|
|||
|
|||
|
 |
|
| 2002‑03 |
2003‑04 |
2004‑05 |
2005-06 |
|
| Australian Taxation Office |
- |
-50.0 |
-120.0 |
-200.0 |
From
Further, in keeping with its election commitment, the Government will review the surcharge arrangements after three years to determine whether any further changes are required.(6)
The Explanatory Memorandum for this Bill updates the figures included in the 2002-03 Budget Papers. The financial impact is now expected to be a cost to revenue of $65 million in 2003-04, $170 million in 2004-05 and $290 million in 2005-06.(7)
On
increase the momentum for superannuation reform with renewed efforts to implement its election promises.(8)
Part of the proposal to revitalise superannuation was the reintroduction into the House of Representatives of the superannuation surcharge rate reduction legislation by splitting it from the Government co-contribution for low income earners.
Item 1 adds a new subsection 5(1AA) into the Superannuation Contributions Tax Imposition Act 1997 (SCT Act) that changes the definitions in a formula used to calculate the superannuation surcharge. This simplifies the calculation of the surcharge over the years in which the surcharge rate is reduced each year. The new terms in the formula do not affect the indexation of the thresholds, only the maximum rate of surcharge levied over the next three financial years.
Item 3 inserts a new subsection 5(1) (formula) into the SCT Act to substitute a new formula for calculating the surcharge to incorporate the new definitions in item 1.
Item 9 adds a new subsection 5(1A) into the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (SCTMCPSF Act) that changes the definitions in a formula used to calculate the superannuation surcharge. This simplifies the calculation of the surcharge over the years in which the surcharge rate is reduced each year. The new terms in the formula do not affect the indexation of the thresholds, only the maximum rate of surcharge levied over the next three financial years.
Item 11 inserts a new subsection 5(1) (formula) into the SCTMCPSF Act to substitute a new formula for calculating the surcharge to incorporate the new definitions in item 9.
Item 17 adds a new subsection 5(1AA) into the Termination Payments Tax Imposition Act 1997 (TPTI Act) that changes the definitions in a formula used to calculate the superannuation surcharge. This simplifies the calculation of the surcharge over the years in which the surcharge rate is reduced each year. The new terms in the formula do not affect the indexation of the thresholds, only the maximum rate of surcharge levied over the next three financial years.
Item 19 inserts a new subsection 5(1) (formula) into the TPTI Act to substitute a new formula for calculating the surcharge to incorporate the new definitions in item 17.
Constitutionally protected superannuation schemes(9) have complicated methods of calculating superannuation surcharge, primarily due to the design of such schemes. For members of these schemes, superannuation surcharge liability accumulates in a 'surcharge debt account.' The member's liability is the lesser of the amount in the 'surcharge debt account' and 15 per cent of the employer contribution (reflecting the current maximum surcharge rate). Trustees of certain constitutionally protected superannuation funds can reduce the benefits payable to members of such funds by no more than 15 per cent of the employer financed component that accrued after the commencement of the surcharge to discharge a surcharge liability.
The items in this Part 2 of Schedule 1 enable trustees to reduce this employer component of a benefit by the following amounts:
The new reduction amounts are implemented by:
Item 32 states that amendments made in Part 1 apply to surcharge in respect of the 2002‑03 and subsequent financial years.
Item 33 states that amendments made by items
24 to 29 apply in relation to benefits that become payable
on or after
Item 34 states that the amendment made by item 30 continues to apply in relation to benefits that become payable before that item commences as if the amendment made by that item had not been made.
Item 35 states that the amendment made by item
31 applies in relation to superannuation funds that cease to be constitutionally
protected funds on or after
The amendments in this Bill reduce the superannuation surcharge rates by one-tenth of their current level over 3 years. These amendments are the subject of some controversy. The Government is implementing its election promises to reduce the superannuation surcharge. Apart from 2002-03 Budget Papers, the Government has not produced any economic analysis of the benefits of this proposal. The Government could correctly argue that such arguments have been made elsewhere.(10)
Notwithstanding this omission, the inescapable conclusion is that, based on the estimates in the Explanatory Memorandum, this Bill will narrow the tax base and reduce the tax burden of high income earners by $525 million by the end of the 2005-06 year. The superannuation contributions and termination payments surcharge are important sources of revenue for the Government. In 2001-02 surcharge collections alone amounted to $824 million.(11) This Bill will reduce these collections significantly. The surcharges were introduced as 'equity measures' to make the level of superannuation taxation concessions available to high income earners more comparable to those available to middle and lower income earners.
However, the surcharge has never really met this objective with around 900,000 superannuation contributions and termination payments assessments issued in 1998‑99(12) compared to around 450,000 taxpayers declaring a taxable income of $70,000 or more in 1998–99.(13) Two groups adversely affected by the surcharges are individuals in an employment catch-up phase(14) or individuals who have received redundancy payouts.(15) The eroding of the equity argument was enhanced on 5 February 2003 when the High Court ruled that the method used to impose the superannuation surcharge on Supreme Court Judges and Masters of the State Supreme Courts by making them personally liable for the surcharge debt when they retired from the bench was a discriminatory tax.(16)
While these amendments will assist in a small way the individuals in the catch-up phase and those receiving redundancy payments, the amendments in this Bill also undermine the equity argument by increasing the level of tax concession available to high income earners. The Government has yet to justify the vertical inequity of this measure (i.e., why high income earners should be treated to this tax cut and not lower income earners).
The Leader of the Opposition, the
Our alternative propositions for the use of the money are these: we can redirect the money earmarked for the few into cutting the superannuation tax for all Australians from the present 15 per cent to 13 per cent; or we can cut the tax to 11 and a half per cent for people over 40 years of age—the age when most people start getting serious about planning for their retirement. The last option would mean a cut of more than 25 per cent in superannuation contributions tax. It would add many thousands of dollars to everyone's retirement income whilst still being economically responsible. It would be a powerful incentive for Australians to invest in their own future, helping us to cope with our future needs. It is a fairer alternative.(17)
This proposal was refined during the Leader of the Opposition’s 2003–04 Budget Reply speech where he announced that the Opposition would lower the superannuation contributions tax from 15 per cent to 13 per cent.(18) This proposal adds another layer of grandfathering to an already complex area, i.e. the taxation of benefits and eligible termination payments and it does not address the problem of how to fix the administratively complex surcharge system.
It is arguable that reducing the surcharge rates is a step in the right direction. Much has been written about its complexity, poor design, and effect on the incentive for employees to save for their retirement. At the very least, the measures in the Bill are a small concession to those who would prefer to see the surcharge abolished altogether.
If the Parliament passes this Bill, the surcharge legislation will remain on the statute books. Many of the witnesses to the 23rd report of the former Senate Select Committee on Superannuation provisions will still be dealing with inefficiencies associated with the complex administration, clumsy assessment procedures and on-going administration costs that are borne not just by high income earners, but all superannuation fund members.(19)
This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.
ISSN 1328-8091
© Commonwealth of Australia 2003
Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.
Published by the Department of the Parliamentary Library, 2003.
