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Economics Legislation Committee—Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 [Provisions]—Report, dated November 2019


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November 2019

The Senate

Economics Legislation Committee

Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 [Provisions]

© Commonwealth of Australia 2019

ISBN 978-1-76093-013-4

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/.

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iii

Senate Economics Legislation Committee

Chair Senator Slade Brockman LP, WA

Deputy Chair Senator Alex Gallacher ALP, SA

Members Senator Andrew Bragg LP, NSW

Senator Jenny McAllister ALP, NSW

Senator Susan McDonald NATS, QLD

Senator Rex Patrick CA, SA

Secretariat Mr Mark Fitt, Committee Secretary Ms Ashlee Hill, Senior Research Officer Ms Sofia Moffett, Administrative Officer

PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3540 Fax: 02 6277 5719 Email: economics.sen@aph.gov.au

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Contents

Senate Economics Legislation Committee ................................................................................... iii

Chapter 1—Introduction .................................................................................................................... 1

Referral of the inquiry ......................................................................................................................... 1

Purpose of the bill ................................................................................................................................ 1

Background ........................................................................................................................................... 1

SG rules ...................................................................................................................................... 1

SG gap ........................................................................................................................................ 2

SG charge ................................................................................................................................... 2

SG Integrity Package ................................................................................................................ 2

Previous committee inquiry .................................................................................................... 3

Overview of the bill ............................................................................................................................. 3

Beneficial treatment under the amnesty ................................................................................ 4

Qualifying for the amnesty ...................................................................................................... 5

Penalties for employers that do not come forward .............................................................. 5

Consequential Amendments ................................................................................................... 6

Financial impact ................................................................................................................................... 7

Legislative scrutiny .............................................................................................................................. 7

Compatibility with Human Rights .................................................................................................... 7

Conduct of the inquiry ........................................................................................................................ 7

Acknowledgements ............................................................................................................................. 7

Chapter 2—Views on the bill............................................................................................................ 9

Comments in support of the bill ........................................................................................................ 9

Comments in opposition to the bill ................................................................................................. 11

Message sent by proposed amnesty ..................................................................................... 11

Efficacy of amnesties .............................................................................................................. 13

Complement to the SG Integrity Package ...................................................................................... 13

Other matters raised .......................................................................................................................... 14

Application of the amnesty in practice ................................................................................ 14

Amnesty period....................................................................................................................... 15

Penalties under the Tax Administration Act 1953 ............................................................. 16

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Advertising the amnesty ........................................................................................................ 17

Committee view ................................................................................................................................. 18

Dissenting report from Labor Senators ........................................................................................ 21

Appendix 1—Submissions and additional information ........................................................... 29

Appendix 2—Public hearings ......................................................................................................... 31

1

Chapter 1 Introduction

Referral of the inquiry 1.1 The Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 (the bill) was introduced in the House of Representatives and read a first time on 18 September 2019.1

1.2 On 19 September 2019, the Senate referred the provisions of the bill to the Economics Legislation Committee (the committee) for inquiry and report by 7 November 2019.2

Purpose of the bill 1.3 The primary purpose of the bill is to amend the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992) to encourage employers to voluntarily disclose historical superannuation guarantee (SG) non-compliance and pay an

employee's full entitlement.3 The bill seeks to achieve this objective by introducing a one-off SG amnesty.4

1.4 As emphasised by the Assistant Treasurer, the Hon. Michael Sukkar MP, in his second reading speech:

Reuniting as many workers as possible with the superannuation that is rightly theirs must be the priority.5

Background

SG rules 1.5 Set out in the SGAA 1992, the SG rules ensure that employees have a minimum (i.e. guaranteed) level of superannuation contributions in respect of their employment. The SG is currently 9.5 per cent of an employee's ordinary time

earnings (OTE) and must be paid into a complying super fund at least four times a year, by the quarterly due dates.6

1 Votes and Proceedings, No. 18, 18 September 2019, p. 277.

2 Journals of the Senate, No. 19, 19 September 2019, p. 569.

3 An employee's full SG entitlement comprises the employee's individual SG shortfall, nominal

interest, and any related general interest charge on unpaid amounts of SG charge.

4 Explanatory Memorandum, p. 3.

5 The Hon. Michael Sukkar MP, Assistant Treasurer, House of Representatives Hansard,

18 September 2019, p. 20.

6 See Australian Taxation Office, Super for employers, https://www.ato.gov.au/business/super-for-employers/ (accessed 23 October 2019).

2

SG gap 1.6 For the six-year period between 2011-12 and 2016-17, the Australian Taxation Office (ATO) estimates the net superannuation guarantee gap—that is, the difference between the value of SG contributions required to be paid under the

SG rules and SG contributions actually paid—to be $2.3 billion. This represents 3.9 per cent of the theoretical estimated SG amount employers were required to pay for that period.7

SG charge 1.7 Compliance with the SG rules is encouraged through the imposition of a tax (SG charge) on employers who fail to contribute a minimum percentage of their employees’ OTE into superannuation.8

1.8 The SG charge is composed of the total of an employer's individual SG shortfalls, the employer's nominal interest component, and a $20 per employee per quarter administration component.9

1.9 Where employers do not meet their SG obligations by the relevant quarterly due date, they are liable to pay to the Commissioner of Taxation (the Commissioner) an amount of SG charge equal to their ‘SG shortfall’ for that quarter.10

1.10 As summarised in the Explanatory Memorandum (EM) to the bill:

Generally, an employer can deduct from their assessable income contributions they make on behalf of their employees that reduce the employer’s SG shortfall. However, consistent with the treatment of other taxes, SG charge is not deductible. Late contributions that an employer has elected to offset against their SG charge liability are also not deductible.11

SG Integrity Package 1.11 The one-off SG amnesty is intended to complement the government's package of reforms to improve SG compliance—the Superannuation Guarantee Integrity Package—which were recently enacted though the Treasury Laws

Amendment (2018 Measures No. 4) Act 2019.12 Those reforms improve the

7 See Australian Taxation Office, Superannuation guarantee gap, https://www.ato.gov.au/About-ATO/

Research-and-statistics/In-detail/Tax-gap/Superannuation-guarantee-gap/ (accessed 23 October 2019).

8 Explanatory Memorandum, p. 5.

9 Explanatory Memorandum, pp. 5-6.

10 Explanatory Memorandum, p. 5.

11 Explanatory Memorandum, p. 6.

12 The Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 passed the Parliament on

12 February 2019, and received Royal Assent on 1 March 2019. The committee also inquired into the provisions of that bill during the 45th Parliament, tabling its inquiry report on 13 June 2018.

3

visibility of SG payments to the ATO, introduce stronger penalties for non-compliance, and ensure more reliable collection of liabilities for unpaid SG in the future.13

Previous committee inquiry 1.12 Most amendments proposed in the bill were previously introduced to Parliament on 24 May 2018 as part of the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018. That bill was also referred to the

committee, but lapsed at the end of the 45th Parliament.

1.13 The committee's previous inquiry report, which was tabled on 18 June 2018, noted that most of the individuals and organisations who gave evidence to the inquiry supported the one-off SG amnesty measure. In particular, the committee's report noted that:

Organisations representing small businesses welcomed the amnesty as encouraging small businesses to come forward and do the right thing by their employees, and as a means of establishing a base of compliance for when the increased visibility, stronger enforcement and higher penalties in the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 come into operation.14

Overview of the bill 1.14 The bill, which contains one schedule, amends the SGAA 1992 and makes consequential amendments to the Income Tax Assessment Act 1997 (ITAA 1997).15

1.15 As previously noted, the amendments to the SGAA 1992 seek to introduce a one-off SG amnesty. The amnesty aims to encourage employers to voluntarily disclose historical SG non-compliance to the Commissioner and pay an employee's full SG entitlement.16

1.16 The amendments generally apply from 24 May 2018, being the day that the amnesty was first announced.17

1.17 The amnesty period is the period that started on 24 May 2018 and ends 6 months after the bill receives Royal Assent.18

13 Explanatory Memorandum, p. 3.

14 Senate Economics Legislation Committee, Treasury Laws Amendment (2018 Superannuation Measures

No. 1) Bill 2018 [Provisions], June 2018, p. 9.

15 Items 10-14 of schedule 1 to the bill amend the SGAA 1992, and items 1-9 of schedule 1 make

consequential amendments to the ITAA 1997.

16 Explanatory Memorandum, p. 3.

17 Explanatory Memorandum, pp. 3, 24.

18 Explanatory Memorandum, p. 10.

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Beneficial treatment under the amnesty 1.18 The bill allows employers that qualify for the amnesty (see paragraphs 1.23- 1.26) to claim deductions from their tax assessable income for payments of SG charge or contributions made during the amnesty period to offset

SG charge. Payments made after the end of the amnesty period, even if they relate to SG shortfalls disclosed under the amnesty, will not qualify for tax deductions.19

1.19 The bill also reduces to nil the penalties and fees that an employer may otherwise be liable to in relation to historical SG non-compliance.20 In particular, an employer that has an amount of SG shortfall for a quarter that qualifies for the amnesty:

 does not have any administrative component in respect of the SG shortfall; and  is not liable to Part 7 penalties, imposed under section 59 of the SGAA 1992,21 for a failure to lodge an SG statement in respect of the

shortfall by the relevant quarterly due date.22

1.20 The beneficial treatment provided to employers by the amnesty is available in relation to quarters starting on 1 July 1992, being the day the SGAA 1992 commenced, up to and including the quarter ending at least 28 days before the start of the amnesty period (that is, the quarter starting on 1 January 2018). An employer will not be able to benefit from the amnesty for shortfalls relating to the quarter starting 1 April 2018 or subsequent quarters.23

1.21 The EM notes that this timeframe covered by the amnesty 'ensures that the amnesty addresses historical non-compliance and is not available for non-compliance that occurs after the amnesty is announced'.24

1.22 The deductibility of payments of SG charge or offsetting contributions made during the amnesty period applies in relation to the 2017-18 and later income

19 Explanatory Memorandum, p. 15.

20 Explanatory Memorandum, pp. 7, 14-15.

21 Section 59 of the SGAA 1992 requires that, if an employer fails to provide an SG statement or

information relevant to assessing the employer's liability to pay SG charge when and as required to do so under the Act, the employer is liable to pay, by way of penalty, additional SG charge equal to double the amount of SG charge for the relevant quarter. See Superannuation Guarantee (Administration) Act 1992, s. 59(1), https://www.legislation.gov.au/Details/C2017C00230/Controls/ (accessed 23 October 2019).

22 Explanatory Memorandum, pp. 14-17.

23 Explanatory Memorandum, p. 10.

24 Explanatory Memorandum, p. 10.

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years, as do the consequential amendments to the ITAA 1997 (discussed below).25

Qualifying for the amnesty 1.23 To qualify for the amnesty, an employer must disclose to the Commissioner information related to an SG shortfall for a quarter that ends at least 28 days before the start of the amnesty period.26

1.24 Further, an employer qualifies for the beneficial treatment provided by the amnesty in relation to an amount of SG shortfall if the disclosure to the Commissioner:

 is made during the amnesty period;  relates to an amount of SG shortfall not previously disclosed; and  is in the approved form.27

1.25 In addition, for disclosure in respect of a quarter to qualify for the amnesty, the Commissioner must not have, at any time before the disclosure, informed the employer that the Commissioner is examining, or intends to examine, the employer's compliance with their obligation to pay SG charge for that quarter.28

1.26 An employer may cease to qualify for the amnesty, and consequently lose all benefits from the amnesty, if the employer fails to pay, or enter into and comply with arrangements to pay, any SG charge imposed on a disclosed SG shortfall.29

Penalties for employers that do not come forward 1.27 To strengthen the operation of the amnesty, where an employer fails to disclose information relevant to their historical SG shortfall during the amnesty period, the amendments in the bill also seek to limit the

Commissioner's ability to remit Part 7 penalties (except under exceptional circumstances) for historical SG non-compliance.30

1.28 Specifically, as outlined in the EM:

This limit ensures that the Commissioner cannot remit penalties imposed under section 59 below 100 per cent of the amount of SG charge payable by

25 Explanatory Memorandum, pp. 24-25.

26 Explanatory Memorandum, p. 7.

27 Explanatory Memorandum, pp. 9-12.

28 Explanatory Memorandum, p. 11.

29 Explanatory Memorandum, p. 7.

30 Explanatory Memorandum, pp. 3, 7, 17.

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the employer for a historical quarter that was covered by the amnesty where the employer did not disclose the shortfall as part of the amnesty.31

1.29 The amendments limiting the Commissioner's ability to remit Part 7 penalties under the SGAA 1992 commence on the day after the amnesty period ends.32

1.30 These amendments restricting the Commissioner's ability to remit Part 7 penalties (schedule 1, item 13) are additional to the amendments contained in the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 that was previously introduced during the 45th Parliament.

Consequential Amendments 1.31 The bill makes consequential amendments to the ITAA 1997 to include a definition of 'superannuation guarantee shortfall', and to ensure the ITAA 1997 accurately reflects changes to the law relating to the deductibility of SG charge

for 2017-18 and subsequent income years.33

1.32 The bill also includes amendments to ensure employees are not disadvantaged as a result of the amnesty. Specifically, in respect of contributions recovered under the amnesty, these amendments ensure that:

 the Commissioner can exercise discretion to make a determination to disregard concessional contributions, or allocate them to another financial year, for contributions made by the Commissioner in the 2017-18 and later income years;34 and

 contributions made by the Commissioner and late contributions made by an employer to offset their liability to pay SG charge will not attract additional tax under Division 293 of the ITAA 1997 for the 2017-18 and later income years.35

31 Explanatory Memorandum, p. 7.

32 Explanatory Memorandum, p. 25.

33 Explanatory Memorandum, p. 22.

34 Contributions recovered and paid to an employee as a result of the amnesty would be considered

concessional contributions and may cause employees to exceed their annual concessional contributions cap. Concessional contributions that exceed the concessional cap are included in an individual's assessable income. In allowing the Commissioner to issue a determination to disregard concessional contributions made under the SG amnesty, employees will not be disadvantaged by contributions representing late SG payments. See Explanatory Memorandum, pp. 22-23.

35 Explanatory Memorandum, p. 25.

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Financial impact 1.33 The EM states that the proposed measure is estimated to result in a gain to the budget of $99 million in fiscal balance terms over the five-year period to 2022-23.36

Legislative scrutiny 1.34 The bill was considered by the Senate Standing Committee for the Scrutiny of Bills, which had no comment.37

Compatibility with Human Rights 1.35 As required under the Human Rights (Parliamentary Scrutiny) Act 2011, the government has assessed the bill's compatibility with the human rights and freedoms recognised or declared in the international instruments listed in

section 3 of that Act. The government considers that the bill is compatible.38

Conduct of the inquiry 1.36 The committee advertised the inquiry on its website and wrote to relevant stakeholders inviting written submissions by 3 October 2019.

1.37 The committee received 12 submissions, as well as answers to questions on notice and additional information, which are listed at Appendix 1.

1.38 The committee held one public hearing for the inquiry in Sydney on 30 October 2019. The names of witnesses who appeared at the hearing can be found at Appendix 2.

1.39 References to the Committee Hansard are to the Proof Hansard and page numbers may vary between Proof and Official Hansard transcripts.

Acknowledgements 1.40 The committee thanks all individuals and organisations who participated in the inquiry, especially those who made written submissions and participated in the public hearing.

36 Explanatory Memorandum, p. 3.

37 Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 7 of 2019, 17 October 2019,

p. 42.

38 Explanatory Memorandum, p. 27.

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Chapter 2 Views on the bill

2.1 This chapter summarises the views held by stakeholders on the provisions of the bill. The chapter is intended to provide an indicative, though not exhaustive, account of the issues examined during the committee's inquiry.

2.2 The committee notes that there was a mixed level of support for the bill among inquiry participants; as such, this chapter will examine evidence received in support and opposition to the bill in turn, followed by a brief discussion of other matters raised during the course of the inquiry.

Comments in support of the bill 2.3 The Association for Superannuation Funds of Australia (ASFA) expressed its support for the one-off superannuation guarantee (SG) amnesty, noting that there has been an increase in employers paying outstanding SG contributions

since the announcement of the measure.1

2.4 Mr Glen McCrea, Deputy Chief Executive Officer and Chief Policy Officer at ASFA, highlighted that, while positive measures have been recently introduced to address SG non-compliance moving forward, the SG gap is still significant:

…in 2015-16 alone around $2.8 billion was unpaid. Clearly more needs to be done to address historical non-compliance and, most importantly, ensure that individuals receive their money in their super

account…Getting employees the money owed to them will mean higher super balances, additional investment returns and a better retirement for Australians.2

2.5 When questioned by the committee regarding the estimated amount of superannuation to be recovered as a result of the amnesty, Mr McCrea told the committee:

My view is that every dollar counts, and the more money we can get in peoples' super the better, and the better quality their retirement will be. As I said, I think this is one element of a broader package, particularly going forward with some of the reporting work, event based reporting. We are open to further action going forward, but let's resolve this issue of an

1 Association of Superannuation Funds of Australia, Submission 1, p. 1. See also Ms Jane Macnamara,

Senior Policy Manager, Superannuation and Retirement Incomes, Financial Services Council, Committee Hansard, 30 October 2019, p. 15.

2 Committee Hansard, 30 October 2019, p. 23.

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amnesty, see how that goes, and then see what other options there are to make sure people get the money in their super accounts.3

2.6 Also noting the recent measures introduced by the government to address SG non-compliance, Dr Craig Latham, Deputy, Australian Small Business and Family Enterprise Ombudsman (ASBFEO), took the view that the amnesty will create 'a level playing field, getting people squared up and superannuation paid'.4 Dr Latham further commented:

Getting squared up—a twofold effect: first and foremost it is about getting the employee entitlements paid and also having all businesses then compete on a level playing field. The Single Touch Payroll, going forward, is there to assure compliance following the amnesty.5

2.7 Noting that the majority of employers seek to comply with SG laws and fulfil obligations to their employees, Chartered Accountants Australia and New Zealand (CAANZ) expressed the view the amnesty will encourage employers to 'audit their Super Guarantee compliance and fix any identified underpayment issues'. CAANZ further submitted that:

In the years ahead Chartered Accountants ANZ expects the ATO will keep a very watchful eye over those employers who avail themselves of the amnesty.6

2.8 The Financial Services Council (FSC) noted its support for policy measures aimed at ensuring workers received their full SG entitlements, contending that overall, the measures in the bill 'will help reunite workers with their unpaid superannuation and support the integrity of the superannuation system'.7

2.9 Reiterating the FSC's support for the bill, Ms Jane Macnamara, Senior Policy Manager, Superannuation and Retirement Incomes, told the committee that 'while it [the bill] provides relief from penalties, it does not remove any obligations for employers to pay their employees the superannuation they are owed'.8

3 Committee Hansard, 30 October 2019, p. 24. See also Ms Jane Macnamara, Senior Policy Manager,

Superannuation and Retirement Incomes, Financial Services Council, Committee Hansard, 30 October 2019, p. 17.

4 Committee Hansard, 30 October 2019, p. 20.

5 Dr Craig Latham, Deputy, Australian Small Business and Family Enterprise Ombudsman,

Committee Hansard, 30 October 2019, p. 20. See also Financial Services Council, Submission 10, p. 3.

6 Chartered Accountants Australia and New Zealand, Submission 3, p. 2.

7 Ms Jane Macnamara, Senior Policy Manager, Superannuation and Retirement Incomes, Financial

Services Council, Committee Hansard, 30 October 2019, p. 15. See also Financial Services Council, Submission 10, pp. 2-3.

8 Committee Hansard, 30 October 2019, p. 15.

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Comments in opposition to the bill 2.10 Comments in opposition to the bill focused mainly on two issues; the message that may be sent by the amnesty should it be introduced, and a lack of support in academic literature for the efficacy of amnesties.

Message sent by proposed amnesty 2.11 A number of inquiry participants expressed concern that the one-off SG amnesty risks sending the wrong message to employers; specifically, that it could give the impression of rewarding rather than penalising non-compliant

employers.

2.12 For example, Mr Scott Connolly, Assistant Secretary of the Australian Council of Trade Unions (ACTU), contended that the proposed amnesty:

…says to every employer who didn't pay super to their staff on time that that's okay, so long as it occurred before March last year. It also says to the vast majority of employers—who did pay the super, did obey the laws of this country and did bother to do the right thing by their employees—that perhaps they really shouldn't have bothered at all.9

2.13 In support of this view, Unions Tasmania argued that the amnesty 'sends a message to employers that they can disregard Australia's superannuation laws without consequence'.10

2.14 Ms Jo-Anne Schofield, National Secretary of United Voice, noted that employers who have not paid SG entitlements on behalf of their employees, aside from their wilful blindness of the law, have effectively received a financial advantage. Ms Schofield suggested that an amnesty would signal to employers, particularly those in contracting industries, that SG non-compliance can be overlooked.11

2.15 Ms Schofield further explained:

In these sectors, non-compliant employers can and do acquire market share from those companies that are meeting all of their award and superannuation obligations to their workers. The compliant companies are effectively undercut. They are penalised out of the market for doing the right thing. On the other hand, non-compliant companies make a gain. Due to the amnesty, those companies will escape penalties that would otherwise apply to them. It sends a signal in markets such as contracting

9 Committee Hansard, 30 October 2019, p. 8. See also Ms Melissa Birks, Head of Advocacy, Australian

Institute of Superannuation Trustees, Committee Hansard, 30 October 2019, pp. 2-3.

10 Unions Tasmania, Submission 4, p. 1.

11 Committee Hansard, 30 October 2019, p. 9.

12

sectors that practices of non-compliance can be overlooked through future amnesties.12

2.16 The Australian Institute of Superannuation Trustees (AIST) took the view that 'government support should be provided to the majority of employers that want to meet their superannuation obligations',13 further submitting that an amnesty 'undermines the support provided by the ATO to employers wanting to fully comply with their legal obligations'.14

2.17 AIST also cautioned that an amnesty may send a message that the government is not committed to enforcing SG obligations, noting that:

In Australia, there is widespread public support for employers to pay the superannuation entitlements of their employees, and opposition to wage theft by employers.

While the Government supports these views of the public, attempts to introduce an amnesty confuses this message.15

2.18 The ACTU asserted that the amnesty proposed in the bill goes against the well-established principle that ignorance of the law is not a defence, elaborating that:

The Superannuation Guarantee Charge (SGC) has been law since 1 July 1992. Businesses cannot believably claim ignorance of the SGC when and where it applies to them. The SGC is not a unique obligation upon employers. Wages, workplace entitlements, business tax, licensing are all incumbent upon the business owner to comply with. To claim that non-payment of superannuation is too difficult by comparison and therefore an amnesty is warranted, is absurd.16

2.19 ASIT expressed a similar view, observing that '[f]or 27 years it has been mandatory for employers to pay super for their employees. This isn't a new requirement, and it's not a requirement that they don't understand'.17

12 Ms Jo-Anne Schofield, National Secretary, United Voice, Committee Hansard, 30 October 2019, p. 9.

See also Mr David Haynes, Senior Policy Manager, Australian Institute of Superannuation Trustees, Committee Hansard, 30 October 2019, p. 3.

13 Australian Institute of Superannuation Trustees, Submission 6, p. 2.

14 Australian Institute of Superannuation Trustees, Submission 6, p. 4.

15 Australian Institute of Superannuation Trustees, Submission 6, pp. 5-6.

16 Australian Council of Trade Unions, Submission 9, p. 4. See also Mr Scott Connolly, Assistant

Secretary, Australian Council of Trade Unions, Committee Hansard, 30 October 2019, p. 8; Unions Tasmania, Submission 4, p. 2.

17 Ms Melissa Birks, Head of Advocacy, Australian Institute of Superannuation Trustees, Committee

Hansard, 30 October 2019, p. 1.

13

Efficacy of amnesties 2.20 Some submitters and witnesses pointed to academic literature on the efficacy of tax amnesties, arguing that overall, research has not found amnesties to be an effective a mechanism to increase compliance.18

2.21 For instance, ASIT submitted that:

Criminology literature shows that offenders become increasingly scared of detection and fines when the time of detection and punishment approaches. Offenders behave differently when they decide to offend (e.g. by not paying super entitlements to their employees) compared with when they have to face the consequences of their actions (e.g. when the ATO identifies their non-compliance). Potential offenders can calculate the benefits of initial non-compliance against the risk of prosecution and may decide to offend if they believe they may be able to avoid prosecution (e.g. as a result of an amnesty).19

2.22 Industry Super Australia (ISA) described the academic evidence on the efficacy of amnesties as being mixed at best. In particular, ISA noted an International Monetary Fund study into income tax amnesties which found:

…programs that combine both ‘carrot’ and ‘stick’ approaches—i.e. incentives along with a strengthening of enforcement regimes—are more likely to succeed.20

2.23 While it acknowledged the provisions in the bill which limit the Commissioner's ability to remit Part 7 penalties, ISA suggested that:

In light of such findings, securing compliance will likely be better achieved by placing greater emphasis on the ‘stick’: in this case, making more effective use of the penalty regime covering employers who engage in non-compliance. The law currently allows for the imposition of significant penalties on employers who do not meet their SG obligations. However, in the period from the introduction of the current maximum penalty to 10 April 2019, the ATO has not imposed a maximum penalty of 200 per cent on any employer for failing to pay the SG. The Bill, as it stands, does not address this.21

Complement to the SG Integrity Package 2.24 Acknowledging the views of some parties that an SG amnesty would 'reward bad behaviour', some inquiry participants sought to emphasise the fact that the one-off amnesty is intended to complement the SG compliance reforms

contained in the government's Superannuation Guarantee Integrity Package,

18 See Australian Institute of Superannuation Trustees, Submission 6, p. 4; Industry Super Australia,

Submission 7, p. 2.

19 Australian Institute of Superannuation Trustees, Submission 6, p. 4.

20 Industry Super Australia, Submission 7, p. 2. See also Dr Nick Coates, Head of Research and

Campaigns, Industry Super Australia, Committee Hansard, 30 October 2019, p. 2.

21 Industry Super Australia, Submission 7, p. 2.

14

recently enacted through the Treasury Laws Amendment (2018 Measures No. 4) Act 2019.

2.25 Mr McCrea from ASFA suggested that it will be the combination of SG integrity measures that will have a positive benefit on overall SG compliance, commenting that '[a]t the moment we've got some policies addressing the stock issue, we've got some initiatives in the flow, and we think things like event based reporting are very positive'.22

2.26 Similarly, Mr Robert Jeremenko, Division Head, Retirement and Income Policy Division, Department of the Treasury (The Treasury), sought to clarify the role of the amnesty as part of the wider suite of SG integrity measures:

The combination of the amnesty, which, as some of the witnesses have given evidence on already today, is a backward-looking measure. The package of measures that has been passed by parliament and which gives those extra powers to the tax office and introduces single touch payroll is very much from that date forward.

As part of the combination of the retrospective nature of the amnesty and the forward-looking nature of the already-passed extra powers, that is the suite of policy options that the government has put forward which aims to address both that SG gap and then tries—through this one-off, unusual amnesty—to bring forward that extra $230 million, which is superannuation that people don't have currently.23

2.27 Mr James O'Halloran, Deputy Commissioner, Superannuation and Employer Obligations, Australian Taxation Office (ATO), also sought to assure the committee that, in regard to addressing historic SG non-compliance, the ATO's SG audit program will continue to run should the bill be passed and the proposed amnesty come into effect.24

Other matters raised

Application of the amnesty in practice 2.28 At the public hearing for the inquiry, the committee sought clarification as to how the amnesty would be applied in practice. Specifically, noting the long time frame—26 years since the SG Act was introduced—to which the amnesty

relates, the committee questioned how the amnesty would be applied in situations where an employer's records are incomplete, or indeed, non-existent.

22 Mr Glen McCrea, Deputy Chief Executive Officer and Chief Policy Officer, Association of

Superannuation Funds of Australia, Committee Hansard, 30 October 2019, p. 25.

23 Committee Hansard, 30 October 2019, p. 30.

24 Committee Hansard, 30 October 2019, p. 31.

15

2.29 Mr O'Halloran from the ATO advised that:

…if the amnesty law lands as currently drafted, it's not an unusual situation. It's obviously got some legislative elements in it. But our normal position, as always, is that we often receive voluntary disclosures from people who have applied their best endeavours. We look at it at different degrees, but certainly the message that the law seems to impose is that people are encouraged to come forward. They should come forward. It's not to be a cavalier exercise. Therefore, it's more likely than not that we would accept what they bring forward, because we may not have records back that far either in some instances. We will obviously provide information and advice as to the sorts of sources of information that should be available. I make the point clearly that there may be circumstances where people perhaps can't identify former employees and the like. That's probably the closest one. Obviously, we can't distribute money unless we can identify the employee. We'd just be there to help people find out how we can meaningfully support the amnesty application for the period about which they've come forward, where we can facilitate it as opposed to interrogate it.25

2.30 Mr Jeremenko from The Treasury outlined the policy rationale for the amnesty as proposed in the bill covering the entire 26-year period since the commencement of SG Act:

…this is the first time there's been a superannuation guarantee amnesty. It's a one-off, as the minister has said a number of times publicly, and as I said again today. One way of interpreting the large period of time is that, because it hasn't happened before, to do otherwise—to shorten the period of time by which employers can confess, if you like, to not paying the SG— would potentially rob the workers of the super that they would be owed.26

Amnesty period 2.31 Some inquiry participants expressed the view that the amnesty period as proposed in the bill—starting on 24 May 2018 and ending 6 months after the bill receives Royal Assent—should be extended.

2.32 For example, the ASBFEO contended that the application of the amnesty only to historical SG debts up to and including the quarter ending March 2019 should be reconsidered. The ASBFEO reasoned that:

Six reporting quarters have since passed and those small businesses waiting for certainty in the law are still waiting. Accordingly, the amnesty should be extended to all historical quarters up to the end of the quarter in which the legislation receives Royal Assent.27

25 Mr James O'Halloran, Deputy Commissioner, Superannuation and Employer Obligations,

Australian Taxation Office, Committee Hansard, 30 October 2019, p. 32.

26 Mr Robert Jeremenko, Division Head, Retirement Income Policy Division, Department of the

Treasury, Committee Hansard, 30 October 2019, pp. 32-33.

27 Australian Small Business and Family Enterprise Ombudsman, Submission 11, p. 1.

16

2.33 CAANZ presented a similar view, submitting that '[g]iven the original amnesty period was not legislated we believe the proposed new amnesty period should ideally be longer than six months after the proposed legislation receives Royal Assent'.28

2.34 Likewise, the Housing Industry Association (HIA) noted that there is now a longer period of time to which the amnesty will not apply than was envisaged in the original legislation. HIA recommended that a similar approach be taken to when the legislation was introduced during the previous parliament; specifically that:

..the amnesty apply for a period of 12 months from 19 September 2019, the day the Bill was introduced, and apply to a quarter that ends at least 28 days before the start of the amnesty period being up to and including the quarter starting on 1 April 2019. An employer would not be able to benefit from the amnesty relating to a quarter starting on 1 July 2019 or subsequent quarters.29

Penalties under the Tax Administration Act 1953 2.35 In its submission, Hall & Wilcox raised concerns that, while the proposed amnesty would provide employers with reduced liability to penalties under Part 7 of the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992),

the bill and Explanatory Memorandum are silent on the application of penalties imposed under subdivision 284-B of schedule 1 to the Tax Administration Act 1953 (TAA 1953) for false or misleading statements to the Commissioner.30

2.36 In particular, Hall & Wilcox noted that:

Section 59 of the SGA Act does not capture employers who have previously lodged a superannuation guarantee statement with the Commissioner and are now seeking to amend that earlier statement, as there has not been the requisite failure to lodge. This is the case even if that amendment would result in the employer having an increased liability to SGC.

Where an employer seeks to amend a past superannuation guarantee assessment, and that amendment results in an increased liability to SGC, the penalty regime in Subdivision 284-B of Schedule 1 to the Administration Act for the making of false or misleading statements to the Commissioner will apply.31

28 Chartered Accountants Australia and New Zealand, Submission 3, p. 3. See also Name Withheld,

Submission 8, p. 1.

29 Housing Industry Association, Submission 2, p. 4.

30 Hall & Wilcox, Submission 12, pp. 2-3.

31 Hall & Wilcox, Submission 12, p. 2.

17

2.37 Hall & Wilcox suggested that the application of the above penalties under the TAA 1953 is a significant flaw in the drafting of the bill, further commenting that:

It does not seem fair or consistent with the intent of the amnesty, that employers who have failed to lodge superannuation guarantee statements for past periods would be protected, while those seeking to amend an assessment are not.32

2.38 The committee sought clarification from The Treasury on the above matter raised by Hall & Wilcox in its submission. The Treasury subsequently advised that:

The ATO has advised that in all but the most egregious cases (for example, where an entity has intentionally made repeated false statements which result in very large SGC shortfall amounts), where an employer makes a voluntary Amnesty disclosure as provided for under the Bill, s284-75 penalties will not be applied by the Commissioner—they will be remitted in full.33

Advertising the amnesty 2.39 The importance of advertising the one-off amnesty to ensure that the full utility of the measure is realised was raised in a number of submissions.

2.40 One submitter, for example, contended that a plain English advertising campaign should be put in place to 'maximise awareness and engagement by employers with this measure'.34 They also suggested that as well as the advantages of the amnesty, any such advertising should highlight the consequences for employers of not coming forward during the amnesty period:

The incentives for employers to take advantage of this Amnesty are significant but the ATO should also advertise the consequences of not making a disclosure as part of this Amnesty and signal its intent to target employers who choose not to take advantage of it, to the extent that such employers would have been aware of a superannuation guarantee liability.35

2.41 The ASBFEO shared a similar view, submitting that advertising around the amnesty measure and related penalties should be targeted at the small business community:

Further, we strongly suggest the proposed change in the Commissioner's power to remit penalties be publicised and promoted amongst the small business advisor community. Together with the amnesty applying to SG

32 Hall & Wilcox, Submission 12, pp. 2-3.

33 The Treasury, Additional information received 14 October 2019, p. 1.

34 Name Withheld, Submission 8, p. 1.

35 Name Withheld, Submission 8, p. 2.

18

contributions for an additional eighteen months, small business will be well placed to bring their employee entitlements up−to−date and move forward with confidence.36

Committee view 2.42 Superannuation is critical to ensuring hard working Australians are financially supported throughout their retirement. The non-payment of an employee's full superannuation guarantee entitlements can have a significant detrimental

impact on the retirement living standard of the employee concerned.

2.43 The committee heard evidence that the one-off amnesty will leave no workers worse off and will result in more individuals receiving their full entitlements than would do so if the amnesty was not in place. Therefore, in combination with the government's forward-looking compliance reforms (including Single Touch Payroll and event-based reporting), the committee is confident that the one-off amnesty provides the best opportunity to address historical superannuation guarantee non-compliance.

2.44 The committee is encouraged by recent ATO figures which show that the superannuation guarantee gap has significantly decreased on previous years to an amount of approximately $2.3 billion. This decrease in the superannuation guarantee gap can be attributed, at least in part, to the more than 7000 employers that have come forward to voluntarily disclose historical unpaid superannuation since the one-off amnesty was first announced.37 In the committee's view, this significant level of disclosure, even prior to the legislation being enacted, is a strong indication that the amnesty will achieve its projections of recovering over $230 million in superannuation for employees who would have otherwise missed out.

2.45 The committee considers that, given the extension of the amnesty period since the legislation was first announced, employers have been provided with a significant amount of time in which to get their affairs in order, and that a longer amnesty period is not needed.

2.46 Finally, whilst the committee notes the importance of ensuring that employees receive their full entitlements, the committee is also cognisant of perceptions that some employers have potentially benefited from superannuation guarantee non-compliance, and indeed, that such employers will now be released of punitive actions as a result of the amnesty. Accordingly, to best ensure the success of the amnesty, the committee recommends that the ATO

36 Australian Small Business and Family Enterprise Ombudsman, Submission 11, p. 1.

37 Senator the Hon. Jane Hume, Assistant Minister for Superannuation, Financial Services and

Financial Technology, 'Extending the superannuation guarantee amnesty to reunite members with unpaid super', Media Release, 18 September 2019.

19

develop and implement a communication strategy to maximise employer awareness and engagement with the superannuation guarantee amnesty.

Recommendation 1

2.47 The committee recommends that the Australian Taxation Office develop and implement a communication strategy to maximise employer awareness and engagement with the superannuation guarantee amnesty.

Recommendation 2

2.48 The committee recommends that the bill be passed.

Senator Slade Brockman Chair

21

Dissenting report from Labor Senators

1.1 Labor Senators do not support the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019.

1.2 This bill suffers the same defects as the Treasury Laws Amendment (2018 Superannuation Measures No.1) Bill 2018. The issues raised by Labor Senators in our dissenting report during the inquiry into that bill remain unaddressed in this present bill.

1.3 Currently, if an employer fails to pay their super guarantee in a quarter they are liable to pay a SG charge. The SG charge consists of the SG shortfall, interest on the shortfall amount (charged at 10 per cent per annum, paid to the super account) and an admin fee to the Australian Taxation Office (ATO) of $20.

1.4 This bill seeks to provide a one-off amnesty to employer's who disclose and pay off the employee's full entitlement (SG charge).

1.5 If an employer makes payment on the SG charge or contributions during the amnesty period, this bill allows the employer to claim tax deductions for payments of the SG charge or contributions, as well as reducing non-compliance penalties and fees to nil.

1.6 The amnesty period is from 24 May 2018 and will end six months after this bill receives Royal Assent

1.7 Non-compliance of the superannuation guarantee is a form of wage theft. When an employer forgoes paying superannuation to their employee, they are taking what was legally owed to them.

1.8 As explained by Ms Jo-Anne Schofield, National Secretary of United Voice:

Superannuation is deferred wages. It's negotiated and agreed between unions and employers. Non-payment of superannuation, estimated at nearly $6 billion a year, is, in our submission, a form of wage theft.1

1.9 Wage theft from the non-compliance of the superannuation guarantee is a significant problem as Industry Superannuation Australia (ISA) explains:

…ISA research shows that the problem of unpaid super has increased 25 per cent in the three years since 2013-14, with 2.85 million Australians being short-changed just under $6 billion in super entitlements in the 2016-17 year alone.2

1 Committee Hansard, 30 October 2019, p. 9

2 Dr Nick Coates, Head of Research and Campaigns, Industry Super Australia, Committee Hansard,

30 October 2019, p. 2.

22

1.10 Examples provided in the hearing from witnesses including United Voice and the Australian Council of Trade Unions (ACTU) support the view of Labor Senators that the most vulnerable workers are likely to fall victim to wage theft.

1.11 During this inquiry, a number of explanations were presented as to why this bill falls short.

Amnesty sends the message that wage theft is acceptable 1.12 The inquiry made clear that the amnesty seeks to reward bad behaviour over good behaviour. This bill would not penalise wage theft—instead, it would reward it by allowing employers to make deductions. Furthermore, it punishes

employers who are doing the right thing, by allowing their competitors to gain a competitive advantage through non-compliance. It may also be perceived by non-complying employers that another amnesty may be made available in the future.

1.13 This was a point reinforced by the Australian Institute of Superannuation Trustees (AIST):

Beyond that, it will actually send the wrong message to people who have done the right thing. That's one of the ongoing and underlying risks of having an amnesty—that your good employer will potentially be discouraged if they are ever in a situation again where they might be tight for cash, and they think, 'Okay, we'll just hold off on super, because evidence shows that there will be an amnesty and then maybe another amnesty'.3

1.14 AIST further stated:

The amnesty sends a message to law-breaking employers that they will be protected from the consequences of the law.4

1.15 Employee representatives also share this view and are perplexed as to the signals this sends to businesses that have done the right thing. ASIT were particularly critical:

The issue is that it says to good employers, 'There is no reward for you doing the right thing.' In fact, by allowing this amnesty to occur, poor employers who have held that cash back and used it for other purposes are being rewarded. That level playing field is one of our major concerns. It creates a situation where you are rewarding bad employers and punishing good ones.5

3 Ms Melissa Birks, Head of Advocacy, Australian Institute of Superannuation Trustees, Committee

Hansard, 30 October 2019, p. 3.

4 Ms Melissa Birks, Head of Advocacy, Australian Institute of Superannuation Trustees, Committee

Hansard, 30 October 2019, p. 1.

5 Ms Melissa Birks, Head of Advocacy, Australian Institute of Superannuation Trustees, Committee

Hansard, 30 October 2019, pp. 2-3.

23

1.16 If the amnesty were to pass, there is potential that the message to those who break the law that there is a benefit for doing the wrong thing, as the ACTU stated:

The bill to give an amnesty from penalties and a tax deduction to employers who have not paid their employees' superannuation entitlements for the past 26 years is really remarkable in its audacity, from our perspective. It says to every employer who didn't pay super to their staff on time that that's okay, so long as it occurred before March last year. It also says to the vast majority of employers—who did pay the super, did obey the laws of this country and did bother to do the right thing by their employees—that perhaps they really shouldn't have bothered at all.6

1.17 These views were supported by United Voice, who shared concerns that complying businesses are penalised out of the market:

In our submission, amnesty sends the wrong message, especially in sectors where our union is active, such as contracting industries. In these sectors, non-compliant employers can and do acquire market share from those companies that are meeting all of their award and superannuation obligations to their workers. The compliant companies are effectively undercut. They are penalised out of the market for doing the right thing.7

1.18 Ms Schofield, from United Voice, went on to say:

On the other hand, non-compliant companies make a gain. Due to the amnesty, those companies will escape penalties that would otherwise apply to them. It sends a signal in markets such as contracting sectors that practices of noncompliance can be overlooked through future amnesties. We believe this would send the wrong message in sectors where we have members. It would effectively let non-compliant employers off the hook. In these instances and all others, amnesties are completely counterproductive and can reduce compliance in the future.8

1.19 Labor Senators cannot support the double standards this amnesty will create. The bill simply creates a scenario where employer theft is acceptable and rewarded, while employee theft is treated as theft. The ACTU stated in their evidence:

That really gets to the crux of this proposal: it introduces a double standard on workers and their entitlements. Fundamentally, if workers were to steal from their employers, they'd face jail, lose their jobs and face significant penalties to their livelihoods. Workers face fines and penalties for exercising the right to strike under our systems. But, under this proposal, employers who refuse to comply with the law get a free kick from their

6 Mr Scott Connolly, Assistant Secretary, Australian Council of Trade Unions, Committee Hansard,

30 October 2019, p. 8.

7 Ms Jo-Anne Schofield, National Secretary, United Voice, Committee Hansard, 30 October 2019, p. 9.

8 Committee Hansard, 30 October 2019, p. 9.

24

legal compliance and their obligations, and they get a tax deduction to boot.9

1.20 There is a view that the amnesty will bring forward employers who have simply made errors, however the view from United Voice is that usually those employers rectify the issues immediately, whereas the vast majority have deliberately engaged in wage theft as they state:

I would also reiterate that it's our experience that, where there is an error due to misclassification or oversight, it is quickly rectified, with cooperation from the union. But, in our experience, superannuation theft is deliberate and it is systemic in some sectors.10

1.21 Labor Senators cannot support a bill where wage theft is normalised and potentially promotes employers to engage in wage theft as a form of competitive advantage. This bill does not send the right message to employers who do the right thing and employees who are victims of wage theft.

Amnesties are ineffective 1.22 The evidence to this inquiry mirrored the evidence to the inquiry in the previous iteration of the bill in its view that amnesties are ineffective. As discussed in this dissenting report, amnesties can create an expectation that

future non-compliance will also be overlooked.

1.23 AIST quoted from research conducted by Bayer, Oberhofer and Winner, which indicated that amnesties are only modest in benefits, self-fulfilling, and future amnesties are anticipated:

Policymakers often view tax amnesties as an efficient policy device to exploit additional revenue sources (at least in the short run) and, in the middle to long run, to improve tax compliance. However, empirical and anecdotal evidence shows that the benefits of tax amnesties are only modest and in many cases do not exceed the costs of such programs (see, e.g., Baer and Le Borgne 2008). Our theoretical model and the corresponding empirical findings provide one possible explanation for this observation, suggesting that amnesties are self-fulfilling in the sense that initial compliance gets worse if taxpayers expect that an amnesty will be coming along soon. In other words, anything that increases the believed probability of a tax amnesty reduces initial revenues and in turn reinforces the government’s need to enact an amnesty. Consequently, governments should think twice before calling an amnesty as a quick fix for a budgetary shortfall, as it might increase the pressure on future budgets, since taxpayers then anticipate future amnesties. Hence, it might be worth introducing commitment devices such as legislation that allows governments to credibly commit not to enact amnesties, which would

9 Mr Scott Connolly, Assistant Secretary, Australian Council of Trade Unions, Committee Hansard,

30 October 2019, p. 8.

10 Ms Jo-Anne Schofield, National Secretary, United Voice, Committee Hansard, 30 October 2019, p. 11.

25

improve tax compliance and prevent self-fulfilling beliefs from forcing governments to use amnesties regardless if they like them or not.11

1.24 AIST also quoted from Alm and Martinez-Vazquez, which supports the view that amnesties send the wrong message to employers doing the right thing:

If honest taxpayers resent the special treatment of tax evaders, then their compliance may decline. Further, if individuals come to believe that the amnesty is not a one-time opportunity, then they may reduce their current compliance in anticipation of another, future amnesty.12

1.25 Using the research from Alm and Martinez-Vazquez, AIST presented the view that amnesties can produce negative social norms:

A tax amnesty gives individuals an opportunity to pay previously unpaid back-taxes without being subject to the penalties that the discovery of evasion normally brings. Such amnesties may reduce compliance if honest taxpayers resent the tax forgiveness given to tax cheats (and if individuals believe that the amnesty may be repeated again).13

Employers are not compelled to keep records beyond a time period 1.26 There is a real concern that the amnesty may not bring to light instances of non-compliance, as records may not be kept beyond the mandatory five-year record keeping period. The ATO stated:

…the recordkeeping requirements after a period are certainly not compelled to be kept.14

1.27 Consequently, very few employers who have engaged in wage theft coming forward beyond the five-year period. As Mr David Haynes, Senior Policy Manager at AIST, stated:

…I would suggest that very few employers would own up to noncompliance prior to 10 years ago—that is, periods for which there isn't a requirement to maintain historic data.15

1.28 It is the view of Labor Senators that employers may use the amnesty to clear their record for only the five-year period, even though having engaged in wage theft beyond the mandatory record keeping period. This view was supported by Mr Connolly from the ACTU:

Senator GALLACHER: This amnesty may well cover a 26-year period, but if people turned up with five years' worth of records and pay for the five years they've got records for, the slate is wiped clean. Is that it? Does anybody know that level of detail about this legislation?

11 Australian Institute of Superannuation Trustees, Submission 6, pp. 4-5.

12 Australian Institute of Superannuation Trustees, Submission 6, p. 5.

13 Australian Institute of Superannuation Trustees, Submission 6, p. 6.

14 Mr James O’Halloran, Deputy Commissioner, Superannuation and Employer Obligations,

Committee Hansard, 30 October 2019, p. 27.

15 Committee Hansard, 30 October 2019, p. 4.

26

Mr Connolly: That's our understanding of this proposal. If you meet the requirement of coming forward within six months of the legislation being enacted, provided it's within the period of March 2018 and the operative date of the bill as it would be passed, then any underpayment within the period since the introduction of the SG would be covered. That's your leave pass.16

Ignorance is no excuse 1.29 This bill will assist businesses who were non-compliant due to ignorance of their obligations or due to administrative error. This notion was fundamentally rejected by the ACTU:

The amnesty is based upon the proviso that businesses may have been ignorant of their obligations, or inadvertently missed payments due to an administrative error. In every other circumstance, ignorance of the law is not a defence.17

The ATO does not have the power to waive the administrative penalty 1.30 Labor Senators are concerned that the Commissioner of Taxation may not even have the power to waive or not apply the administrative penalty of $20, as envisaged by the bill:

Mr O'Halloran: It is to my knowledge, and I've reasonably checked. The only nuance in that is, of course, that probably—it's certainly not for me to speak to the policy design—the superannuation guarantee has some nuances where the commissioner has no discretion, particularly around the remission of what's termed the 'administrative penalty'. It's quite hard coded, and so therefore it couldn't be done administratively.

Senator GALLACHER: That was brought forward in evidence before a previous estimates session as the waiving of the $20 penalty per quarter. You didn't have the power to waive that, although you had waived it. Is that essentially the situation?

Mr O'Halloran: Yes. As I gave in evidence at the time, for a period of six to 12 months we certainly did do that, but , when I checked some legal advice, I found that it wasn't appropriate and certainly stopped it as soon as I could. That's the same evidence I've given previously.

Senator GALLACHER: Fair enough. I'm not sure the $20 penalty was all that much of an incentive for people to comply anyway, as it?

Mr O'Halloran: There's a range of users in a practical sense. I draw to the committee's attention, of course, that the $20 is per employee per quarter, so it can have a large multiplier effect. Like most things in life, it might sound okay until it's the money you have to pay, but it can have quite a significant effect even relative to the shortfall.

16 Mr Scott Connolly, Assistant Secretary, Australian Council of Trade Unions, Committee Hansard,

30 October 2019, p. 12.

17 Australian Council of Trade Unions, Submission 9, p. 4.

27

Senator GALLACHER: Correct me if I'm wrong, but my understanding of this legislation is that that penalty will be waived in its entirety.

Mr O'Halloran: That's correct. It will be waived or not applied. The commissioner will not be forced by legislation to apply.18

The bill seeks to only recover a small amount compared to the actual problem 1.31 Even if the scheme is able to perform as the government envisages, it will only recover a small amount of unpaid superannuation. This is a view supported by

AIST:

The evidence suggests, even as the government's estimates themselves suggest, a fairly low level of payment.19

1.32 The ACTU pointed out that the amount was nothing more than 'a drop in the ocean' and went on to state:

When you compare that to the size of this problem, that's just three per cent of one year's unpaid superannuation, by ISA's estimate. What would be recovered is just 1.1 per cent of the size of this problem over the three years to 2017.20

1.33 Labor Senators believe that every single dollar is important, however this bill risks sending the wrong message to employers that wage theft is acceptable. That is why alternate measures to recover unpaid superannuation must be considered by government.

Strategic audits 1.34 There are better solutions. Throughout the hearings the committee heard alternative schemes to return stolen superannuation contributions. Many believe that Single Touch Payroll will play a significant role in the future.

However, regarding there is a strong view that strategic audits from the tax office are an effective way of addressing historic non-payment of superannuation.

1.35 The ACTU supported the ATO gaining additional resources to audit contributions, undertake enforcement action and use existing penalty powers

18 Mr James O’Halloran, Deputy Commissioner, Superannuation and Employer Obligations,

Committee Hansard, 30 October 2019, p. 26.

19 Ms Melissa Birks, Head of Advocacy, Australian Institute of Superannuation Trustees, Committee

Hansard, 30 October 2019, p. 3.

20 Mr Scott Connolly, Assistant Secretary, Australian Council of Trade Unions, Committee Hansard,

30 October 2019, p. 8.

28

available under the Act.21 Additionally, the ACTU supported individuals and unions having the power to inspect wage and superannuation records.22

1.36 The ATO indicated that they already undertake a significant program of retrospective strategic audits:

On your compliance question: we certainly have a relatively large audit program. I'll just run through some context, if that's useful, but I'm more than happy to be quite specific. We have an audit area that does something like 28,000 cases a year—23

1.37 Mr O'Halloran, from the ATO, went on to state:

So we have ramped up the amount of what we term 'ATO initiated' cases. Certainly, from three years ago, in 2016-17, when the audit work raised— and I may need to pause to give you the breakdown—something like $481 million in assessments, in the last two years we've raised assessments for over $800 million in both years.24

Conclusion 1.38 This is a poorly conceived bill. It is the product of a government that is soft on wage theft. The evidence to this committee was that the bill was unlikely to achieve even its modest aims, at the cost of rewarding and incentivising poor

behaviour from employers.

Recommendation 1

1.39 Labor Senators recommend that the bill not be passed.

Senator Alex Gallacher Senator Jenny McAllister

Deputy Chair Senator for NSW

21 Mr Scott Connolly, Assistant Secretary, Australian Council of Trade Unions, Committee Hansard,

30 October 2019, p. 13.

22 Mr Scott Connolly, Assistant Secretary, Australian Council of Trade Unions, Committee Hansard,

30 October 2019, p. 8.

23 Mr James O’Halloran, Deputy Commissioner, Superannuation and Employer Obligations,

Committee Hansard, 30 October 2019, p. 30.

24 Committee Hansard, 30 October 2019, p. 30.

29

Appendix 1

Submissions and additional information

Submissions 1 Association of Superannuation Funds of Australia 2 Housing Industry Association Ltd 3 Chartered Accountants ANZ 4 Unions Tasmania 5 Mr Phillip Sweeney 6 Australian Institute of Superannuation Trustees 7 Industry Super Australia 8 Name Withheld 9 Australian Council of Trade Unions 10 Financial Services Council 11 Australian Small Business and Family Enterprise Ombudsman 12 Hall & Wilcox

Answer to Question on Notice 1 Australian Institute of Superannuation Trustees: Answers to questions taken on notice from a public hearing on 30 October 2019 (received 1 November 2019).

2 Association of Superannuation Funds of Australia: Answers to questions taken on notice from a public hearing on 30 October 2019 (received 1 November 2019).

3 Australian Taxation Office: Answers to questions taken on notice from a public hearing on 30 October 2019 (received 1 November 2019). 4 Australian Small Business and Family Enterprise Ombudsman: Answers to questions taken on notice from a public hearing on 30 October 2019 (received

1 November 2019). 5 Industry Super Australia: Answers to questions taken on notice from a public hearing on 30 October 2019 (received 6 November 2019)

Additional Information 1 The Treasury: Additional information received on 14 October 2019.

31

Appendix 2 Public hearings

Wednesday, 30 October 2019 Sydney, NSW

Australian Institute of Superannuation Trustees  Ms Melissa Birks, Head of Advocacy  Mr David Haynes, Senior Policy Manager

Industry Super Australia  Dr Nick Coates, Head of Research and Campaigns  Mr Richard Watts, Consultant

Australian Council of Trade Unions  Mr Scott Connolly, Assistant Secretary  Mr Joseph Mitchell, Workers' Capital Officer

United Voice  Ms Jo-Anne Schofield, National Secretary

Financial Services Council  Mr Michael Potter, Senior Policy Manager, Economics, Tax and Strategy  Ms Jane Macnamara, Senior Policy Manager, Superannuation and Retirement Incomes

Australian Small Business and Family Enterprise Ombudsman  Dr Craig Latham, Deputy  Ms Louise Stuart-Watt, Analyst

Association of Superannuation Funds of Australia  Mr Glen McCrea, Deputy Chief Executive Officer and Chief Policy Officer  Ms Maggie Kaczmarska, Senior Policy Officer

Department of the Treasury  Mr Robert Jeremenko, Division Head, Retirement Income Policy  Ms Nicole Mitchell, Acting Principal Adviser, Retirement Income Policy  Mr James Thomson, Manager, Retirement Income Policy

Australian Taxation Office  Mr James O'Halloran, Deputy Commissioner, Superannuation and Employer Obligations  Mr John Ford, Assistant Commissioner, Risk and Strategy, Superannuation

and Employer Obligations