CHAPTER 7
REVENUE
Financial implications
7.1 The explanatory memorandum to the Superannuation Contributions (Assessment
and Collection) Bill 1997 states that the proposed surcharge will raise
$434 million in 1997-98, $500 million in 1998-99 and $526 million in 1999-2000.
The measure is therefore significant in its effect on the Government's
revenue and the Budget outcome.
Members who have retired since the surcharge announcement
7.2 The Government proposes that the surcharge apply from the date it
was announced, that is, 20 August 1996. Since that time a number of people
will have either changed their superannuation fund or left the workforce.
The position regarding the surcharge for members who have changed their
superannuation fund is relatively straightforward as the preservation
rules relating to superannuation require the amount to be given to another
superannuation provider until the person leaves the workforce. The surcharge
can then be collected from the new superannuation provider.
7.3 For those who have left the workforce, the superannuation provider
will not have the member's funds from which to deduct the surcharge if
it becomes payable after the legislation has passed and the member has
left the workforce and withdrawn their funds from the superannuation provider.
7.4 In such cases, it is proposed that the surcharge liability for the
period between commencement of the surcharge and the person ceasing to
have an adjusted taxable income (ie. their assessable income and superannuation
contributions) above the threshold amount (currently $70 000) will be
collected from the person involved. In oral evidence given to the Committee,
a representative of the Australian Taxation Office stated:
In the case of those people who have left the system, yes, we will
be looking to those people for payment. In the case of people who have
moved from fund to fund, there would be a fund with their contributions
and contributions information. I do not know the exact break up of the
number of retirees who have gone straight out of the system, but there
would be a workload and we are aware of that. The termination payments
have been reported to us through the systems already in place. [1]
7.5 On the issue of the effect the proposed surcharge would have on those
who have retired and arranged their financial affairs in the time between
the announcement of the proposed surcharge and the enactment of the legislation,
the same representative replied:
The ATO is quite used to dealing with the collection of moneys, and
I guess we will take a sensible and pragmatic approach. There will be
time for payment and other arrangements-not forgetting, of course, that
a lot of these people we are talking about are high income earners....
[2]
Avoidance
7.6 The issue was raised before the Committee of measures that could
be used to prevent avoidance of the proposed surcharge. While the Income
Tax Assessment Act 1936 contains substantial anti-avoidance provisions
in Part IVA of that Act, these provisions only apply to taxes imposed
under that Act and the proposed surcharge is to be imposed under the legislation
referred to the Committee, rather than the Income Tax Assessment Act 1936.
A representative of the Australian Taxation Office stated:
To be precise, I think the commissioner, Mr Carmody, indicated that
it would be naive of people to assume that we would not be keeping an
eye on the situation and we would not be advising government. I do not
recall him talking about anti-avoidance measures as such because people
are obviously entitled to arrange their remuneration within the law.
It is not a case of an avoidance exercise; it is more a case of them
arranging their packages as they see fit. [3]
Repackaging
7.7 In evidence, several witnesses and submittors told the Committee
that the proposed surcharge may lead to some people, whose income makes
them subject to the surcharge, seeking to alter their remuneration package
in such a way so that their adjusted taxable income is less than the surcharge
liability threshold.
7.8 As noted above in the evidence given by the Australian Taxation Office,
changes to the remuneration package may be made within the current laws
and would not amount to avoidance. There have been a number of suggested
methods by which salary could be repackaged to reduce the adjusted taxable
income below the threshold.
7.9 The most likely means of achieving the reduction in adjusted taxable
income is to reduce the assessable income of the person. This can be achieved
through making greater deductions to negative gearing of both property
and shares, or by reducing the contributions to superannuation that exceed
the rate required under the Superannuation Guarantee legislation.
7.10 There is also the possibility of part of a remuneration package
being taken as fringe benefits provided by the employer, which would be
taxed at the employers tax rate, which is lower than the potential marginal
tax rates that apply to certain people liable to the surcharge (see below).
7.11 In a submission to the Committee, the Association of Superannuation
Funds of Australia (ASFA) stated:
The revenue figures seem to assume that these high income earners will
not change their savings patterns and will continue to contribute to
superannuation at the same rate. ... Recent evidence shows that people do change their behaviour and that
this can compromise the integrity of the budget figures as evidenced
in the shortfall in company tax. ...
A recent survey by the Institute of Company Directors found that over
40% of company directors stated that they would not make voluntary contributions
to superannuation after the introduction of the surcharge. [4]
7.12 However, some oral evidence given to the Committee suggested that
repackaging salary may not be attractive. A representative of William
M. Mercer Pty Ltd stated:
Part of the problem one has to think about is that it is one thing
for someone whose normal taxable income, if I could put it that way,
if they took no action, was, say, $90 000, to take some action to get
it down below $70 000. If you are talking about someone whose taxable
income plus contributions is $200 000, the action that person has to
take is much more extreme. Some people have suggested that people could
use negative gearing, for example, to reduce it. If you work out how
much interest you have to be paying on a negative gearing proposal to
get your income down from $ 200 000 to $70 000, it needs to be enormously
large and probably very risky -. [5]
7.13 Similar doubts were expressed by Mr Ross Ramsay. In oral evidence
to the Committee, Mr Ramsay stated:
I have my doubts about negative gearing. That has been much touted.
Negative gearing is an inherently risky procedure. People are saving
for their retirement where I think the risk needs to be limited. I would
say that such switching would be more into the area of fringe benefits
and retention within company structures where the tax payable is 36%
up front.... [6]
Other issues
7.14 A number of witnesses and submitters argued that the proposed surcharge
will reduce the incentive for people to contribute to superannuation above
the level required by the Superannuation Guarantee legislation. They argued
that superannuation will be seen as a less attractive savings vehicle
than before the proposed surcharge was announced. With fewer voluntary
superannuation contributions from people above the adjusted tax threshold,
there may be an impact on the Government's revenue. The Association of
Superannuation Funds of Australia stated in their submission to the Committee:
7.15 ASFA cast doubt on whether the Government's revenue goals will be
achieved from the stated target group, arguing that the estimates do not
appear to take into account behavioural changes by high income earners.
[8]
[GO TO CHAPTER 8]
Footnotes
[1] Hansard, Superannuation Select Committee
11 March 1997, S281.
[2] Ibid.
[3] Ibid., S302
[4] Submission No. 23, p. 8.
[5] Hansard, Superannuation Select Committee
11 March 1997, S191.
[6] Ibid., p. S246.
[7] Submission No. 23, p. 3.
[8] Submission No. 23, p. 3.
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