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Australian Superannuation review luncheon



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TREASURER

PRESS RELEASE NO.

EMBARGO COMMONWEALTH

parliamentary library C. 1 . s.

AUSTRALIAN SUPERANNUATION REVIEW LUNCHEON

I AM PLEASED TO HAVE THE OPPORTUNITY TO SPEAK ON THE SUBJECT OF SUPERANNUATION AT TODAY'S LUNCHEON.

THE INVITATION TO ADDRESS THIS GATHERING HAS COME AT AN APPROPRIATE TIME, FOR IT IS NOW ALMOST A MONTH SINCE I PRESENTED THE GOVERNMENT'S MAY ECONOMIC STATEMENT.

THE MAJOR PART OF THIS SPEECH WILL BE DEVOTED TO THE REFORMS RELATING TO SUPERANNUATION WHICH I ANNOUNCED IN THE STATEMENT.

BUT BEFORE VENTURING DOWN THAT PATH I WOULD LIKE TO RECALL SOME OF THE BACKGROUND TO THE 1988 CHANGES.

IN PARTICULAR I WANT TO REMIND YOU OF THE MOMENTOUS DEVELOPMENTS IN RETIREMENT INCOMES POLICY AND PRACTICE SINCE 1983.

THE FIRST REFORM UNDERTAKEN BY THE HAWKE GOVERNMENT IN THIS AREA WAS THE LUMP-SUM TAX CHANGE OF MAY 1983.

NOT ONLY THE FIRST REFORM BUT THE MOST OVERDUE AND ONE OF THE TOUGHEST ISSUES WHICH WE HAVE CONFRONTED.

ARISING FROM THE 1983 MEASURES WAS THE DEVELOPMENT OF A NEW RANGE OF PRODUCTS - PRINCIPALLY ROLLOVER VEHICLES AND DEFERRED ANNUITIES.

CONCURRENT WITH THESE DEVELOPMENTS WAS ACTION TO REMOVE BLATANT TAX AVOIDANCE DEVICES WHICH HAD BECOME A BLIGHT ON THE INDUSTRY.

THE NEXT MAJOR INITIATIVE CAME WITH THE AGREEMENT IN SEPTEMBER 1985 BETWEEN THE GOVERNMENT AND THE ACTU FOR 3 PER CENT OF WAGES TO BE PAID AS NEW OR IMPROVED SUPERANNUATION.

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THE CONCILIATION AND ARBITRATION COMMISSION BROADLY ENDORSED THIS AGREEMENT WITH EXTRA IMPETUS ADDED BY THE HIGH COURT'S 1986 RULING WHICH ESTABLISHED SUPERANNUATION AS AN INDUSTRIAL MATTER.

OVER THE PAST TWO YEARS WE HAVE OVERHAULED THE SUPERVISORY STRUCTURE FOR THE INDUSTRY AND ESTABLISHED THE INSURANCE AND SUPERANNUATION COMMISSION.

RELATED REFORMS HAVE BROUGHT BREAKTHROUGHS IN NEW BENEFIT AND PRESERVATION STANDARDS AND IN THE ACCOUNTABILITY OF FUNDS TO MEMBERS.

AND SIMULTANEOUSLY ON THE BROADER TAXATION FRONT, WE HAVE STEADILY REMOVED OR REDUCED VIRTUALLY ALL OF THE OTHER TAX SHELTERS FOR PERSONAL SAVING AND INVESTMENT.

NOW THERE ARE THE MAY STATEMENT'S MAJOR AND FINAL SET OF MEASURES.

SO, IN JUST ON FIVE YEARS WE HAVE TAKEN AN INDUSTRY WHICH HAD BEEN FORGOTTEN BY PUBLIC POLICY MAKERS FOR OVER HALF A CENTURY AND REBUILT IT FROM THE FOUNDATIONS UP.

LIKE SO MUCH OF AUSTRALIA'S SOCIAL AND ECONOMIC INFRASTRUCTURE, THE RETIREMENT INCOMES INDUSTRY WAS LEFT DESSICATED BY LAZY COALITION RULE.

IT HAS TAKEN A LABOR ADMINISTRATION TO TAKE AN INTEREST IN YOUR INDUSTRY AND TO SET ABOUT REFORMING IT.

THE RESULTS SPEAK FOR THEMSELVES.

IN 1983 THE TOTAL ASSETS HELD BY SUPERANNUATION FUNDS AMOUNTED TO $25 BILLION.

AT MARCH THIS YEAR THE FIGURE WAS $80 BILLION.

MOREOVER, AND REFLECTING THE GOVERNMENT'S POLICY PRIORITIES, THE GROWTH OF BENEFIT PRESERVATION VEHICLES - ADF'S AND DEFERRED ANNUITIES - HAS BEEN EVEN MORE REMARKABLE.

LESS THAN THREE YEARS AGO THEIR TOTAL ASSETS WERE JUST $380 MILLION.

BY JANUARY 1988 THE FIGURE WAS $7.6 BILLION.

A STAGGERING INCREASE OF 2000 PER CENT.

ALL OF THIS HAS COME ABOUT BY THE GOVERNMENT PLACING SUPERANNUATION CENTRESTAGE AS THE MEDIUM THROUGH WHICH ORDINARY PEOPLE SAVE FOR THEIR RETIREMENT.

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THE MAY STATEMENT REFORMS WILL CONSOLIDATE THIS POSITION BY COMPLETING THE CIRCLE OF SUPERANNUATION TAX REFORM.

THROUGH MY COMMENTS TODAY, I HOPE TO CONVEY TO YOU HOW THE LATEST CHANGES SLOT INTO THE POLICY MATRIX.

THIS NECESSARILY INVOLVES A BROAD DESCRIPTIVE APPROACH.

THIS MAY DISAPPOINT SOME OF YOU IN THE AUDIENCE WHO LIVE ON THE DETAIL OF POLICY.

TO PUT YOUR MINDS AT REST LET ME SAY THAT I HAVE THIS MORNING RELEASED A STATEMENT COVERING SOME IMPORTANT SECOND-ORDER MATTERS WHICH WERE NOT FULLY FLESHED-OUT IN THE MAY STATEMENT DOCUMENTATION.

I HAVE SOME COPIES WITH ME FOR DISTRIBUTION HERE.

THE GOVERNMENT’S REFORM PACKAGE IS BUILT AROUND THREE CENTRAL AND STRAIGHTFORWARD MEASURES.

FIRSTLY, THE REVENUE BRING-FORWARD - SWITCHING 15 PERCENTAGE POINTS OF TAXATION FROM ALL (POST-JUNE 1983) END BENEFITS TO EMPLOYER AND OTHER DEDUCTIBLE CONTRIBUTIONS.

SECOND, A MODEST TAX ON FUND EARNINGS - ENABLING THE EXTENSION OF THE IMPUTATION SYSTEM TO SUPERANNUATION FUNDS.

AND THIRD, A REVIEW OF THE REASONABLE BENEFIT LIMITS WHICH HAS LED TO GENUINE PROGRESSIVITY IN THE TAX ARRANGEMENTS BY INCREASING ACCESS TO TAX-ADVANTAGED SUPERANNUATION AT LOWER INCOME LEVELS AND RESTRICTING IT AT HIGHER INCOME LEVELS.

WE HAVE ALSO EXTENDED THE COVERAGE OF THE REASONABLE BENEFIT LIMITS TO ALL FORMS OF SUPERANNUATION ENJOYING TAX CONCESSIONS, INCLUDING CURRENTLY EXEMPT UNFUNDED LUMP SUM AND PUBLIC SECTOR SCHEMES.

SUCCESSFUL REFORMS CAN ONLY BE ACCOMPLISHED WITHIN A LONGER-TERM POLICY FRAMEWORK.

CHANGES DRIVEN SOLELY BY SHORT-TERM CONSIDERATIONS ARE UNLIKELY TO STAND THE TEST OF TIME.

AND THEIR EVENTUAL FAILURE WILL INEVITABLY BE AT A COST - A COST IN TERMS OF BOTH WASTED RESOURCES AND THE UNCERTAINTY CREATED FOR MARKET PARTICIPANTS.

THE ULTIMATE COST IS THAT OF THE NATION BEING ILL-EQUIPPED TO MEET THE DEMANDS OF THE FUTURE.

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THIS IS PROBABLY NO MORE TRUE THAN IN THE CASE OF SUPERANNUATION. '

BY ITS VERY NATURE, THE ACCRETION OF SUPERANNUATION BENEFITS IS A LONG-TERM PROCESS - INVOLVING SAVINGS AND INVESTMENT DECISIONS BY A GREAT NUMBER OF INDIVIDUALS AND INSTITUTIONS OVER AN EXTENDED TIME FRAME.

IF INDIVIDUALS ARE TO BE ABLE TO PLAN PROPERLY FOR THEIR RETIREMENT, THE POLICY FRAMEWORK MUST BE RIGHT AND BE CAPABLE OF BEING SUSTAINED OVER THE LONG-HAUL.

THE GOVERNMENT HAS BEEN CONSCIOUS OF SUCH CONSIDERATIONS IN TACKLING SINCE 1983 THE REFORM OF SUPERANNUATION TAXATION.

SUPERANNUATION OF COURSE IS A LONG ESTABLISHED FEATURE OF THE AUSTRALIAN TAX SYSTEM, DATING BACK TO BEFORE THE START OF THIS CENTURY.

BUT AS THE ECONOMY DEVELOPED AND MATURED OVER THE DECADES THE TAXATION REGIME FOR THE DIFFERENT FORMS OF SUPERANNUATION BENEFITS BECOME MORE AND MORE UNBALANCED AND DISTORTING.

INDEED, THE TAXATION ARRANGEMENTS INTRODUCED AT THE TIME OF WORLD WAR ONE REMAINED BROADLY UNTOUCHED UNTIL WE TOOK OFFICE.

IN 1983 THIS GOVERNMENT, IN ONE OF ITS FIRST MAJOR DECISIONS TOOK THE SIGNIFICANT STEP OF REDRESSING THE TAXATION BIAS THEN EXISTING IN FAVOUR OF LUMP SUMS.

THE TAX ARRANGEMENTS FOR ELIGIBLE TERMINATION PAYMENTS WERE INTRODUCED AND SPECIFIC INCENTIVES WERE PUT IN PLACE TO ENCOURAGE THE PRESERVATION OF SUPERANNUATION BENEFITS UNTIL FULL RETIREMENT AGE WAS REACHED.

THE 1988 REFORM OF THE TAXATION OF SUPERANNUATION IS NO MORE THAN THE LOGICAL AND FINAL EXTENSION OF THE TAXATION CHANGES INITIATED IN 1983 AND OF THE IMPUTATION SYSTEM OF COMPANY TAX INTRODUCED IN OUR 1985 TAX PACKAGE.

AGAINST THIS BACKGROUND THERE ARE TWO ASPECTS I WISH TO FOCUS ON IN MY COMMENTS TODAY.

THESE ARE CENTRAL TO A PROPER UNDERSTANDING OF THE RATIONALE BEHIND THE CHANGES AND OF THE BENEFITS WHICH WILL FLOW FROM THEM.

THE FIRST IS THE CRITICAL IMPORTANCE OF PUTTING IN PLACE A STRUCTURE OF TAXATION WHICH MAINTAINS SUBSTANTIAL CONCESSIONS FOR SUPERANNUATION BUT WHICH ALSO KEEPS THE COST OF GOVERNMENT SUPPORT WITHIN AFFORDABLE LIMITS.

CLEARLY, ONE GOES WITH THE OTHER

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EARLIER I REFERRED TO THE RAPID GROWTH IN SUPERANNUATION FUNDS ASSETS OVER THE PAST FEW YEARS.

THIS OF COURSE IS A FUNCTION OF GREATER INCOME FLOWS TO THE FUNDS.

BUT THIS EXPANSION IS MIRRORED IN A RAPIDLY RISING LEVEL OF REVENUE FORGONE BY THE COMMONWEALTH DUE TO THE TAX CONCESSIONS FOR SUPERANNUATION SAVINGS.

IH THE THREE YEARS BETWEEN 1983/84 and 1986/87 THIS COST ESCALATED BY 50 PER CENT to $3.5 BILLION.

IH 1987/88 IT WILL BE SUBSTANTIALLY HIGHER AGAIN.

IT IS COMPLETELY UNREALISTIC TO EXPECT THAT THESE GROWTH RATES COULD BE ACCOMMODATED BY THIS GOVERNMENT OR INDEED ANY OTHER.

IH OTHER WORDS, A REVIEW OF THE TAX EXPENDITURE WAS INEVITABLE.

WHAT DISTINGUISHES THE OUTCOME OF OUR REVIEW IS THAT THE ATTRACTIVENESS OF SUPERANNUATION HAS BEEN RETAINED AND THE AFFORDABILITY ISSUE IS SETTLED.

BOTH ASPECTS ARE EQUALLY IMPORTANT IF SUPERANNUATION IS TO FULFILL ITS FUNCTION OF LIFTING THE LIVING STANDARDS OF AUSTRALIANS IN THEIR RETIREMENT.

THIS IS THE BASIS OF THE GOVERNMENT'S STRONG AND CONSISTENT SUPPORT FOR PRIVATE RETIREMENT INCOMES.

THIS IS THE FIRST COMMONWEALTH GOVERNMENT WITH A REAL . COMMITMENT TO THE INDUSTRY.

IHDEED, THIS GOVERNMENT IS THE FIRST SINCE FEDERATION TO RECOGNISE THE RIGHT OF ALL AUSTRALIAN WORKERS TO SUPERANNUATION.

THE FIRST TO ACTIVELY SUPPORT ITS EXTENSION TO AREAS OF THE WORKFORCE LONG LEFT FORGOTTEN.

AS A CONSEQUENCE OF OUR POLICIES, THE LEVEL OF COVERAGE AND QUALITY OF SUPERANNUATION BENEFITS ARE INCREASING.

TO DATE, OVER 40 PER CENT OF THE WORKFORCE HAS RECEIVED NEW OR IMPROVED SUPERANNUATION BENEFITS UNDER AGREEMENTS OR AWARDS.

BY THE END OF THE GOVERNMENT'S CURRENT TERM, THE PROPORTION OF THE WORKFORCE COVERED BY SUPERANNUATION ARRANGEMENTS WILL HAVE DOUBLED TO OVER 80 PER CENT.

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THE GOVERNMENT UNDERSTANDS THAT 3 PER CENT OF ORDINARY TIME EARNINGS IS NOT OF ITSELF SUFFICIENT TO PROVIDE A REASONABLE RETIREMENT INCOME.

HOWEVER, 3 PER CENT IS BUT A BEGINNING.

AS ECONOMIC CIRCUMSTANCES PERMIT, IT IS LIKELY THAT SUPERANNUATION CONTRIBUTIONS AS A PROPORTION OF EMPLOYEES' EARNINGS WILL INCREASE.

OUR RETIREMENT INCOMES POLICY IS DESIGNED TO ENSURE THAT ALL MEMBERS OF THE COMMUNITY HAVE AN ADEQUATE AND SECURE LEVEL OF INCOME IN RETIREMENT AND TO ENCOURAGE SELF-PROVISION FOR RETIREMENT.

SUBSTANTIAL TAX CONCESSIONS ARE PROVIDED TO ACHIEVE THE SECOND OBJECTIVE.

THE INTENTION OF THESE CONCESSIONS IS TO ALLOW A BETTER INCOME IN RETIREMENT THAN UNDER THE AGE PENSION SYSTEM ALONE.

OTHERWISE THERE WOULD BE NO INCENTIVE FOR INDIVIDUALS OF MODEST MEANS TO MAKE THEIR OWN PROVISION FOR RETIREMENT RATHER THAN SIMPLY TO RELY ON THE PENSION.

AND WITH THE AGING OF THE AUSTRALIAN POPULATION PROJECTED FOR THE NEXT CENTURY THAT INCENTIVE IS ALL THE MORE CRITICAL.

THE APPLICATION OF OUR POLICY INTENTION IS CLEARLY BORNE OUT IN PRACTICE.

SOCIAL SECURITY BENEFITS, FOR INSTANCE, ARE NOT WITHDRAWN DOLLAR FOR DOLLAR UNDER THE MEANS TEST, SO THAT INDIVIDUALS DO NOT FORGO A DOLLAR OF PENSION INCOME FOR EVERY ADDITIONAL DOLLAR OF PRIVATELY FUNDED PENSION.

IN FACT, ONLY WHEN PRIVATE RETIREMENT BENEFITS REACH SIGNIFICANT LEVELS ARE AGE PENSION ENTITLEMENTS FULLY WITHDRAWN.

AT PRESENT ONLY A MINORITY OF RETIREES FALL INTO THIS CATEGORY

GOVERNMENT SUPPORT FOR SUPERANNUATION MUST THEREFORE BE SEEN AS COMPLEMENTING, RATHER THAN SIMPLY SUBSTITUTING FOR, THE AGE PENSION SYSTEM.

BUT AS I SAID EARLIER THESE POLICIES BRING A BUDGETARY COST FOR THE GOVERNMENT.

THE CHALLENGE, THEREFORE, WAS TO DESIGN A REFORM WHICH FULLY AND EQUITABLY PRESERVED THE IMPORTANT FEATURES OF SUPERANNUATION POLICY TO DATE BUT AT AN AFFORDABLE COMMUNITY COST.

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THE MAY STATEMENT CHANGES ACHIEVE THESE AIMS.

THE MAIN ELEMENTS OF SUPERANNUATION POLICY ARE NOT ONLY PRESERVED BUT IN SOME KEY RESPECTS, ENHANCED:

. THE BROAD DEGREE OF TAX CONCESSIONALITY IS MAINTAINED; INDEED, IN MANY INSTANCES, AFTER-TAX END BENEFITS ARE INCREASED;

. THERE IS CONTINUED RECOGNITION OF LUMP SUMS AS A LEGITIMATE FORM OF RETIREMENT BENEFIT BUT PENSIONS AND ROLLOVER ANNUITIES WILL BE INCREASINGLY TAX-PREFERRED; THIS STEMS FROM THE DECLINING SIGNIFICANCE OF PRE-1983

SERVICE AND THE GOVERNMENT'S SUCCESSIVE PERSONAL TAX CUTS;

. 'ROLLOVER' INCENTIVES TO ENCOURAGE PRESERVATION OF BENEFITS ARE STRENGTHENED BY INCREASING THE RELATIVE TAX BURDEN ON PRE-AGE 55 RETIREMENT BENEFITS; AND

. FAIRER ACCESS TO THE TAX CONCESSIONS HAS BEEN PROVIDED BY INTRODUCING A GRADUATED SCALE OF REASONABLE BENEFIT LIMITS AND BY EXCLUDING EMPLOYEE CONTRIBUTIONS FROM THOSE LIMITS.

ALL OF THIS IS ACHIEVED WHILE SIGNIFICANTLY REDUCING THE BUDGETARY COST OF THE CONCESSIONS.

THIS IS WHERE THE BRING-FORWARD OF REVENUE FITS IN.

THE CHANGES IN THE TAX ARRANGEMENTS ARE EXPECTED TO YIELD REVENUE OF ABOUT $1 BILLION IN 1989-90, $1.3 BILLION IN 1990-91 AND RISING SLOWLY THEREAFTER.

BECAUSE OF THESE CHANGES THE TAXATION OF SUPERANNUATION WILL BE PLACED ON A SUSTAINABLE LONG-TERM BASIS.

THE MESSAGE WHICH THE INDUSTRY AND FUND MEMBERS ALIKE SHOULD COMPREHEND IS THAT OUR TIMELY ACTIONS HAVE TAKEN SUPERANNUATION TAXATION OFF THE AGENDA FOR THE FUTURE.

NOT ONLY IS THE ANNUAL BUDGETARY COST BEING REDUCED TO ACCEPTABLE LEVELS BUT THE STRUCTURE OF TAXATION WILL NOW BE COMPATIBLE WITH THE TREATMENT OF OTHER FORMS OF SAVINGS.

I EMPHASISE THIS POINT BECAUSE IT LIES AT THE HEART OF THE EXPLANATION BEHIND WHY THE NEW ARRANGEMENTS WILL STAND THE TEST OF TIME. .

SUPERANNUATION IS A FORM OF SAVING.

OTHER FORMS OF SAVING WORK ON THE TAXED/TAXED/EXEMPT MODEL.

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FOR EXAMPLE, DEPOSITS INTO A BANK ACCOUNT ARE MADE FROM AFTER-TAX INCOME, EARNINGS ON THE DEPOSITS ARE TAXED EACH YEAR AND THE WITHDRAWALS ARE EXEMPT FROM FURTHER TAX.

SAVINGS THROUGH SUPERANNUATION, ON THE OTHER HAND, HAS RECEIVED ANOMALOUS TREATMENT IN THE PAST.

EMPLOYER CONTRIBUTIONS AND EARNINGS HAVE BEEN UNTAXED, WHILE END BENEFITS HAVE BEEN TAXED.

THAT IS, THE STRUCTURE EXEMPT/EXEMPT/TAXED.

NOW, HOWEVER, THE TAXATION OF SUPERANNUATION WILL LARGELY FOLLOW THE STANDARD INCOME TAX TREATMENT OF SAVINGS BUT WITH CONCESSIONAL TAX RATES APPLYING TO PRESERVE THE EXISTING INCENTIVES FOR SAVINGS TAKEN IN THIS FORM.

THE RESULTING REVENUE BRING-FORWARD IS NOT, CONTRARY TO SOME ILL-INFORMED VIEWS, IN ANY SENSE BORROWING FROM THE FUTURE.

WHAT HAPPENS IS THAT WE COLLECT A REVENUE-STREAM CREATED BY THE 1983 LUMP-SUM CHANGES.

IN 1988/89 WE WILL TAP INTO A STREAM OF REVENUE WHICH WOULD OTHERWISE HAVE BEEN COLLECTED OVER THE AVERAGE TIME-SPAN PEOPLE SPEND IN THE WORKFORCE - 40 YEARS OR SO.

IN 1989/90 REVENUE WILL BE COLLECTED FOR THE 40 YEARS SUBSEQUENT TO THAT YEAR.

IN 30 YEARS FROM NOW A FUTURE GOVERNMENT WILL COLLECT A PRE-EXISTING REVENUE STREAM OTHERWISE COLLECTIBLE 30 TO 70 YEARS FROM NOW, AND SO ON.

LET US DISPENSE WITH THE NOTION THAT HOLES HAVE BEEN CREATED IN FUTURE BUDGETS.

THAT IS PATENTLY NOT THE CASE.

LET ME TURN NOW TO THE SECOND KEY OBJECTIVE OF THE SUPERANNUATION REFORM, NAMELY, THE EXTENSION OF THE IMPUTATION SYSTEM TO SUPERANNUATION FUNDS.

THIS MEASURE, AS WITH THE BRING-FORWARD OF END BENEFITS TAX, REPRESENTS A CONSOLIDATION OF EARLIER REFORM BY THIS GOVERNMENT. .

ONE WHICH WILL HAVE DRAMATIC AND POSITIVE RAMIFICATIONS FOR THE EFFICIENT ALLOCATION OF INVESTMENT RESOURCES IN AUSTRALIA.

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WHEN THE DIVIDEND IMPUTATION SYSTEM WAS INTRODUCED FROM 1 JULY 1987, IT DID NOT APPLY, FOR VARIOUS REASONS, TO THE LARGEST AND MOST INFLUENTIAL DOMESTIC INSTITUTIONS OPERATING IN THE AUSTRALIAN CAPITAL MARKET.

THESE INSTITUTIONS ARE THE SUPER FUNDS, LIFE OFFICES AND FRIENDLY SOCIETIES.

WHILE THEY WERE EXCLUDED FROM THE SYSTEM, THE IMPUTATION REFORM NECESSARILY REMAINED INCOMPLETE.

A LARGE PART OF THE CURRENT PACKAGE HAS BEEN ABOUT COMPLETING ONE OF THE MOST FOR-REACHING CHANGES EVER MADE TO THE AUSTRALIAN TAXATION SYSTEM.

AS YOU KNOW THIS OBJECTIVE IS TO BE ACHIEVED BY TAXING AT 15 PER CENT THE INVESTMENT INCOME OF SUPERANNUATION FUNDS.

THE FUNDS HAVE SCOPE TO NEUTRALISE THE EFFECTS OF THIS NOMINAL RATE OF TAX IN TWO WAYS:

. WITH IMPUTATION CREDITS ON DIVIDENDS PAID BY AUSTRALIAN COMPANIES - I.E. INCLUDING THOSE WHICH CURRENTLY CANNOT BE ACCESSED; AND SECONDLY

. CAPITAL GAINS INCOME WILL ONLY BE TAXED ON BOTH A REALISED AND INFLATION-ADJUSTED BASIS.

EXTENDING IMPUTATION TO SUPERANNUATION FUNDS WILL MEAN THAT FOR THE FIRST TIME THEY WILL FACE A 'LEVEL TAX PLAYING FIELD*.

ON ONE HAND THE FUNDS WILL NO LONGER BE SUBJECT, IN EFFECT, TO THE FULL COMPANY TAX RATE ON INCOME UNDERLYING DIVIDENDS RECEIVED FROM AUSTRALIAN COMPANIES.

BUT AS WELL THEY WILL NO LONGER BE EXEMPT FROM TAX ON INCOME RECEIVED FROM OTHER SOURCES.

IN ESSENCE A SUPERANNUATION FUND WILL FACE A TAXATION REGIME SIMILAR IN STRUCTURE TO THAT FACED BY ITS MEMBERS WHEN INVESTING INDIVIDUALLY - THE DIFFERENCE NOW BEING VERY CONCESSIONAL TAX RATES.

NOW I REALISE THAT CONCEPTS LIKE 'EFFICIENT RESOURCE ALLOCATION*, AND 'TAX NEUTRALITY* MAY NOT BE AT THE TOP OF THE MIND OF EVERY FUND MANAGER OR ADMINISTRATOR.

INDEED, I AM SURE THAT SOME WOULD PREFER THE HAPPY DAYS OF STACKING PORTFOLIOS WITH GOVERNMENT BONDS AND TAX-MINIMISING PRIVATE DEBT.

BUT WE CAN'T RUN PUBLIC POLICY TO SUIT THE EASY CONVENIENCE OF A FEW PEOPLE.

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WHEN I TALK ABOUT OPENING UP THE SHUTTERS AND EXPOSING AUSTRALIA TO COMPETITIVE PRESSURES, I'M NOT JUST REFERRING TO SELECTED BITS OF THE ECONOMY.

I MEAN ALL OF IT.

THAT INCLUDES SUPER FUNDS.

SUPERANNUATION AND APPROVED DEPOSIT FUNDS REPRESENT A MAJOR INVESTMENT FORCE IN AUSTRALIA.

THEY ARE KEY PARTICIPANTS IN THE CAPITAL MARKETS, WITH THEIR SHARE PORTFOLIOS ACCOUNTING FOR AROUND 10 PER CENT OF SHARE MARKET CAPITALISATION.

AS AN ASIDE I WOULD ADD HOWEVER, THAT THIS IS A SIGNIFICANTLY LOWER PROPORTION THAN MOST OTHER DEVELOPED COUNTRIES.

LIKE OTHER INVESTORS SUPERANNUATION FUNDS SELECT A PORTFOLIO WHICH MAXIMISES EXPECTED, OR RISK-ADJUSTED, PROFITS.

THAT PORTFOLIO CHOICE IS CLEARLY INFLUENCED BY TAXATION CONSIDERATIONS.

THE NEW TAXATION REGIME INCREASES THE AFTER-TAX RETURN FROM DOMESTIC EQUITIES RELATIVE TO OTHER ASSETS.

THE EFFECTIVE TAX RATE ON INCOME ATTRIBUTABLE TO DOMESTIC EQUITIES HAS BEEN REDUCED FROM A POSSIBLE 49 PER CENT TO 15 PER CENT.

ON OTHER INCOME, INCLUDING DEBT INSTRUMENTS, IT HAS BEEN INCREASED FROM 0 TO 15 PER CENT.

THESE CHANGES AMOUNT TO A FUNDAMENTAL IMPROVEMENT IN TAX NEUTRALITY.

EVERY FUND WILL OBTAIN A HIGHER RISK-ADJUSTED RATE OF RETURN BY INCLUDING MORE DOMESTIC EQUITIES IN ITS PORTFOLIO.

ONE CONSEQUENCE IS THAT THE TAX ON EARNINGS IS MINIMISED.

IN THIS NEW ENVIRONMENT INVESTMENT DECISIONS WILL NEED TO BE TAX EFFICIENT BUT IMPORTANTLY WILL NO LONGER BE DISTORTED BY GROSSLY NON-NEUTRAL TAX TREATMENT OF INVESTMENT CHOICES.

THIS TIES THE SUPERANNUATION MEASURES INTO THE THRUST OF THE OTHER BUSINESS TAX CHANGES ANNOUNCED IN THE MAY STATEMENT.

IT IS PART AND PARCEL OF THE STRATEGY OF INDUCING AUSTRALIAN BUSINESS TO EXPEND THEIR CREATIVE ENERGIES ON PRODUCTIVE ACTIVITIES INSTEAD OF SEARCHING FOR TAX BREAKS AND SHELTERS.

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NONE OF THIS PORTFOLIO ADJUSTMENT HAS TO TAKE PLACE OVERNIGHT, A FACT NOT WELL RECOGNISED BY SOME COMMENTATORS.

THE POINT IS THAT, AS YOU ALL KNOW, SUPERANNUATION IS ABOUT LONG-TERM INVESTMENT.

IH THAT REGARD IT SHOULD BE NOTED THAT OVER THE FIVE YEARS TO 31 MAY 1988 THE STATEX - ACTUARIES INDEX OF THE 50 MAJOR PUBLIC STOCKS SHOWS AN AVERAGE ANNUAL RETURN OF 23.4 PER CENT.

THE EQUIVALENT FIGURE FOR GOVERNMENT BONDS IS 13.4 PER CENT.

OVER THE TWO YEARS TO JUNE 1988 THE FIGURES ARE 21 PER CENT AND 13 PER CENT RESPECTIVELY.

THE IDEA THAT THE GOVERNMENT IS SOMEHOW PREJUDICING FUTURE RETIREMENT BENEFITS BY CLEARING THE WAY FOR FUNDS TO ACQUIRE MORE AUSTRALIAN SHARES IS OBVIOUSLY SPURIOUS.

OVERALL THE PORTFOLIO ADJUSTMENT PROCESS WILL HAVE A POSITIVE IMPACT ON THE SHARE MARKET, ENHANCING THE CAPACITY OF AUSTRALIAN COMPANIES TO RAISE EQUITY CAPITAL AND REDUCING THE TAX ADVANTAGES FAVOURING DEBT FINANCE.

BY FACILITATING CAPITAL MOBILISATION IN THIS WAY, THE MAY STATEMENT REFORM WILL HELP TO SECURE THE AVAILABILITY OF RISK CAPITAL FOR INVESTMENT PURPOSES AND THE CHANNELLING OF FUNDS ACCORDING TO NORMAL RATE OF RETURN CRITERIA.

BUT I BELIEVE THE REFORM WILL ALSO BRING AN ATTITUDINAL CHANGE OH THE PART OF SUPERANNUATION FUNDS AS SHAREHOLDERS IN AUSTRALIAN COMPANIES.

IH THE PAST, FUNDS HAVE LARGELY ASSUMED A PASSIVE ROLE DESPITE THEIR PRESENCE AS MAJOR SHAREHOLDERS.

IF AN EQUITY INVESTMENT PERFORMED POORLY, FUND MANAGERS - UHDER PRESSURE OF SHORT-RUN PERFORMANCE TARGETS - WERE MORE INCLINED TO SELL OUT RATHER THAN ENDEAVOUR TO INFLUENCE MEDIUM TERM CORPORATE PERFORMANCE.

IH FUTURE, HOWEVER, A FAR MORE ACTIVE COMMITMENT TO PERFORMANCE WILL BE EVIDENT.

THE PERFORMANCE OF A COMPANY AND ITS POLICY TOWARDS DISTRIBUTION OF FRANKED DIVIDENDS - NOT ONLY THROUGH CASH DIVIDENDS BUT ALSO THROUGH BONUS SHARE ISSUES AND DIVIDEND REINVESTMENT PLANS - WILL ASSUME FAR MORE IMPORTANCE FOR BOTH

A FUND AND ITS MEMBERS.

FUND MANAGERS WILL NEED TO FOCUS MORE ON MEDIUM-TERM CORPORATE PERFORMANCE AND THE EFFECTIVENESS OF MANAGEMENT IN RAISING PRODUCTIVITY AND LESS ON SHORT-TERM INTERNAL PERFORMANCE CRITERIA.

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THIS WILL BENEFIT COMPANIES AS WELL.

MANAGEMENT WILL BE ABLE TO PAY MORE ATTENTION TO MEDIUM-TERM STRATEGIES AND RESULTS AND LESS TO FORMULATING SHORT-TERM DEFENSIVE OPTIONS. -

IN TIME THIS WILL PRODUCE EFFICIENCY GAINS ACROSS THE ECONOMY AS COMPANIES ASSUME MORE OF A FORWARD PLANNING PROFILE AND RESPOND TO THE BUSINESS OPPORTUNITIES GENERATED BY SUCH A STRATEGIC APPROACH.

IN OTHER WORDS, WE ARE STRIKING A BLOW FOR THOSE BUSINESSES WHO WANT TO TURN OUT A DOLLAR BY GENUINELY PRODUCTIVE ENDEAVOUR; AND WE ARE STRIKING A BLOW AGAINST THE PAPER SHUFFLERS.

THE REFORM OF THE TAXATION OF SUPERANNUATION ANNOUNCED IN THE MAY STATEMENT REPRESENTS THE CULMINATION OF THE REFORM OF THOSE TAXATION ARRANGEMENTS UNDERTAKEN BY THIS GOVERNMENT.

OUR EARLIER MEASURES SUCCEEDED IN MOVING SUPERANNUATION POLICY IN THE RIGHT DIRECTION.

THE PROCESS IS NOW COMPLETED.

THE EXISTING ORDER OF TAX CONCESSIONS FOR SUPERANNUATION HAS BEEN MAINTAINED.

THE COST OF CONCESSIONS FOR SUPERANNUATION IS TO BE KEPT AFFORDABLE.

AND BY EXTENDING OUR LANDMARK IMPUTATION SYSTEM TO SUPER FUNDS WE ARE DEEPENING AND BROADENING THE FOUNDATIONS UPON WHICH ENTREPRENEURSHIP CAN FLOURISH.

MOST IMPORTANTLY, WHAT THE ANNOUNCEMENT MEANS IS THAT AS FAR AS THIS GOVERNMENT IS CONCERNED, THE TAXATION ARRANGEMENTS FOR SUPERANNUATION ARE NOW PERMANENT.

A DETAILED, COHERENT AND STABLE FRAMEWORK FOR SUPPORTING SUPERANNUATION HAS BEEN PUT IN PLACE.

THE SUPERANNUATION INDUSTRY KNOWS WHERE IT STANDS AND CAN PLAN ITS FUTURE BUSINESS WITH CONFIDENCE.