CHAPTER 1
OVERVIEW
Introduction
1.1 On Budget night, 20 August 1996, the Treasurer, the Hon. Peter Costello
MP, announced that the Government would introduce a surcharge of up to
15 per cent on all future tax deductible contributions made to superannuation
funds or Retirement Savings Accounts providers by or for high income earners,
including those who salary sacrifice. [1]
This surcharge is to be phased in commencing at the $70 000 assessable
income level, reaching a maximum of 15 percent at $85 000.
1.2 Giving effect to this decision, on 13 February 1997, the Government
introduced the following Bills into the House of Representatives:
- Superannuation Contributions Surcharge (Assessment and Collection)
Bill 1997;
- Superannuation Contributions Surcharge (Consequential Amendments)
Bill 1997;
- Superannuation Contributions Surcharge Imposition Bill 1997;
- Termination Payments Surcharge (Assessment and Collection) Bill 1997;
and
- Termination Payments Surcharge Imposition Bill 1997.
1.3 On 6 March 1997, the Government introduced a further two Bills:
- Superannuation Contributions Surcharge (Application to the Commonwealth)
Bill 1997; and
- Superannuation Contributions Surcharge (Application to the Commonwealth
- Reduction of Benefits) Bill 1997
1.4 In the second reading speech for the Superannuation Contributions
Surcharge (Assessment and Collection Bill) 1997, the Parliamentary Secretary
(Cabinet) to the Prime Minister, the Hon. Chris Miles MP, advised the
House of Representatives that the surcharge legislation is:
...this government's response to ensure that the superannuation system
is more equitable for all Australians, while also ensuring that superannuation
remains an attractive savings option. [2]
1.5 Mr Miles told the House that the Government considered that the superannuation
system was inequitably biased in favour of high income earners. He said
that high income earners have been benefiting from the concessional taxation
treatment of superannuation to a much greater extent than low income earners.
1.6 The surcharge is also a significant revenue item in the Budget. The
Government estimates that the revenue impact of the package of surcharge
legislation will be $434 million in 1997-98, $500 million in 1998-99 and
$526 million in 1999-2000. [3]
Conduct of the Inquiry
1.7 On 26 February 1997, the Senate referred the provisions of the first
five Bills to the Senate Select Committee on Superannuation for examination
and report by 18 March 1997.
1.8 The Committee advertised the reference on Monday 3 March, setting
a closing date for submissions of 7 March.
1.9 On 6 March, the Senate referred the provisions of the latter two
Bills to the Committee and extended the reporting date by two days, to
Thursday 20 March 1997.
1.10 The Committee received in excess of 70 submissions and other responses
to the inquiry. A list of submissions made to the inquiry appears at Appendix
1.Two public hearings were held, in Sydney on 10 March and Canberra on
11 March. A list of witnesses who appeared at those hearings is at Appendix
2.
1.11 1.12 The Committee records its thanks to those persons and organisations
who made submissions within the very tight time constraints imposed and
gave evidence at the hearings at short notice.
Summary of views
1.13 Submissions and evidence received by the Committee were overwhelmingly
critical of the surcharge legislation. Not unexpectedly, the legislation
was criticised by representatives of the superannuation industry and high
income earners. However, representatives of several State Governments,
industry representatives including the Business Council of Australia,
the Metal Trades Industry Association of Australia, the accounting professions,
the Judiciary and representatives of the Defence forces and other public
sector employees also commented adversely on the surcharge proposal.
1.14 There were many calls for the surcharge legislation to be rejected
outright.
1.15 Several witnesses and submittors contended that the legislation
would lead to a severe further loss in confidence in superannuation, already
damaged by a lack of stability in this area for several years.
1.16 Comments made by Mr Grahame Willis of the Metal Trades Industry
Association summarised many of the views that were put to the Committee:
Mr Willis: From the contact that we have had with our members, and
I have no reason to believe other than that they are representative
of employers generally, I believe there is widespread concern, frustration
and, in some cases, even anger with both the direction of this measure
and the context in which it arose. That was an expectation of no change
from the taxation arrangements on superannuation and a belief that the
time must come when we create stability in policy settings for superannuation.
Clearly, if this process of incessant change is to continue, there will
be no community confidence in superannuation at all. We believe that
has enormous long-term ramifications for this country. [4]
1.17 It was argued that superannuation could no longer be regarded as
an attractive investment vehicle for retirement saving and that those
who could repackage their remuneration would do so, minimising their participation
in superannuation to that required by law. Persons who held this view
contended that for this reason, the Government's revenue targets for this
measure may not be achievable. Others however argued that repackaging
may not necessarily be attractive or feasible in the larger corporations.
1.18 The State Governments of New South Wales and South Australia and
Mr Dennis Rose AM, QC, appearing on behalf of the Business Council of
Australia, raised constitutional issues.
1.19 Evidence was received that many lower and middle income earners
would also be required to pay surcharge because they failed to understand
the necessity of providing tax file numbers (TFNs) to their superannuation
funds and because of the way assessable income is to be calculated.
1.20 Similarly, several contributors to the inquiry contended that including
termination payments would require many lower income people to pay the
surcharge.Many contributors to the inquiry singled out the surcharge collection
mechanism for critical comment. This was held to be excessively complex,
cumbersome and costly.
1.21 1.22 Members leaving superannuation funds prior to receipt of an
assessment was identified as creating administrative difficulties for
funds. It was argued that the additional requirements to pay an advance
surcharge compounded these problems.
1.23 It was pointed out that all superannuation and RSA holders will
bear a portion of the considerable costs associated with collecting the
surcharge, although only a small proportion of those who hold superannuation,
estimated to be approximately 355 000, will be directly affected by the
surcharge. The Australian Taxation Office will also have to cross match
several million tax file numbers to determine liability, at considerable
administrative cost.
1.24 Several submissions contended that the surcharge proposal effectively
results in tax rates on deductible employer superannuation contributions
that are significantly greater than the highest personal tax rates.
1.25 It was argued that the surcharge would be difficult to administer
fairly in respect of defined benefit schemes, particularly unfunded schemes.
It is impossible to determine the extent to which the surcharge will affect
benefits associated with such schemes until an "actuarial standard"
is released, and the Committee received a number of expressions of anxiety
about this.
1.26 The system under which the ATO notifies funds of surcharge liabilities
of individual members means that trustees can infer information about
members' incomes. It was suggested that this has privacy implications.
1.27 The Committee received a number of suggestions about how the Government
could more effectively achieve its objectives to improve equity through
other means.
1.28 While expressing reservations about the concept of the surcharge,
several submittors accepted the Government's right to pursue policy objectives
in this area, including improving equity and collecting revenue. However,
they argued that there are a number of alternative approaches to achieving
these objectives. They contended that these would be simpler and more
efficient to administer and decrease the likelihood of lower income earners
outside the intended surcharge target group having to pay surcharge.
Structure of this report
1.29 The next chapter of this report, Chapter 2, describes the surcharge
in detail, explains how the surcharge will be calculated, who will pay
it and how it will be collected. It also briefly places the surcharge
in the context of the evolving taxation treatment of superannuation. The
Chapter then explains the structure and objectives of each of the Bills
before the Committee.
1.30 Chapters 3 to 9 set out the major issues identified by the Committee
in its examination of the legislation, and report on the nature of the
arguments raised in submissions and evidence. The issues examined by the
Committee in these chapters include:
- Constitutional issues;
- Collection method and administration;
- Targeting and equity;
- Alternative collection proposals;
- Revenue;
- Privacy; and
- Defined benefit schemes and the actuarial standard.
1.31 Chapter 10 consists of the separate conclusions and recommendations
of the Government and non-government Committee members.
[Go to chapter 2]
Footnotes
[1] Press release by the Treasurer, the Hon.
Peter Costello, MP, 20 August 1996.
[2] House of Representatives, Hansard,
13 February 1997, p. 625.
[3] House of Representatives, Hansard,
13 February 1997, p. 625.
[4] Evidence, p. 160.
Top
|