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Thursday, 15 June 1989
Page: 4139

Senator WATSON(4.17) —Senator Haines has really been quite unkind in some of her remarks today. I always find it very difficult to debate with Senator Haines. She takes the thrust of what one says, basically espouses it as if it is her own and then tries to put one's position in the most distant view as if it is a cowboy sort of attitude. She tends to distance herself from what one has actually said, whereas the thrust of much of what she has said is really in agreement with the Opposition's stated goals. I find it unfortunate that she found this morning's debate a lot of rhetoric and not much substance.

Mr Temporary Chairman, I commend you on your tolerance towards Senator Haines and the latitude that you have given her, but we will not respond in detail because some issues raised are more appropriately addressed in later sections of this Bill when we refer to the Government's amendments. It is more appropriate that I address those issues there. So Senator Haines should stay with us because we do intend to canvass those issues and draw attention to the pitfalls which are inherent in what the Government has put forward.

Senator Haines must not put too much faith in her earlier comments about the infallibility of the anti-detriment provisions of the legislation. They are not really a genuine attempt to rectify or to ensure that the benefits of net tax are not actively affected by the 1988 amendments. In other words, it is more of a political gimmick, a political exercise. I will now spell out the rationale and reasons for saying this. Senator Haines should not put too much faith in these anti-detriment provisions. Firstly, let us look at some of the serious limitations of the anti-detriment provisions, which I think are more shadow than substance, in the Taxation Laws Amendment (Superannuation) Bill. Earlier she accused us of too much rhetoric and not enough substance.

Let us consider a number of cases. The first limitation of the anti-detriment provision is that it cannot take into account any loss resulting from the taxation of investment income. Only compensation for the 15 per cent contribution tax is intended. That is the only relief. It does not extend any further. That is the first problem with Senator Haines's faith-or what should be her lack of faith-in the anti-detriment provision. Secondly, the anti-detriment provision applies only to a lump sum benefit paid to a person over the age of 55. That is limitation No. 2. Limitation No. 3 is that, in determining whether any detriment has occurred, the unrealistic assumption must be made that the threshold of the old tax rates always would have remained at 55. The indexed tax threshold, which starts at 60, is used for the new tax calculation.

Fourthly, it is up to the taxpayer, as I mentioned this morning, to provide evidence to satisfy the Commissioner of Taxation that detriment has occurred. It appears that the Commissioner will not initiate an application. It is the poor old taxpayer who will suffer the disadvantage, the person who we were told would not be 1c worse off. He will have to apply to the Tax Commissioner. We asked how. The Minister said he will have to write the Commissioner a letter in his tax return. What a way to deal with the problem. When will the poor individual get compensation? Will it be in the previous year's assessment or the current year's assessment? Will it be at the time his application is made, or will returns for previous years in which the detriment could also have arisen be amended?

The provision is intended to give only partial compensation in a number of cases. It does not give full compensation. For example, a person may have had long service leave prior to 1983 but only recently may have taken up superannuation entitlements. In such cases the whole or most of the benefit would have built up from contributions subject to the 15 per cent tax, but a substantial part of the benefit would be a pre-1983 component, which was referred to in such charitable terms earlier, and would not benefit from the reduced tax on the post-1983 component.

If honourable senators opposite want specifics we will give them specifics but it will draw out the debate. A benefit may have built up at a much higher rate since 1983 than it had previously done. A detrimental effect would apply for the same reason as it did in the previous situation. Another case would be where the old tax rate exceeded the taxpayer's marginal rate and accordingly the marginal tax rate would apply. I ask Senator Haines not to put too much faith in the anti-detriment provision. I think she is chasing the shadow and not the substance. If she were chasing the substance she would agree with our amendments. But unfortunately, for the only time in her life, she has cut off her options too early.

I express a concern about the introduction of what I might term award or productivity superannuation. I come back to the problems created by the adoption by the Insurance and Superannuation Commissioner (ISC) of an approach that an award fund is liable to accept contributions virtually without regard to the scale of benefits. That is extraordinary. Why is one group of superannuation funds excluded from this essential provision, which goes to the heart of what we are all about here today, whereas all the other groups are to be treated separately?

Senator Messner —Do you mean that the reasonable benefit limit should apply?

Senator WATSON —That is right. No matter when a person joins an award or productivity fund-as a young or aged person, just before retirement or when one has just had one's sixteenth birthday-if that person is in another fund his benefits from the original fund must be reduced. But it is not so with a productivity fund. Where a person has been a member of an employer sponsored superannuation fund for 30 or 40 years and subsequently joins an award fund it is the original fund that must reduce the benefits. This approach to the administration of reasonable benefits via the ISC-unfortunately, he has placed us in some difficulties because of a lack of adequate guidance-has placed award funds in an extremely favourable competitive position. In other words, these funds do not have to incur the same expenses as other superannuation funds in ensuring that benefits are reasonable.

Trustees of award superannuation funds are obliged to certify on their ISC return that they comply with the reasonable benefits scale. This is not the case in relation to accumulations from other sources. To sum up, there is no valid reason why these funds should be able to ignore the responsibilities placed on other superannuation funds with which they are in competition.

Let us consider the vulnerability-I use section 23 to achieve my purpose-of the provision relating to movements in the pre-July 1988 funding credit balance. This provision was supposed to be a bit of a save-all. The Government allows movements in the pre-1988 funding credit balance, which is right and proper. Administratively, the provision is very complex. Its good effect is dependent on another body and another Act, the Occupational Superannuation Standards Act (OSSA). The provision is made up of a number of components. I acknowledge the assistance of Deloitte, Haskins and Sells in providing me with an attachment. The provision is made up of an opening amount which is specified in the notice given by the ISC under the OSSA, subsection 15d (7). That is fair enough. It may be increased by amounts which are transferred in, but one can do this only under notice given by the Commission through the Occupational Superannuation Standards Act, subsection 15d (7). It can be decreased by amounts which are transferred out under notice given by the same body under subsection 15d (7). It can be further decreased by amounts which are withdrawn by the ISC under notice given under section 15d (6) where the fund advises the ISC of substantial changes in membership of a fund or in benefits provided.

Then we have an everything loss clause relating to where a prescribed event occurs and the fund fails to advise the ISC of it. There are an awful lot of obligations to the ISC. A failure to advise in time would mean that one could lose the whole of one's pre-1988 funding credit. It requires a day by day monitoring of the pre-July 1988 funding credit. Hence its vulnerability. Certainly, in the old days most funds did not have the necessary mechanisms. Money will be channelled into the big life offices and the big banks. Nobody else will have the sophistication to be able to handle it all. I think that it is a sad reflection when by legislation we are channelling money into certain specified areas. Then under section 275b in the Bill contributions must be applied against a pre-July 1988 funding credit balance. There is then the further complexity-it is true that this complexity is based on fairness-that it is indexed by the movement in the July quarter estimates for full time adult average wages on ordinary time earnings at that date, and that will be the opening balance for next year.

Complications of this sort are beyond most people. They add an administrative cost and a complexity that are unfortunate. Indeed, the whole thrust of what is happening is to make investment in superannuation funds a less attractive proposition because these administration costs will be passed on and that will result in a lower rate of return for participants in the fund.

The TEMPORARY CHAIRMAN (Senator Teague) —Order! I remind honourable senators that the question before the Committee relates to amendments Nos. 1 to 5 moved by Senator Bishop. I would ask senators to address their remarks to those amendments.