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Thursday, 15 June 1989
Page: 4068


Senator CHAPMAN(10.28) —Clause 9 is the crux of this legislation, which is yet another example of this Government's rapacious demand for revenue. It implements a measure the Government announced with regard to superannuation more than a year ago in its May 1988 economic statement. This clause will both increase the tax take of the Government and bring forward revenue for the Government, at the expense of future retirees, through additional taxes on superannuation. The Government claims that this legislation, in particular this key clause, will improve the efficiency of the dividend imputation system and reduce tax avoidance opportunities. The Government further claims that it will increase the spread of superannuation without an unsustainable Budget cost. It is really a thinly disguised attack on the superannuation entitlements of millions of Australians who are already significantly overtaxed. In other words, Government revenue will remain unacceptably high as a result of this measure.

One of Australia's basic requirements is the need to perform better. That involves comparing the performance of Australia as a nation with our world competitors which are constantly fine tuning their performances. If we are to become a performance oriented society we need a major shift in attitude. It is individuals who achieve superior performance; governments, industries and unions do not. Instead of taxing an individual's savings-which for a country in our circumstances, are far too low and which, in many circumstances, are non-productive-Australians ought to be encouraged to save more of their incomes for investment in productive activities. Instead, we find, through clause 9 of this legislation, that the Government is reducing the incentive for people to be involved in a very important form of saving, namely, superannuation.

It is claimed by the Government that the 15 per cent tax to be imposed on the income from investments of superannuation funds will be offset against dividend imputation credits on domestic equity investments made by the funds. But that will be only partially the case. The Treasurer (Mr Keating) and the Minister for Finance (Senator Walsh), to the great detriment of their credibility, have both argued that no recipient of superannuation payments will receive lower payouts because of the new tax structure. The Treasurer in particular has stressed this. When this was announced last year I undertook detailed calculations and presented them to the Senate in the debate at that time, which completely shot that claim to pieces. The simple fact is that superannuation funds currently have about 15 per cent of their total investment in equities offering franked dividends. To have sufficient tax credit to completely offset this new 15 per cent tax on their earnings, they would have to lift the level of equities in fully franked dividends to about 60 per cent. That is because dividends in companies give a much lower yield than do other sources of income such as interest or rent. It would be most imprudent for most funds to have such a high percentage of their total investment in such equities. In the first instance, therefore, prudential management of contributors' funds would prevent the tax being fully offset by dividend imputation.

When I did these calculations, the money invested in superannuation funds totalled about $50 billion. About $10 billion of that was in equities, about $7 billion being in franked dividend equities. Given the need, as I said, to raise that percentage of equities in their total equity investment to about 60 per cent, under this clause superannuation funds would have to lift their total investment to nearly $30 billion, an increase of about $23 billion. Again, given that not all Australian equities provide fully franked dividends, in reality that would require an increase of between $25 billion and $30 billion in overall equity investment by the funds.

It must be remembered that this increase in investment has to be achieved in the total Australian commercial and industrial equities market of about $110 billion. It is that commercial and industrial equities market which provides regular dividends, but not even all of those are fully franked dividends. Furthermore, that $110 billion consists of many equities which would definitely not be prudent superannuation investment, leaving aside the imprudence of a 60 per cent investment in equities anyway. There are simply not enough shares available to allow funds to acquire an extra $25 billion to $30 billion in equities, nor would appropriate shares be capable of being issued to meet that demand.

The Government, particularly the Minister for Finance, is guilty of believing in the fallacy of composition. It may be possible for one or two funds to meet that requirement of fully franked dividend equities to completely offset the 15 per cent tax, but the fact that one or two funds are capable of achieving that does not mean that all funds are capable of achieving it, in particular because, as I said, there are insufficient equities to go around. If funds tried to achieve that 60 per cent investment in equities there would be an increase in share prices, because of an increased demand for equities, and that would be an unsustainable rise in terms of dividend returns. We would find that, as a result of the price of the shares going up, the yield on those equities would decrease, thereby decreasing the tax credits and, of course, pushing those funds further away from the goal of having sufficient tax credits to offset the tax. It is not possible, despite the Government's claims, for funds to invest in sufficient equities completely to offset the new 15 per cent tax by dividend imputation. That is the flaw in this clause in terms of the Government's claims.

There are also concerns in regard to this clause in regard to its legal principles. It may well be that this legislation will be thrown out by the courts, because it contravenes certain basic legal principles to which I shall draw attention. Beneficiaries under a superannuation deed may obtain accrued rights. Those accrued rights are legally enforceable and it would take a very clear expression of legislative intent to alter those rights. That clear expression is not present in this legislation. Some trust deeds may provide the power to make retrospective variations to trust deeds, in which case any such accrued rights are subject to that overriding right of the trustees, but that would not be evident in all cases. In the absence of such power in the trust deed accrued rights could not be validly altered by the trustee. A direction by legislation to a trustee to alter accrued rights would not by itself be sufficient to alter those rights. The retrospective alteration of accrued rights can usually be justified only by the trustee acting bona fide. It is certainly not clear that a trustee directed by legislation retrospectively to alter accrued rights would be acting bona fide. It would depend on a number of circumstances which are difficult to predict, given the uncertainty of the detail of the legislation. So, the legislation falls short not only of the Government's claims with regard to the capacity of superannuation funds to avoid the 15 per cent tax through dividend imputation, but also of basic compliance with legal principles.

The Treasurer tries to argue that this legislation will act as a catalyst to promote investment in Australian rather than overseas securities, but even allowing for that fact it will still not be possible for funds to achieve sufficient investment in Australian equities to offset the 15 per cent tax. The Government's claim that end beneficiaries will not be 1c worse off as a result of this legislation is clearly false. The hypocrisy of the Australian Democrats in supporting this Government amendment is writ large for all to see. We have seen Senator Haines running around the electorate of Kingston, which she will seek to represent after the next election-I think that is a false hope on her part; the most recent poll in Kingston shows her support running at about 13 per cent-castigating the Government, and quite properly so, for its high interest rate regime and its effect on home buyers in Kingston.

The argument about high interest rates is the effect they have on people's pockets. They affect the amount of money left in people's pockets after they have paid tax and interest rates which are in effect fixed charges which they cannot avoid. This, of course, governs the amount of money left in their pockets for other cost of living expenses. But this legislation will rip more money out of the pockets of individuals. If people are to retain the end benefit to which they are entitled from their superannuation when they retire, they will be required to increase their contribution to superannuation funds to maintain that same end benefit which they expected when they entered superannuation. That will have exactly the same effect as increasing interest rates are having-ripping more money out of people's pockets, money which they cannot at this time afford. For Senator Haines to support the Government's legislation at a time when she is running around criticising the Government because of the amount of money it is ripping out of people's pockets because of increasing interest rates is sheer hypocrisy and certainly will be noted by the Kingston electors.

This clause should be opposed. The decision of the Opposition to excise the 15 per cent tax on income earned by superannuation funds is the correct way to go. I urge the Committee to support the Opposition's amendments to ensure that those who have entered superannuation funds in good faith to establish a level of benefit required for an adequate income in their retirement without being dependent on government are not penalised.