Chapter 3
Views on the measure
3.1
This chapter examines the views and issues raised by various
stakeholders during the committee's inquiry into the proposed superannuation
clearing house for small business and examines those issues in light of the
areas which the Senate requested the committee investigate.
General support for a clearing house service
3.2
As detailed in Chapter 2, the free service to be introduced by this
legislative amendment will relieve employers of the administrative burdens
associated with their superannuation guarantee obligations.[1]
Submitters to this inquiry have been in favour of the benefits that will result
from its implementation and the measure has therefore enjoyed general support.
[The Association of Superannuation Funds of Australia]...is
supportive of the government proposal to deliver the superannuation clearing
house for small employers...[2]
The Council of Small Business Organisations of Australia
welcomes the Federal Government initiative to provide free superannuation
clearing house services to small businesses in Australia, and acknowledges this
fulfilment of an election commitment.[3]
[Investment and Financial Services Association Limited]
welcomes the Government's initiative to deliver its election promise by
legislating for a free clearing house service for small business. We support
the creation of approved clearing houses for the management of superannuation
contributions on behalf of small business.[4]
We are supportive of the idea behind the notion of an
approved clearing house...we can certainly see advantages for many employers in
a system which assists them to minimise the administrative problems of
superannuation.[5]
3.3
In giving their support however, submitters to the inquiry have
identified particular aspects of the proposal that they consider require
further consideration and development prior to implementation. It is these
matters that will be examined in this chapter.
The use of a single approved clearing house
3.4
In 2009 the Government announced that Medicare Australia would perform the
role of the 'approved clearing house' departing from its election commitment to
outsource the clearing house service through a tender process.[6]
The Government noted that Medicare was 'well placed as one of the Commonwealth
Government's key service delivery agencies – with significant electronic and
payment processing capacity whilst ensuring the privacy of information and the
security of funds'.[7]
During the inquiry this shift in Government policy was the subject of criticism,
submitters expressing concern that it would adversely affect competition in the
market:
IFSA are concerned about equity in competition...competition is
key to an efficient and cost-effective superannuation system and that competition
must be in an environment that is equitable...our concern is that there is not a
level playing field...it is good that Medicare is coming in to fill a role that
is an issue in the marketplace, but it should not limit others from competing
equally with Medicare.[8]
...the capacity to become an approved clearing house should be
open to clearing houses in general.[9]
...the introduction of Medicare is anticompetitive as it will
progressively distort the commercial underpinnings of the clearing house market
and offer a competitor an unfair advantage...if the government still wishes to
proceed with the initiative, the legislation [should be] amended to appoint the
government clearing house provider by tender or, alternatively, level the
playing field by enabling private sector providers to become approved and
reimburse them for offering the service...[10]
3.5
When questioned as to why the Government decided against a tender
process to identify and appoint a suitable clearing house provider Treasury gave
the following explanation:
The turning off of the SG liability concentrates the
financial risk associated with non-payment of superannuation entitlement in one
place – namely a clearing house. A failure at the clearing house level would
potentially affect the employee entitlements of all employers using the
clearing house. Currently, a failure to pay employee entitlements only affects
the employees of the employer who fails to discharge their SG obligations.[11]
...[this] is one of the key reasons that the Government
ultimately chose to do the clearing house within the public sector and through
Medicare.[12]
3.6
Treasury's explanation as to why the Government ultimately decided to
preserve the element of extinguishing an employer's SG obligation as soon as
payment is made to the approved clearing house rather than the commitment to implement
the measure through a private sector provider demonstrates the critical policy
considerations and trade-offs that were taken into account.[13]
3.7
Submitters have however continued to express the view that this element
of the measure could be extended to private sector clearing houses provided
those entities are appropriately licensed and regulated.[14]
The NSW Business Chamber and Australian Chamber of Commerce and Industry suggested
that greater benefits would be available to employers if the capacity to become
an approved clearing house were open to private providers.[15]
They called for the definition of 'the' approved clearing house to be changed
to 'an' approved clearing house to enable their participation in this new
market.[16]
3.8
Treasury noted that the costs associated with going down the private
sector route would have included both the private sector bid as well as the
internal regulatory costs of government which they noted 'may have been
substantial'.[17]
3.9
Australian Super also did not agree that allowing existing clearance
houses to participate would be a more efficient way of processing
superannuation for small business:
If the government were to offer subsidies to existing
clearing house providers to focus a service on this segment of the market, they
probably could have done it, but it would have to have been in conjunction with
legislation introduced as we have seen Medicare looking at—mandatory electronic
data, mandatory data standards, licensing, a guarantee on floats, and service
standards on how long a clearing house can hold onto the money and send it to
the funds. If your question is, ‘Could private clearing
houses provide this service with the subsidy going to them?’
the answer is: yes, they could have, but it would not have been as effective as
the model that we are looking at now, unless it were in conjunction with a
whole list of additional criteria.[18]
Committee comment
3.10
The committee acknowledges the complex policy considerations that were
balanced by the Treasury in giving effect to this measure, particularly the
degree of risk that would be involved if 'turning off' the SG liability were
extended to payments of superannuation contributions to private clearing
houses.
3.11
Although the committee acknowledges industry concerns that this gives
the Medicare clearing house facility a competitive advantage, potentially
eroding their client base, the committee takes the view that this is one
particular instance where it is both suitable and beneficial that the Government
provide a free service to this specifically targeted sector of the community
and although government involvement in these circumstances may lead to some
minor distortion, the benefits that will be delivered to small business justify
that impact.[19]
The committee is also satisfied, based on evidence it heard, that although
there are some private providers of clearing house services currently operating
in the small business market, their market penetration is small and there is
room for a government provider to operate.[20]
In fact, drawing on the information provided to the committee, of the two
million small businesses in Australia only around two per cent are currently
being provided with a clearing house service by SuperChoice.[21]
The committee considers that this further confirms the appropriateness that the
free service is only made available to employers with less than 20 employees.
3.12
On the issue of enabling private clearing houses to operate as approved
clearing houses for the purposes of this measure on the proviso that they be
appropriately licensed and regulated the committee contends that the costs of
implementing a framework and body to regulate those entities would be
prohibitive, would not guarantee against systemic failure and could result in
the creation of a implicit contingent liability for the government.
The definition of a 'small business'
3.13
Treasury note this targeting of government assistance; once an employer
gets 20 employees or more it will not be possible for that employer to continue
to access the free service, even if they were willing to pay.[22]
The committee also draws attention to the Government's announcement that
limiting access to the free clearing house service to employers with fewer than
20 employees also minimises the impact of the measure on competition in the
existing clearing house market.[23]
3.14
While the Government has stated publicly that the facility will only be
available to small businesses that have fewer than 20 employees, this
eligibility criteria has not been explicitly stated in the bill.[24]
3.15
Throughout consultation, on both the exposure draft and the current bill,
specifying these size limits by instruction has been criticised and submitters
have called for the Government to define 'small business' for the purposes of
the measure.[25]
The Government has however taken the view that 'restricting eligibility for the
service through the legislation is...not necessary [as it] would create
additional complexity.'[26]
3.16
Rather, the approach that has been taken to ensure that only small
businesses with fewer than 20 employees access the service is the inclusion in
the bill of a provision that requires the approved clearing house to accept a
payment that is made in satisfaction of the employer's superannuation
obligations.[27]
3.17
Although it is clearly the intent of the Government to restrict
access to the clearing house service to small businesses with fewer than 20
employees, the committee heard that the lack of legislative guidance may result
in administrative difficulties:
...this requirement to refuse seems to suggest that, if a small
employer increases in size to 20 or more employees, payments will be
refused...Apart from the complexity of administering this gate and the technical
administrative burden imposed on an employer which is growing his or her
workforce, or even one who is contemplating a request for a job-share
arrangement, it seems to directly and negatively impact employers who might
best benefit from the facility. Employers who have seasonal workforces, which
means that their workforce fluctuates from its usual small number to 20 or more
for a seasonal period, would, depending on how the requirement to refuse is
given effect, seem well advised either to not register in the first place or to
not use the facility at seasonal peak times...These seasonal employees are the
ones who would impose the greatest superannuation guarantee administrative
burden on the employer and where the greatest benefit of the approved clearing
house facility would seem to fall.[28]
3.18
These concerns were not shared by all submitters. COSBOA is of the
opinion that the definition of fewer than 20 employees on a head count basis
rather than a full‑time equivalent basis was appropriate:
We understand that 84 per cent of small businesses are
micro-businesses, which have five staff or fewer. On balance, we considered
that the issues of the thresholds are issues that deal with small businesses at
the margins. The definition that was offered by Medicare, which was a
definition of fewer than 20 employees on a headcount basis rather than a
full-time equivalent basis, was appropriate given the issues and the challenges
in implementing such a threshold.[29]
Committee comment
3.19
The committee considers that the absence of a definition within the
legislation may result in ambiguity, particularly for small business employers
who employ a predominantly casual workforce and/or seasonal employees.
Recommendation 1
3.20
The committee recommends that the threshold value be monitored over the
initial three year period to assess whether the threshold is appropriate.
Medicare as the approved clearing house provider
3.21
The Senate also requested that the committee consider Medicare
Australia's suitability for the role of provider of the Government's clearing
house service.
3.22
In making its announcement that Medicare would take on this role the
Government explained that it had chosen the agency given that in its current
roles it had developed significant capacity in payment processing and would be
able to use its existing infrastructure capabilities while ensuring information
privacy and fund security.[30]
Medicare themselves commented that:
We have well-established systems that have been in operation
and tried and tested over a long period of time; appropriate audit controls and
the like; and a skilled workforce who are very comfortable with and used to
doing this kind of work. We have no concerns about our capacity to deliver on
this program...it is obviously a very important program and we are determined to
get it right.[31]
3.23
Although Medicare has also established working groups with industry to
ensure their needs are met and the service is a success, there remains concern
that the service to be delivered will not be efficient. This concern has arisen
as no processing, transfer or missed payment response time requirements have
been cited for introduction.[32]
3.24
A number of submitters[33]
have suggested that as the payments to be made to Medicare will be deemed to be
payments to the relevant superannuation funds there is an argument for
introducing transaction time and other processing requirements.
...our intention once the information is matched is for the
money to be distributed to the super funds immediately, so we would be looking
at doing that within 24 hours. The only one where we could not commit to that
would be those where there were issues with matching and some requirement for
us to do some follow-up work.[34]
Committee comments
3.25
The committee is of the view that Medicare will be an efficient and
effective provider of the optional superannuation clearing house service for
small business although it recognises that the benefits associated with
introduction of the service may not be realised as early as hoped if take-up
amongst small business is slow.
3.26
The committee is satisfied that as Medicare has been fully funded to
deliver this measure its implementation will not adversely affect delivery of
its other services.[35]
3.27
The committee is satisfied that Medicare will set adequate service
standards in terms of payment and other processing times as part of their
normal departmental performance indicators.
Recommendation 2
3.28
The committee recommends that the Senate pass the bill.
Senator Annette Hurley
Chair
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