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Thursday, 6 May 1993
Page: 231

Senator RICHARDSON (Minister for Health) (11.44 a.m.) —by leave—While I understand what Senator Chamarette and Senator Harradine said earlier, I do not think the Government is in any position to accede to the honourable senators' wishes. If we do, I think we will get rolled, and one wonders whether it is worth another procedural vote. I would suggest that it is not. I think we should wrap up the second reading today—I will make some remarks on the issue before that—and proceed to the third reading next week. That is probably the only course of action left to us.

  I have to say to the Senate that I have not yet read Senator Patterson's brilliant contribution, as she suggests. I shall do so and attempt to answer it next week—that is, if there are any points she has raised in that contribution that are not covered in the note I was given this morning. I will go into some explanation on this question of foreign shares which has been raised today by both Senator Coulter and Senator Bell. Hopefully, I can go into some more detail next week.

  I want to come to why we are here. When income and assets tests are designed for a pension system such as ours, the design is done with equity in mind. It is not always perfect; it is not always easy, but that has to be the underlying principle. The assets and income test that pensioners now must face has stood the test of time pretty well. We managed to get it pretty right when we first introduced it and, over time, when anomalies have come up we have acted to get rid of them. That is all that this legislation does. What we had was a situation where pensioners could be treated better by investing in shares than by, say, putting money into managed investments. All that we have sought to do in this legislation is to make sure that, no matter what the pensioner might care to invest in, he or she can expect the same treatment. So one investment is not better than another; they are all supposed to be treated the same.

  While it has been claimed that those who are pensioners with shares are being singled out, I think the real truth is the exact opposite. For a number of years shares have been treated concessionally. In the past, pensioners who have had shares have been able to be treated singly, and now that anomaly disappears. What the change does is bring the treatment of shares into line with the treatment of most other kinds of investments. For example, equity trusts where people invest in shares indirectly should be treated—

Senator Coulter —Land.

Senator RICHARDSON —I am sorry; I missed that. This is a big chamber; I am not used to being here. It will take a while to get the ears working.

Senator Patterson —What about antique clocks?

Senator RICHARDSON —I am not sure how many pensioners own them. I suspect that, of Australia's l.4 million pensioners, there are not too many worried about the price of antique clocks. I am certainly not. To get back to what I was attempting to say, however: if we look at equity trusts, where in fact people invest in shares indirectly, there is absolutely no reason why pensioners who are in those now should be treated differently from those who invest in shares directly through the share market.

  It has been suggested that it is also unfair to assess unrealised capital gains. We have to look at what has been underlying the assets tests since they began, and that is that those pensioners with assets are able, if they choose to do so, to realise them. The problem is for those without assets. They are going to be treated pretty unfairly if we simply allow the accumulation of assets by those who have got the resources to accumulate them. The gains represent an increase in resources that can be used by pensioners to provide income support for themselves if they so wish. If we are going to have a needs based social security system—and that is what we have got—it is only fair that they utilise those gains before they call on the taxpayers to give them support.

  It does not mean, as I think Senator Bell and Senator Coulter were suggesting, that shares suddenly become a bad investment for pensioners. What it does mean is that the pensioner-friendly treatment of shares will be removed so that investment in shares is based on the intrinsic merit of the investment and not on some concessional treatment by the Department of Social Security. It means that pensioners who invest in shares do not have an advantage over those who are using their savings to generate some income rather than simply generating unrealised capital growth.

  Whether pensioners do sell shares to access this growth and supplement their income or whether they just retain the growth as an increase in the value of their investment will be a personal choice, but taxpayers should not be called on to provide a higher level of income support than necessary to such people if they choose not to utilise the gains. I doubt very much that all pensioners will sell their shares, as is being claimed today. They are not all going to race out and sell their shares. Some of those pensioners have been holding them for decades and they have held them through all sorts of changes in the way shares were treated before they were pensioners. They are not going to change the way they do business now.

  The rules that will apply to shares have applied to most managed investments for five years. A pensioner with funds in a managed investment knew that there would be gains taken into account and that his pension would be reduced accordingly. Over that time, some 128,000 pensioners have invested in managed investments on the basis of their merit as an investment. Those 128,000 pensioners have managed to do it with managed investments, and we will find that those who hold shares will do exactly the same thing. Let me tell the Senate the numbers so that we get the argument into some perspective. There are about 60,000 Department of Social Security pensioners and about 24,000 Veterans' Affairs pensioners affected by this change. Overall, less than 3 per cent of the pensioner population will be affected. I hope this debate does not become a replica of the first assets test debate nearly a decade ago, when the Opposition sought to frighten all pensioners although only a tiny percentage of them were ever going to be affected.

  It also has to be noted that those most affected are those with large shareholdings. Some pensioners have $100,000 invested in shares. When the vast majority of pensioners have nothing invested in shares and precious little invested in anything else, we have to ask ourselves whether it is fair for pensioners with $100,000 invested in shares to be able to avoid any kind of pressure to realise any of the gains. If they choose not to realise the gains, should the people with absolutely nothing have to subsidise them? The Government came to the conclusion that the answer to that was, clearly, no. Pensioners with a small number of shares—and that is the vast number of the 60,000 who are affected anyway—are hardly going to be affected. The change is not going to affect them to any significant extent.

  Savings of some $80 million in a full year are going to be raised by this measure. I think that $44 million was claimed by the Opposition, but I am advised that the savings in a full year will be $80 million. That amount of money deserves serious consideration. I would think it is in the interests of all pensioners, when that kind of money is available to be collected from those who have been treated concessionally over the years, to want to see the Government do it.

  We can be judged by what we do to help those who are in the greatest need. That includes the increase in pensions that was provided in January of this year and the extension of eligibility for fringe benefits that was implemented in April to pay for those kinds of measures. The money does not come out of the air. It has to come from somewhere. I cannot think of too many more appropriate places than this place. Over 50 per cent of pensioners affected by the share change will benefit from the change I have just mentioned, receiving benefits of up to $20 a week. Pensioners with shares will benefit also from the accompanying measure to allow reductions in the value of shares to be offset against gains on shares or managed investments.

  I am not certain whether these matters are to be raised in Senator Patterson's as yet unread speech, but there was a press release from Mr Ruddock yesterday in which he raised a number of matters that I think ought to be cleared up. Firstly, he claimed that pensioners will redirect their savings to overseas shares because the change does not apply to those shares. But, of course, it does. In saying that it applies to overseas shares, it should also be noted—as I am sure Senator Coulter and Senator Bell would be well aware—that there are not too many pensioners with great company structures set up in the tax havens of the world to avoid taxes. It is not going to be a difficult task to locate the vast majority of those who seek to do it and to take it into account.

  Secondly, there is a claim that the measure will impact on the floating of shares in public enterprises. Senator Bell has added his weight, if that is the correct term, to this by referring to the Woolworths float which is about to take place. But, as I said previously, the change will ensure that pensioners wishing to invest in shares make their decision based on the intrinsic merit of the investment, not on any concessional treatment.

  I for one would not be prepared to say that there is no intrinsic merit in investing in a Woolworths float. Woolworths is a great company and its management has achieved such an increase in market share in the course of the last decade, to the detriment of some very well-known competitors, that it would be difficult to see pensioners walking away from the intrinsic merit of that investment.

  There has also been a lot of comment about the method that will be used to implement the measure. Most of that comment is based on a misunderstanding of the way in which the income test works in practice and has worked for years. That method has been endorsed as the appropriate way of operating the income test by the High Court. The basic principle is that the income test is intended to measure the financial resources available to a person at a given point in time. It does not and it should not assess past dollar gains or compensate for past dollar losses.

  It ought to be noted that pensioners with shares are around five per cent of all shareholders. Most of them have got small holdings. It ought not be the case that pensioners who have had experience with these investments for years are simply going to run away because of a change in the treatment. It will make the investments marginally less attractive but it will make the tests that are applied to pensioners more equitable across all pensioners—those who have got the funds to invest in shares and the vast majority of pensioners, the 97 per cent, who have not.