SUPERANNUATION (GOVERNMENT CO-CONTRIBUTION FOR LOW INCOME EARNERS) BILL 2003Cognate bill:SUPERANNUATION (GOVERNMENT CO-CONTRIBUTION FOR LOW INCOME EARNERS) (CONSEQUENTIAL AMENDMENTS) BILL 2003: Second Reading
Mr CADMAN (Mitchell) (11.04 a.m.) —I rise to speak on the cognate debate on the Superannuation (Government Co-contribution for Low Income Earners) Bill 2003.
This measure is part of the government's election promise entitled `A better superannuation system'. Since the election, the government has constantly worked towards improving, upgrading and changing where necessary access to superannuation. There are two aspects of access to superannuation. The compulsory aspect is where the federal income tax laws provide numerous opportunities for employers to make a compulsory contribution to the superannuation funds on behalf of their employees. In addition to using compulsion, this government encourages people to go even further than the compulsory requirements provide. It is an excellent way of approaching the problem of preparing for retirement and should encourage people to take advantage of saving for their retirement, for benefit in later life. The sooner people get into savings mode for their later life or retirement, the better off they and the whole community will be. It was very interesting to note in a recent survey that approximately half the community felt that they were putting some of their regular income aside for future use. I will deal with savings shortly, but the provisions of this bill, particularly in light of the comments being made by the Australian Labor Party, should be examined.
In addition to the compulsory contribution by employers to funds, there are incentives of the following type. Employer superannuation contributions for the benefit of employees are deductible in taxation terms for the employer. The superannuation fund earnings and capital gains are taxed at concessional rates. Employees' deducted superannuation contributions are exempt from tax. Superannuation benefits taken at retirement age are taxed at concessional rates. An 18 per cent rebate on contributions of up to $3,000 per annum to the superannuation of a spouse who has an assessable income of $10,800 or less per annum phases out and is not available when the spouse's assessable income is $13,800 per annum or more. That is an encouragement, generally for women who are out of the work force, to provide for the continuation of superannuation. Usually that would be a family decision because more often than not there is only a low income coming to the spouse, or perhaps no income at all. So there is an upper limit set to the amount of income that a spouse may receive. The range for full benefit is $10,800; for it to cut out, the assessable income is $13,800. That very reasonable and sensible proposition is an initiative of the current government. It is one of these non-compulsory incentives to encourage people to prepare for later life by investing in superannuation.
That is a very sensible proposal, as is the proposal—which I am sure will receive the promotion and attention it deserves—that children at birth can be entered into a superannuation fund by their parents. When you have a long period of savings for superannuation, the true benefits really start to accrue. Another part of the incentive is a 15 per cent tax rebate on the assessable part of certain annuities or pension payments. Also, low-income employees are entitled to a tax rebate of up to $100 for personal contributions made to a superannuation fund, called the low-income superannuation rebate. This bill adds to that process.
This proposal—despite the half-acknowledgement or grudging endorsement of the Australian Labor Party—adds to that great array of incentives to have people use superannuation as a savings device. As we debated yesterday, when the government gives a concession, when it seeks to remove the super surcharge—a tax on a tax, if you wish, although I acknowledge that it is not a tax but a surcharge—then blow me down, the Australian Labor Party goes to the barricades. This is an issue for the very people that we should be encouraging to invest heavily in superannuation. Labor wants to discourage the ones that can afford to and instead give some sort of tax concession to the super funds. That is a weird policy direction. I do not see any logic in what you, as the Australian Labor Party, are trying to do with super funds. It is really strange.
This bill adds to the array of opportunities to extend the compulsory aspects of superannuation. The bill introduces a government co-contribution that will replace the low-income superannuation rebate. This is the government picking up a bill for low-income superannuation payers and saying, `We will fund additional super for you.' This is the way it works: it is payable to an employee who receives any form of employer superannuation support, but not to a self-employed person. It provides a tax rebate of up to $100 for personal contributions made to a complying superannuation fund. For every dollar the employee puts in, the government puts in a similar amount, up to the amount of $100. The government are standing in, almost, for an employer, saying, `If you want to save extra and put extra into your savings, your super fund, we will stand by you.'
That is a sensible approach, particularly if you put together with that the option of choice so that the person who is making that investment knows that it is going into their superannuation fund and that it does not matter where they work, that fund will be theirs. So their contributions will be safe and secure. No matter where they travel in Australia, what sort of employment they take up—they could be a travelling fruit-picker, an itinerant worker of any sort or somebody in the building industry that is in and out of work—or who they are working for, it will be their fund of choice. This measure is an incentive for low-income employees. If they want to save a bit extra and put a bit more into their super fund, the government will stand beside them as an employer would and say, `For every dollar you put in, my friend, the government will match that amount and so help boost your savings.' It is a great policy. The package assembles a whole range of incentives to go outside the compulsory element that employers are required to contribute.
There are further conditions on this proposal. It is payable to employees who have an assessable income of less than $31,000. So it is not for people of medium or high incomes; it is designed for people with incomes of less than $31,000. That is $600 a week or somewhere about that figure. For anyone with an income of less than that, for every dollar they put in the government will match it. It is calculated at 10 per cent of less than $1,000, reduced by 25c for each dollar of the taxpayer's assessable income over $27,000, or the contribution actually made. So there we have it.
What is the cost of the co-contribution going to be? In the coming year it is going to cost $95 million. That will be the contribution of the taxpayer towards this fund to encourage people to further invest in their super. I think that is a sound investment. In the 2004-05 financial year it will be $100 million, rising approximately $5 million a year. From 1 July, a government superannuation co-contribution will be introduced in place of the existing rebate for personal superannuation contributions made by eligible low-income earners. The contribution will match personal undeducted contributions by low-income earners made on or after 1 July 2002. A maximum contribution of $1,000 will be payable in respect of the individual whose assessable incomes and reportable fringe benefits do not exceed $20,000 and, as I have said, the top end of the range is $31,000. I think this is a good scheme. It is time we had something like this in Australia. The replacement of the rebate by the scheme, by the government standing more solidly behind employees, is really worthwhile. It is a total package which is well thought through and is increasing the variety of opportunities for people to prepare for later life.
I have to look at the pattern in spending and savings, though. I notice there is comment in the press about the poor results that some people perceive as the outcome of super funds. The impact of the drought probably has led to a diminution of householder spending but, according to a report in the Financial Review of 6 March, householder spending has continued to grow steadily during last year—it was up 6.6 per cent. The result is that savings in households reached a minus figure—people were actually spending more than they were saving. Part of that must be attributable to the drought and the demands on farms and farm families, drawing down loans and trying to stay afloat. As Saul Eslake, Chief Economist with the ANZ bank said:
There is a long-term downward trend in the saving ratios. Common to most Anglo-Saxon countries, this is largely due to an increase in personal wealth. Personal wealth has indicated people are saving less and spending more.
The spokesman for the Australian Labor Party on Treasury matters, Bob McMullan, said he thinks these figures indicate a lack of prosperity and an unwillingness to save. That is only a very small part of the picture, and I do not believe it truly reflects what is going on in Australia. That is further borne out by an article by Annette Sampson in the Sydney Morning Herald of Saturday, 8 March:
Low levels of retirement savings, increasing life expectancies and the fact that the baby boomers are hurtling towards later life have long been problems acknowledged by Government and the retirement industry. But what has really brought them home is the dismal returns being generated by Australia's superannuation funds.
In her article, Ms Sampson quotes a paper from Dr Diana Olsberg of the University of New South Wales Research Centre on Ageing and Retirement, which says:
Many over the past 15 years had got used to the expectation that their assets would grow and many have planned their retirement assuming that growth would continue.
I suspect that is the case for many. However, ING and the Melbourne Institute of Applied Economic and Social Research conducted a joint survey, polling 1,200 households by phone, of what Australians would do with any new savings in 2003. It is very interesting to note that one-third of the respondents said they would invest in real estate. They are into the property boom: that is where they want to put any extra money. That would be pretty true across my electorate. People are comparing the returns they perceive they will get from various types of investment, and—whilst superannuation has is a long-term yield of about 4.5 per cent above inflation, I am told—they, at the moment, see property as a better investment and that is where they tend to put their savings. About 13 per cent of the respondents said they put their savings into a bank, credit union or building society. They wanted some sort of term deposit and get a regular income from it. Another 13 per cent said they could save money if they paid off the mortgage. So, about 25 per cent say they would bank it or pay off the mortgage, about one-third of the community said they would buy real estate, and only about 1.1 per cent would invest in their own superannuation, and some would invest in the boss's super—a total of around 2½ per cent said they would invest in superannuation if they had extra income.
I think the incentive offered by this legislation is the thing that will trigger people's willingness to give greater consideration to investing in superannuation. It is something like the home loan grant, where a cash grant gives people the extra trigger to grab an opportunity that they would not have had otherwise. Whilst the survey conducted by ING and the Melbourne Institute of Applied Economic and Social Research is very revealing, it is not a survey that factors in this government's dollar-for-dollar support for any extra savings people with an income of under $31,000 invest in their super fund. If that survey were to be redone, I think it would show that people are starting to look at the investment in real estate as being equivalent to investment in superannuation, because the government is standing right beside them with a cash contribution. This is not an insignificant factor; The total of the government contribution in the first year is $95 million, and so the expectation is that there will be a very substantial take-up of these funds.
The crux of the matter is that we have grudging support from the Australian Labor Party for all of these measures and a complete rejection by the Australian Labor Party of any thought that people ought to be able to choose which super fund they put their money in. Choice is off the agenda as far as the ALP are concerned. They do not want people to have freedom of choice of super funds; they have rejected that three or four times over in the Senate, and they will probably keep doing it. That is absolutely crazy. If this is such a bad policy, I invite the Australian Labor Party to let it go through and let the havoc and disaster they predict occur. Then they will be able, as a party, to point their fingers at the government and say, `What a terrible thing you've done by giving people choice.' But, no: here in the parliament and over in the Senate you prefer to predict it is going to be a disaster, oppose this benefit that Australians should have and stand up and say they should not be allowed to have it. You think you know better than anybody else.
We have been to the electorate twice with these issues, yet you consistently say they do not want these things—even though we have been approved to govern this country by an outstanding majority of Australians who do. In the Senate you stand in the way of allowing them to occur. I think that is grossly irresponsible and unfair to Australians, who ought to be given the opportunity to save in the format and way in which they want to. You stand between them and their future, and that is wrong. (Time expired)
Author: Alan Cadman MP
Source: House Hansard - 19th June 2003
Release Date: 3 Jul 2003