Dissenting Report from Labor Senators
1.1
Labor Senators strongly dispute the need for an amnesty for unpaid
superannuation guarantee (SG) entitlements. The inquiry uncovered a distinct
lack of stakeholder advocacy for the amnesty as well as concerns that the
amnesty could even be counterproductive to broader compliance efforts.
Schedules 1: Superannuation
Guarantee amnesty
1.2
This bill was introduced with a great deal of secrecy. The bill was
introduced to the Parliament on Thursday 24th June 2018 and was
deemed time critical, meaning that this report had to be tabled on Monday 18th June, giving just over three weeks to scrutinise the provisions of this
legislation.
1.3
The superannuation guarantee amnesty was not announced on budget night,
and as Treasury officials confirmed, work on establishing the amnesty was
occurring in late 2017 and the decision to adopt this policy was taken before
budget night 2018. The fiscal implications of this measure were included in the
budget under the provision for ‘decisions taken but not yet announced’, meaning
that the budget documents included no policy detail about the amnesty.
Mr Jeremenko: I would have to take the exact timing on
notice. It was certainly under advanced consideration, if you like, within
government from the time that the measures No. 4 package—if I can call it
that—was being looked at. From the second half of last year, we were looking at
this as the two arms to the one package on unpaid SG.
Senator KETTER: Why wasn't it then included in the budget?
Mr Jeremenko: The policy decision to proceed is something
that was only made recently.
Senator KETTER: That's the question I'm asking.
Mr Jeremenko: Sorry. I was talking about the thinking within
government and Treasury, not necessarily that there was a decision to proceed.
Again, I would have to take exactly when on notice.
Senator KETTER: So it was post the budget.
Mr Preston: No. It was pre-budget. It was a decision taken
but not yet announced. The fiscal implications of the policy were reflected in
the budget, but the measure wasn't announced through the budget for the reasons
that we've explained previously.[1]
1.4
Furthermore, there are no recent Parliamentary or Government reports
into SG non-compliance that have actually recommended such a measure.
1.5
Evidence received during the inquiry found that very few stakeholders
advocated for this policy:
- The Australian Chamber of Commerce and Industry (ACCI) stated in their
submission that they “for some time advocated for a superannuation guarantee
amnesty to allow employers who have missed contributions to catch up and
rectify the missed contribution without facing the full operation of the SG
charge system.”[2] and that of the ACCI membership, only one member had advocated for an amnesty:
- Mr Grozier: It actually arose
from one of the chamber's members, the New South Wales Business Chamber, and
was first raised by a member in a meeting with the then Minister for Small
Business. It was then considered by the New South Wales Business Chamber, which
decided that it would support that.[3]
- The Council of Small Business of Australia (COSBOA) also confirmed that
they had expressed support for this policy to the Government:
Senator KETTER: ... And Mr Strong,
have you met with government about the issue of the amnesty?
Mr Strong: We haven't done
anything in public about this that I can recall. There may have been a tweet or
something. But I remember discussing this with Mr Billson just in a general
conversation about the management of superannuation, because, as you know, we
don't think we should be involved in PAYG. And then I had a discussion with
Kelly O'Dwyer. Again, it was a very quick discussion—just a mention of it—and I
said that yes, we'd support that.[4]
1.6
In justifying the amnesty, ACCI and COSBOA used the following reasons to
support their arguments in favour of an amnesty for unpaid SG entitlements:
Missed payments can also arise because of natural disasters
and system outages.[5]
They may have forgotten because they had a sick child or a
personal health problem or some other pressing issue.[6]
1.7
When these comments were put to Treasury, Treasury officials ruled out
these as valid reasons for SG non-compliance:
Senator KETTER: Sometimes people offer arguments that the SG
compliance system is burdensome. There are events like natural disasters and
people get sick and what have you. Are these valid arguments for SG
noncompliance?
Mr Jeremenko: No. From a policy point of view, absolutely
not. The government believes that, barring some changes we're making and have
been making over the years—making it easier with Single Touch Payroll and
technology more generally, not that that's an excuse—the current legal settings
are very appropriate for employers paying the right amount of SG.[7]
1.8
Overall, this inquiry found that the calls for an amnesty were largely coming
from employers, not the superannuation industry or employee representatives.
1.9
When defining superannuation, almost all stakeholders agreed that
superannuation can be considered deferred wages:
(a)
ACCI:
“It's come into being so that at
least in some cases it looks like someone's wages are being deducted from
before they get them in hand. On the other hand, it could also be argued that
it looks a little bit like a workers' compensation premium. All those
additional costs on wages clearly have an impact on wages, and to that extent
it's true that all those could be regarded as either wages for insurance
purposes or deferred wages.”[8]
(b)
ACTU:
“Superannuation is workers'
deferred wages”[9]
(c)
Association of Super Funds of Australia (ASFA):
Senator KETTER: Do you support
the notion that superannuation is deferred wages?
Mr McCrea: Yes, we do.[10]
(d)
Financial Services Council (FSC):
Senator KETTER: Do you support
the notion that superannuation is deferred wages?
Mr Potter: Yes. That is not the
only way to define super but it is a pretty useful way to define it.[11]
(e)
Australian Small Business and Family Enterprise Ombudsman (ASBFEO):
Senator KETTER: I've asked this
question of a number of witnesses. Do you support the notion of superannuation
as deferred wages?
Ms Carnell: Yes, simply.[12]
(f)
Treasury:
Senator KETTER: Do you support
the notion that superannuation is deferred wages?
Mr Jeremenko: I certainly think
that, economically speaking, that is correct.[13]
1.10
Treasury officials also stated in a previous inquiry that:
The position that the government takes, and Treasury, is that
any level of underpayment of SG is unacceptable.[14]
1.11
When Treasury officials were offered the opportunity to explain how the
Government’s proposed amnesty for unpaid SG entitlements was consistent with
both defining superannuation as deferred wages and a policy position that any
level of underpayment is unacceptable, the response was far from convincing:
Senator KETTER: How is an SG amnesty consistent with that
principle? Presumably we don't have amnesties for nonpayment of wages. Why is
it different for superannuation?
Mr Jeremenko: As I was saying earlier, the super amnesty
needs to be seen in the context of the bill No. 4 measures. It is not something
that is a simple 'get out of jail free' card for employers; it is bringing
forward payment of historical super underpayment that would not otherwise
occur.[15]
1.12
It is also clear that an amnesty for unpaid SG sends the wrong message
to those employers who have complied with the law for all these years:
The committee should also consider what sort of message the
amnesty sends to employers who have done the right thing and paid their obligations
as required under the law.[16]
1.13
The committee also heard evidence that academic literature on the effect
of amnesties is mixed and that some amnesties can even be counterproductive:
In the Australian context, we've had relatively few
precedents for amnesties of this type. I'm not aware of any for superannuation.
In the international context, there is a good deal of academic literature on
tax amnesties, which would appear to be the closest parallel. That academic
literature is mixed on the effect of amnesties, with recent work from the
International Monetary Fund suggesting they may in fact be counterproductive
and reduce future compliance, particularly if amnesties become a regular
occurrence.[17]
1.14
Treasury confirmed that $230m is expected to come forward under this
amnesty, a very small amount when this once-off amount for a 26 year period is
compared to ISA’s estimated annual SG gap of $5.9 billion dollars and the ATO’s
estimated annual SG gap of $2.8 billion dollars. The amnesty raises only a
small amount of money relatively speaking for a large compromise in policy
position:
Senator KETTER: If you keep having amnesties, they send a
perverse message out there. I think your estimate was that the SG gap was
something like $3 billion—
Mr O'Halloran: Yes, $2.8 billion.
Senator KETTER: and here we are recovering $230 million—a
very small proportion of the overall gap—and yet there's this risk of sending
the wrong message to employers on this very important issue.[18]
1.15
Treasury officials also confirmed that the inclusion of tax
deductibility for payments made under the amnesty is intended to be a key driver
of encouraging better behaviour from shonky employers (added emphasis):
CHAIR: Allowing the deductibility of payments made by
employers under the amnesty was something that came up from previous witnesses
as well. Is that a crucial part of ensuring success—to ensure that more
employers take up the opportunity—or is it, as was implied by other witnesses,
potentially rewarding employers that have failed to meet their SG obligations?
...
Mr Preston: When thinking about take-up rates—and this is
based on my understanding of discussions between our Tax Analysis Division and
the ATO—they looked at the holistic set of incentives that the amnesty
provides, both before and after, and the view was that that was a key driver
of future compliance.[19]
1.16
ISA also highlighted that the nature of the tax deductibility of
payments made under this amnesty might actually incur a net negative impact on
revenue:
Whilst there are contribution taxes which government
collects, these are also tax deductible, and the amnesty bill, of course,
allows for these historical amounts to be tax deductible. If the firms which
are paying these amounts are paying the headline company tax rate of 30 per
cent, those tax deductions could exceed the amount of contribution tax revenue
which is received on these amounts, so in fact there could be a net negative
impact on revenue.[20]
1.17
Treasury and ATO officials also confirmed that payments made under the
amnesty will not fully compensate employees for lost earnings, due to the current
rules around simple interest calculations:
Senator KETTER: Let's say we have an employer who hasn't
been paying the correct level of superannuation for, say, 10 years—I'm not sure
if shortfall is the correct terminology in that circumstance—and you identify
that there is an underpayment. Under normal circumstances, without an amnesty,
would that interest rate, that 10 per cent, be applied on a compounding basis
or would it just be a global figure?
Mr O'Halloran: I agree with Mr Preston—I'm happy to double-check,
but it's a flat rate; it's not compounded. However, I will need to have it
confirmed; I just haven't got it in front of me.
Senator KETTER: That becomes a significant issue, if we're
talking about 26 years, for example, which is when the system commenced. It
might be larger—10 per cent might compare favourably in one year to the six per
cent annual, but if we're talking about compounding that's a fairly large
difference.
Mr Jeremenko: Yes. What I would reiterate is that that isn't
changing under this provision.[21]
1.18
COSBOA also stated in their evidence that they might use claims of
excessive superannuation administrative burden to recommend that small
businesses replace all employees with contractors and labour hire, despite cost
effective software costing as little as $5 per month, the introduction of SuperStream,
the introduction of the small business clearing house and the future
introduction of Single Touch Payoll. Labor Senators are concerned that the SG
framework might be used as an excuse by some employers to erode basic, decent
working rights:
If this does not change COSBOA will have to recommend that a
business does not directly employ staff and they only use contractors or labour
hire firms. The risk to the individual employer, to his or her family and
personal relationships, to their health and to their property would be too
high.[22]
1.19
While employees have the book thrown at them for stealing from
employers, the Government, by introducing an SG amnesty, is establishing a
different rule for employers who steal deferred wages from employees. As the
ACTU succinctly stated:
This Bill allows employers who have been underpaying their
workers for 26 years to not only escape penalties, but to gain a tax advantage.
Rather than taking steps to rectifying the ongoing injustice, the Government,
once again, takes the side of unscrupulous bosses who have been ripping off
their workforce. The Superannuation Guarantee Charge has been in place for a
generation, despite this the Government is claiming that ignorance is a
justifiable defence for breaking the law. Workers suffer real hardship due to
unpaid superannuation and this is particularly acute for those immediately
facing retirement or recently retired.[23]
1.20
In summary, Labor Senators reject the introduction of an amnesty for
unpaid SG entitlements and believe it is not consistent with Labor values.
Evidence received during this inquiry clearly demonstrated that this Government
is out of touch and only has the interests of employers at heart, rather than
governing for all Australians. Not only does the amnesty for unpaid SG
entitlements undermine retirement outcomes, it is also a slap in the face to
employers who have complied with the law for the last 26 years.
Schedule 2: Superannuation –
employees with multiple employers
1.21
Labor Senators support this measure but note ISA testimony:
I have some brief remarks around schedule 2, which is the SG
exemption for multiple employers. We're generally supportive of these
provisions in the bill, but we do wonder why the government is going to the
trouble of providing a legislative framework for employees and their employers
to opt out of the super guarantee. It wouldn't appear that this is a
significant issue affecting many people, given the circumstances.[24]
Schedule 3: Non-arm’s length income
of superannuation entities
1.22
Labor Senators support this measure.
Schedule 4: Limited recourse
borrowing arrangements
1.23
Labor Senators do not oppose this measure, but note statements by the
Leader of the Opposition that a Shorten Labor Government will take the
responsible decision and adopt the recommendation of the Financial System
Inquiry to restore the prohibition on direct borrowing by superannuation funds
on a prospective basis.
Labor’s position on the bill
1.24
This Government only listens to one stakeholder – business. The most
ardent advocates for the amnesty were employers and it appears that the
superannuation industry as well as employee representatives were left out of the
policy development process.
1.25
Almost no-one has been advocating for this policy. Evidence received by
the committee confirmed that amnesty seems to have largely originated from ACCI
and COSBOA. This Government is looking out for their mates at the top end of
town rather than looking out for everyday Australians.
1.26
This bill was introduced with haste and secrecy. Such tactics further
underscore the Government’s intention to limit public debate on the amnesty,
hoping that the public would not pay attention to this issue.
1.27
The inquiry confirmed that only a relatively small amount of unpaid SG will
come forward relative to the very large annual SG gap. The amnesty is a
substantial compromise in long standing policy and may even have counterproductive
compliance outcomes.
1.28
Any payments made under the amnesty are also unlikely to fully
compensate employees for lost earnings between the unpaid SG period and today
due to the simple interest calculation. Furthermore, the amnesty is a slap in
the face to employers who have complied with the law for the last 26 years. In
fact, dodgy employers who make use of this amnesty will receive at tax
deduction, which will ultimately be paid for by every other Australian
taxpayer.
1.29
Superannuation theft is just as bad as wages theft. Dodgy employers should
not be able to get away with stealing hard-earned money from their employees.
1.30
When employees steal from employers, they rightly have the book thrown
at them. It is not appropriate to have one rule for business and another rule
for everyone else.
Recommendation 1
1.31
That the bill be amended such that schedule 1, relating to the
superannuation guarantee amnesty, be opposed.
| Senator Chris Ketter |
Senator
Jenny McAllister |
| Deputy Chair |
Senator
for New South Wales |
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