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Thursday, 7 June 1984
Page: 2783


Senator RICHARDSON(5.26) —The Income Tax Assessment Amendment Bill (No. 3) represents one of the most important steps in the Government's program of tax reform. That was acknowledged by even the Deputy Leader of the Opposition, John Howard, whom I shall quote later on. He referred to the Bill as the most important taxation measure this Government has introduced. It is being introduced, of course, because after seven years of the Fraser Government, the negligence displayed by that Government had become so great that this Government had to acknowledge the need to adjust some of the anomalies. This Bill goes further than merely a reform of the tax system. It is an attempt to improve the retirement incomes system. It also touches upon matters such as the management and investment companies and concessional tax arrangements for them that may bring about and introduce to Australia some of the benefits that the Organisation for Economic Co-operation and Development nations have had from these companies.

The Bill provides for improvements to the prescribed payments system to attempt to reduce the burden of paper work that has fallen on so many companies and at which the Senate Standing Committee on Finance and Government Operations, of which I am a member, has looked for some time. The Bill also provides some relief in tax payments for mortgage and rental subsidies and a number of other smaller matters. Because of the constraints of time, however, I seek to address only those provisions of the Bill referring to lump sum superannuation benefits. They are the sections that have been greeted with the most comment. It has to be acknowledged that when they were announced last year they created some anxiety, even amongst large sections of the Labor movement. As part of the Government's overall strategy for reforming the retirement incomes system, this Bill seeks to redress just some of the unsatisfactory features.

The task of overhauling or completely repairing retirement incomes is a complex and difficult one. It cannot be accomplished in a single stroke. This is what we might call the first attempt. It is more difficult because of that seven years of neglect and inactivity to which I referred. During that period of neglect, the cost to government spiralled; it grew and grew. In fact, as more and more people became eligible for lump sum superannuation payments, the drain on government finances swelled to the point where now the cost of tax concessions for superannuation is in the order of $2.5 billion, an enormous amount. Whenever a tax concession is given to one sector of the community, the whole community has to pay for it. This Government, which is committed to equity in the system, seeks to ensure that the burdens are spread equally. The Deputy Leader of the Opposition and shadow Treasurer, John Howard, gave this excuse for his Government's inactivity:

It may well be that one can construct arguments about anomalies in the taxation system. There are hundreds of anomalies, and I do not believe that any government, whether it be a government of the present political persuasion or a government of our political persuasion, will ever eliminate all of the anomalies in the taxation laws.

His response to freely admitting that we had hundreds of anomalies was to do nothing. It was to say: 'If there are hundreds of anomalies, it is too big a task to tackle so I will not tackle even one of them: I will simply leave them alone'. So for seven years nothing was done. While I acknowledge that it is not possible to revamp completely the retirement income system in one stroke, it certainly is if one looks at a package of measures, and this Hawke Labor Government is looking at such a package. We have seen in the last few weeks announcements concerning the assets test. We looked at that over a long period and had consultations with all those in the industry. We have looked at the Government's announced policy of gradual increases in the pension to try to achieve a level of 25 per cent of average weekly earnings.

The Government is also undertaking a study of the superannuation system, looking particularly at occupational superannuation schemes and the difficulties that have been experienced in portability, preservation and vesting. The package of programs offers a significant reform. These Bills directly deal with the taxation of superannuation lump sums and similar payments. That is just one aspect of the package. The fundamental inequity addressed by the Income Tax ( Companies, Corporate Unit Trusts and Superannuation Funds) Amendment Bill is the imbalance between those who retire on lump sum superannuation payments and those who retire and take superannuation benefits in the form of a pension. Obviously the inequities there are enormous and I shall go into them in some detail later on.

The original proposals in this area were announced on 19 May last year in the Government's economic statement made by the Treasurer, Paul Keating. They were subsequently clarified by Mr Keating on a number of occasions. While the original proposals did address many of these anomalies, they did have some serious limitations and, as we are all well aware, the Australian Council of Trade Unions and particularly the Labor Council of New South Wales-led by Barrie Unsworth at the time, who is now the Minister for Transport in the New South Wales Government-saw those limitations and were worried about the effects they would have on their members. The Government talked not only to the ACTU but also to the Confederation of Australian Industry and to the superannuation industry itself. Significantly, it has taken 12 months to bring this Bill before the Parliament. That is just one more example of the consensus approach being put into practice. Representatives of all those affected by the proposal have been consulted and the Government has made some significant modifications to the scheme that it originally announced. This legislation reflects those modifications and I want to address myself to them.

Under the previous system the main tax benefits for superannuation fund lump sum payments were as follows: Employer contributions to a superannuation fund on behalf of an employee were, generally speaking, tax deductible to the employer. Employee contributions were in most cases deductible or rebatable and income earned by superannuation funds was also exempt from taxation. Under those arrangements only 5 per cent of lump sum payments was assessable for tax purposes. That created a glaring inequity between those who received their superannuation benefits in the form of a lump sum and those who received them in the form of a pension. Obviously superannuation pensions were and are fully subject to tax, so we have one section of the community fully subject to tax and another being taxed on only 5 per cent.

It was the Government's opinion, and indeed its policy is now stated, that the system should neither encourage nor discourage people from choosing lump sums ahead of pensions, so the new arrangements are as follows: That part of contributions paid prior to 30 June 1983 will be taxed under the old 5 per cent rule. After 30 June, employee contributions which have not attracted a tax deduction will be tax exempt. Amounts received after 30 June 1983 going to those prior to age 55 years are taxed at a flat rate of 30 per cent but at age 55 or later the first $50,000 will be taxed at only 15 per cent and any excess over that $50,000 will be taxed at 30 per cent.

These new arrangements contain also some key supporting elements. First off, there are what we might term the transitional arrangements. By ensuring that contributions made prior to 30 June 1983 were exempt, the Government made sure that there could be no element of retrospectivity introduced into the debate. In other words, those people who were members of funds often for most of their lives prior to 30 June 1983 in fact suffer no penalty whatsoever. There was also the equalisation provision, which was one of the major concessions won by the trade union movement and others from the Government in those discussions over the last 12 months. Obviously those people reaching the end of their working lives tend to pay far greater sums into their superannuation schemes than do those people just starting out in life, in their first job, and we have been able by compromise with the union movement to acknowledge this fact and people can now equalise their payments over the whole of their working lives. That means a very significant saving for them.

Naturally there are exemptions for bona fide redundancy payments, but I think the main cause of worry for the trade union movement was the problem of those who retire on lump sums at smaller rates, those who retire on perhaps $30,000 or even less. It has to be acknowledged that while there has been great concentration on the issue of pilots and people like that-even politicians, I am told-who might retire on $200,000 or $300,000, or in some spectacular cases $500 ,000 or $700,000, the great mass of people receiving lump sum superannuation receive $30,000 or less. The people receiving these sums are municipal workers, railway workers and others who have had to rely on a salary or a wage all of their working lives. They are not people who could in any way be described as privileged and not people who by virtue of the fact that they receive a lump sum payment could suddenly be described as wealthy. What it has enabled many of them to do is perhaps pay off a mortgage or take the long overdue overseas trip. Many of them who live in Sydney have not been further than Manly. It does give them the opportunity to travel. That is something the Government acknowledged and it in no way wished to penalise those people. Accordingly, in those discussions with the ACTU the Government determined to reduce the original announced rate of tax for people in that category, and for the first $50,000 received by a person 55 or over, the amount was reduced to 15 per cent.

The other major concession by the Government, again after consultation, was the exempting of employee contributions which meant that only the employer or fund contributions were taxable. This removed the union objection of double taxation and it negated much of the regressive impact of the original proposals. I for one was delighted to see the Government change its mind on that point. These Bills also provide for greater portability, something which both unions and employers have been worrying about for some time, and they encourage the provision of annuities. I will not burden the Senate with a turgid diatribe on annuities but I think at least now some rationalisation has been put into them. I for one have never been terribly happy with annuities as a form of providing for care in one's later life and I am hopeful that there will be some innovation on the part of the superannuation industry. I take it from the nods of those in the gallery that that will be taking place.


Senator Jack Evans —And from the Government.


Senator RICHARDSON —Yes, and from the Government. I have to agree with Senator Jack Evans. We have to encourage the Government in that respect. That is something that I will most certainly be doing. The attacks on the Government measures to improve the superannuation system can be described only as pathetic. We have heard John Howard say that it is a tax not directed at tall poppies, the ones apparently all taxes have to be directed at. But, given that only a small section of the Australian community currently receives superannuation-certainly less than half the community-it is not simply a question of redressing an imbalance by attacking tall poppies. It is an attempt to redress that imbalance, so that the whole of the community does not have to bear that $2.5 billion burden. When the Deputy Leader of the Opposition, John Howard, was Treasurer he was never shy about increasing taxes on low and middle income earners. In the short seven years of his Government-short by standards of the length of our history; long in the terms of the suffering caused to the people-personal income taxes increased from 12.7 per cent to 14 per cent. Of course, there were also significant increases in indirect taxation. That was one of the great tragedies of that period. As I said at the beginning, any tax concession for one group in the community is ultimately paid for by the rest. As long as this Government is in power-it looks like being a very long time-we will seek to ensure that all burdens are shared equally. I seek leave to continue my remarks later.

Leave granted; debate adjourned.