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Thursday, 25 November 1965

Mr WILSON (Sturt) .- I do not propose to follow the honorable member for Kalgoorlie (Mr. Collard) into the realm of zone allowances, for the simple reason that they are not included in this Bill. The honorable member spent much of his time quoting what certain people said 20 years ago. I think that the Australian citizens of today are more interested in the future than they are in what happened 20 years ago. I propose to deal with that portion of the Bill before the House which deals with superannuation funds. The purpose of the Bill, in relation to superannuation funds, when coupled with the taxation bill dealing with rates with which we dealt last night, is to impose a penalty tax of 10s. in the £1 upon private superannuation funds which do not comply with the directions of the Commissioner for Taxation as set out in the

Act and upon those funds which the Commissioner does not, in the exercise of his discretion exempt from compliance with the Act. The definition of a superannuation fund exempts superannuation funds established by the Commonwealth, the States or local governing bodies. Commonwealth public servants can therefore rest comfortably in their beds tonight knowing that their superannuation fund is not being attacked by this Bill. I can assure honorable members of this House that likewise they can sleep peacefully, because the Parliamentary Retiring Allowances Fund is also exempted by this definition.

The people who need to be concerned are the hundreds of thousands of white collar and blue collar workers who are members of superannuation funds. They can see this Bill as a threat to their savings. In many cases these people have for 20 years or more been contributing part of their wages to these funds. In some cases their employer on their behalf has contributed portion of the company's profits to these private funds so that his employees on their retirement can receive either a lump sum payment or a pension. As far as I can gather from published statistics there appear to be about 250,000 employees covered by funds operated by insurance companies and another 300,000 by funds operated by private trustees. The latest figures available are those for 1963, so I think we could say that there would now be at least 600,000 wage and salary earners who have an interest in superannuation funds directly affected by this Bill.

The Bill provides that superannuation funds, which have had an exemption from taxation in the past, are now to be taxed at the rate of 10s. in the £1 unless they submit themselves to the dictation of the Commissioner of Taxation or unless he sees fit to exempt them from compliance with the Act. One cannot but wonder why members of the Labour Party who protest so often that they represent the workers are not rising in their places to protest against this provision in this Bill. Instead, last night the honorable member for Melbourne Ports (Mr. Crean) told us in effect that he is - and no doubt, as he is the shadow Treasurer, the Labour Party is, too - opposed to contributions to superannuation funds being allowed as deductions for income tax purposes. The honorable member said - . . that means that by allowing premiums paid to life insurance companies and amounts paid to superannuation funds as deductions for income tax purposes the Government collected £40 million less than it might otherwise have done.

The honorable member thinks that this Government is acting very foolishly in allowing amounts paid to superannuation funds as deductions for income tax purposes because, he said, the Government is losing £40 million by doing so. He went on to say -

It is possible to claim as deductions payments on life insurance premiums and payments to a superannuation fund amounting to £400 a year. . . That works out at £8 a week. How many people can afford to save £8 a week? Why should they be reimbursed by the Treasury if they do save that much?

That, Sir, makes the attitude of the Labour Party perfectly clear. It thinks that the Government has been wrong in giving encouragement to the establishment of superannuation funds and in encouraging people to make provision for their old age. The Labour Party thinks that the Government has been wrong in providing tax incentives to those who contribute to superannuation funds or insurance. I wholeheartedly support the establishment of superannuation funds because I believe they provide capital for the development of the country and also enable people to provide for their own old age. Therefore, up to the present time I have wholeheartedly supported the principle of tax incentives for those who are willing to save and invest through the medium of superannuation funds. Therefore, I find it particularly hard to understand why after 15 years of encouragement of superannuation funds we now have a bill which proposes a penalty upon superannuation funds unless they comply with certain tests which no superannuation fund in operation can comply with or unless they are prepared to alter their trust deeds to suit the directions of the Commissioner of Taxation or unless they are the beneficiaries of his goodwill by being exempted.

We can see why the Australian Labour Party is silent. First, the Labour Party thinks it is wrong that these incentives should be given. Secondly, we know that their policy advocates the nationalisation of insurance. What better means is there to achieve that than this? Here is the perfect pattern for the nationalisation of insurance and superannuation. By this means private superannuation funds can be wiped out. Why leave the penalty tax at 10s. in the £1? Why not make it 19s. in the £1 and say, in effect, to these funds: " The quicker you close up, stop all this nonsense of saving and put your contributors on to the age pension, the better it will be." So, the Labour Party can say: " Here is the perfect pattern for nationalisation of insurance." Having carried out their objective of nationalisation of insurance through penalty taxation, there, too, is the pattern for nationalisation of banking. This would be achieved by simply proposing a penalty tax on the private banks which would force them out of existence because the penalty tax would make it unprofitable for them to carry on. There is nationalisation of banking just as the late Mr. Chifley wanted it. So we can understand why members of the Australian Labour Party are not rising to their feet to protect the 600,000 wage and salary earners who are affected by the provisions of this Bill.

I now want to get down to the details of the Bill. This legislation makes the Commissioner of Taxation the manager of all these trustee funds rather than the trustees themselves. If the funds wish to avoid payment of the penalty tax of 10s. in the £1 they must alter their deed to suit whom? They must alter their deeds, not to suit the beneficiaries of the funds for whom the funds were established, but to suit the Commissioner of Taxation. They have to fit into the type of pattern of fund that he says he is prepared to exempt. Already, in the last month, the Commissioner of Taxation has sent out, I should imagine, hundreds if not thousands of notifications or letters to trustees of superannuation funds. I am sure these will be very polite and courteous letters. The trustees of every superannuation fund will be most obliged to the Commissioner of Taxation for warning them of the danger that their friends are now in. The Commissioner has pointed to the provisions of this Bill. He has said: " If you want to avail yourself of the opportunity of being exempted from this penalty tax, then you will have to alter your deed ". Of course the trustees will have no alternative but to comply with the demands, requests, or whatever you like to call them, Sir, of the Commissioner of Taxation, whether they like it or not. Therefore I say that in future it will be the Commissioner of Taxation who substantially will be the manager of these employee funds, not the trustees themselves who are the persons appointed by the beneficiaries or the company or other employer who has created the fund for the benefit of the employees.

Of course, this is going to provide fees for the lawyers. The articles of these trust deeds, many of which run into 20 or 30 pages, will have to be altered. I do not know what the cost will be to have the articles altered. It may be £10; it may be £50. The costs of the alteration will have to be borne by the fund. It will come out of the profits of the employees who are the beneficiaries of the fund. So, these people will bear this huge expense to alter the deeds that have worked satisfactorily for the last 20 years because the funds have either to comply with the provisions of this Bill or else pay the penalty tax of 10s. in the £1.

Let us now look at the specific requirements as set out in the Bill. First, to avoid payment of this penalty tax, proposed new section 23f (2.) (a) of clause 9 says that the fund must be altered to make sure that it goes on forever. The laws of several States prohibit perpetuities. So what this Bill requires will be contrary to the law, anyway, in some of the States. That is an indication of what this Bill insists must be done if the penalty tax is to be avoided. I understand that the Treasurer (Mr. Harold Holt) has realised that this Bill would compel something to be done which is illegal under the legislation of certain States. Therefore, I understand that an amendment is to be brought in to correct this matter.

Let us look at the next requirement. Proposed new section 23f (2.) (b) compels an employer to make a payment to the fund for each employee in each year. In other words, an employer who may have been contributing thousands of pounds each year for the benefit of his employees is not permitted to say. " This year I am not going to make any contribution for employee A because he has been loafing on the job." The Commissioner of Taxation, for whom I have the highest regard - I am talking of him now in his corporate status only - is going to say: "You face a 10s. in the £1 penalty for every year because you have to make a contribution for each employee." I understand that the fallacy of that provision has been realised now. The words " each employee " are to be cut out in a proposed amendment. But why should an employer be compelled to contribute every year? In one year he might say: " This is a year in which we should give our employees more cash in hand to spend. Things are in a little bit of a recession. It is better that we should give our employees cash in hand in the way of a bonus to spend rather than to pay that money into the superannuation fund." So the employer pays the money out by way of a bonus and makes no contribution in that year to the superannuation fund. What is the result? The employer is not penalised, although he has done nothing wrong, anyway. The people who are penalised are the employees who are in the superannuation fund - the white collar workers and the blue collar workers who have contributed for years. They are to be mulct 10s. in the £1 penalty tax. Why? It is because their employer has not contributed for the year concerned. Once again I ask: Who is running the superannuation funds? The trustees of the funds have to ask themselves: " Are we going to wait on the economy and tell it that it has to contribute or are we going to face the employees and say: ' Sorry boys, but this year you are penalised 10s. in the £1 because your employer has not contributed to the fund '?"

That, of course, would not be very good public relations. Proposed new section 23f (2.)(c) limits the persons who can make contributions to the employer, the employee or an associate company. A man who has worked up from nothing to be the owner of a big business, who has received the help and services of his faithful employees and who has become wealthy, may, a few years after his retirement from the business, feel that he would like to pay, say, £10,000 into the company's superannuation fund. But if he does, the employees will be penalised because they will lose their exemption from the tax of 10s. in the £1. The provision in the Bill says that the Com missioner of Taxation and not the generous company, or the generous people who have derived a benefit from the company, will say how much can be contributed and who can contribute to the fund. I suppose the trustees would have to say to a generous benefactor who wanted to help the employees: " Sorry, old boy; we appreciate your generosity but we just cannot accept it ". This does not seem to make sense to me. I do not think it is the judgment that private trustees would exercise unless they were virtually compelled to do so by the provisions of the Bill.

Then we come to proposed section 23 f (2.) (d), which states that the rights of employees to receive benefits from the fund must be fully secured. On the face of it, that appears to be most reasonable. But an explanatory note states -

.   . an employee's right would not be fully secured if, having fulfilled the conditions of the fund, his right could be withdrawn or reduced under a discretionary power granted to the employer, the trustees of the fund or any other person.

I would like the Minister to explain this point, because I simply do not understand it. I know that many funds that have been established for 20 years or more provide that, if an employee embezzles the funds of an employer, the employer has the right to recoup himself out of the amount allocated to the employee in the fund. Because the rights of an employee to payment from the fund can be taken away in those circumstances, does that mean that the other employees, and this employee also, must pay 10s. in the £1 on the income of the fund? I do not know what the answer is and I ask the Minister to deal with this aspect.

We now come to proposed new section 23f (2.) (e), which requires the employee to be notified in writing of his rights before or at the time the contributions are first made to the fund on his behalf. I cannot understand why anyone would want to include this provision. Anyone with any knowledge of superannuation would know that this has never been done. A person joins a company, perhaps as office boy, and he is asked whether he would like to join the superannuation fund. He discusses the matter with his cobbers, they tell him it is a pretty good idea and he decides to join the fund. He agrees to pay his ls. a week or 5 per cent, of his salary and the company contributes on an agreed basis. If he wants to look at the deed, he asks to see it and it is readily shown to him. But an employee seldom asks to see the deed, because, being a legal document, he probably would not understand it anyway. But the employees have faith in the trust deeds that are set up for their benefit. Many funds have 5,000 contributors, and this provision requires that they all be notified in writing of their rights. I imagine that an employer could comply with this provision only by sending each employee a copy of the full deed, because if he left out some vital part it could be said that he had not notified his employees in writing of the whole of their rights. I understand that this is to be amended and that it will not be necessary to notify every employee in writing. A general notification displayed on the notice board or in some other place will be sufficient. Of course, that is as it should have been from the beginning.

Then we come to proposed new section 23f (2.) (f). Honorable members will probably realise that I have not yet found a good part in this egg. Every one of the paragraphs of this proposed sub-section is bad and should never have been included. Paragraph (f) provides that forfeited benefits must be reapplied in a manner acceptable to the Commissioner. For example, if an employee who is entitled to a benefit at the age of 65 years resigns before reaching that age, he will, under most deeds, get back his own contribution; but the trustees have a discretion as to whether they will pay him the employer's contribution or the interest on the fund. In some cases, when an employee has stayed for only a short period and has not rendered long and faithful service, the amount contributed to the fund by the company is forfeited when he leaves. If the trustees or the company says: "We will give these forfeited benefits to our most trusted servants, to those who have given us the best and longest service ", the income of the fund becomes taxable at the rate of 10s. in the £1, because the Commissioner of Taxation can say that the forfeited benefit should have been distributed according to the amount standing to the credit of each person in the fund. Why do we have this extraordinary provision which says, in effect, that forfeited benefits must be reapplied in a manner acceptable to the Commissioner? Again it is the Commissioner who is running the fund and not the people entrusted by the workers and the employer to run it.

Then we find that forefeited benefits must be reapportioned in the year in which they are forfeited. Frequently, of course, these benefits would be too small to warrant a ratable distribution amongst the other beneficiaries, and sensible trustees would say: "We will hold these forfeited benefits for a year or a couple of years until there is a worthwhile amount to reallocate amongst the other beneficiaries." But that probably would not suit the Commissioner of Taxation. The provision compels the trustees to allocate the forfeited benefits not as they think reasonable but as the Commissioner of Taxation thinks fit.

Then we come to proposed new section 23f (2.) (g). This paragraph deals with the cessation of benefits. Again the Commissioner of Taxation and not the trustees must be satisfied about the disposition of funds relating to the cessation of benefits. Proposed new section 23f (2.) (h) provides that the benefits must not be excessive. In other words, the Commissioner of Taxation is saying to employers: "Now, you must not be too generous with your employees. You must not give them too much. If you do, the fund will be penalised by having to pay income tax at the rate of 10s. in the £1." I would have thought that the policy of the Government and of every member of this House would be to encourage employers to give as much benefit as possible to employees. Anyway, I have no doubt that the Commissioner will exercise his discretion very sensibly. But why should funds and trustees be subject to the Commissioner's whim, for future Commissioners may not always be as wise and sensible as is the present one? Why should funds and trustees be subject to the possibility of the Commissioner of the day saying: "Because you have paid too much to your workers you are to be penalised "? Proposed new section 23f (2.) (i) deals with the excessive capital of funds. In other words, the Commissioner of Taxation reserves to himself the right to say to the trustees of a fund: " You have been too conservative. You have too much capital in this fund. Therefore, as a penalty, you will pay tax at the rate of 10s. in the £1."

Mr Irwin - On what - the income?

Mr WILSON - On the income of the fund. That deals with the requirements in paragraphs (a) to (i) of proposed new section 23f (2), which set out what we may say are the norms - the standards laid down by the Commissioner.

I see that my time has almost expired, Sir. So I simply say what I said yesterday: This measure is based on the report of the Commonwealth Committee on Taxation - the Ligertwood Committee. But its effects will be the very opposite of the objects envisaged in the Committee's report, which stated, at paragraph 742 -

Remedial action, whilst necessary, should not prejudice the operation of bona fide superannuation funds.

This measure will prejudice the operation of every private superannuation fund.

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