Labor Senators' Minority Report
General
Labor Senators support the majority of the measures contained within
this legislation, which have been welcomed by most of the industry, while
noting that there is not a consensus on whether this bill should be passed
in its current form.
However, it is disappointing that this bill, which represents the third
major legislative and policy change to the superannuation surcharge tax,
is necessary.
The Government was forewarned and has been continually advised about
the inherent flaws in the superannuation surcharge tax collection mechanism
from the moment the policy was announced. In the hearings conducted by
the Senate Select Committee on Superannuation when it examined the previous
surcharge tax legislation in October of 1997, Mr Noel Davis, from Clayton
Utz, amongst many others, passionately highlighted the very problems of
determining notional surchargeable contributions factors which this legislation
purports to clarify. It is still unclear as to whether this bill clarifies
the situation at all.
Policy inconsistency
What is especially disappointing is the Liberal Government's continued
insistence that there is nothing at all wrong with the surcharge tax collection
mechanism. The evidence from the Assistant Treasurer, Senator Rod Kemp,
that “we still feel that the original bill was sound” flies
in the face of the fact that the Government is making a major policy change
in this legislation by abolishing the advance instalment requirement.
On 26 March 1997, the Assistant Treasurer, Senator Kemp, said in the
Senate in response to an amendment moved by Senator Sherry to effectively
remove the advance instalment provisions from the superannuation surcharge
tax:
I think Senator Sherry, in his rhetoric which has so marred sensible
discussion on this issue, has actually misunderstood the nature of the
advance payment. The advance payment is basically a collection of the
surcharge on contributions that have already been received.
If, as the minister said, the surcharge tax advance payment was so basic,
why is the Government no longer requiring an advance payment which pushes
out some $120 million in revenue?
While Labor Senators welcome the Government's decision to abolish the
advance instalment, the Government appears caught up in its own rhetoric
on this issue. The Government cannot have it both ways. Either the surcharge
tax is flawed and requires this substantial policy change or the original
bill is sound. This apparent contradiction and lack of adequate justification
for the policy change instils little confidence in either the capacity
of the Assistant Treasurer or the Government to improve the application
of the surcharge tax.
Legal challenge
The technical amendments to this bill relating to the calculation of
the notional surchargeable contribution factors (NSCF) appear to be little
more than an attempt to shore up the Government against possible legal
challenge.
The Committee gratefully received a letter from the Assistant Treasurer,
Senator Kemp, containing some detailed comments on various submissions
put to the Committee. This letter is at Appendix 3 of this report.
In the letter, the Assistant Treasurer contends that at the time of writing,
neither the Australian Taxation Office (ATO) nor the Government is aware
of any proceedings having been issued in any Court in relation to the
surcharge measure.
A number of witnesses raised the issue of a possible court challenge
during the Committee hearing. While the accuracy of the Assistant Treasurer's
statement is not in doubt, the Government's focus on whether any proceedings
had been issued by the courts is clearly avoiding the main issue. The
Committee has confirmed that proceedings on the surcharge tax are about
to be commenced in the Federal Court. Should a court case proceed, it
could raise serious doubts about the validity of the legislation currently
before the Senate. It is a serious point of contention as to whether the
Senate should be debating legislation which is subject to legal challenge.
Equity issues
The Government continues to claim that the superannuation surcharge tax
was introduced to make superannuation more equitable.
However, there is overwhelming evidence that the superannuation surcharge
tax is anything but equitable.
The evidence from Mr Noel Davis of Clayton Utz that the industry's reporting
costs in the first year of operation were some $270 million to enable
the Government to collect $340 million of tax revenue suggest that this
tax is not only inefficient, but also inequitable. For all superannuation
fund members have to pay for the collection of a tax which is supposedly
levied on only those members who are deemed to be high income earners
is grossly inequitable.
In addition, Australian tax payers in general are paying for the administration
cost of the tax with the Australian Taxation Office, Comsuper and the
Department of Finance and Administration also spending in excess of $20
million on administration costs.
Fund members who, for whatever reason, have not provided their Tax File
Number to their superannuation fund and who the ATO cannot use matching
data to identify will be levied with the full 15% of the tax, regardless
of their income. Some 66,000 such assessments were despatched by the ATO
earlier this year.
Different treatment exists between men and women in defined benefit schemes
who are on the same income but who receive different surcharge assessments.
The treatment of defined benefit and accumulation type funds differs
particularly in the early years of the tax. The Minister has admitted
to the Committee that he was aware of the inequitable treatment of defined
benefit and accumulation type funds when the initial legislation passed
the Parliament and does not appear to be concerned. This is clearly yet
another major flaw in the design of the collection method of the surcharge
tax and should be corrected by the Government.
Relationship between the Superannuation Guarantee and the surcharge
tax
The committee received evidence from the Australian Workers Union who
advised that some of its members at certain mining sites around Australia
were receiving Superannuation Guarantee contributions based on a salary
well below the superannuation surcharge tax threshold but were paying
the surcharge tax based on a higher adjusted taxable income.
Labor Senators believe that this situation is grossly unfair and inequitable
and requires immediate remedial action. A worker who receives an SG payment
based on a salary which is well below the surcharge tax threshold should
not ordinarily be liable for the surcharge tax unless special circumstances
apply.
Regrettably the Minister's comment in his correspondence on this issue
is inaccurate and displays and lack of understanding of the factual position.
The industrial arrangements to which the AWU was referring are not awards
but workplace agreements that set a figure for SG contributions way below
ordinary time earnings as defined in an award or the SG legislation. This
results in an unfair double hit for many AWU members; paying the surcharge
tax where incomes are assessable and not receiving SG contributions that
reflect the level of income earned not just because the base for calculation
of the surcharge tax is different from that which determines the SG but
also because the workplace agreements set a figure for SG contributions
significantly below ordinary time earnings on which the SG is paid for
the vast majority of the Australian workforce.
Retrospectivity
The amendments proposed which will require some funds to recalculate
their surcharge tax returns as reported to the ATO will result in punitive
costs to the funds concerned.
The Senate should carefully consider the issue of permitting the passage
of retrospective legislation which has a punitive effect on the retirement
incomes of Australian citizens. The Committee received evidence about
the difficulties and costs that funds would experience if this bill is
allowed to operate retrospectively regarding the calculation of surcharge
tax returns. In particular, some administrators have advised fund trustees
of surcharge tax liabilities based on the legislation as it currently
stands. To retrospectively shift the goal posts in a punitive way is not
an example of good Governance and works to further highlight the inequities
and inefficiencies of this flawed tax.
Concluding comments
The superannuation surcharge tax has caused much confusion for superannuation
trustees, administrators and fund members. Arguably, Australia's reputation
as a country with a world-leading retirement incomes policy has been damaged
as a result of this inefficient and inequitable tax.
It is clear that the vexed issue of the superannuation surcharge tax
collection mechanism must be revisited if Australia's retirement incomes
system is to reestablish itself as the world's premier retirement incomes
public policy.
Recommendation
It is encouraging that the Government has agreed to enter into discussions
prior to the passage of this bill. In that spirit, Labor Senators recommend
that the bill be supported subject to the amendments which address the
issues of punitive retrospectivity and the anomalies of the different
bases for determining Superannuation Guarantee and the superannuation
surcharge tax.
Senator Shayne Murphy
Deputy Chair
Senator Nick Sherry
Senator George Graham