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CHAPTER 5
Subsequently, I met with Treasury in Canberra - I do not know who
they were - and I tried to help them understand the visas.... The quotation
I got back - I can quote it because it was so memorable - was that 'they
had to consider the macroeconomic indicator shift effect of making such
a decision'.[1]
5.1 Before the changes to early release provisions, persons with preserved
superannuation benefits could access such benefits if they could satisfy
the superannuation fund's trustee that they were departing Australia permanently.[2]
As a result of the changes, preserved benefits will be released to a person
who claims to have left Australia permanently only if that person has
reached preservation age.
5.2 This change has been effected simply by omitting 'permanent departure
from Australia' as a condition of release of benefits.[3]
5.3 This removal of early access to superannuation is highly significant
in itself, as it affects both
- Australian citizens and permanent residents; and
- those expatriates returning overseas after limited stays in this country.
5.4 However, the Committee found the more important issue raised in evidence
to be the application of the Super Guarantee (SG) to temporary entrants
to Australia. If SG does not apply to temporary entrants, then the issue
of early access does not arise.
5.5 The Committee has divided this chapter into three parts. Part A will
deal with exemptions from SG. Part B will cover the early release of superannuation
benefits on permanent departure, and Part C sets out the Committee's conclusions.
PART A:
EXEMPTIONS FROM SUPER GUARANTEE
5.6 Following the report of the Committee of Inquiry into the Temporary
Entry of Business People and Highly Skilled Specialists (the Roach Committee,
see paragraphs 5.26-5.31 below), the Government established new visa sub-classes
for business temporary entrants effective from 1 August 1996. This changed
the application of SG to business people. There had been an exemption
from SG requirements for holders of the sub-class 413 (executive) visa,
but not for other visa sub-classes used by business temporary entrants.
5.7 Following the recommendations of the Roach Committee, the Government
established a new visa sub-class, 457 (business (long stay)) visa, which
applies to business temporary entrants from 1 August 1996. Initially there
was no exemption from SG for 457 visa holders. However, on 25 June 1997
the Assistant Treasurer announced that an exemption will apply to those
holders of a 457 visa who would have qualified for the formerly issued
sub-class 413 visa.[4] As noted
above, holders of the 413 visa had been exempt from SG requirements, and
of course those holders of 413s issued prior to 1 August 1996 (the date
of commencement of the 457 visa) remain exempt.[5]
5.8 The Government said in the 25 June 1997 press release that the announced
exemption from SG requirements was justified because the executives involved
'are usually in Australia for only short periods and have retirement income
arrangements in place in their home countries'.[6]
The exemption will not extend to the much larger number of sub-class 457
business temporary entry visa holders:
as to do so would be likely to give rise to labour market distortions
by making non-residents cheaper to employ than similarly skilled Australians.
Favouring non-residents in this way would not conform with the Government's
job creation priorities for Australians.[7]
5.9 The measure was described by the Government as 'broadly consistent
with overseas practice'. In recognition of the concerns of non-residents
affected by the changes to preservation rules:
the Government, through the Department of Social Security, has
entered into negotiations with other countries to include provisions
within bilateral social security agreements that would exempt employers
of temporary non-residents from each country's compulsory contributory
pension schemes. Such arrangements are common practice among most industrialised
countries.[8]
5.10 The Government has also said it would be prepared to negotiate agreements
to allow non-residents to transfer superannuation monies to an approved
pension plan in their home country.[9]
In return, Australians leaving foreign countries could transfer their
pension entitlements back to approved superannuation funds in Australia.
5.11 In 1996, the Government made changes to the visa rules in relation
to business temporary entrants, following the report of the Roach Committee.[10]
5.12 Prior to the changes to visa rules, business people entered Australia,
as temporary residents, under the following visa sub-classes:
- 411: exchange;
- 412: independent executive;
- 413: executive; and
- 414: specialist.[11]
5.13 To give effect to the Roach Committee's recommendations, the Government
established the sub-class 457 visa which applies to business temporary
entrants from 1 August 1996. This 457 visa replaced the 412, 413 and 414
visas. People who already held a visa of one of the sub-classes which
was replaced continued to hold that visa. As at 11 July 1997 there were
6,296 sub-class 413 visa holders in Australia.[12]
5.14 The 411 visa was retained. This covers:
- the temporary entry of 'skilled people from overseas to come to Australia
to broaden their work experience and skills while guaranteeing Australian
residents similar opportunities overseas; or
- people under certain bilateral exchange agreements'.[13]
5.15 The 457 visa covers business entry of three months to four years
for:
- personnel (executives, managers and specialists) for companies operating
in Australia;
- personnel from offshore companies seeking to establish a branch in
Australia, participate in joint ventures, or fulfil a contact awarded
to an offshore company;
- independent executives seeking to establish a new business or joining
existing businesses in Australia; and
- personnel coming under a labour or Regional Headquarters agreement.[14]
5.16 The holder of a 457 can apply for an additional 457 visa after the
initial one expires. It is also possible to enter the country on a sub-class
457 visa, but stay for less than three months.
5.17 The issue of sub-class 457 visas is about 25 000 each year.[15]
As at 11 July 1997 there were 26 138 holders of 457 and equivalent (412,
413, and 414) visas currently resident in Australia.[16]
About 60 per cent of 457s are held by primary applicants, and about 40
per cent are held by their dependants (who are mainly spouses and children).[17]
All holders of 457 visas, whether they are primary applicants or dependants,
have rights to work in Australia.[18]
5.18 It should also be noted that there is a separate visa for the domestic
staff of independent executives and senior executives holding 457 visas.[19]
Holders of the sub-class 427 (domestic worker (overseas executive)) visa
may not change employer or remain in Australia after the permanent departure
of their employer.[20]
5.19 In addition to the 457 visa, there is also the sub-class 456 (business
(short stay)) visa. There are several differences between 456 and 457
visas, but they both basically cover the same kinds of people. The important
difference between the two is that a 456 visa allows entry for up to three
months,[21] although this stay
can be extended. A 456 visa can be issued for single entry, or for multiple
entry for five years or the life of the passport, whichever is the longer
period.[22]
5.20 Holders of the 456 visa (whether primary applicants or dependants)
have work rights in Australia. Such rights allow holders to undertake
their business activity in Australia. It should be appreciated that the
visa is designed for business visitors, rather than being intended to
operate as a short stay work visa.
5.21 Approximately 300 000 sub-class 456 visas are issued a year, and
'the average length of stay is of the order of 10 days or less'.[23]
Examples of business conducted by 456 visa holders are attending negotiations
and conferences.[24] Approximately
five per cent of 456 visas are held by dependants.[25]
5.22 Both the 456 and 457 visa sub-classes belong to the Temporary Business
Entry (Class UC) visa class.
5.23 There are other visa sub-classes which may be relevant to some
industries, for example visas in relation to entertainment, sporting and
cultural activities.[26] Examples
include the:
- 419 (visiting academic) visa;
- 420 (entertainment) visa;
- 421 (sport) visa;
- 423 (media and film staff) visa; and
- 424 (public lecturer) visa.
5.24 Other relevant visa sub-classes include the 417 (working holiday)
visa, and the 410 (retirement) visa.
5.25 Following the introduction of The Migration Reform Act on
1 September 1994, there was a legal requirement for all non-Australians
to hold a visa authorising their entry to, and stay in, Australia. As
a result, a special category temporary residence visa (SCV) was introduced
for New Zealand citizens. The method of issuing, and the conditions attached,
are as follows:
- when presenting their passports for immigration clearance in Australia
New Zealand visitors are considered to have applied for a visa, and
subject to health and character concerns, will automatically receive
an SCV which is issued electronically;
- their passports are stamped, showing the date of arrival in Australia
which is the only evidence provided or necessary to show they are holders
of an SCV;
- there are no conditions attached to the visa, and the New Zealand
citizen is able to work and study in Australia without restriction as
long as he or she remains a New Zealand citizen.[27]
5.26 This Committee was established in 1994 to examine business temporary
entry to Australia. The Roach Committee recommended 'simplified and streamlined
procedures which will enable employers of good standing to bring in key
business personnel quickly and smoothly'.[28]
One of the Roach Committee's central recommendations was the creation
of a new visa class for all business temporary entrants.[29]
5.27 The Roach Committee noted that the 'policies and procedures governing
the temporary entry of key business personnel were developed at a time
when the objective was to achieve an Australian workforce self-sufficient
in all skills'.[30] However,
the Committee said:
A country of Australia's size cannot expect to be completely
self-sufficient at the leading edge of all skills in the area of key
business personnel. When world trade in services is based on different
countries developing specialised skills in different areas, it is not
realistic for Australia to attempt to develop specialised skills in
all areas.[31]
5.28 In relation to the application of SG to business temporary entrants,
the Roach Committee noted that:
In the majority of cases, key business personnel are employed
in Australia for less than 2 years, and the administration costs of
collecting SGC for such short time frames, and of withdrawal at the
time of departure from Australia are significant. More importantly,
many temporary residents already contribute to a business pension or
superannuation fund overseas ... They are in effect required to contribute
to two funds at the same time.[32]
5.29 In the light of the above comments, the Roach Committee recommended:
that employers be exempt from the requirement to pay the Superannuation
Guarantee Charge in respect of all holders of the proposed single business
temporary entry visa.[33]
5.30 The Government did not follow this recommendation. This was one
of only two of the Roach Committee's recommendations which were not followed.[34]
The Committee was informed that the SG issue was a Treasury portfolio
matter, rather than an Immigration matter.[35]
5.31 As outlined in paragraph 5.7 above, initially there was no exemption
from SG for 457 visa holders, but on 25 June 1997 the Assistant Treasurer
announced that an exemption will apply in respect of those who would have
qualified for the formerly issued 413 (executive) visa.[36]
Several witnesses expressed concern over how this policy will be administered
(see the section on 'The new old 413 requirements' below).
5.32 The Superannuation Guarantee (SG) was introduced in 1992. The policy
behind SG were outlined in the Second Reading Speech to the Superannuation
Guarantee (Administration) Bill 1992, where the then Treasurer outlined
expectations of what SG would achieve: The increased self-provision for
retirement will permit a higher standard of living in retirement than
if we continued to rely on the age pension alone. The increased self-provision
will also enable future Commonwealth governments to improve the retirement
conditions for those Australians who were unable to fund adequately their
own retirement incomes.
... self-provision will increase the flexibility in the Commonwealth's
Budget in future years, especially as our population ages, and will increase
our national savings overall, thus reducing our reliance on the savings
of foreigners to fund our development.[37]
5.33 SG became relevant to this inquiry because many submissions and
witnesses argued that there should be an exemption from SG requirements
for temporary residents employed in Australia. This evidence came from:
- the American Chamber of Commerce in Australia (AmCham) - in favour
of exemption for holders of sub-class 457 visas;[38]
- Arthur Andersen - in favour of exemption for 'exempt visitors' under
section 517 of the Income Tax Assessment Act 1936, or for 456
and 457 visa holders;[39]
- the Association of Superannuation Funds of Australia Ltd (ASFA) -
in favour of exemption for 'travellers' (which appears to include the
sub-class 457 visa among others);[40]
- Coopers & Lybrand - in favour of exemption for 457 visa holders;[41]
- Ernst & Young - in favour of exemption for all temporary entrants
to Australia;[42]
- Gilton Business Consultants, Immigration and Visa Specialists - in
favour of exemption for 457 visa holders;[43]
- the accountancy firm Greenwood Challoner & Co - in favour of exemption
for all temporary entrants;[44]
- the International Banks and Securities Association of Australia (IBSA)
- in favour of exemption for 'temporary non-resident employees';[45]
- John Swire & Sons Pty Ltd - in favour of exemption for 'all temporary
business visa holders with existing superannuation arrangements';[46]
- KPMG, Chartered Accountants - in favour of exemption for 457 visa
holders;[47]
- Price Waterhouse - in favour of exemption for 456 and 457 visa holders;
and also in favour of exemption for non-residents, employed by a non-resident
employer, who are exempt from Australian income tax and fringe benefits
tax pursuant to a double taxation agreement;[48]
and
- William M. Mercer Pty Ltd - in favour of exemption for all temporary
entrants who are in Australia for less than a certain period of time.[49]
5.34 While different views were put as to the desired scope of an exemption
from SG, the Committee found a common principle behind the support for
exemption. This was perhaps best expressed in the submission of John Swire
& Sons Pty Ltd:
We believe the problem is that the government seems to be losing
sight of the purpose of compulsory superannuation, which is to ensure
that as many Australians as possible are self-funding in retirement
and not dependent on the pension.[50]
5.35 Mr Robert Gillen, a Partner of Price Waterhouse, related this principle
to the relevant visa holders:
The people we are seeking the exemption for [holders of sub-class
456 and 457 visas] are not allowed to retire here. If they wish to,
they have to change their visa...[51]
5.36 The Committee in its Fifteenth Report said:
As the SG arrangements were designed to provide for or to supplement
the retirement benefit of Australians, there seemed to be little rationale
for legislating for overseas workers temporarily employed in Australia
to be subject to SG obligations.[52]
5.37 Coalition Senators recognise there is a case for exempting temporary
residents from SG on this principle. (See however para 5.150.)
5.38 Labor and Democrat Senators disagree, believing that on balance,
there is no case for exempting any temporary residents from SG.
5.39 As noted above, on 25 June 1997 the Assistant Treasurer announced
that an exemption from SG requirements will apply to those holders of
a 457 visa who would have qualified for the formerly issued 413 (executive)
visa.[53] The basic reasons advanced
by the Government for exempting holders of a sub-class 457 visa who would
have qualified for the formerly issued sub-class 413 visa was that:
the executives are usually in Australia for only short periods
and have retirement income arrangements in place in their home countries'.[54]
5.40 In regard to this decision, Treasury said:
There were basically two main reasons: the labour market distortions
and assisting Australia's negotiating position in relation to social
security agreements.[55]
5.41 The issue of labour market distortions is considered below and social
security agreements are considered in Part B of the chapter.
5.42 The Committee has considered the Government's argument that an
exemption from SG requirements in respect of holders of 457 visas would
cause labour market distortions by making temporary entrants cheaper to
employ than similarly skilled Australians.[56]
There was evidence on the remuneration of expatriate employees in this
visa sub-class;[57] and the costs
to employers of expatriate employees in comparison with the costs of employing
comparable Australians.
5.43 The Committee found that holders of 457 visas tend to be from the
more highly remunerated segments of the workforce. The Department of Immigration
and Multicultural Affairs (DIMA) told the Committee that, on the basis
of DIMA's monitoring of the 457 visa:
it is fairly clear that the usage is at the top end of the labour
market - that is, executives and highly skilled workers - usually in
areas where there is an acknowledged shortage of Australian skills available.[58]
5.44 Price Waterhouse referred to a 1996 survey of 120 companies in Australia,
which stated that the average annual salary of these companies' expatriate
employees was $96 621.[59]
5.45 Mr Gillen, of Price Waterhouse, explained the significance of expatriate
employees' place in the workforce this way:
The expatriates we are really talking about are generally senior
level people or those with specific skills and, as such, they are effectively
employment creators. They are not taking employment away from other
Australians.[60]
5.46 This issue is considered in detail in the section 'What about the
job makers?' below.
5.47 The Committee received consistent evidence that expatriate employees
are significantly more costly to employ than comparable Australians. Mr
Gillen said 'the cost of bringing expatriates into Australia is somewhere
between two to three times the cost of employing a local'.[61]
Coopers & Lybrand has a rule of thumb that an expatriate costs 'between
200 to 300 per cent of the cost of an Australian'.[62]
5.48 Mrs Theresa Rasmussen, of Outokompu Mining Australia Pty Ltd, told
the Committee that in her company's experience:
the cost of employing an expatriate versus a local, including
repatriation, is over 200 per cent higher and the annual cost of employment
is about 45 per cent higher for an expatriate.[63]
5.49 John Swire & Sons Pty Ltd submitted that:
By the time we arrange visa applications and sponsorship, cover
airfares, resettlement and housing costs and the myriad other expenses
involved in relocating employees, the cost far exceeds that for any
local equivalent.[64]
5.50 DIMA told the Committee that the information which it consistently
receives from a wide range of companies is that:
for an Australian company to bring in an overseas skilled worker
would cost between 2 times to four times that of an Australian worker
because of travel costs, housing costs, education costs, medical costs
and so on.[65]
5.51 The Committee is aware that the sub-class 457 visa includes the
dependants of primary applicants (also true with the 456 visa). As has
been noted above, such dependants do have work rights. Treasury said:
If those spouses and dependants come here, have a job in Australia,
it is possible that if they were exempt from SG that would create labour
market distortions, obviously depending on what work they took.[66]
5.52 While acknowledging Treasury's concern, the Committee believes that
the matter should be put into perspective. As at 11 July 1997 there were
26 138 holders of sub-class 457 and equivalent (ie 412, 413, and 414)
visas in Australia.[67] According
to DIMA, about 40 per cent of these visas are held by dependants,[68]
which gives a figure of about 10,500 dependants on sub-class 457 visas
in Australia as at 11 July 1997. Many of those dependants would not be
seeking employment in Australia, for example because they are children,
or because they choose not to be in the workforce.
5.53 Accordingly, the Committee considers that an exemption from SG requirements[69]
for 457 visa holders would not cause labour market distortions, or at
least not any significant distortions, by making sub-class 457 visa holders
cheaper to employ than similarly skilled Australians. However, the Committee
is also aware of the perceptions of distortion and relative advantage
that exempting these visa holders may create.
5.54 The Committee was told that there would be friction between staff
if holders of the same visa sub-class were treated differently in relation
to SG.[70] In 1995-96 the numbers
of 413 and 414 visas were, 4 299 (sub-class 413); and 8 488 (sub-class
414).[71]
5.55 The Committee has some difficultly in seeing how the exemption for
holders of the sub-class 457 visa, who would have previously qualified
for the 413 visa, will be implemented. The Committee understands that
monitoring and compliance will be handled by the ATO.[72]
5.56 When asked whether the sub-class 413 visa requirements would be
laid down in legislation, the ATO, replied:
I would expect that is a method by which that could be given
effect. It is too early to say whether that would be the way it would
go.[73]
5.57 The Committee does not share the view that nearly two months after
the Assistant Treasurer's public announcement of the exemption is 'too
early' to know how it will be implemented.
5.58 Mr John Gillespie, an experienced migration agent and the principal
of Gilton Business Consultants, said:
I think that it is absurd when we have a system that uses a criteria
which no longer exists to make a judgment'.[74]
5.59 Ms Brenda Mills of ASFA stated that:
We believe that employers would be performing quasi-immigration
duties by determining visa criteria, which would lead to those criteria
being applied unevenly according to employers' willingness or expertise
at administering them.[75]
5.60 Mr Feyzeny of KPMG described it as 'somewhat unsatisfactory' that
employers would have to apply a subjective test in determining whether
a person meets the sub-class 413 visa requirements.[76]
5.61 IBSA submitted that, on the basis of its discussions with the ATO:
the classification guidelines [for the 413 visa requirements]
are too broad and subjective to afford certainty ... and, consequently,
provide an unsatisfactory outcome for employers.[77]
5.62 Mr Ray Stevens, of William M. Mercer Pty Ltd told the Committee
that:
to ask an employer to decide whether this person would have qualified
for a 413 visa, when even the Department of Immigration experts have
problems putting people into the right category, is an unreasonable
imposition on the employer.[78]
5.63 Mr Stevens further described the exemption as 'a bandaid approach'.[79]
5.64 Ms Pauline Mathewson, a Partner in Coopers & Lybrand who was
a member of the Roach Committee, explained that one of the reasons that
the Committee recommended rationalising the business entry visa sub-classes
was the difficulty in distinguishing between the separate visa sub-classes:
One of the reasons we wanted to have one visa class was that
it was simply confusing. There was a blurring of distinction between
413 and 414. I guess the best example is if you have, say, a geological
engineer who is working in a mine and earning $200,000 a year. I would
deem that person who might be running the mine to be an executive but
the chances are that an immigration officer might say that is a technical
role, so he is a 414 visa holder. We said that is meaningless and it
does not make any difference. There is no point in having the distinction.[80]
5.65 Ms Mathewson described self-assessment as being 'an unworkable situation'.[81]
5.66 Treasury, however, appeared to be either unaware of difficulties
for employers in applying the sub-class 413 visa test, or to regard any
such difficulties as being insignificant. The Department told the Committee
she 'understood that it is not all that difficult for employers to know
who would have fallen into that category [the sub-class 413 visa]'.[82]
Treasury did not explain the basis for its understanding.
5.67 The Committee is concerned that the responsibility for a complicated
test, the test for whether or not one meets the criteria of the 413 visa,
which was originally undertaken by an expert agency will be transferred
to employers with no experience of this test. The reason for this approach
is not obvious, and was not explained to the Committee.
PART B:
EARLY RELEASE OF SUPER ON PERMANENT DEPARTURE
5.68 Treasury outlined the Government's approach to early release of
superannuation benefits as follows:
Given that the basic rationale of the superannuation system is
to improve retirement incomes, the starting point for considering these
measures would seem to be that benefits should only be released in limited
circumstances. It is also important to have a set of rules which are
as simple as possible, efficient, transparent and effective. It is almost
inevitable in these circumstances that a line will need to be drawn.[83]
5.69 Treasury explained the Government's belief that tightening early
release of superannuation benefits would increase national savings:
Obviously, intuitively, these measures will increase national
savings. There will be a reduction of leakage of moneys from the superannuation
system, so there will be more money in the form of superannuation assets
than there would otherwise be. As a consequence of that, there should
be an increase in national savings.[84]
5.70 However, as the Government's Retirement Income Modelling Task Force
(RIM), has noted:
Unfortunately for some components of early release, particularly
for the release of benefits for persons going overseas on a permanent
basis, there are no data available on the current arrangements'[85]
5.71 The Government is concerned at abuse of the permanent departure
ground for early release of superannuation benefits. Treasury outlined
the Government's concern at abuse in the following way:
One difficulty is that there is anecdotal evidence that under
the previous arrangements people were providing false evidence that
they were leaving Australia.[86]
5.72 Anecdotal evidence was also referred to by ASFA,[87]
and Coopers & Lybrand.[88]
Treasury acknowledged that their anecdotal evidence of abuse of the permanent
departure ground related to Australians rather than temporary entrants.[89]
5.73 Of course, removing permanent departure as a ground for early release
of benefits would reduce early withdrawals from the superannuation system,
and that should have a positive effect on national savings. The Committee
also accepts that there is a potential for abuse of the current arrangements,
although there was no evidence provided of actual abuse.
5.74 In estimating the effects of all measures to tighten early
release of superannuation benefits announced in the 1997-98 Budget, RIM
has stated:
the assumed reduction in total outflow is initially around $120m
pa, compared with current total hardship flows of $180m and uncertain
amounts for persons going overseas.[90]
5.75 Given the significance of the other grounds for early release of
benefits, it would appear that the amount of money currently leaving the
superannuation system due to permanent departure is significantly less
than $120 million. The amount would be even less in respect of temporary
entrants.
5.76 These figures also need to be considered against total superannuation
assets of $279.5 billion as at the end of March 1997.[91]
5.77 The Committee does not have detailed information on the problems
of abuse, and of reduction in national savings, which the Government is
attempting to address by removing the permanent departure ground. However,
it is clear that the dollar figures involved are not large in terms of
the superannuation system as a whole.
5.78 Although the Committee appreciates the Government's concerns in
relation to reduction in national savings, as they apply to Australians
and permanent residents, the applicability of these concerns to temporary
entrants is not immediately obvious. In this context the Committee notes
the observation of Mr Kevin Casey, Member of the Tax Policy Committee
of ASFA:
If that person is only here temporarily, is that money really
set aside for retirement in the Australian environment? You would have
to say no; therefore I would not count allowing its release out of the
system when that person emigrates back to their home country as leakage
out of the Australian system.[92]
5.79 However, Treasury explained the Government's concern in relation
to temporary entrants' savings for retirement as follows:
I accept that in a lot of cases these people will not come back
to Australia, but in a number of cases they could very well come back
to Australia. They might find it such a suitable place for their particular
lifestyles that they do actually want to come back here and retire,
and in those circumstances we would not want them falling back on the
aged pension system.[93]
5.80 This concern is considered below in the section 'Are temporary entrants
likely to become reliant on Australian social security?'.
5.81 The Government has also stated that the removal of permanent departure
as a ground for early release of superannuation benefits 'is broadly consistent
with overseas practice'.[94] However,
it is not clear if the Government regards this as a reason for adopting
its course. Treasury did not appear to put much weight on this point:
The other thing, too, is it actually brings our arrangements
more into line with overseas practice. We were talking about the US
before and this is a situation that they have over there as well. That
is not necessarily a reason why we should follow it, of course, but
there is a range of issues.[95]
5.82 There was serious concern expressed by parties affected by the
removal of permanent departure as a ground for early release of superannuation
benefits, that this measure is retrospective, as it applies to benefits
existing before the measure's commencement. The retrospectivity argument
was advanced in broadly similar terms by several organisations:
- Arthur Andersen submitted that denying 'access to contributions made
prior to the [1997-98] budget and based on the law at that time, effectively
amounts to retrospective application of the proposed changes';[96]
- Coopers & Lybrand stated that the measure was retrospective 'as
existing benefits are caught';[97]
and
- IBSA contended that 'the proposal is retrospective, as it affects
arrangements already in place'.[98]
5.83 Mr Feyzeny, of KPMG, saw the application to existing superannuation
benefits of the removal of the permanent departure ground as being contrary
to a politically bipartisan policy against retrospectivity:
Certainly, the view has been that for quite some time now retrospective
legislation was a no-no as both governments had agreed that they did
not wish to alter people's planning towards retirement expectations
or imposts. So I think that [the measure] seems to be contrary to unwritten
policy...[99]
5.84 The Government did not accept that the measure is retrospective.
Treasury appeared to see the issue of retrospectivity as being in large
part a matter of one's point of view:
[W]here new measures are implemented there are obviously a number
of ways in which they can be implemented, ranging from totally prospective
- and each person has a different view about what is prospective and
things like that. I could say that these measures are prospective, because
they were announced on 13 May and took effect from 1 July.[100]
5.85 Treasury was asked by the Committee whether the Government had considered
having transitional provisions, so that temporary entrants in Australia
prior to the commencement of the measure were not affected by the new
rule. The Department indicated that this was considered to create too
many complexities.[101]
5.86 There are clearly different views between Government and the superannuation
industry as to what constitutes retrospectivity. The following is the
view of Pearce and Geddes as outlined in their text Statutory Interpretation
in Australia:
All legislation impinges on existing rights and obligations.
Conduct that could formerly be engaged in will have to be modified to
fit in with the new law. It cannot therefore be said that in this sense
legislation is retrospective because this is true of all legislation.
Legislation only operates retrospectively if it provides that rights
and obligations are changed with effect prior to the commencement of
the legislation.[102]
5.87 Mr Charles Blunt, the Chief Executive Officer of AmCham, told the
Committee that:
Most of the employees of foreign companies that are impacted
by this measure are fairly senior people. If they are of US origin,
retrospective removal of a benefit is an anathema to them. They find
it particularly offensive, and it is most unlikely to occur in a US
jurisdiction. They equate that sort of change with the sort of change
that you would expect to have in a country that is not democratic. Hence
it does nothing to enhance our reputation in boardrooms overseas.[103]
5.88 There was criticism of the notice period given in relation to the
removal of the permanent departure ground, and in particular of the notice
given of the transitional arrangement.
5.89 The removal of the permanent departure ground was announced in the
1997-98 Budget on 13 May 1997. The relevant part of the Budget Papers
stated:
The Government will reform the current arrangements for early
release of superannuation benefits, with effect from 1 July 1997....
Superannuation funds will be able to release benefits to a person who
claims to have left Australia permanently only after that person has
reached preservation age. This is broadly consistent with overseas practice.[104]
5.90 The regulations removing permanent departure as a ground for the
early release of superannuation benefits were made on Wednesday 25 June
1997, published in the Commonwealth Gazette on Thursday 26 June 1997,
and commenced on Tuesday 1 July 1997.[105]
Regulation 5 of SR 1997 No. 153 provided a transitional arrangement, as
follows:
- a written request to a trustee before 1 July 1997 would be dealt with
as if the early release provisions had not been amended by SR 1997 No.
153.[106]
5.91 William M Mercer Pty Ltd stated their concern at the short notice
between the Budget announcement and commencement of the new provisions.[107]
They suggested that in future a period of six months notice should be
given for comparable changes; this would allow superannuation funds to
make necessary administrative changes, and allow individuals to 'adjust
their expectations'.[108]
5.92 Mr Michael Forsdick, of Coopers & Lybrand, said that his multinational
clients who employ expatriates, were 'quite horrified' by the Government's
measure in relation to the permanent departure ground: 'not only the retrospective
nature of it, but also the very short time frame in which it was announced'.[109]
5.93 There was consistent criticism of the shortness of the period between
the gazettal of the SIS Regulations Amendment and its commencement (from
Thursday 26 June 1997 to Tuesday 1 July 1997). Ernst & Young submitted
that superannuation fund members had 'at most two working days to become
aware of this regulation and to act upon it ... this was grossly unfair'.[110]
At a public hearing, Ms Noelle Kelleher of Ernst & Young said regarding
the shortness of the notice period:
5.94 Mr Blunt said that AmCham had conducted a survey of its members
on the changes to preservation rules, which had invited comments:
Some of the comments about the transitional arrangements are,
to put it politely, quite rude. They suggest that to have three or four
days' notice that there is an opportunity to apply for a return of funding
is just a joke.[112]
5.95 The Government did not accept criticism of the notice period as
valid. In response to a question as whether the notice period for the
transitional arrangement under SR 1997 No. 153 was four days. The Insurance
and Superannuation Commission (ISC) replied that this was not the case.
Instead, they said the relevant notice was:
From the time of the budget announcement, because that was clear
cut in respect of the permanent departure overseas.[113]
5.96 Treasury supported this view when it said:
The measure was announced in the Budget on 13 May. It took effect
from 1 July. So people did have some indication of what was to happen....
Obviously a line needs to be drawn somewhere.[114]
5.97 The Committee considers it would be preferable to give greater
notice of future comparable changes than from the Budget announcement
to commencement on 1 July 1997. In respect of the transitional arrangement
for overseas departure, the Committee considers that, for all practical
purposes, notice was from gazettal. The notice period which was provided,
from Thursday 26 June 1997 to Tuesday 1 July 1997, was then clearly inadequate.
5.98 There was evidence which indicated that the removal of the permanent
departure ground, as it affects expatriates, will discourage employment
of expatriates in Australia, and the establishment of operations in Australia
by foreign companies, in particular the establishment of Regional Headquarters
(RHQs).
5.99 Mr Gillen of Price Waterhouse described overseas perception of the
measure as:
5.100 Mr Blunt told the Committee that the perception that Government
would make changes to law affecting business retrospectively would have
an impact on business confidence:
There are certain very positive factors associated with investing
and locating in Australia, and there are a number of hurdles. This is
perceived as another hurdle. I would not like to try and quantify the
impact that the perception that the government will introduce retrospective
changes will have on future decisions, but it is there.[116]
5.101 Ms Mathewson said that the complexity of the Australian taxation
system discouraged foreign companies from establishing operations in Australia,
and that the application of SG to expatriate employees added to this complexity.[117]
5.102 The Committee was told that Australia was heavily reliant on expatriates
to introduce new skills and business practices, particularly in high technology
fields.[118] Outokompu Mining
Australia Pty Ltd stated that it employed expatriates for two principal
reasons: to obtain specialist expertise, and to provide experience to
undergraduate trainees.[119]
5.103 IBSA submitted that expatriate employees 'make a significant contribution
to both the investment banking sector and the economy through the transfer
of new skills and alleviating identified skill shortages', as well as
assisting employment growth of the association's members 'which was 30%
over the three years to mid-1996'.[120]
DIMA informed the Committee that following the deregulation of the financial
sector in the mid-1980s, approximately 200 permanent residents and 2 000
temporary entrants have come to Australia to work in the financial sector.[121]
5.104 DIMA stated that the Australian financial sector had lacked specialists
in foreign exchange dealing and Information Technology to cope with the
post-deregulation expansion of the sector, and that since deregulation
'something like 10 000 additional jobs have been created for Australian
workers'.[122]
5.105 There are concessions available under the Income Tax Assessment
Act 1936 to encourage multinational companies to establish RHQs in
Australia. Price Waterhouse explained the role of an RHQ as follows:
An RHQ provides support services to its associated companies
located in other countries in the same region and acts as an intermediary
between those associated companies and the parent company located elsewhere.[123]
5.106 The Committee can readily appreciate that the location of RHQs
in Australia is significant for growth in trade and employment.
5.107 Price Waterhouse undertook a comparison of Australia with other
regional jurisdictions where multinational companies could consider locating
Asia Pacific RHQs. The results of the comparison were as follows.
5.108 Temporary entrants, or their employers, were not required to make
contributions to a superannuation or pension fund in China, Hong Kong,
Malaysia, New Zealand or Thailand. There was a requirement to make contributions
in Indonesia, Japan and Singapore. However, in the case of Singapore it
was possible to obtain an exemption from this requirement, and Price Waterhouse
were of the view that this exemption was routinely granted. In Indonesia
and Japan the expatriate was able to obtain a lump sum payment of their
benefit on permanent departure from the country. 124
5.109 Price Waterhouse considered that SG, as it affects expatriates,
was a disincentive to establish an RHQ in Australia, as compared to other
locations in the Asia Pacific region.[125]
Ms Noelle Kelleher, of Ernst & Young, told the Committee that she
had been involved in costings for companies considering where to establish
an Asia Pacific RHQ. She said that Australia was 'invariably' more expensive
than the alternatives, and that:
A lot of the feedback that we are getting here is that, if there
is one more impost here in Australia, they [companies] just really will
not consider Australia for a regional headquarters.[126]
5.110 The Committee considers that the requirement that superannuation
benefits must be preserved until preservation age for 456 and 457 visa
holders, will be a discouraging factor to those foreign companies wanting
to establish operations such as RHQs in Australia.
5.111 The Committee was told that the removal of the permanent departure
ground, as it affects temporary residents, will place burdens on the temporary
residents themselves, their employers and on the trustees of their superannuation
funds.
5.112 The point was made to the Committee that the amount of superannuation
benefits which might be preserved would often not be a large sum, certainly
not in a person's overall retirement plans. Mr Feyzeny said 'the employee
sees the money that goes into the superannuation as being something which
is almost intangible'.[127]
5.113 Mr Blunt talked of the disadvantage of preservation to persons
permanently departing Australia, who would otherwise have received their
accumulated SG.[128]
5.114 Mr Gillen, of Price Waterhouse, neatly summarised the costs which
would be placed on temporary entrants in obtaining access to their preserved
superannuation benefits:
The expatriates themselves do not understand why they are required
to contribute. They do not plan to retire here.... If you look to 20
or 30 years time when they retire, these individuals are going to need
to file an Australian tax return. Whether their tax file number is still
current will be doubtful... They are then, presumably, going to have
to pay someone to do their Australian tax return, because they most
probably have not lived here for a period of time. It is just creating
unnecessary work for what would generally be reasonably small amounts
of money.[129]
5.115 The Committee was also informed that temporary entrants could be
liable to double taxation in respect of the earnings of their superannuation
savings.[130]
5.116 The Committee received evidence that the preservation of superannuation
benefits of expatriate employees until preservation age will increase
costs to employers. This issue is significant, as it is conservatively
estimated that the cost of SG to employers in respect of expatriate employees
is currently over $85 million per annum.[131]
5.117 It appears that most expatriate employees continue in home country
retirement plans while in Australia. Mr Gillen said:
the large majority of employers actually maintain their people
in their home country superannuation or pension plans while they are
in Australia.[132]
5.118 Some, but not all employers who maintain home country superannuation,
require the employee to pay their SG to the employer when it is accessed
by the employee. This is called 'equalisation'.[133]
Ms Noelle Kelleher, Principal, Director - Superannuation, Ernst &
Young told the Committee that the removal of the permanent departure ground:
effectively means that they [employers] have then got the added
superannuation burden for actually having those people come to Australia,
because there is just no way of actually having any form of equalisation
policy in place.[134]
5.119 It seems that the removal of the permanent departure ground will
place additional administrative expenses on superannuation funds,[135]
which means a cost ultimately to all members of superannuation funds.
There are additional costs to superannuation funds in relation to members
overseas as compared to those members in Australia.
5.120 Mrs Elke Malcolm, of Mercantile Mutual Life, said it can be 'quite
costly' to keep in touch with overseas members.[136]
There will be cases where temporary entrants work in Australia for a very
short period of time at an early point of their life. Preservation of
such people's superannuation benefits in Australia will create disproportionate
costs.
5.121 Mr Peter Lamrock, company secretary of John Swire & Sons Pty
Ltd and a trustee of the Swire group retirement plan, said:
the administrative effort in order to track a small amount of
money over a period of up to 30 or 40 years until the age of 55 would
be out of all proportion to the amount of money actually held.[137]
5.122 ASFA expressed concern that most of the expatriate employees' money
which will be preserved due to the removal of the permanent departure
ground, would become unclaimed money (which falls to government) as it
would be impossible to trace members.[138]
It is to be hoped that ASFA's prediction is not realised. However, it
would appear that, to quote KPMG:
the longer the period between departure from Australia and the
entitlement to a benefit, the greater the likelihood that it will become
impossible to trace the owner.[139]
5.123 The preservation of temporary entrants' superannuation benefits
will clearly bring with it additional administrative costs to superannuation
funds. To the extent that such preserved benefits will become unclaimed
moneys, the removal of the permanent departure ground appears to incur
additional costs with no benefit to any members.
5.124 The Government has expressed concern that temporary entrants might
retire in Australia and become a burden on Australian social security
(see paragraph 5.78 above). Temporary entrants could retire in Australia
through becoming permanent residents, or by obtaining a specific retirement
visa which gives temporary residence (the sub-class 410 visa).
5.125 To obtain a 410 (retirement) visa the applicant must meet a financial
test.[140] Holders of this visa
are ineligible for Medicare or Social Security benefits, and they should
therefore ensure satisfactory medical insurance coverage. Holders of this
visa do not have work rights. The visa is for temporary residence only.
The initial visa is for four years, but it is possible to receive extensions
with each extension being for no more than two years. Holders of 410 visas
are not a burden on the Australian social security system. As at 11 July
1997 there were 1 171 holders of sub-class 410 visas in Australia.
5.126 The Committee considers that the Government's concern in this area,
which it has not quantified, must be weighed against the burdens imposed
by the removal of the permanent departure ground. There are burdens on
the temporary entrants themselves, on employers and on superannuation
funds; and there is a discouraging effect on foreign companies wanting
to establish operations in Australia.
5.127 The Committee was told that removal of the permanent departure
ground would assist the Government in negotiating international social
security agreements with other countries. Such agreements would cover
matters such as providing exemptions for Australians working overseas
from foreign social security taxes. The Department of Social Security
(DSS), described the effect of the measure as follows:
The US is the best example. If we were to give a unilateral exemption,
there would be no particular reason why they would give us one, because
we would have already given away the exemption.[141]
5.128 There appeared to be a degree of confusion among Government advisers
about the role which international social security negotiations had played
in the Government's deciding to remove the permanent departure ground.
Treasury said the following about the decision to limit the exemption:
There were basically two main reasons: the labour market distortions
and assisting Australia's negotiating position in relation to social
security agreements.[142]
5.129 However, DSS said this in reply to a question on the effect of
removing the permanent departure ground on international social security
negotiations:
5.130 DSS told the Committee that Australia has eleven social security
agreements with foreign countries.[144]
Currently $712 million is paid into Australia per year in foreign social
security payments, and Australia pays out $137 million per year to those
countries with whom we have agreements.[145]
5.131 The Committee is concerned about the use of superannuation policy
as a bargaining chip in relation to international social security negotiations.
Firstly, as ASFA has noted, bilateral agreements 'would take a significant
amount of time to establish before they can be utilised'.[146]
5.132 Secondly, the Committee was told that it is difficult to compare
Australia's SG system with foreign social security taxes, as the SG system
is privately administered rather than a tax arrangement.[147]
However, DSS said that the Australian system was comparable 'in so far
as there is a mandated percentage that you have to put in'.[148]
5.133 Thirdly, the Committee notes that it would appear that the measure
may add to difficulties in other areas of international relations. The
Committee notes public reporting of the US International Trade Commission's
criticism of Australia's business migration policies as a barrier to trade
in services.[149] The Committee
believes that the changes to preservation rules in relation to permanent
departure, in so far as they apply to temporary business entrants, may
complicate relations with foreign countries in respect of these issues.
5.134 However, given the often delicate, and necessarily confidential,
nature of international negotiations, it is difficult for the Committee
to comment further on the Government's assessment of the value of its
stance on preservation of benefits in relation to international social
security negotiations.
5.135 The Committee received evidence from Mr Charles Moses, an Australian
citizen who will be personally affected by the changes to preservation
rules. He was the only Australian citizen personally affected by these
changes to make a submission to the Committee.
5.136 Mr Moses has applied for permanent residence in Canada. He expects
to permanently depart Australia soon, so as to live in Canada with his
wife who is a Canadian citizen. Mr Moses was highly critical of his inability
to access his superannuation benefits:
I am now dictated to by the government to maintain my retirement
investment in a country of which I will no longer be a resident and
possibly a citizen.[150]
5.137 Mr Moses was concerned that he will have to begin saving for retirement
afresh when he is in Canada as he will not be able to transfer his Australian
superannuation into a Canadian retirement savings vehicle.[151]
Also he said he 'will be disadvantaged by monitoring the performance of
my superannuation from the other side of the world, something I am not
looking forward to'.[152] Mr
Moses was also greatly concerned that his Australian superannuation savings
would be eroded by management fees and inflation.[153]
5.138 The Committee notes Mr Moses' personal circumstances, and can understand
his concerns. However, the Committee believes that the issues which he
raises are more related to member protection, rather than relating directly
to the removal of the permanent departure ground.
5.139 As was noted above, the Committee accepts that removing the permanent
departure ground would reduce early withdrawals from the superannuation
system, and that this, in turn, should have a small positive effect on
national savings. The Committee accepts that there is a potential for
abuse of the current arrangements.
5.140 The Committee had much less of a problem understanding the Government's
proposals in respect of the departure of Australian citizens and permanent
residents, than it did with temporary residents.
PART C:
CONCLUSIONS
5.141 The Committee reiterates its view that the primary purpose of
superannuation in Australia is the provision of retirement income for
Australians. The importance of this social and economic objective is reflected
in the concessional taxation treatment which superannuation receives.
Providing for Australians' retirement will be undermined if their superannuation
savings are dissipated. The Committee supports rules which will promote
the purposes of superannuation.
5.142 The Committee is concerned, at a time when there is general community
support for measures to increase the level of meaningful employment in
this country, that the Government's measure to remove the permanent departure
ground for early access may have this unintended side effect. Foreign
companies may be dissuaded from establishing operations in Australia,
and there may be a consequent dampening of growth in trade and employment
for resident Australians.
5.143 The Committee notes that there is a lack of data on the magnitude
of early withdrawals from the superannuation system due to permanent departure.
However, the Committee recognises that removing permanent departure as
a ground for early release of benefits would reduce early withdrawals
from the superannuation system, and this should have a positive effect
on national savings. The Committee also accepts that there was at least
a potential for abuse under the old arrangements.
5.144 The Committee therefore concludes that, in the case of Australian
citizens, permanent departure should not be a ground for early release
of superannuation benefits. The Committee is aware that, particularly
given the cultural diversity of the Australian community, there will be
Australians who spend much of their lives overseas. Nevertheless, given
the right of an Australian to reside in Australia in their retirement,
the Committee concludes that the superannuation savings of Australians
who have permanently departed Australia should be preserved until preservation
age.
5.145 If an Australian citizen who has permanently departed Australia
were to subsequently lose their citizenship, then there may be a case
for early release of superannuation benefits in such circumstances, as
the former citizen would have lost his or her right of return to Australia
(although the person could apply for a visa to enter Australia). The Committee
notes that where an Australian loses their Australian citizenship that
this would generally be due to a choice made by that Australian (for example,
by voluntarily taking citizenship of another country).[154]
5.146 Although the Committee does not consider a recommendation necessary
on this matter, the Government may wish to give further consideration
to provide for the early release of superannuation benefits to Australians
who have permanently departed Australia and subsequently lose their Australian
citizenship.
5.147 The Committee understands that permanent residents do not have
the same rights of return enjoyed by Australian citizens. However, the
Committee believes that there is a significantly higher probability that
such persons will retire in Australia than non-Australians who are only
in Australia temporarily.
5.148 Accordingly, the Committee is satisfied that the superannuation
savings of permanent residents of Australia who have permanently departed
Australia should also be preserved until preservation age. However, as
outlined in paragraph 145, the Government may wish to consider providing
for early release of benefits to permanent residents who have permanently
departed Australia, and who are subsequently unable to legally return
to Australia.
5.149 The case of temporary entrants to Australia is different from
that of Australian citizens and permanent residents. Temporary entrants
are welcomed and valued members of our community while they are here,
but there the Committee sees no need for them to be required to save in
Australia for a retirement that they will not share with us.
5.150 The weight of evidence supported exemption from SG for holders
of 456 and 457 visas. However, for reasons of consistency, the Committee
considers there should be no exemption, but these people should be granted
early access to their superannuation on their permanent departure from
Australia.
5.151 Committee members differ in their views about when the Government
should move to allow early access on permanent departure. Coalition Senators
considered that such access should be delayed until the conclusion of
social security agreements (see recommendation 6.3).
5.152 The Committee's inquiry was not involved directly with other temporary
visa holders. But on the principle described in paragraph 5.149, the Committee
concludes there is a good case for such people to also be granted early
access to superannuation on their permanent departure overseas.
5.153 In summary, the Committee concludes that the Government's removal
of permanent departure as a ground for early release of superannuation
benefits should be supported, except as it applies to temporary entrants,
all of whom should be exempt from the measure (within the constraints
described in paragraph 5.151).
5.154 The Coalition Senators recognise the strong evidence in favour
of exemption from SG for business class (456 and 457) visa holders and,
in the absence of exemption, at least full access to benefits on permanently
departing overseas. However, the Government wishes to maintain the integrity
of its changes in order to successfully negotiate social security agreements
with other countries. (See Chapter 6 for details on the Government's position.)
5.155 While the Coalition Senators appreciate the Government's position,
they express their concern at:
- the length of time it takes to conclude these social security agreements;
and
- the lack of appreciation by the bureaucracy of the difference between
Australia's superannuation system and those of other countries.
[1] Evidence, Ms Pauline
Mathewson, p. 139. On this issue see the section 'Limiting SG exemption
to the sub-class 413 visa criteria' below.
[2] Permanent departure means as
from Australia.
[3 See the Retirement Savings Accounts
Regulations (Amendment) ]regulation 3, which omits subregulation 4.01(2)
of the Retirements Savings Accounts Regulations; and Superannuation Industry
(Supervision) Regulations (Amendment) regulation 3, which omits subregulation
6.01(2) of the Superannuation Industry (Supervision) Regulations.
[4 ] Press Release No. AT/10 of
1997.
[5 ] See the Superannuation Guarantee
(Administration) Regulations, subregulation 7(1).
[6 ] Press Release No. AT/10 of
1997.
[7 ] ibid
[8 ] ibid
[9 ] ibid
[10 ] Business Temporary Entry:
Future Directions - Report by the Committee of Inquiry into the Temporary
Entry of Business People and Highly Skilled Specialists (the Roach
Committee Report' (1995).
[11 ] The Roach Committee Report,
p. 57. It also noted that business people entered Australia as visitors,
under 672 (business visitor (short stay)) and 682 (business visitor (long
stay)) visas. These visas have subsequently been superseded by the 456
(business (short stay)) visa (see paragraph 5.19 below).
[12] Statistics provided by the
Department of Immigration and Multicultural Affairs (DIMA).
[13 ] DIMA, Fact Sheet 53:
Temporary Residence in Australia (1997), p. 2. This fact sheet provides
a convenient description of visa sub-classes being considered in this
chapter.
[14 ] DIMA, Fact Sheet 53,
p. 1.
[15 ] Evidence, DIMA,
p. 150.
[16 ] Australia, DIMA, unpublished
statistics.
[17 ] Evidence, DIMA,
p. 158.
[18 ] Evidence, DIMA,
p. 157-8.
[19 ] DIMA, Fact Sheet 53,
p. 2.
[20 ] Facsimile message from
Mr R. Vagg, DIMA, to Committee Secretariat of 1 September 1997, p. 8.
[21 ] Evidence, DIMA,
p. 150.
[22 ] Evidence, DIMA,
p. 150.
[23 ] Evidence, DIMA,
p. 150.
[24 ] Evidence, DIMA,
p. 150.
[25 ] Facsimile letter from DIMA,
1 September 1997, p. 1.
[26 ] Evidence, DIMA,
pp. 158-159.
[27] Fact Sheet issued by DIMA,
faxed to secretariat on 17 September 1997.
[28 ] The Roach Committee Report,
p. 4.
[29 ] Roach Committee, p. 27.
[30 ] Roach Committee, p. 1.
Emphasis in original.
[31 ] Roach Committee, p. 2.
[32 ] Roach Committee, p. 42.
[33 ] ibid.
[34 ] Evidence, Ms Pauline
Mathewson, p. 132. Ms Mathewson who is a Partner, Migration Services,
Cooper & Lybrand, was a member of the Roach Committee. The other recommendation
which was not followed was that there be an exemption from the Medicare
levy for temporary entrants (ibid, p. 132).
[35 ] Evidence, DIMA,
p. 156.
[36 ] Press Release No. AT/10.
[37 ] House of Representatives,
Hansard, 2 April 1992, p. 1764.
[38 ] Evidence, Mr Charles
Blunt, p. 105. Mr Blunt is the Chief Executive of AmCham.
[39 ] Submission 19, Arthur
Andersen, p. 2.
[40 ] Evidence, p. 79.
[41 ] Submission 8, Coopers
& Lybrand, p. 6. Coopers & Lybrand also suggested an exemption
along the lines of the provision for 'exempt visitors' under section 517
of the Income Tax Assessment Act 1936. See Evidence, Mr
Mike Forsdick, p. 136. Mr Forsdick is a Partner of Coopers & Lybrand.
[42 ] Evidence, Ms Noelle
Kelleher, p. 62. Ms Kelleher is Principal, Director - Superannuation,
Ernst & Young.
[43 ] Submission 4, Gilton
Business Consultants.
[44 ] This appears to follow
from the discussion between Mr Bill Baillie, Partner, Greenwood Challoner
& Co, and the Chairman of the Committee at Evidence, pp. 107-108.
But cf the reference to exemption for 'non residents visiting for short
term assignments' in Submission 12, Greenwood Challoner & Co,
p. 11.
[45 ] Submission 20, IBSA,
p. 2.
[46 ] Submission 3, John
Swire & Sons Pty Ltd, p. 3.
[47 ] Submission 5, KPMG,
p. 8. However, in his oral submission, Mr Emery Feyzeny, Superannuation
Partner, KPMG, stated that KPMG supported exemption from SG for all temporary
residents, saying 'I think that is really what we are putting' (Evidence,
Mr Emery Feyzeny, p. 94).
[48 ] Submission 9 Supp,
Price Waterhouse, p. 7.
[49 ] Evidence, Mr Ray
Stevens, p. 7. Mr Stevens is a director of William M. Mercer Pty Ltd.
[50 ] Submission 3, John
Swire & Sons Pty Ltd, p. 2. John Swire & Sons Pty Ltd is an Australian
subsidiary of the global Swire Group. The Swire Group employs over 800
staff in Australia, operating in transport and agriculture, among other
areas (see ibid, p. 1).
[51 ] Evidence, p. 53;
and see also Submission 9 Supp, Price Waterhouse, p. 1. Mr Gillen's
position is Partner and Australasian Director, International Assignment
Services, Price Waterhouse. For other similar statements to the Committee
see: Evidence, Mr Feyzeny, p. 89, and Submission 5, KPMG,
pp. 3-4; Evidence, Mr Baillie, p. 108; and Evidence, Mrs
Theresa. Rasmussen, p. 114.
[52 ] Super Guarantee: Its
Track Record (1995), p. 131. In that report the Committee recommended
that 'the Government extend exemptions from the requirements of SG to
all non-resident workers where there is sufficient evidence that superannuation
is being paid in the country of residence' (Recommendation 11.1, p. 132).
[53 ] Press Release No. AT/10.
[54 ] ibid.
[55 ] Evidence, p. 157.
In relation to labour market distortions, see the quotation from the Assistant
Treasurer's Press Release No. AT/10 reproduced at paragraph 5.8 above.
[56 ] See paragraph 5.8 above.
[57 ] Given that the 456 visa
permits stay of up to three months (although stay can be extended), it
would be unusual for it to be used by an expatriate employee. As was noted
above in paragraph 5.20, the 456 visa is designed for business visitors.
Accordingly, this section only discusses the 457 visa. However, additional
costs such as travel costs, referred to in paragraph 5.46, would apply
regardless of the specific visa which a temporary entrant holds.
[58 ] Evidence, p. 151.
[59 ] Evidence, Mr Gillen,
p. 50.
[60 ] Evidence, p. 42.
[61 ] Evidence, p. 43.
[62 ] Evidence, Ms Mathewson,
p. 137.
[63 ] Evidence, p. 114.
Mrs Rasmussen is the Manager - Administrative Services of Outokompu Mining
Australia Pty Ltd, a subsidiary of the Finnish metals company Outokompu
Oy, which operates globally (Submission 2, p. 1). Outokompu Mining
Australia Pty Ltd 'employs approximately 200 people, including contractors'
(Evidence, p. 113).
[64 ] Submission 3, John
Swire & Sons Pty Ltd, p. 2.
[65 ] Evidence, p. 151.
For a description of the additional costs incurred in employing an expatriate
employee, in the case of the ANZ Banking Group, see Submission 9 Supp,
Price Waterhouse, Appendix 3.
[66 ] Evidence, p. 157.
[67 ] Australia, DIMA, unpublished
statistics.
[68 ] Evidence, DIMA,
p. 158.
[69 ] SG is currently set at
6 per cent of salary, and is scheduled to increase to 9 per cent.
[70 ] Evidence, Ms Mathewson,
p. 140.
[71 ] DIMA, Fact Sheet 53:
Temporary Residence in Australia (1997), p. 2.
[72 ] Evidence, Treasury,
p. 154.
[73 ] Evidence, p. 155.
[74 ] Evidence, p. 77.
[75 ] Evidence, p. 79.
See also Submission 11, ASFA, p. 6.
[76 ] See Evidence, pp.
93-94.
[77 ] Submission 20, IBSA,
p. 2.
[78 ] Evidence, p. 8.
[79 ] Evidence, p. 9.
[80 ]Evidence, p. 132.
[81 ] Evidence, p. 133.
[82 ] Evidence, p. 154.
[83 ] Evidence, p. 144.
[84 ] Evidence, p. 148.
[85 ] Aggregate Analyses of
Policies for Accessing Superannuation Contributions (1997), p. 8.
[86 ] Evidence, p. 164.
[87 ] ASFA stated that 'there
has been anecdotal evidence of Australian residents who have claimed to
have permanently departed by producing evidence based on the purchase
of a one-way air ticket but have in fact returned to Australia' (Submission
11, p. 5).
[88 ] Coopers & Lybrand stated
that they 'understand that there is strong anecdotal evidence' of false
declarations of permanent departure by superannuation fund members to
trustees (Submission 8, Coopers & Lybrand, p. 3).
[89 ] Evidence, p. 165.
[90 ] Aggregate Analyses of
Policies for Accessing Superannuation Contributions (1997), p. 8.
The prediction is that the measures will have a positive effect on national
saving of .02 per cent of GDP in 1997-98.
[91 ] Insurance and Superannuation
Commission Bulletin, March Quarter 1997, p. 26.
[92 ] Evidence, p. 79.
[93 ] Evidence, p. 165.
[94 ] 1997-98 Budget Paper
No. 2: Budget Measures 1997-98, p. 193.
[95 ] Evidence, p. 165.
[96 ] Submission 19, Arthur
Andersen, p. 4.
[97 ] Submission 8, Coopers
& Lybrand, p. 4. See also Submission 10, AmCham, p. 3.
[98 ] Submission 20, IBSA,
p. 1.
[99 ] Evidence, p. 91.
See also Submission 5, KPMG, p. 5.
[100 ] Evidence, p. 173.
[101 ] Evidence, pp.
173-174.
[102 ] D.C. Pearce and R.S.
Geddes, Statutory Interpretation in Australia (4th ed 1996), p.
244. See also A. Palmer and C. Sampford, 'Retrospective Legislation in
Australia: Looking Back at the 1980s' (1994) 22 F L Rev 217, esp
at p. 219.
[103 ] Evidence, p.
102.
[104 ] 1997-98 Budget Paper
No. 2: Budget Measures 1997-98, p. 193.
[105 ] The regulations were
the Retirement Savings Account Regulations Amendment (Statutory Rules
(SR) 1997 No. 151) and the Superannuation Industry (Supervision) Regulations
(Amendment) (SR 1997 No. 153).
[106 ] A transitional provision
was not necessary in respect of SR 1997 No. 151, as the legislation establishing
retirement savings accounts (the Retirement Savings Accounts Act 1997)
did not itself commence until 1 July 1997.
[107 ] Submission 7,
William M Mercer Pty Ltd, p. 1. This concern applied to all the measures
being considered by the Committee, not only to the removal of permanent
departure as a ground for the early release of superannuation benefits.
[108 ] ibid
[109 ] Evidence, p.
134. Mr Forsdick is a Partner of Coopers & Lybrand. Retrospectivity
is considered above.
[110 ] Submission 6,
Ernst & Young, p. 2.
[111 ] Evidence, p.
61.
[112 ] Evidence, p.
103.
[113 ] Evidence, p.
168.
[114 ] Evidence, p. 159.
[115 ] Evidence, p.
48. Price Waterhouse's submission was supported by twenty-two business,
including large employers of expatriates. See Submission 9 Supp,
Price Waterhouse, Appendix 8.
[116 ] Evidence, p.
104.
[117 ] Evidence, pp.
136-137. See also Submission 19, Arthur Andersen, p. 4.
[118 ] Submission 8,
Coopers & Lybrand, p. 4.
[119 ] Submission 2,
Outokompu Mining Australia Pty Ltd, p. 3.
[120 ] Submission 20,
IBSA, p. 2. Forty-nine institutions engaged in wholesale banking and financial
market related business belong to IBSA, see attachment to Submission
20.
[121 ] Evidence, DIMA,
p. 152.
[122 ] ibid
[123 ] Submission 9 Supp,
Price Waterhouse, p. 3.
124 The following information is from Submission 9 Supp, Appendix
4.
[125 ] Submission 9 Supp,
Price Waterhouse, p. 3.
[126 ] Evidence, p.
64.
[127 ] Evidence, p.
92.
[128 ] Evidence, p.
104.
[129 ] Evidence, p.
44.
[130 ] On this issue see Submission
5 Supp. KPMG considered the situation regarding the US. On the basis
of case studies, KPMG concluded 'that there is genuine potential for double
tax' in the circumstances of their case studies (p. 5). Furthermore, KPMG
stated that currently 'there is no efficient mechanism or authority under
the domestic tax laws of Australia and the US, or in fact under the Treaty
between the two countries, to relieve this double tax exposure'.
[131 ] Evidence, Mr
Gillen, p. 49. This figure rises (assuming no inflation) to about $130
million in 2003, when SG will have risen to 9 per cent of salary.
[132] Evidence, p. 44.
Ernst & Young advised that about 90 per cent of expatriate employees
of their clients would continue to contribute to home country retirement
plans (Submission 6 Supp).
[133 ] This is explained in
Evidence, Ms Louise Fitt, p. 91. Ms Fitt is Director, International
Executive tax, KPMG.
[134 ] Evidence, p.
60. See also Submission 21, Arthur Andersen (Tokyo Office). The
Committee was also told that organisations employing foreign entertainers
are expecting that they will have to pay additional money to entertainers
so as to compensate for the unavailability of SG on permanent departure
(Evidence, Mr Baillie, p. 109).
[135 ] 'superannuation fund'
refers generally to superannuation providers.
[136 ] Evidence, p.
116. Mrs Malcolm is the Manager - Administration, Corporate Markets Group
of Mercantile Mutual Life. Mrs Malcolm gave as examples of additional
costs: overseas postage, and (where contact has been lost) costs in attempting
to find the member at the time of paying out benefits.
[137 ] Evidence, p.
75; see also Submission 3, John Swire & Sons Pty Ltd, p. 2.
This view was also put by other witnesses, see: Evidence, Mr Stevens,
p. 10; Mr Gillen, p. 44; and Mr Murton, p. 49. Mr Stevens is a Director
of William M Mercer Pty Ltd. Mr Murton is a Senior Consultant at Price
Waterhouse.
[138 ] Submission 11,
p. 3. This risk was also referred to by KPMG
[139 ] Submission 5,
KPMG, p. 6.
[140 ] The applicant (or the
applicant and his/her spouse) must have: resources available for transfer
to Australia not less than $500 000; or the applicant (or the applicant
and his/her spouse) must have resources available for transfer to Australia
not less than $150,000 and also have pension rights and/or investment
capital which are sufficient to provide an income stream of not less than
$35 000 per year. Letter from DIMA, 29 August 1997.
[141 ] Evidence, p.
163.
[142 ] Evidence, p.
157.
[143 ] Evidence, p.
163.
[144 ] Evidence, p. 175.
[145 ] Answers to Questions
taken on Notice, Treasury Advice of 2 September 1997, p. 5.
[146 ] Submission 11,
ASFA, p. 7.
[147 ] Evidence, Ms
Fitt, pp. 95-96.
[148 ] Evidence, p.
162.
[149 ] AAP, 'US questions labour
trade restrictions', The Australian Financial Review, 26 August
1997, p. 3.
[150 ] Submission 1,
p. 2.
[151 ] ibid
[152 ] Submission 1,
p. 3.
[153 ] Submission 1,
p. 2. Also see Evidence, p. 57.
[154 ] See section 17 of the
Australian Citizenship Act 1948.
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