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Thursday, 21 March 2013
Page: 3012

Mr FLETCHER (Bradfield) (10:18): I am very pleased to rise to speak on the Superannuation Legislation Amendment (Reform of Self Managed Superannuation Funds Supervisory Levy Arrangements) Bill 2013. The stated purpose of this bill is to increase the cap on the levy which can be charged each year to self-managed superannuation funds. The levy is charged as part of cost-recovery arrangements under which the Australian Taxation Office incurs costs in its function of supervising the self-managed superannuation fund sector.

The premise of this bill is that the current SMSF levy does not fully recover the Australian Taxation Office's costs of supervising the sector. Indeed, that is what the explanatory memorandum says to us. There is a statement in paragraph 1.5 that says:

The current SMSF supervisory levy does not fully recover the ATO’s costs of regulating the sector.

In the time that is available to me today, I will make three points. First of all, the purpose for which this measure has been developed and the process by which this measure has been developed have been poor, and the sector which is regulated is anxious about this measure—and that anxiety has been exacerbated by the poor process. Secondly, the evidence which has been provided regarding the nature and extent of this cost shortfall raises serious questions. Thirdly, it is difficult to avoid the conclusion that this is yet another instance of a desperate grab for cash by a hopeless government which has lost control of the budgetary and fiscal process.

I start with the proposition that the process has been very poor and that, as a result, the sector which is regulated is very anxious. The Parliamentary Joint Committee on Corporations and Financial Services on which I sit held a hearing on this bill last week. We heard from a number of players in the sector, particularly the Self Managed Super Fund Professionals Association of Australia. Their evidence was very interesting. Amongst other things, they highlighted that they were uncertain as to whether the changes to collect the SMSF levy in the same year that it is levied, which is one of the measures contained in the bill, will result in changing the current method of collecting the levy through the SMSF annual tax return. I acknowledge that officials of the Australian Taxation Office later in the hearing indicated that it was not intended to change the current collection methods. That is good news. It is surprising and disappointing, however, that it took until the occurrence of this hearing for that information to be communicated to the sector which is to be regulated. It is surprising and concerning that this degree of uncertainty about a fundamental aspect of these reforms was allowed to fester in the sector that is to be regulated.

It is also noteworthy that the Self Managed Super Fund Professionals Association highlighted their concerns as to the basis of the increase and their doubts as to whether the case had been made out that the increase was justified. They also highlighted the fact that there has been absolutely no consultation between the Australian Taxation Office and their organisation about this increase.

I will quote from the submission of the Self Managed Super Fund Professionals Association of Australia. In paragraph 5 they say:

We believe that an increase in the SMSF levy cap—and the levy itself—should only take place after consultation between the ATO and the SMSF industry. This consultation would allow an opportunity for the ATO to justify any need for an increase in the SMSF levy to industry.

They go on to say in their submission that they have significant concerns about the particular increase in the levy which is to occur as part of this package of measures. At paragraph 8 they have this to say:

The increase to $259 represents a 35.6% increase in the SMSF levy which is the largest increase in the levy since it moved from $45 to $150 per year in 2006-07. This increase has been made without any justification to SMSF trustees why increased funding is needed for the ATO regulation of SMSFs.

So it is clear that we have here yet another poor process from this government. There has been inadequate consultation with the regulated sector, key aspects of the reforms have not been adequately explained, there has been anxiety and concern, and it is not a public policy process which observers can look at with any degree of confidence.

I turn next to the specific and central issue underlying this bill, which is the existence and quantum of the claimed shortfall in revenues the Australian Taxation Office receives from the levy, compared to the cost it incurs in regulating this sector. I asked a number of questions of the officials of the Australian Taxation Office about this very question at the hearing last week. I regret to say that it is hard to avoid the conclusion that that statement from the explanatory memorandum is a misleading statement. That is a statement which reads as follows.

The current SMSF supervisory levy does not fully recover the ATO's costs of regulating the sector.

On this point, we were informed by both the SMSF professionals association and it was confirmed by the Australian Taxation Office that the Australian Taxation Office had told an industry forum, held quite recently, that the annual cost of carrying out the supervisory functions in relation to self-managed superannuation funds is presently around $85 million per year. This raises the question: what is the revenue which is presently raised by the Australian Taxation Office from the levy? Is it more or less than $85 million? If you do the maths on the basis that the current levy is $191 per year and if you multiply that by the number of self-managed superannuation funds in existence as at 30 June 2012, you get a number which is in fact somewhat higher than $85 million. Officials of the Taxation Office did put to the inquiry that there is a reduction factor. The point they make is that not every fund which is shown as being in existence is actually still operational and you do not succeed in collecting the levy from every fund. I accept that proposition. That makes sense. But what is difficult to understand is how it can be said that the current levy does not raise sufficient revenue to cover the expenses of the Australian Taxation Office.

I asked an officer of the Australian Taxation Office this very question in the hearing. My question was as follows:

I would like to ask you about the statement you made before … that apart from the timing difference, broadly, for 2011-12 what will be collected under the levy will cover the costs?

The answer from the Taxation Office official, Mr Peterson, was as follows:

Yes, we expect it to be in that order.

In other words, officials of the Australian Taxation Office informed the parliamentary inquiry that the amount raised under the present levy covers the present costs of the Australian Taxation Office in supervising the self-managed superannuation funds sector. If that is so, it is extremely difficult to understand the justification for the statement in the explanatory memorandum in paragraph 1.5, which states:

The current SMSF supervisory levy does not fully recover the ATO's costs of regulating the sector.

It must be acknowledged that there are two factors at work here. The first is the aggregate amount that is recovered in respect of funds in existence in the relevant year. The second is the timing issue. When is the money actually collected. The explanatory memorandum points out—and this was amplified during the hearing—that there is presently a lag because the money is only collected in the subsequent year. It does not strain logic or credibility to argue that if you correct for that lag by collecting the levy in the year to which it is referrable rather than in the subsequent year, you will assist the Taxation Office to deal with the current timing mismatch; the fact that it currently faces a lag before it collects the funds which go towards the cost of carrying out its supervisory function. But of course that is a separate and distinct measure in this bill. I am not raising questions about that measure. I am raising questions about the core measure in this bill which is to increase the cap on the SMSF levy from $200 to $300 and, associated with that, for there to be an increase in the amount that will be charged in the next year from $191 to $259, I believe it is—in any event, that very significant percentage increase which was highlighted by the industry association of some 35.6 per cent.

I asked some further questions on notice of the Australian Taxation Office when they appeared before the committee hearing last week. It may be that their answers would shed light upon this central question as to how it can be said that the levy does not cover the ATO's costs when an official of the ATO confirmed to the parliamentary inquiry last week that the costs for the 2011-12 are broadly met by what is currently collected. It may be that answers to questions on notice would explain the discrepancy. I do not know because, having made inquiries with the committee secretariat this morning, to date the Taxation Office has not bothered to provide answers to my questions on notice. I want to express my regret that officials of this statutory agency have declined, or have not yet seen fit, to provide responses to questions on notice from a parliamentarian on this important matter.

The third point I want to make is that I believe there is a conclusion which is very hard to avoid from this set of circumstances which is that in substance this measure is motivated, yet again, by a desperate grab for cash from a government which has wholly lost control of the budgetary and fiscal process. If you look at the year by year impacts of this measure in the explanatory memorandum you will see that in 2013-14 it is going to raise $70 million, in 2014-15 it is going to raise $164 million and in 2015-16 it is going to raise $88 million. A significant part of this increase is due to the timing effect. In other words, up until now we have had a system where in each year an SMSF pays a levy which is essentially referable to the expenses incurred by the Taxation Office in the previous year. That is now to change so that in each year the levy will be paid in the same year as the Taxation Office incurs the supervisory experience, but during the transition period there will be a doubling up. During the transition period, self-managed superannuation funds will be paying an amount which is calculated based not only on the previous year's levy but also on the current year's levy. True it is, under the bill, this will be spread over two years, but the immediate impact of this timing change is to give a one-off benefit to this government, which is desperate for cash.

This is classically the kind of manoeuvre in the business world you see from companies which are struggling. You see this when companies for example change the timing treatment of receipts and that is precisely what we are seeing from this government when it comes to this particular measure. It is purportedly based on the need to increase what is collected because that is necessary so that the tax office's cost will be fully recovered.

As I have indicated, the evidence before the committee and the evidence contained in the explanatory memorandum raises very serious questions as to whether it is in fact true that on the present numbers the tax office is not fully recovering its costs. There are very real questions as to whether that is true. When you look in substance at what is occurring, it is quite clear that what is occurring is something which is completely typical of this government, which has lost control of the budget. It is engaged in a desperate scramble for cash wherever it can, coming up with whatever excuse it can possibly derive to justify that, and there are very real questions about whether the stated basis for these measures is truly made out.