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Friday, 8 November 1985
Page: 1839


Senator MESSNER(12.03) —The Income Tax Assessment Amendment Bill is aimed chiefly at correcting some difficulties in the Government's original legislation to introduce a tax on lump sum superannuation. It may be recalled that in May 1983 it was announced by the Hawke Labor Government that in future all lump sums received as termination or superannuation payments would be subject to a tax of 30 per cent. That conflicted with the promise given during the previous election campaign in March 1983 when the then Leader of the Opposition, the now Prime Minister, Mr Hawke, promised the Australian people that there would be no tax on lump sum superannuation. Of course, we have become used to frequent breaking of promises. That solemn promise, given during an election campaign, was immediately followed by a breach of a promise to pensioners that no assets test would be introduced on pensions. In the 1983 Budget the Government broke that promise and accordingly introduced an assets test on pensions.

Just recently we have again had reason to doubt the veracity and trustworthiness of the Prime Minister. In the 1983 election campaign he gave a solemn promise to the people of Australia, seeking to obtain their support in the election, that there would be no capital gains tax. From the announcement of 19 September this year we now find that that promise also has been broken and that we will have a capital gains tax in this country. In all respects we have come to have very little faith in this Labor Government's promises about what it would seek to do in the areas of taxation and retirement income security for Australians.

Let us remind ourselves what this particular tax on lump sum superannuation is all about. Since 1916, when legislation on income tax commenced at a Federal level, a tax was applied to lump sum superannuation by including 5 per cent of the lump sum received in the taxable income of the recipient in the year in which it was received. That seems to have been quite a reasonable approach, because at that time there was no capital gains tax, so that lump sums received as superannuation were treated in exactly the same fashion as other capital gains. The inclusion of 5 per cent of the amount in the taxable income for the year was reasonable because little income would have been generated as a result of investment of that lump sum in that financial year, so that notional amount was included in the tax income of the recipient; hence the logic for the inclusion of 5 per cent.

The Government has said that we are stepping forward to a totally new tax regime where the whole of the lump sum received by someone who may have worked in an occupation for 20, 30 or 40 years will be taxed as though it were an income item in one year, as though it were a one-off pension payment or a pension received in one year. We objected to that at the time the legislation was proposed and campaigned very strongly for the repeal of that legislation at the election campaign a year ago. It remains a promise of the Liberal and National parties that we will seek to repeal that legislation upon our election to government. We believe that it is inconsistent to have a situation where a capital gains tax is not applied to various kinds of capital gains, but lump sum superannuation payments are singled out as being subject to a special form of capital gains tax. We believe that is wrong in the context of the past. As the Opposition is committed to the repeal of the capitalgains tax, we believe that it is consistent to repeal this tax also.

Let me go over the Government's arguments in favour of taxing lump sum superannuation. Firstly, it has said that a tax subsidy of approximately $2.6 billion is given to superannuation funds and those who contribute to superannuation funds, whether they be employers, employees or self-employed persons. That amount has been included in the Budget Papers for two or three years. Of course the Government has put a lot of store in the fact that the ordinary taxpayer is contributing to the superannuation benefits of others to that extent. I say right now that that is an incorrect measure of the contribution of the taxpayer to superannuation. The reason is simple. It overstates the matter substantially, because that figure does not take into account tax which the Commissioner of Taxation would collect as a result of the investment of lump sums and the generation of income therefrom. If that $2.6 billion is a base figure from which we ought to work, it ought to be substantially reduced by the amount of taxation that would be collected from the income generated from those lump sums. When we consider that those lump sums have been in existence for many years and continue to generate income year on year, the amount of tax that would be collected therefrom would be very substantial indeed. There can be no justification for saying that the figure of $2.6 billion that this Government throws about is in any way a reasonable figure with which to scare the people into thinking that they are getting no value for money.

The other side of that argument is that if people are receiving lump sum superannuation and are investing their money appropriately in investments, they are taking themselves out of the social security system and, therefore, not costing the taxpayer social security age pension payments, and in that way there are even more savings to the community.

The other argument is quite basic: That what we need to do in this country is to encourage people to build up their own superannuation investments so that they can retire without being dependent upon the government in the long run. The Liberal and National parties' retirement income policies stand for making people independent of government, not dependent upon government. Dependency is what the Labor Government seeks to achieve, by making sure that people become more and more dependent upon the social security system by taking away their incentives to generate their own financial security for the future. As I have said, we stand for the repeal of the lump sum superannuation tax.

This taxation was imposed in legislation back in 1983, I think, and it was introduced in such a rush that it was pretty clear that there would be some problems with it in setting down a few new ideas. One of the parts of the legislation was the introduction of a new scheme called an approved deposit fund. This was to provide that people who were moving from job to job, but with superannuation benefits accruing at the point that they left their jobs, could pay in the lump sum that they received upon leaving their firm, in a tax free way, to an approved deposit fund. There it would lie, perhaps until the person found another superannuation fund of which he would become entitled to be a member, and then those moneys could be transferred into the new fund. Alternatively, a person might choose to leave his lump sum in that approved deposit fund for the rest of his working life and so use that as a superannuation benefit. Specifically, the law provided that people would be required not to draw that amount until they reached the age of 65.

Apparently, in the rush to get legislation through the Parliament, the Government overlooked one particular point-and that is the subject of this legislation. It is a loophole that would have developed whereby people who were putting their money into an approved deposit fund could have avoided tax altogether because of pre-existing service. This amendment seeks to correct that situation, and the Opposition has no objection to that-although I again point out that the Opposition objects strenuously to the legislation on lump sum superannuation altogether and we oppose it very strongly.

It seems amazing that 90 per cent of lump sum superannuation payments are about $30,000 or less. Certainly one could not claim that that is anything like a princely sum. Yet the Government claimed when it introduced this legislation that there were literally hundreds of people getting away with hundreds of thousands of dollars tax free as a result of superannuation arrangements that existed previously. It is clear that that is absolutely untrue. In fact, this tax is a tax on little people, those who have had the opportunity of joining superannuation funds or, perhaps, of receiving a lump sum at the end of their working life from their employer in recognition of their service. Those little amounts of money will now be subject to the lump sum superannuation tax. The tax is not applying to the high fliers, the high rollers, those whom Senator Walsh and others in this place claim to be ripping off the tax system through superannuation; rather, the major thrust and effect of the tax on lump sums is against little employees who have very little opportunity, other than through superannuation or the sweat of their brow at work, to develop any kind of capital nest-egg on which they can rely in times of trouble. Yet this Labor Government is seeking, through that legislation, to tax the incentive and initiative of little Australians in putting aside small amounts of capital through lump sum superannuation. I find it absolutely amazing that a government that claims to support the little working man should seek, through this tax, to so damage the incentive of those who want to work harder and build up their retirement capital.

The end result of many of the Government's present moves is to encourage the concentration of superannuation funds in the hands of the trade union movement, where control is landed in the hands of the Australian Council of Trade Unions or of the office-bearers of particular unions. We have already had substantial debate in this Parliament about legislation on the Commonwealth employees superannuation fund. It was pleasing that on that occasion the Australian Democrats joined with the Liberal and National parties to defeat the Government's legislation on that matter which would have placed virtually the whole of the control of the vast resources of the Superannuation Fund Investment Trust in the hands of the ACTU. It was that point of principle on which we stood, and we were pleased that Senator Siddons stood with us on that point to force the Government to reconsider very critically its policy in that regard.

But that is not the only area of superannuation that is causing more and more trouble in the community. We are finding that many trade unions are establishing their own so-called superannuation funds these days. They go by that name but, generally, they are only camouflaged deferred wage schemes. They lack proper preservation of benefits, portability and proper vesting procedures. Those benefits, of course, have been winkled out of employers through industrial action. I refer to the builders unions superannuation scheme, the Australian scheme and others which have been put into force by various trade union action. In the end, those kinds of union-based schemes which apply to workers in particular industries are, as I have said, only deferred wage schemes, but they are also, very importantly, schemes aimed at enforcing a de facto compulsory unionism upon workers in the industry, because the only people who can join those superannuation funds in respect of particular industries are those workers who have the union ticket. Consequently, it is discriminatory on the part of unions to conduct these kinds of superannuation funds because they exclude people who do not wish to become members of a trade union.

The superannuation schemes currently being propelled by unions in that way are not genuine partnerships between employers and employees, and because they demand contributions only from employers they are not proper superannuation. Furthermore, such schemes are not based on enterprises that would have a capacity to set up superannuation schemes. Rather, they are imposed upon various employers right across an industry. They are imposed because of the pressure and the coercion of the trade union that is involved in that particular industry.

They are the facts of life in this area. I am rather pleased to see that in recent days the Minister for Employment and Industrial Relations, Mr Willis, apparently has been laying down the law to the Transport Workers Union in respect of this kind of activity, and has been seeking to obtain changes to superannuation schemes in order to put them on a more reasonable and proper basis. We support him in that. I might say that it comes as something of a surprise, as only 12 months ago the same Minister was imploring the unions to go outside the then famous accord on wages to seek extra benefits from employers by putting pressure on them to implement trade union-type superannuation arrangements such as the ones he is now decrying. I am glad that he has had his conversion on the road to Damascus.

However, the Government now has to face up to the fact that the fish is getting away very fast and it has to move quickly to control the development of those superannuation schemes. If they are allowed to continue to develop and expand in the way that they are and are left in the hands of trade union controllers, if the Government takes no action to control the situation, there is likely to be a disaster a few years down the track in terms of the Government's capacity to develop an appropriate national superannuation scheme. I hope that Senator Walsh acknowledges that point and I do hope that the Government is moving quickly to do whatever it can to control this unruly development in the trade union movement. It is clear that the Government is going to have significant problems, bearing in mind that it has its roots in the trade union movement, is beholden to it and consequently is the puppet of the trade unions themselves. So it may be very difficult for the Government to control these developments.

It is in the great and most important interest of this country that the Government move quickly to control superannuation arrangements of this kind and put them into a proper form of superannuation scheme where there is proper preservation of benefits for employees, at least until the age of 65 years, where there is vesting in the name of employees, where there is portability and where there is proper control over the management and investment of superannuation funds, and it is not handed on a platter to the trade union movement for it to dispose of in its own ideological manner. It is vital that the Government address those points at this time. It ought to be taking action to stop the kind of developments that we are seeing at the moment throughout the building industry and the transport industry, among the timber workers and so on. It is absolutely vital that this Government, which claims to be interested in introducing a comprehensive system of retirement income support, grab the opportunity right now and stop this unruly development in our community.

One other aspect of the legislation that concerns me is the fact that, intentionally or not, the Income Tax Assessment Amendment Bill (No. 3) 1984 created last year a situation whereby funds derived from legitimate superannuation funds but put into an approved deposit fund or other roll-over facility are in fact taken into account together with other kindred payments, such as redundancy payments, in assessing the maximum benefits allowable for the purposes of taxation deduction, exemption and so on. That situation has been brought to my attention by the Association of Superannuation Funds of Australia and I understand that it has corresponded with the Treasurer (Mr Keating) in this regard. I do hope that we will be able to get a positive response from the Minister for Finance (Senator Walsh) at the end of the second reading debate and that he indicates whether or not he would seek to amend the legislation to ensure that this situation changed.

The reason that we are concerned about this is simple. It seems as though in this situation, where moneys are derived from a superannuation fund but the maximum benefit level is set by the Commissioner of Taxation and does not require that other kindred payments are put into a roll-over facility, people will tend to take those other payments, redundancy payments or whatever they might be, in cash and so they are lost from the system and principle of roll-over. That means that there is a positive incentive for people to destroy the principle upon which the Government established its lump sum superannuation arrangements; that is, to seek to preserve benefits throughout one's working life to the date of retirement. I had hoped that the Government would have a response to ASFA's letter to the Treasurer, dated 27 September, on this point so that we may have been able to conduct a debate about it. It seems to be perfectly reasonable for the Government to seek to amend the existing legislation in order to overcome what I see as a very real loophole in its own legislation.

I do acknowledge, however, that this may be offset by the recent announcements by the Taxation Commissioner, through the Treasurer, that there are to be increased levels of maximum benefits allowable for any assessment of the taxation exemptions and deductions. That is a worthwhile step forward; one which we are glad to see. It may well alleviate the general problems to which I have just referred. Nevertheless, the Government ought to acknowledge that there is a loophole in its legislation which could cause a leakage to something other than what it intends. It is not for us to tell the Government what to do, but I hope that it will sponsor an amendment to take care of that situation.

I believe that we ought to continue to look at the position of self-employed people and the way in which superannuation taxation laws discriminate against them. Self-employed people are now allowed a tax deduction of $1,500 a year. Of course that has to come only from their own sources. Other people who are in employment and who are members of superannuation funds do have generous contributions made by employers for their benefit over many years by virtue of the formula that applies in the calculation of the maximum benefits to which we have just referred. But self-employed people are continually discriminated against. In our policy on taxation and social security we have clearly in mind trying to alleviate that position of self-employed people so as to make sure that they have a far greater chance of gaining superannuation benefits similar to those received by people who are in employment. It does need urgent reform. We were pleased to see in the recent Budget that the Government announced that it would increase the contribution, in a fairly minor way, from $1,200-a level which of course was introduced by the Fraser Government in 1980-to $1,500. That is a very worthwhile step but the Government needs to do more and to consider the very gross inequity that affects self-employed people.

The iniquitous lump sum superannuation tax is at the core of this legislation. I believe that the Government has gone down entirely the wrong track in its whole approach to retirement income security plans by seeking to tax people's incentive to look after themselves. In that way it has failed to address the problems of retirement income in this country. There has been great concern in the community about the imposition of not only this tax but also the capital gains tax and, more particularly, the assets test on pensions. All of those measures are destructive to incentive and seek to work against the interests of those who are planning to look after themselves and so make themselves less dependent upon the social security system of this country. It is certainly the intention of the Liberal and National parties to encourage the kind of development which, through appropriate incentives both in the taxation system and in the social security system, will give people the opportunity to lift themselves out of the depressing state whereby they become mere dependants of the Government.

Debate interrupted.