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Thursday, 15 June 1989
Page: 4064

Senator HAINES (Leader of the Australian Democrats)(10.03) —It might be worth while setting some of the record straight following Senator Bishop's speech. We all know that the Government announced this proposal on 25 May 1988. As far as the Senate and a lot of other people were concerned this legislation by press release was the final straw, particularly when well into the second half of last year nobody had seen any concrete signs of what this proposal was all about. However, there had been enough information leaked about the contents of the legislation for the Australian Democrats to approach the Government with its concerns as early as July of last year. Our concerns were primarily that the 15 per cent earnings tax which was able to be reduced by any fund which involved itself in the share market was not going to be of any benefit to approved deposit funds (ADFs) and other fixed interest funds. The Government brushed aside those concerns, presumably because it ultimately believed that it would have the support of the Opposition. We continued that pressure on the Government hoping it would give us some sort of amendment that would assist people who had opted for safety by rolling over their lump sum following early retirement into things such as ADFs and got nowhere. Earlier this year we again approached the Government. Finally when this legislation was introduced we had no other option but to produce the amendments ourselves.

Like the Opposition we do not have access to the Office of the Parliamentary Counsel (OPC). Sometimes that is an inhibiting factor; sometimes it is not. Usually we find that the clerks of the Senate can produce amendments that are in every way as good as those drafted by the OPC. In this case the amendments that were produced for us quarantined a number of funds which offered the security of fixed interest benefits to investors. That amendment was not supported either by the Government or the Opposition when it was moved what seems like an aeon ago but was probably only two weeks ago. As a consequence, we did what we had told the Government from the beginning we would do=mthat is, support the Opposition's amendment to remove the 15 per cent earnings tax altogether. We have been telling the Government from day one that that was not our preferred option. There are benefits to the earnings tax. Opposition members carry on about its being a tax on savings, but we do not hear any concerns from them, when they are given the opportunity to amend the tax laws, to remove some of that tax on the savings that people put into bank and building society accounts. The Opposition talks about equal playing fields, but we do not have an equal playing field in any area of the tax Act, including areas such as who can get a tax deduction for buying a home and who cannot. To hear the Opposition talk about level playing fields and equality in tax matters is just a trifle odd, considering its normal behaviour.

In any event, there is no doubt that the earnings tax will produce some benefits. In the 1987 election campaign I urged the Government to introduce some incentives that would act to encourage the big life and superannuation funds in Australia to invest their money onshore instead of offshore, to stop depriving Australian business and the Australian economy of billions of dollars of investment potential. Two years down the track it produced the earnings tax, which will encourage the big life and superannuation funds to invest in Australia because if they invest in Australian companies which pay tax, they will be able to get the benefit of dividend imputation. In doing so they will reduce that 15 per cent earnings tax to zero. The other benefit is what it could well do to Consolidated Revenue by encouraging some of the biggest Australian companies, which currently do not pay tax, to start looking at their tax avoidance measures. There is no reason why major investors, such as the AMP Society or National Mutual Life Association of Australasia Ltd or anybody who buys large parcels of shares, would want to invest in an Australian company that is paying no tax if they want to get the benefit of imputation to reduce their earnings tax from 15 per cent to zero or thereabouts. So there are considerable benefits to accrue to the economy, to Australian companies and to the Australian people as a consequence of the earnings tax. That is why the Democrats regarded as a last resort their support for the amendment moved by Senator Bishop on behalf of the Opposition to remove that particular tax element from the six-Bill package that we have before us. It was not our preferred option. Our preferred option was to protect that group of people who are going to be the only people in this country faced with the penalty of a 15 per cent earnings tax-that is, the people who had invested their money, rolled over their lump sums on early retirement into fixed interest funds which by their very nature are not able to get the benefit of imputation because they do not have any exposure to the share market.

I think it is worthwhile at this point to dispel some of the beliefs that abound in the community about what sorts of schemes superannuation funds have on offer. There seems to be a fair amount of confusion about what is and is not a fixed interest fund and to what extent any fund that is a fixed interest fund is so. If we go out into the community and ask people about capital guaranteed funds or deferred annuities (DAs), the majority of them will tell us that those are fixed interest funds. But they are not necessarily so. Quite a substantial number of capital guaranteed funds have a significant exposure to the share market. They are certainly protected in the event of another October 1987-type crash from too much in the way of shock waves, but only because the funds themselves have set aside a reserve to absorb that problem. I do not think that even the big life and superannuation funds have the right to print money, and if there is a big enough problem, of the sort we saw in October 1987, we could well find that those so-called capital guaranteed funds are not terribly guaranteed at all as far as the capital component is concerned.

DAs are not all fixed interest, and therein lies the major problem with excising those people from the effects of this legislation. Senator Bishop said, `Senator Haines gets up here and says that there are only 5,000 people and they are not worth worrying about'. That is not true. I think they are very much worth worrying about, but the difficulty is, as the funds themselves admit, that there is no way they can be included in this legislation because they are not a legally identifiable separate entity from those DAs which have an exposure to the share or property markets. That is a problem within the funds.

We have spoken to the funds and said to their legal people, `If you can come up with an amendment that will get those fixed interests DAs separated from your share or property exposed DAs, give it to us and we will run with it'. But they cannot. No matter what this chamber would like to do, it cannot legislate for something which is not a legal entity.That is why, in the long run, we have had to come down in support of virtually only ADFs with a 90 per cent fixed interest component, which is what was in our original amendment. DAs were not covered in the original amendment put forward by the Democrats because they could not be, and they still cannot be. That is a matter of regret to me, as it is to Senator Bishop, but it does not alter the fact that the problem lies with the structure within the funds and not with anything this chamber wants to do. It is a matter of capacity.

The figure of 5,000 is one which I believe is reliable. The large funds inform us that there are only about 5,000 people in Australia who have actually invested in interest earning DAs. Whatever the rest of the people out there think about their DAs, they are not interested in earning DAs solely, they have a significant exposure to the share market and in that regard they will get some protection-because of course they will benefit, as other funds will, from any capacity to use imputation to reduce that 15 per cent tax.

When we introduced our original amendment, which excised from the effects of the legislation those funds with a fixed interest component of 90 per cent or more, we were disappointed that we did not get the support of the Opposition. The funds then came to us and said, `We have some problems with your amendment. By isolating the funds, by quarantining them', which is what our amendment did, `you could, inadvertently, cause some behavioural changes within investors'. The big life funds were concerned that if our amendment had gone through, with the best intentions in the world it would have caused people to leave the other funds to go into ADFs. That is a concern I took on board. Certainly it was not my intention to cause a flood of people changing their superannuation behaviour patterns. My concern was simply to prevent a retrospective imposition being put upon those people who, prior to 25 May 1988, had gone into ADFs knowing they were the most secure funds that they could invest in because they were fixed interest and were not subject to speculation.

For that reason, we said to the funds and to the Government, `Come up with an amendment that will excise the members. If you can do that-fine'. It was far too complicated for us. As I said, we do not have access to the Office of Parliamentary Counsel. Indeed, that is what this Government has now done. It has produced an amendment that will allow people aged 55 and over who were already in ADFs on 25 May 1988 and who had retired for any reason at all not to be affected by the 15 per cent earnings tax. It also extends that benefit to people aged 50 and over whose retirement was involuntary. Furthermore, recognising that after 25 May 1988 some people may have changed their behaviour in the industry in such a way as to move out of ADFs and into something else, this amendment also allows people who withdrew as members of ADFs to go into another fund to move back into an ADF. It is to the advantage of the industry because it will not cause a leap out of other funds by people who want to go into ADFs. It has maintained whatever stability can be maintained in what is essentially a fairly unstable industry to the extent that people move around because they look for the best deal that they can get.

I do not think that we will ever get a level playing field or equality in the tax area-certainly not in the superannuation area. After all, only half the people who can take advantage of superannuation do. There are many people, the majority of whom are women, who never really get the advantage of a superannuation system because they are never in a position to be able to go into one. So it is not much use talking about level playing fields. We have to make sure that people are not retrospectively disadvantaged in any way when they have opted for safety. Obviously, the funds have the choice of going into such things as redeemable preference shares, which will, as I understand it, maintain their fixed interest definition but give them some benefits from imputation.