to error over such an extended period and it is dependent upon data that is reported each year by the funds and often re-reported in a number of instances. It is a difficult piece of work. RBL was more a lifetime kind of arrangement and it proved to be exceedingly difficult. In fact, it was too difficult a guess.

Mr STEPHEN JONES: It was impossible. You were contributing at the point of time in your life when you had the least capacity to rectify it.

Mr Peterson : Most things are doable, I guess, but a lifetime sum is pretty difficult to keep track of.

CHAIR: Are there any final comments on this schedule?

Ms Westover : I have one comment, Chair. It comes back fundamentally to the policy intent of the concessional caps—that is, to restrict the amount of money going into superannuation. It would seem, in the interests of simplicity, if too much money goes in, get it out. End of story.

Mr Hodge : Just on that point, it is interesting that there are people who deliberately breach the caps every year and they do not worry about paying the tax. The reason they do that is that they will pay the same amount of tax if they took it as personal income. Instead of keeping it outside the superannuation system they get it into the superannuation system and the ongoing benefits that reaps of reduced tax on earnings and tax-free withdrawals at the end. So maybe a better policy might be that where a cap is breached, the money must come out of the system.

CHAIR: Thank you. We will go on to schedule 5—Disclosure of Superannuation Information—this one is fun too. We will start from the phone again. Do you have any opening remarks on schedule 5?

Mrs Slattery : Just a brief remark. The information needs to be consistent, precise and accurately reporting the item. There needs to be consistency with language, and I know there are new standards that are coming in, but all systems need to have the same information that they are able to disclose. Once again this links to advice and I was concerned about the level and competency of the information that is coming through and the capacity to advise on consolidation, which is a slightly separately linked issue. One is the standardisation of information so that everybody's information is correct so that a rollover, for instance, is not seen as a contribution, and also the consolidation issue around advice.

Mr Haynes : AIST supports the measures in schedule 5. However, this support is tempered by the concern that the accessed information not be misused by the recipients and that it does not lead to disruption and confusion amongst the general public. I will return to this point in just a moment.

The changes to schedule 5 are part of broader package of measures to address the excessively duplicated accounts—the problem of account proliferation and lost super moneys. Although the details of some of the measures are still to be clarified, for example, when will the protection rules be abolished in concert with the advent of the first autoconsolidation exercise and will there be a limit so that the balance is considered in the second and subsequent rounds of autoconsolidation, AIST strongly supports the whole package. That is because there are 28 million accounts for less than half this number of working Australians, and 1.3 million new accounts being created every year for net workforce growth of 200,000. Coupled with the five million accounts worth $20 billion being recorded in the this means that the whole suite of these measures should be addressed as a policy priority.

Returning to my first point, while the legislation does not include a definition of 'superannuation information', the explanatory memorandum now, as opposed to the previous public consultation draft issued by Treasury, ties the nature of the information released to the purposes of the legislation. Thus, paragraph 5.15 identifies information to enable a fund to fulfil their obligations to autoconsolidate accounts and specifically mentions address information. However, the explanatory memorandum should also state what the accessed information is not to be used for. Accessed information should not be used carte blanche to drive aggressive marketing campaigns where a likely result is that fund members could end up dazed and confused, and possibly bombarded with multiple requests for consolidation. While this is a risk now with SuperMatch, it is confined accounts of the ATO's LMR, SG and SHAR special accounts.

While we support approach is being made to members with multiple accounts, we say that the approaches should be made in a consistent format containing prescribed information. This would also ensure that members can be made aware of the net returns, level of risk and insurance of the fund that are being consolidated into and indeed a comparison of the criteria could be provided in the letter. Thank you, Chair.

Mr Davison : CPA Australia supports the intent of the amendments of the schedule, particularly the benefits it will provide in addressing reducing the number of lost accounts and aiding consolidation. We do not have any specific comments on the schedule itself.

Ms Westover : The institute would probably just reiterate what CPA Australia has said in relation to this schedule.

Mr Clare : ASFA does not have any objection to the passage of schedule 5 which we say will play an important role in terms of facilitating the consolidation of inactive and unneeded superannuation accounts. The system has far too many of those and measures such as this are necessary to bring about their consolidation.

Mr CIOBO: I understand that in the SuperMatch agreement, super funds have to obtain general consent from their members to access information using SuperMatch. Additionally, existing regulations require regulated super funds obtain consent from a member before using that member's TFN to access ATO information, including information on SuperMatch. How will it work exactly, then, from an ATO perspective, given what might appear on the surface of it to be a conflict between the two?

Mr Peterson : The SuperMatch will require a fund to submit a tax file number as part of the search. You will not get the data without the tax file number. Superannuation Industry (Supervision) Regulations—and I forget the numbers: 6.47 and a few after that—require them to have express agreement from a member in order to use their TFN for that particular purpose. The system will not allow access without that and the person will not be able to use the system without that express agreement.

Mr CIOBO: So with respect to schedule 5 though, when will the ATO need consent and when won't it need consent?

Mr Peterson : As a process, we void all existing SuperMatch agreements and we will require anybody who wants to use SuperMatch going forward, funds and administrators, to enter into a new SuperMatch agreement. For administrators this will require some certification that they are acting as agent for certain funds. It will require them to endorse the fact that they will only use SuperMatch in accordance with the law, in other words, that they will have the express permission of the individual to use their TFN and to conduct the search on SuperMatch before they are signed up to use the facility at all. There is not a plan for the ATO to contact individuals individually and ask them about their consent, if that is the question you are coming to.

Mr CIOBO: I need to explore this further. What I thought I heard was that we were going to rewrite the SuperMatch agreement so that it is basically the same as it was before, and that is the part I am a bit confused about. The second aspect of it is that I get the impression, though, that you are saying that the ATO is going to be blind as to whether consent actually exists. You are just going to do it on the basis of representations.

Mr Peterson : The plan would be for the ATO to work on the assurance as part of the sign-up to SuperMatch.

Mr CIOBO: So the ATO will be blind to whether the super fund itself has consent?

Mr Peterson : On the specific basis, yes, but with the backing of the law that requires the fund to have that sort of consent. If we were to discover that a fund had breached the agreement, in other words, they had been breaking the law, we would consider whether we needed to report that breach to APRA from a regulatory perspective and of course we would have to consider whether we would continue to allow that entity to have ongoing access to SuperMatch.

Mr CIOBO: So the ATO no longer would require there to be consent? When it comes to accessing SuperMatch, there would no longer be a requirement for there to be consent, only the expectation that it exists?

Mr Peterson : That is not different from the current arrangement.

CHAIR: So currently ATO is blind as well—is that right? Currently there is an agreement.

Mr Peterson : Currently, the way that funds and administrators sign up is on the basis that they have the consent.

Mr CIOBO: I do not understand the differences between the two agreements, the current and the new proposed—

Mr Hodge : Perhaps I can help. I work very closely in this area so I am more on the operations side of things. The current SuperMatch agreement requires a fund to advise the member that they will be inquiring on the ATO databases before they undertake the search.

Mr CIOBO: And obviously they obtain their consent.

Mr Hodge : It is implied consent.

Mr CIOBO: Between the super fund and the client or—

Mr Hodge : And the member. They are required to advise the member prior to undertaking the search that they will be undertaking the search. Ostensibly, that is an implied consent because it gives the member the opportunity to tell the fund that they do not want them to do that.

The other thing you need to realise is that at the moment on SuperMatch there is an information about lost accounts and unclaimed moneys. That process works very well for that because what you are trying to do is to identify the accounts and amalgamate them with the member's current active account. The new ATO database will include details of all superannuation accounts in the system so it becomes appropriate at that point in time that that search using the member's TFN only be done with the consent of the member. So the new SuperMatch agreement, which I understand the ATO is currently developing and which will be signed by all funds who want to use it prior to the expanded data going on the database, will require the explicit consent of the member prior to making the inquiry. The fund will sign an agreement to that effect. So if they undertake searches without having the member's consent, then they are in breach of the licensing agreement with the ATO for use of SuperMatch and they will also be in breach of SIS.

Mr CIOBO: So what you are saying, if I can make sure I understand it, is that all superannuation accounts will now be available under SuperMatch.

Mr Hodge : That is the proposal.

Mr CIOBO: Whereas, currently, only unclaimed and lost super is sitting there.

Mr Hodge : As reported to the ATO.

Mr CIOBO: And now there will be an express requirement that all fund managers must have express consent from their members before accessing superannuation.

Mr Hodge : Yes, the trustee of the fund must have consent from a member before it uses their TFN to access SuperMatch, and the ATO agreement will state that, if the fund has the TFN, it must provide the TFN.

Mr CIOBO: Then how does schedule 5 operate in relation to that from an ATO perspective? That is just for the consolidation, is it?

Mr Peterson : Schedule 5 is to support consolidation, and in recognition of the fact that a much greater amount of information will, in due course, be available through SuperMatch.

Mr CIOBO: So this is, effectively, a gateway to enable all that information to go onto SuperMatch. Schedule 5 enables the ATO to put all that information in one spot.

Mr Peterson : It will permit the ATO to provide the information back out to funds and administrators, yes.

Mr CIOBO: I am glad we have clarified that, thanks.

CHAIR: When you say specific consent, are you saying that the current arrangement, where you write to the member and the fact that they do not respond means they have consented, will continue?

Mr Hodge : That is right. It is implied consent.

CHAIR: So it will still be implied consent?

Mr Hodge : Whereas, under the new legislation, which has been in force since 1 January this year, the word is 'consent'.

CHAIR: So it continues in the same way?

Mr Hodge : No, under the new arrangement it must be explicit consent.

CHAIR: So there is a to-and-fro?

Mr Hodge : Yes, between the member and the fund.

Mr Peterson : That clarified that.

CHAIR: Can I follow up on something Mr Haynes said about the use of that information for inappropriate behaviour. I have to say that my first thought when I read it was, 'Oh, there will be poaching,' that this is an opportunity for one fund to aggressively poach the members from another. I think what you are suggesting is that there should be some mechanism that prevents the use of the information in that way, is that right?

Mr Haynes : We think that this measure should operate in a way that does not cause confusion or uncertainty on the part of superannuation fund members such that, if they receive information from a number of different funds all purporting to offer a better outcome, there is some way in which they can compare the information that is provided. If it is provided in a prescribed form, with prescribed content, it will make that process of comparison easier, notwithstanding the fact that people will be signing, on their membership form, or whatever, something saying that they permit the use of their TFN for the purposes of SuperMatch.

Mr Hodge : The way we look at this is that this piece of legislation is enabling legislation. It is an amendment to the secrecy provision which enables the ATO, under certain circumstances, to provide— There will be other pieces of legislation which will drive, say, the consolidation of accounts. I would suspect that, within that legislation, it would support the fact that when this data comes out from the ATO it can only be used by the fund for the purpose for which it is given, which is for the autoconsolidation of accounts or for some other purpose, in the same way that the current SuperMatch agreement restricts what the data can be used for when it is received. I suspect there will be all these checks and balances through the system which, while not being clear to the member, will address David's concerns about inappropriate behaviour going on, because the legislation will effectively prescribe the purposes for which that data could be used.

Mr Haynes : Perhaps it would help if I made a couple of points. First of all, there is an order of magnitude issue here, as Robert mentioned before. Currently, SuperMatch is used in relation to a pool which contains about five million records. With the advent of this expanded SuperMatch there will be a pool of about 28 million records. Once upon a time I used to be the chief executive of a fund called AUSFund, which is an eligible rollover fund, and on occasion funds would use SuperMatch in order to, quite legitimately, contact people to let them know about any small, lost and inactive accounts. Each time a fund undertook that exercise it regularly caused a massive spike in the number of contacts that we received in our call centre from people who had received communications. They did not know what it meant, they did not know what they were meant to do and they did not know how to compare different pieces of information. Hence, our view that it is useful for prescribed information to be provided to fund members so that they can get a sense of the fee position of funds A, B, and C, what is the insurance position of funds A, B, and C so that they can make an informed decision rather than one that is based on some marketing material that is sent to them.

Mr Hodge : On that line, the ATO has established a funds reform reference group and that is one of the very issues they are looking at. In the context of what are consolidation of accounts, because the data will come to a fund and the fund will have to contact those members advising about the account consolidation, we are suggesting to the ATO that that should be a prescribed form with prescribed information on it, so that every fund does it exactly the same and every member gets exactly the same information and advice et cetera. So far the ATO has been very receptive to that sort of approach.

CHAIR: Any final comments on this one?

Mrs Slattery : I did omit in my opening address to suggest support for the ATO in having the ability to provide this service to the market. Our concerns are more around ongoing links towards the competency and the consolidation issue.

Mr Hodge : Madam Chair, for the sake of completeness, it might also be worth mentioning that this SuperMatch works in tandem with an ATO program called SuperSeeker. It will access the same data. The member will be able to log on, identify themselves to the ATO through a shared secret and get access to all of their accounts and use an ATO process to consolidate or not consolidate particular accounts. They are two things which are working in tandem. A member can either do this process directly themselves or ask their fund to do it on their behalf.

CHAIR: I think we are all looking forward to that.

Mrs Slattery : If I could just note one more thing that I forgot. The SMSF sector would behave probably in a slightly different fashion for the majority where the actual member trustee is the same person. They would possibly access the lost member account directly. The ATO has all of that capacity within this process. For completeness, for your information, the major of that particular measure works a little bit differently from the SMSF sector compared to the APRA regulated fund sector.

CHAIR: Thank you. We are running a little bit ahead of time. I want to go back to one question on schedule 4 to follow up to the ATO and Treasury on the suggestion that, if a person exceeds their cap and puts too much into super, just get it out. It sounds very simple. Can I have a response from Treasury and the ATO about whether that is, in fact, simple?

Mr Peterson : I can give an administrator's perspective.

CHAIR: An administrator's perspective is fine.

Mr Peterson : The initial design for the contribution caps, back in 2006, was based on exactly that, to take the money back out. The issue with that tripping over were in relation to time value. If I can toss a stack of money in at the start of the year and let it sit until somebody catches up with me 18 months later, I might have made some income gains—or over the last few years it might have gone the other way. In the longer term I might have made some substantial gains which I can keep the benefit of in the fund. If you start to try and factor in things like income or change in value of the investment, it gets very individual and very complex very, very quickly. You also get the repeat process. Just as there are some individuals who see personal benefit for themselves in exceeding the contribution caps quite deliberately, there will be individuals who will see benefit for themselves in engaging in some form of repeat behaviour.

CHAIR: Okay. Thanks. I thought it was worth touching on that one. We will go on to schedule 6, payslip reporting. I invite people to make opening statements.

Mr Clare : This is a measure that we support, as it will lead to more consistent and widespread reporting on payslips by employers of superannuation contributions. The one thing that we should note is that the date of effect and having reasonable notice is very important. We say that the date of effect should be no earlier than 1 January 2013, given the need for changes to payroll software to be developed and distributed to employers. Many employers rely on such software. There is the development phase, there is the distribution phase and then there is the installation. We say that a reasonable period for that period to happen prior to the requirements coming into effect would be appropriate.

CHAIR: Did you say 1 January or 1 July?

Mr Clare : It should come into effect no earlier than 1 January 2013.

Ms Westover : The institute also supports this measure in so much as it provides greater amounts of information to employers about their superannuation entitlements. That is a positive outcome. My concern is that it probably does not go far enough in that it only talks about what your entitlement is and what the anticipated payments will be. We are talking about the excessive contributions and the need to know what was actually contributed for you and it falls short in that regard. That would be our concern.

Mr Davison : Likewise, CPA Australia supports this measure because it will give employees and super fund members a great idea of what is being contributed when. I agree with the institute's comment that the better step would be the reporting of contributions when they are made. I understand that that was the government's intend and that it is still being considered as a possible future amendment. We support that. We do not have any particular comments on the schedule.

Mr Haynes : AIST supports these measures for the reasons that have already been stated. We are, however, a little bit unclear about the work that the legislation is intended to do. In the explanatory memorandum, it talks about in the first instance requiring employers to report the date on which they expect to make their superannuation contribution. However, the explanatory memorandum also goes on to address a possible future requirement for employers to show actual payments that are made to superannuation funds on behalf of their employees. That is also a policy position that we support. But we are unclear about whether the commentary in 6.7 and 6.8 means that this legislation will be used as the basis for implementing regulations under which people have to report actual contributions or whether there will be other different legislation for that purpose.

My final point in relation to reporting of actual contributions goes to the point that Ross made before about ensuring that software developers and payroll providers are able to meet the requirements of this provision. I have a document that I would like to tender, with the committee's indulgence. This document is an actual payslip. The reason that I am tabling this actual payslip is to make the point that there is current capability to show actual superannuation entitlements in a way that is useful to employees. The capability exists now and it is being used by employers. This particular example has been provided to me by the IQ Group, who use this for their own employees through a payroll service called DMS.

CHAIR: Is it the wish of the committee that the document entitled 'Actual payslip' presented by the Australian Institute of Superannuation Trustees be taken as evidence and included in the committee's records as an exhibit? As there is no objection, it is so ordered.

Mr STEPHEN JONES: Does the Australian Institute of Superannuation Trustees have any view on the submission that has been put by ASFA in relation to the commencement date in view of what you have just tabled?

Mr Haynes : We do not have a formal view on commencement date. However, we would be minded to support a 1 July 2013 commencement date for the reporting of anticipated contributions because that will give the payroll industry more time to adapt to these changes. While they have been involved in the SuperStream Working Group and while a dialogue continues between the superannuation industry, software developers and payroll providers, they are the ones who will have to provide this functionality on a widespread basis. While the document that I tabled shows that it can be done, this functionality is nonetheless still filtering out across the industry and is not universally available, either in terms of the requirement to report the date or the requirement date.

CHAIR: Looking at this, it sounds like that you are saying that, if the start date was 1 July 2013, it is quite likely that the actual payment date could be done instead of the intended payment date.

Mr Haynes : We support the ultimate requirement to show actual contributions to superannuation. But we have sympathy with the position of software developers and payroll providers. We think that a start date of 1 July 2013 would enable the industry to show actual contributions. But we possibly accept that they need a little bit more time to get that functionality ready so that employers are able to show the date on which they expect to make the contribution. Different payroll providers are at different levels of readiness in this regard.

CHAIR: If the 1 January date was accepted for the changes to show the intended payment date and the software developers put in all the software upgrades for small business, you could not expect them to go to actual payment dates six months later, because they would have to go through the whole process again. I am just trying to figure out whether a move to an actual payment date is—

Mr Hodge : For some organisations, the move to an actual payment date is going to be very complicated. The reason for that is that if you are in a large organisation you would have a standalone payroll system that looks at your employees and does your payroll. That is separate from your accounting function. Effectively, putting an actual date on the payslip requires you to link your accounting system with your payroll system to transfer the information of when the payments were made. That is a very complicated exercise. That is part of the reason why the payroll industry has been quite concerned about the proposal to introduce that requirement. I agree with you that it would make no sense to make a change on 1 July 2013 and then six months later require people to put in another new system that does things differently again.

CHAIR: Going back to when I was in small business, the reality is that I would print on the payslip form '28 days after the end of the quarter'.

Mr Hodge : That is right.

CHAIR: I am wondering what in the short term—

Mr Garcia : At the SuperStream Working Group, this was an interim move. The group said that if we cannot get to actual straightaway because it is difficult—as has been discussed—then we should include an intended date to give people an idea. Even if you put '28 days after the end of the quarter', that at least gives people an idea and allows them to say that it has not gone in yet. A lot of people reading their payslips would not understand that it is accrued. They would look at it and think the money has gone in and they would never check. If there was something written there that said, 'It is expected that this will go in by 28 July,' for instance, then they might start saying, 'I'd better check.' The six-monthly requirement for the annual statement of contributions and/or an SMS, which is part of the further regulations about informing people about whether they have or have not received contributions, is all part of getting information to the member.

Mrs Slattery : SPAA is supportive of the disclosure of the contributions on payslips. We also support a deferral because of the reasons that the AIST has outlined, mainly because of the small business interest in this particular area and the capacity that they have outside the usual payroll system, perhaps.

Mr Hodge : We consider this measure to be another part of the puzzle in trying to get members to engage in their superannuation. By having this information on their payslips and by getting notification from their funds they can start to reconcile those and start thinking about their superannuation and engaging more actively in it. It also ties in with the consolidation of accounts. It is all part of the parcel of trying to gee-up people and get them to see what is being delivered to them by the government through the superannuation is something that is really important and they should take an interest in it.

CHAIR: Even in the short run , if the end result was that every small business in the country stuck '28 days after the end of the quarter' on their payroll forms so that it was automatically printed at least that would create a rhythm and a focus on something that is supposed to happen. It has no bad consequences.

Mr Hodge : No.

Mr Haynes : So long as the ultimate intended policy outcome is to show what is actually going into your superannuation fund from your employer, everything else is a stopgap measure on the way to achieving that outcome.

CHAIR: I understand. It sounds like your preference would be to not defer the ultimate aim by taking an interim step. Or do you think that they both can be done?

Mr Haynes : There is no point whatsoever in having a legislative requirement which cannot be met by business, whether large or small. Our position is to have the explanatory memorandum confirm the ultimate purpose for which the legislation can be used but to allow for the possibility of another six months of leeway in relation to both measures.

Mr Hodge : The government has committed to this. It is a step, and an important one. Government at this stage has not committed to the second step because that is open to discussion with the payroll providers to see whether in fact the outcome is deliverable. We would hope that the outcome is deliverable and that it does come in, because it is the ultimate position that we would like to get to.

Mr Haynes : The government has made that announcement. The government has announced that from 1 July 2013, subject to there being no significant payroll system costs, payslip reporting of actual contributions paid will commence.

Mr Hodge : That is subject to—

CHAIR: I want to ask this of Treasury now. Is it your view that these two things, the interim measure and the final measure, are included in this bill?

Ms Gabbitas : The bill creates a mechanism and the regulations set out the detail of what is required to be reported and by when. With this bit, the focus is on by what point contributions will have been made, not the actual date. That is what the amendments are about. The second step, which could use the regulations or amendments to the bill, is about working out how the government moves to the next step. The government is keen to move to the next step. The issue with that may be similar to the issue with this bill about in what time frame it is possible to take that step. The issue may not be so much that they will not do it but whether it is feasible by 1 July 2013, which is a point that we will be undertaking consultation with industry to test. Ultimately, members need to know in order to manage it. The actual time the contribution is made ties in to their ability to contribute within their contribution caps and reduces the chances that they are going to make excess contributions. It is a very important step. That way, if the contribution is not made, the best mechanism for an employee to protect their superannuation balances is to know that early. Then they can take appropriate action. The ATO does a lot of work on that front. That is the ultimate aim. The issue is about practicality and at what point it is possible to move to that.

Ms Westover : Can I just raise the point that, whilst we can look at these things with a very superannuation-centric view—and they are great measures for getting more information to employees about their superannuation entitlements—we have to be very mindful of the impact on employers and small businesses, and I understand you were a small business owner, Chair. So I think we need to be very careful. A lot of these people are trying to provide this information—they want to try and do the right thing by their employees—but we have got to be careful of the impost on them. A lot of them already feel that they are an agency for the tax office, for income tax, for PAYG, or for superannuation. A lot of them struggle with that already, let alone having more of an impost put on them. We do need to be mindful of that.

Mr CIOBO: The explanatory memorandum actually says the measure will be minimal to medium in terms of impact. I am guessing that, for the bulk of small businesses, though, at minimum it would require a software upgrade.

Ms Westover : I think sometimes it is just an understanding of what it is—do they understand the difference between what they should pay and what they have actually paid? You are talking about people in small business who are experts in their particular trade or operation, not in superannuation.

Mr CIOBO: But the actual impact of this measure is the requirement that this information be provided on the pay slip, so we are not just talking about the transfer of funds into an account or something; we are talking about providing additional information on a pay slip. If it is done manually, then that in itself is an extra step, but I suspect there are very few people still making manual payments. With respect to those that are making payments using QuickBooks or some such, I am guessing that that is an additional measure that is going to need to be incorporated into the software.

Mr Haynes : Indeed, but it is not necessarily a heavy responsibility for the employer. Employers have an active relationship with their payroll providers, and payroll providers routinely provide upgrades to the payroll service that they make. The significant step—which is why we have got a two-step process—is the integration of the general ledger and—

Mr CIOBO: The reality of what is actually happening.

Mr Haynes : the payroll system. But that too is part of the ongoing development of payroll systems in this country. So, yes, there will be an impact, but it will be part of the routine business of continuing to upgrade your payroll capabilities. If you have a look at what QuickBooks and MYOB look like now as opposed to two years ago, you will see that they look significantly different, and different again from two years before that. That is just part of operating as a business, whether it is a small business or—

Mr CIOBO: The evidence I am hearing is that it would be envisaged that this would be incorporated as a matter of course into payroll management systems.

Mr Haynes : Yes.

Mr CIOBO: Therefore, that is not where the difficulty is encountered. So it is the second aspect that you speak of, which is the marriage of the general ledger—for lack of a better term—with the reality of the actual payments.

Mr Haynes : Yes, but that too is part of the evolution of payroll systems. The example that I have given, from the IQ Group, from DMS, shows that that is something that is in place with at least that employer, but I suggest that many other employers are upgrading their payroll systems as we speak.

Mr CIOBO: Ms Westover, you speak about this being an additional burden on small business. Obviously the Australian Institute of Superannuation Trustees feel that this is going to be a matter of course.

Ms Westover : There are two points I would like to make. One is that not everybody has as sophisticated a payroll system as is described. A lot of small businesses simply will not have that level of system yet. So we have got to be mindful of the fact that there are some very simple systems operating out there, and these guys need to be able to manage these changes and their requirements.

The second point is the cumulative effect of these measures. This may seem a minor burden on small business now, but this would be in conjunction with the next piece and the next piece and the next piece—and it may not be around superannuation; it could be under some other measure. We just need to be careful that we do not say, 'This is just one increment on small business and it doesn't really matter,' because the bigger picture is that, overall, it can have a significant impact on small business.

Mr CIOBO: Okay. Can I ask the ATO: do you have any figures on what percentage of small businesses have payroll software et cetera and what percentage do not?

Mr Peterson : No, I do not have that kind of detail.

Mr CIOBO: Would the ATO have that kind of information?

Mr Peterson : It seems unlikely unless it has come up in some research we may have done at some stage, so I would need to do a bit of a literature search, I guess. I can tell you that if you looked at BAS lodgements, for example, about 40 per cent of them come in on paper. It does not mean that those people do not have a payroll system, but it is an indication that they are more likely to be towards the bottom end of—

Mr CIOBO: So 40 per cent of small businesses—or 40 per cent of BASs?

Mr Peterson : Forty per cent of BASs come in on paper and the vast majority of those are small businesses because in number they are the vast file.

Mr CIOBO: I think from memory there are 2.2 million small businesses in Australia. We are talking about close to a million businesses out there without access, potentially, to—

Mr Peterson : I am not suggesting they do not have access to payroll; I am just suggesting that as an indicator.

Mr CIOBO: Sure. It would seem they have a fairly basic operation in terms of software or manual or whatever it might be.

Mr Peterson : You would guess that that is a possibility.

Mr Haynes : Deputy Chair, I can provide some further information in relation to that. At a recent meeting of the SuperStream Working Group, we were provided with some results of research that has recently been undertaken by the ATO, by Colmar Brunton. That research suggested that about 12 per cent of employers use manual systems to pay their superannuation. That does not necessarily mean that they do not use some QuickBooks or whatever and then print off their contribution return, but 12 per cent of employers use exclusively paper returns. There is also a cohort that uses a mixture of electronic and manual systems.

Mr CIOBO: When you say 'employers', is that beyond the principal or including the principal?

Mr Haynes : I do not know the answer to that question.

Mr CIOBO: Because I imagine that there are a lot of small businesses where it is the principal only—but then I suppose this would not have effect. I am just thinking this issue through myself; that is all.

Mr Clare : There is some ABS data available on the size distribution of businesses in Australia, and they have a further breakdown of those where there is an employee or, as you say, just the principal. It breaks down the numbers a bit, and we can—

Mr CIOBO: If you have some data, that would be great.

Mr Clare : It has come up in a different context where we obtained the information because of the default arrangements in MySuper and the ability to differentiate by employment size, so we have that readily available—

Mr CIOBO: Thank you.

Mr Clare : and it will give you a context. It will not tell you what software or payroll system they use, but it will give you some rough orders of magnitude of small businesses, however defined, and the number of such businesses which employ individuals.

Mr CIOBO: Staff. Where I am coming from is that I agree that if you do have the information, if you do have the software, this is probably a very basic step; there is no doubt about that. But I am concerned about the number who do not have that and whether it requires them to engage further capital expenditure to have that facility—which again may not be a bad thing, but the point is that it is just more money and more time that is being required. My concern goes to the point that was made by CPA Australia on exactly this issue. It just seems to me that we are perhaps flying a little blind—this is no reflection on the witnesses—about what the actual impact of this is on that pretty significant small business sector who do not have access to the software et cetera that others, basing it on the 10 or more employees, would presumably have as a matter of course. That is where I am coming from.

CHAIR: Yes. In fact, most of the factors—

Mrs Slattery : I just note that the Medicare clearing house, I believe—I am not exactly sure; it might need to be confirmed—had statistical data on the small business sector for those who employed fewer than 20 people, in relation to the ability to use the Medicare clearing house for their SG payments. That may be a source for statistical information in relation to their payroll systems or the number that may lodge manually et cetera; I am just not sure, but it is a suggestion perhaps.

CHAIR: But most software packages are sold without the payroll element, and if you have fewer than four or five staff you can do it quite easily without it. I guess this is a very good reason to have a strong interim step so that the complexities of the final step can be worked out in a proper way. My initial thought was that perhaps going straight to the final step was a good idea, but I am starting to see that it is perhaps very complicated and perhaps the interim step, which again can be managed in a way quite easily, is a good thing.

Mr Hodge : David was talking about the ongoing development of these payroll packages. It is interesting because with the introduction of the superannuation standards, which from 1 July 2014 will require employers to pay contributions electronically, we are seeing a trend that the payroll package is now being more fully integrated into the accounting package, so they are sold as a single suite that does everything for the employer. There is a very strong anticipation that most employers will meet their electronic contribution requirements through a payroll package that is purchased as part of an overall accounting package. It is just where things are going.

Dr LEIGH: Can I ask the ATO or Treasury if you have done work looking at why employers are reporting superannuation contributions late. This measure seems particularly useful if there is a good share of inadvertent late payments. If this is largely to do with employers deliberately avoiding, then you would think that perhaps this measure would be somewhat less effective.

Mr Peterson : I can tell you what we know from our superannuation guarantee audit work. The vast majority of short payment or nonpayment of super guarantee that we see is in the micro market, which is the very smallest end. We are talking small turnovers. These are businesses that normally have issues with their PAYG instalments as well. The major issue is cash flow, I think. It is not a lot more complicated than that. You get a bundle of issues around whether people are employees or contractors and so on, and that can be debatable, but cash flow seems to be one of the biggest issues that drives the nonpayment at this time.

Mr Davison : Could I just make a comment on that question. The SG requirement is that contributions are paid quarterly, within 28 days after the end of quarter, so potentially, if you have a contribution due to be paid on 1 July, it is not actually paid to the fund until the 28th of October, so from the employee's point of view you do not actually know when that contribution has been paid. Whilst it is not a matter about avoiding payment or inability, paying late, there is potentially a four-month window of when it is getting paid, so this provides greater benefit to the employee to understand what has or has not been paid in keeping track of their contributions and again, as has been said earlier, encourages employees to become more engaged with their superannuation.

CHAIR: Are there any other comments or questions?

Mrs Slattery : Graeme Colley and Andrea Slattery from the SMSF Professionals Association have no further comment on the last point.

CHAIR: Thank you very much. Thank you for your attendance here today. If you have been asked to provide additional material, would you please forward it to the secretary. We would need that fairly quickly. The report will be finished by about the middle of next week, I think. You will be sent a copy of the transcript of your evidence, to which you can make corrections of grammar and fact. Thank you very much. These roundtables work quite well, I think.

Proceedings suspended from 11:15 to 11:30