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Thursday, 7 June 1984
Page: 2779

Senator Dame MARGARET GUILFOYLE(5.03) —The Income Tax Assessment Amendment Bill (No. 3) and the Income Tax (Companies, Corporate Unit Trusts and Superannuation Funds) Amendment Bill which are now before the Senate deal with a number of matters relating to income tax, as has been announced by the Government throughout 1983-84. There are two major purposes for the Bills. The first purpose is to introduce new taxation arrangements for retirement and kindred payments. Another important aspect is to strengthen section 26(a) of the Income Tax Assessment Act, which imposes tax on profits made on the sale of property acquired for the purpose of resale at a profit. There are many other purposes to the legislation. In fact, it is quite complex and deals with a diversity of subjects, some of which include taxation concessions for investors of share capital, licensing venture capital companies, taxing the income of friendly societies and changing their arrangements, clarifying the operation of the income tax law with respect to deductions for repairs to property that is used only partly for the purpose of producing assessable income and other things such as changing the arrangements for the prescribed payments system and deductions for capital contributions for the cost of railway rolling stock and exemption for tax rent subsidy payments.

I want to speak to only two or perhaps three of those issues in the time that we have for debating these matters in the Senate. The first matter about which I wish to speak is the taxation arrangements for retirement and kindred payments, which have been referred to as the lump sum superannuation changes. A number of questions have been raised with the Opposition in regard to the superannuation changes. I think it is fair to say that there has been public debate on this issue for many months. We now have the legislation before us. It is of interest that the approved deposit funds are to be established and that there are many other arrangements which are detailed in the Bills under our scrutiny today. Some questions have arisen with regard to the establishment of the approved deposit funds, which, in the terms of the Government, have been set up as a partial solution to portability. One of the matters about which there has been some concern expressed is the bodies which will be able to establish the approved deposit funds.

The Treasurer (Mr Keating) made available to members of the Parliament and, I am sure, in a wider sense, a statement which he released on 30 May which sets out, in 13 pages, the details of the proposed changes. In that statement he set out the changes to the tax rates. He also set out a number of comments with regard to annuities and pointed to the fact that, under his proposals, individuals will have great flexibility in the types of annuities into which lump sums can be converted. He stated:

The Government will shortly make the supply of annuities more attractive to life offices by changing the minimum valuation basis prescribed in the Fourth Schedule to the Life Insurance Act.

He also announced that he intended to issue index bonds. On page 11 of the statement of 30 May he said:

Annuities may currently be issued by life companies registered under the Life Insurance Act and State Government Insurance Offices. Annuities may also be issued by trade unions, friendly societies and associations of employees registered under the Conciliation and Arbitration Act (although their issue of annuities is restricted to their members of their dependants).

He then made a statement which is of interest to a number of people outside who are involved in this business. He said that the Government proposes to conduct a review to be completed by 30 September 1984 of the scope for wider participation in the issue of annuities. I think that review is of some interest because, in the legislation that is before us, there is not sufficient detail for people to understand how it will operate. For instance, trade unions will be able to set up approved deposit funds without prudential safeguards or any statutory control . I think people would ask the question: What protection is there for funds that are within the trade union associations, where there is not even the obligation to reveal their financial position, let alone to have the prudential safeguards that are required of others who would offer annuities? Perhaps a further question that could be raised is: If employee associations can be involved in the setting up of approved deposit funds, is it envisaged that some of the other bodies may include employer associations? I think the review in September will be awaited with interest, as will the regulations and the detail under which these new arrangements will operate. It is of interest to the Opposition and it is certainly of interest in the wider discussion of the changes that are to be made for employees in their occupational superannuation.

It has been raised with me that there could be disadvantages to the established life assurers inasmuch as they have to deal with the corporate affairs legislation of the States and they have to issue prospectuses. They have to enter into these sorts of arrangements whereas the bodies which are presently to be set up may or may not. I think the regulations which will govern these things are of importance. I think to have a proper debate on this we really ought to have some more information from the Government about what is envisaged in this area. The matter of superannuation and the fact that trade unions are able to set up approved deposit funds is of interest when we consider the interview that was given by Mr Simon Crean, the Vice-President of the Australian Council of Trade Unions, on 31 May on the AM program in which he said:

We indicated to the government that we felt that the legislation should not be introduced. That's still our view, because we didn't see that concentration on one aspect only of retirement benefits was the appropriate way to go; particularly when that concentration taxed the lump sums which in may cases were the only ways in which members in occupational schemes could provide for their retirement.

Mr Crean continued:

But objection has been that why concentrate only on the taxation aspect at this stage when a whole package needs to be developed. We were prepared to accept that within the context of a package the taxation question needed to be looked at. And our major concern was that a couple of specific problems that we had with the tax, not one of those aspects was met and that the legislation in our view was introduced in isolation in which it should have been introduced as part of a total package.

The interview continued with regard to tax rebate in the forthcoming Budget. That states the attitude of the Australian Council of Trade Unions to the package, despite the fact that under this legislation the trade union movement and its associations can establish approved deposit funds. I think the Government should provide more information and not bring in Bills to establish these sorts of arrangements without giving advice with regard to the whole picture.

The public debate on lump sum superannuation over the months has ranged along the lines that there is to be a big change in the expectation of people who are presently covered by superannuation. It is all very well for the Government to point to new arrangements and to changes that will make annuities more attractive-and that remains to be seen-but one should examine how the changes will affect somebody who is presently in a superannuation scheme. I was interested in a table prepared by the actuaries E. S. Knight and Co. and I will cite some of the figures revealed in that document. Under existing tax arrangements somebody who is expecting a lump sum of $50,000 would be taxed an amount of $775. Some assumptions are made with regard to a standard rate of 5 per cent on a lump sum. The figures also make assumptions that one-third of the post-30 June 1983 benefit is assumed to comprise exempt member contributions. These figures are on that basis. At present such a person would pay $775. If he were to retire in 1984, under the new arrangements he would pay $986; in 1986 he would pay $1,409, twice as much as he would pay this year. If he were to go through to 1993, he would pay $2,888, and if he went through to the year 2003, nearly 20 years from now, he would be pay $5,000. A considerable change is envisaged. I have instanced the person on a $50,000 lump sum rate. Somebody who was to receive $100,000 would pay presently $1,550 in tax; in 1984 he would pay $1,973; in 1986, $2,818; in 1993, $5,775; and 20 years on, in the year 2003, he would pay tax of $12,500. A figure of $12,500 as against the present tax payment of $1,550 is an enormous change in the expectation of someone in a superannuation scheme who envisaged that he would pay the lower amount when he emerged from that scheme on retirement.

It is little wonder that there has been a lot of concern, resentment and difficulty for many people who find that the provisions now introduced will have a marked change on their expectations of what they will realise on retirement. I know that other Opposition senators intend to speak on lump sum superannuation. I wish to deal with the changes in relation to section 26 (a). The purpose of these provisions is to strengthen that section, which imposes taxes on profits made on the sale of property acquired for the purpose of resale at a profit. The Treasurer in his Budget Speech last year announced that with effect from a date after the Budget he would change the provisions under section 26(a). He listed the changes he would make and I think it is fair to say that notice of them was given on Budget night last year. What is of concern to practitioners outside and those who seek to understand the legislation is that very little time was given, from the time the Bill itself and the explanatory notes were available to assist our understanding, to obtain a reaction from those who may have to deal with the legislation in a professional or personal way.

The changes have been discussed very little, so far as I am aware, with the people who would have expected to deal with the legislation. There was an immediate reaction when the Bill was released and confusion in people's minds as to what the new changes entailed and what would be the Commissioner's interpretation. A fairly complex set of changes has been made to that section. The section will provide for matters being determined in the opinion of the Commissioner and statements have been made that led people to believe that there was some unwarranted extension of the Commissioner's discretion. The former Treasurer, when dealing with the Bill in the House of Representatives, following a short period of study and analysis of the Bill, expressed the Opposition's concern with regard to the discretion of the Commissioner. He pointed to the number of occasions on which it was said that it was his opinion that these changes would be effective. We took the opportunity to have a fair discussion with officers from the Australian Taxation Office on the implications of the provisions that changed section 26(a). They assured us that the drafting of the Bill made clear what would be the operative role to be played by the Commissioner in determining the taxable effect of the changes. In discussing with the officers the points we wished to raise with them, we were assured that it would be proper for the Minister in dealing with the Bill in the Senate to seek to clarify these matters, not only to enable the Senate to be informed but also to assist those who have expressed concern to us about the way in which the provision will operate.

We expressed concern in other areas, notably clauses 18 to 20 which relate to expenditure on repairs, borrowings, lease documents and things of that kind. Concern was expressed that, in the opinion of the Commissioner, the words 'is reasonable in the circumstances' leave a fairly wide open area for discretion and determination by him. It was also felt that if these matters had to go to a board of review, there could be considerable delay and interpretation from people outside trying to determine what the word 'reasonable' means. Again these matters were discussed with officers from the Taxation Office and we had assurances from them on the interpretation and drafting of the Bill in regard to assets purchased for the purpose of resale. Some of the points made by the former Treasurer in the House of Representatives were clarified. I hope that some clarification can be given of the operation of the section when we are dealing with the Bill this evening.

Another aspect of the Bill I refer to is the matter of friendly societies, because the Bill makes substantial changes relating to friendly societies. What is of interest to me are the changes that were made to affect friendly societies because I would think that almost everyone in this place had had a lot of representation from friendly societies prior to the announcement by the Treasurer in April of what the rules were to be for the changes to the taxable income of friendly societies. There had been very strong representations from them and a great deal of nervousness as to how they would be affected by the changes. I must say that from the time of the Treasurer's announcement of the details no representations have been made to me. I am interested in the Treasurer's statement that the average effective rate of tax, which is well below the nominal rate of tax applied to life offices, now to apply to the taxable income of friendly societies is to be 20 per cent. The Treasurer has had representations from life offices which say that they feel that that is a fairly generous interpretation of something that could be classified as being broadly comparable with the rate that they would pay for their activities in the same area. To have an effective rate of tax of 20 per cent of taxable income in the comparable area is stated by life offices to be fairly generous treatment. They say that theirs is something like 25 per cent plus. I simply draw attention to that while we are discussing the Bill before us.

The other matters in the Bill are of interest to different groups for different reasons. For instance, the prescribed payments system changes reducing the paper work are of interest to all those who have to deal with this system, to those who have worked on it in the Senate Standing Committee on Finance and Government Operations and those who have taken a close interest in the matter. The changes to that system are welcome. The most important changes in the Bill are those that relate to lump sum superannuation and those that were made to section 26(a) . The Opposition wishes to make quite clear its attitude with regard to the Bill . I have circulated in my name an amendment which fairly succinctly states the Opposition's approach to it. In that amendment to the motion for the second reading, the Opposition:

(a) deplores the Bill's attack on the retirement aspirations of hundreds of thousands of ordinary Australians;

(b) notes the blatant breach of pre- and post-election commitments of the Prime Minister involved in the introduction of the Bill;

Those matters have been raised by others in the preceding debates. I do not intend to take the time of the Senate to raise them all again. But the disappointment of those who are affected by the changes in their superannuation arrangements can very easily be seen if one considers that the pre-election commitments, even the post-election commitments, of the Prime Minister (Mr Hawke ) in this respect have been quite blatantly breached. In the amendment I will move, the Opposition also:

(c) condemns the privileged status conferred upon trade unions in relation to deposit funds; and

(d) regrets the Government's failure to produce a coherent approach to retirement security policy.

It could be said further that the Opposition's approach to this legislation with regard to retirement incomes has also been made plain by the Leader of the Opposition (Mr Peacock) from the time that the first changes were announced. The Opposition has given a commitment that on return to Government it will repeal this legislation in respect of lump sum superannuation changes. We put on the record our rejection of the changes because they in no way encourage people to provide for their retirements and to have available to them a lump sum, however modest, to fulfil their aspirations at a time when they would no longer be income earners. It is for that reason and for those reasons given in many of the statements that have been made that the Opposition takes the point of view that the effect of those changes is enormous, as can be seen from those few figures I extracted from the actuarial table. In 20 years time the tax on a lump sum superannuation payment of $50,000 will have increased from $775 to $5,000; the tax on a $100,000 lump sum payment increases from $1,550 to $12,500. I think that the Government will find it very hard to wear these changes in the community, among people who have been making provision for their retirement and who have sought to have at the end of their working lives access to some capital with which they can express some of their own needs or with which they can provide for a more comfortable future. I now move:

at end of motion, add 'but in relation to the Income Tax Assessment Amendment Bill (No. 3) 1984 the Senate-

(a) deplores the Bill's attack on the retirement aspirations of hundreds of thousands or ordinary Australians;

(b) notes the blatant breach of pre- and post-election commitments of the Prime Minister involved in the introduction of the Bill;

(c) condemns the privileged status conferred upon trade unions in relation to deposit funds; and

(d) regrets the Government's failure to produce a coherent approach to retirement security policy.'