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Tuesday, 12 June 1984
Page: 2855

Senator HILL(8.19) —As we are pressed for time, I shall limit my contribution to addressing the parts of the Income Tax Assessment Amendment Bill (No. 3) 1984 and the Income Tax (Companies, Corporate Unit Trusts and Superannuation Funds) Amendment Bill 1984 which deal with the increased tax on lump sum superannuation payouts. What the Government proposes to do is to increase the tax on the lump sum from 5 per cent to 30 per cent-a massive increase in anyone's language. There are some qualifications. Firstly, for lump sums received at the age of 50 or over, the first $50,000 will attract tax at 15 per cent, which is a small consolation which I concede. Secondly, that part of the lump sum which represents a post-tax contribution by the employee will not be taxed again-a very gracious concession by the Government. Thirdly, a proportion of the lump sum representing the pre-July 1983 years of work will continue to be taxed at the existing rate. It is claimed that that indicates that there is no element of retrospectivity in the proposed legislation, although it may be very difficult for an employee to vary his retirement planning without benefits having been previously vested.

Why, then, this massive increase in tax on a selected sector of the community? Perhaps the key can be found if we analyse the sector against which it is directed. The Association of Superannuation Funds of Australia conducted a survey in 1980 which was published in 1981, which found that 83 per cent of the private funds covered by the survey normally paid benefits in lump sum form. In 65 per cent of the cases, the lump sum was not optional. This contrasts with the public sector, in which the availability of a lump sum is very limited and generally restricted to the extent of the member's accumulated contributions and sometimes earnings on those contributions. So, it is a massive tax increase on a retirement benefit paid primarily to the private sector employees.

Furthermore, in the private sector it is generally a form of retirement saving of males rather than females, full time rather than part-time employees, professionals rather than tradesmen, and those on higher incomes rather than lower incomes. So the typical beneficiary is a middle income, private sector employee. He is the one who has been singled out to bear the burden of this new tax. There will be tall poppies included, to use the somewhat offensive terminology that has been adopted by this Government in relation to its asset test. But super payouts comprise a relatively smaller share of such people's retirement benefit because they have been able to save by other forms of investment. It is, therefore, the private sector intermediate income person, who will suffer the brunt of the penalty of this vastly increased tax.

It will be said-it was said in the report of the Hancock National Superannuation Committee of Inquiry, in the Campbell Committee of Inquiry into the Australian Financial System and in the White Paper on occupational superannuation-that, all other things being equal, the tax regime for a lump sum scheme is more favourable than that for a superannuation pension or annuity. There is truth in that. Furthermore, it can be fairly said that the tax system should be neutral. I would not disagree with that as a statement. But what that fails to take into account, when we start from the premise that lump sum schemes are private sector schemes and pensions are public sector schemes, is that the employer-financed components of the Public Service pension are generally fixed to the consumer price index whereas private sector pensions are generally not indexed. That is what people fail to take into account in looking at the question of equity.

In 82 per cent of private funds surveyed by the ASFA in the survey that I have mentioned, there were no guaranteed increases to pensions being paid to retired members. Thus the lump sum with minimal tax is the only chance that a private sector superannuitant has of coming anywhere near to keeping pace with the inflation-indexed pension of the retired public servant. The retired private sector employee is still faced with the challenge of investing that lump sum in a way that will reasonably protect his capital from the ravages of inflation and at the same time provide him with a reasonable retirement benefit.

We have heard a lot about comparative wage justice. We should ask ourselves in this debate: What about comparative superannuation justice? The Government says that it will allow the private sector employee to roll over his lump sum into an annuity, in which case he will not be burdened with this penalty tax. But annuities, as we know them, do not have any inflation protection. Let us say that five years ago a reasonably well off private sector employee received a lump sum which could be rolled over into an annuity which paid about one quarter of his final year's salary. With inflation, he would now probably be receiving little in excess of one eighth of that salary. I think it can be fairly said that annual fixed sum superannuitants have suffered more from inflation than any other sector of the Australian population in recent years. That is the effect that this Government's proposal will have on more of Australia's private sector retirees.

The Government says that it is a time of national burden sharing, that it believes the approach it has adopted to this matter is both equitable and reasonable. It is not. It is an exercise that has singled out a particular sector of the community, in this case the private sector superannuitant, and premised on the delusion that he is well off, will now push him into comparative poverty. He is already at other disadvantages. I mentioned in the example I gave a moment ago a lump sum may be based on a person's retiring income. That may be so in the public sector but generally that is not the case in private sector funds. Usually the sum will be based on an average of a person's last three years' income, and an upward income situation will therefore mean that it will be based on a figure lower than his last year's income. It appears also that he is struggling to build an adequate fund against the directions of the Commissioner of Taxation. As we know, the Government premises this Bill on the taxation benefits accruing to lump sums but I remind the Senate that it was reported in an article in the Age on 22 February 1980 that the Taxation Commissioner has a scale of maximum reasonable benefits which can be offered by superannuation funds without forfeiting their taxation advantages. It is important to note that the maximum multiple is seven times a designated final average salary. For example, when the benefits commenced in 1964 a person's salary may have been four times average weekly earnings. Now it is approximately only 1.3 times average weekly earnings. So the allowable lump is already lower in this regard but apparently that has not been perceived by this blinkered Government.

On the other hand, it will not affect the Public Service retiree because, as I said earlier, his pension will be fixed and indexed to his retiring salary. The Government will say: 'Why doesn't the private sector employee enter a scheme comparative to that which operates in the public sector?' Of course it knows the answer to that question-neither the employer nor the employee can afford it. The Australian Government Actuary has calculated that the new entrant contribution rate for the Commonwealth Public Service scheme is 21.5 per cent of superannuable salaries; that is, the cost to the Commonwealth if the scheme were fully funded would be 21.5 per cent of the superannuation salaries of new contributors. The difference between the private and public schemes is that the former must be funded. Of course, few private sector employers could fund such a scheme. It is questionable of course whether the Government could fund such a scheme if it were imposed with that burden. With a growing population and an aging population that is a time bomb for the future. That is a debate for another day. What it means in this debate is that the indexation of Public Service retirement pensions paid from Consolidated Revenue is being paid in part by private sector employees struggling to build up lump sums for their retirement. Regrettably, those are the people slammed by this legislation.

The Government's acknowledged dream is of course to force all employees into a national superannuation scheme. It is a logical part of the socialist philosophy to destroy any entrepreneurial dream left in the heart of the pending retiree. We all know of cases of pending retirees who perhaps plan to buy a small business with their lump sum, perhaps the first time in their lives that they have had any real capital.

Senator Watson —That is so.

Senator HILL —As Senator Watson said, that is so. However, according to this Government that is not in the retiree's best interest. Rather the retiree should pay a levy during his working life of, perhaps, some 10 per cent of his salary and the state will sustain him in his retirement while he plays bowls. Already, as we know, he is not allowed to plan and pay for his own health care. He pays a compulsory levy and the state takes care. Under this scheme he will not be able to plan and save for his own retirement. He will pay a levy and the state will do that for him. As we know, the next scheme in the ultimate plan concerns compulsory national compensation with another levy and another protection by the state deemed to be in his best interests. If the people of Australia believe that they are the subjects of the state they should wait until this Government's program of so-called reform really gets under way. This is just a small step in that process. The Government will destroy the freedom of choice of the medium size private sector retiree; or what this Government might call the intermediate poppies. What is so disappointing is the negative attitude of this Government. It thought that this sector was getting an advantage that another sector was not . The Government was blinded to the fact that for the other group non-indexed pensions hardly existed.

Regrettably socialism is about the lowest common denominator. The Government says tax benefits to superannuitants are inequitable because only 45 per cent of the labour force are members of a scheme. The Government therefore believes that the benefits to that 45 per cent should be cut. A positive approach which we would have hoped from this Government would have been to see how we could encourage a lifting of the percentage of the population which is part of schemes . Why have we not got put to us a positive program to increase the number of women employees participating in superannuation schemes to plan for their future ? Similar considerations apply to the permanent part time work force. Why have we not got positive proposals to assist those people in their reasonable expectations in regard to superannuation benefits? Portability in a mobile work force is a major subject to which this Government should be addressing its endeavours.

These are the useful types of questions in this area-there are many more-to which this Government could be addressing its resources rather than being preoccupied with the belief that someone might be getting an advantage that another is not. This is often illusory, as it is in this case. I am not attacking Public Service benefits but I am saying that people in the private sector should be entitled to something similar. At the moment they have it, although in the different form of minimal tax on lump sum superannuation payouts . That entitlement will be destroyed by this legislation. With it will be destroyed any equity which exists in superannuation benefits between the public and private sectors. I believe, for that, this Government should stand condemned .