SUPERANNUATION LEGISLATION AMENDMENT BILL 2010
Agreement in Principle
Debate resumed from 11 June 2010.
Mr GERARD MARTIN
(Bathurst) [11.18 a.m.]: I support the Superannuation Legislation Amendment Bill 2010. This bill provides for miscellaneous amendments to the New South Wales public sector employees defined benefits superannuation scheme, which is closed to new members. The purpose of the bill is to amend the Police Regulation (Superannuation) Act 1906, the State Authorities Superannuation Act 1987, the State Authorities Non-contributory Superannuation Act 1987 and the Superannuation Act 1916. I begin with the amendments applying to all the closed New South Wales public sector schemes: the Police Superannuation Scheme, the State Authorities Superannuation Scheme, the State Authorities Non-contributory Superannuation Scheme and the State Superannuation Scheme.
This amending legislation was requested by the trustee of the schemes, the SAS Trustee Corporation, to address the Commonwealth's tax on superannuation funds applicable to members who had not supplied their tax file number. The Commonwealth does not impose the tax on an individual member of a superannuation scheme. The additional tax at the rate of 31.5 per cent is borne by the superannuation fund. The additional tax is levied only on employer contributions, including salary sacrifice contributions, made on behalf of the relevant member. That additional tax is applied on top of the usual 15 per cent that is imposed on those contributions.
While it is relatively straightforward for accumulation funds to deduct the additional tax from the accounts of members who have not supplied their tax file numbers, it is more complex for defined benefits schemes, such as the closed New South Wales schemes in question. The trustee, the SAS Trustee Corporation, advises that approximately 700 members have not provided their tax file numbers. In the State Authorities Superannuation Scheme, approximately 370 members are affected; in the State Superannuation Scheme, approximately 160 are affected; and in the Police Superannuation Scheme 110 members are affected.
The SAS Trustee Corporation advises that the Commonwealth levied approximately $2.3 million as an additional tax on the fund in the 2007-08 financial year in relation to members who had not provided their tax file numbers. Overall, the State Authorities Superannuation Scheme has 47,000 active members, the State Superannuation Scheme has 20,000 active members, and the Police Superannuation Scheme has 2,200 active members. The proposed amendments have been developed in consultation with the trustees, the SAS Trustee Corporation. Consistent with the treatment of other taxes, the additional tax liability will be recovered by reducing the benefits of the relevant members.
While this measure allows the SAS Trustee Corporation to better manage the tax, the major aim of the proposal is to provide an incentive to encourage members to submit their tax file numbers. I am sure the bill will have that effect. We are permitted by the Commonwealth to mitigate the effect of the Commonwealth's tax on benefits. For those reasons, I commend the bill to the House.
Mr MIKE BAIRD
(Manly) [11.22 a.m.]: I acknowledge at the outset that, in its context, the Superannuation Legislation Amendment Bill 2010 has some sensible provisions that the Opposition will support. However, I will make a couple of points in relation to unfunded superannuation schemes and the Government's treatment of that problem. The object of the bill is to amend legislation governing certain closed public sector defined benefits superannuation schemes to address Commonwealth tax changes and meet machinery provisions relating to benefits, and to amend the State Authorities Superannuation Act 1987 to facilitate death and disability award arrangements for New South Wales ambulance officers.
The Opposition acknowledges that this amending legislation is necessary for modernisation of the legislation and accordingly supports the bill, which will bring New South Wales into line with Commonwealth superannuation laws and employment arrangements. However, I note that the New South Wales Government has consistently ignored its unfunded superannuation liability. In fact it has gone well beyond ignoring it: I would argue, and have argued for a few years, that it has been manipulating its liability and accordingly has been underfunding superannuation liabilities. That has led to a position that was revealed recently in the State budget of the Government having to sell assets to begin meeting its obligations.
The amount of that liability at the end of January was $29.4 billion. Admittedly that liability was reduced somewhat in the most recent budget, but it is a significant liability that must be meaningfully addressed. I argue that if the New South Wales Labor Government had followed the lead set by the former Federal Treasurer, Peter Costello, when the liability was first detected as a significant problem for public finances and had established a Futures Fund, it would have been able to begin making contributions towards this liability instead of having to sell State assets, such as NSW Lotteries, to address that liability. The scenario is a classic case of Labor failing to plan for the future and leaving problems to increase, with the result that we will all have to pay for it.
Well over 100,000 public sector employees are covered by defined benefit superannuation schemes. The last major defined benefit superannuation scheme in the New South Wales public service closed in the early nineties. The schemes affected by the bill include the Police Superannuation Scheme, the State Authorities Superannuation Non-contributory Superannuation Scheme, the State Authorities Superannuation Scheme and the State Superannuation Scheme. We understand the trustee, the SAS Trustee Corporation, requested this amending legislation to address the tax levied by the Commonwealth on superannuation funds in relation to members who have not provided their tax file number.
The Commonwealth will levy the tax on the superannuation fund rather than the individual member at 31.5 per cent, and that rate is on top of the usual 15 per cent levied by the Commonwealth on superannuation contributions. While standard superannuation funds can deduct that additional tax from the accounts of their members, it is not so easy for defined benefit schemes. The amendments in the bill will overcome the difficulty and allow the SAS Trustee Corporation to deduct any additional tax from members' entitlements. The Opposition understands that the object of the amending bill is to encourage members to provide their tax file numbers to streamline administration and reduce the tax obligation on the broader fund and wider membership. The Opposition supports those provisions.
The bill also provides further amendments to the State Authorities Superannuation Scheme to offer choice to members when they move to private sector in employment in relation to payment or transfer of benefits. Former members of the scheme requested that. Schedule 3 to the bill facilitates death and disability award arrangements that were negotiated recently for ambulance officers. The bill provides regulations to enable ambulance officers with an opportunity to opt out of their State Authorities Superannuation Scheme additional benefits cover to become fully covered by the award. Similar amendments have been passed for firefighters and police officers.
As I have stated already, the Opposition supports the machinery provisions of the bill because they make sense. However, I turn now to ongoing liability in the broader context of this amending bill. Whenever legislation is introduced that touches on the broader policy approach of the Government, it is appropriate for the Opposition to comment. As the shadow Minister, I am obliged to discuss the State Labor Government's track record of ignoring unfunded superannuation liability of public servants who are members of defined benefit superannuation schemes. For a number of years I have highlighted that unfunded superannuation is an ongoing problem. That was before the global financial crisis emerged.
As the global financial crisis increased its grip on our economy, the Government adopted the most up-to-date accounting standards applicable to the treatment and determination of total liability for unfunded superannuation payouts. As a result of the impact of the global financial crisis, the Government's liability blew out to approximately $32.1 billion. The bill is a good reminder for every member of the House that every State budget must do two things: It must provide for improved current services, and it must mitigate long-term liabilities for which families in the State are responsible and which ultimately become an obligation of the State Government. The State Labor Government has ignored its responsibilities and its liabilities. It ignored long-term obligations when it brought down the mini-budget, which provided for no increased contributions despite the fact that the global financial crisis was bearing down upon us.
The lack of offsetting contributions was revealed by logical extension in the Government's recent actions. For many years the New South Wales Labor Government has been creative with its accounting for the express purpose of underestimating its liability. I have stated that regularly on the public record. The discount rate used in the 2007-08 budget was significantly higher than the rate used in other States. The New South Wales rate was 7.3 per cent, the Federal Government's rate was 6 per cent, Victoria's rate was 5.95 per cent, Tasmania's rate was 5.7 per cent, South Australia's rate was 5.9 per cent and the Australian Capital Territory's rate was 6 per cent. It is interesting to consider those rates in the context of the current debate on the mining super profits tax.
The Government used the long-term bond rate as the appropriate discount rate, yet the New South Wales rate was significantly higher. The significance of that is that the Government underestimated its unfunded superannuation obligation. I contend that the State Labor Government was not being honest and transparent with the people of New South Wales in relation to a significant liability of the State. The Government also changed the investment return assumption from 7 per cent to 7.7 per cent, which had the impact of depressing the overall liability figure by creating the assumption that more would be received from investments than was the case. In contrast to that, the Federal Government applied a lower figure. Furthermore, the State Government increased pensioner mortality rates even though we have an ageing population.
Those factors suggest to me that the State Labor Government has not made a serious commitment to meet its unfunded superannuation obligations. As a matter of fact, the true position is worse than that. By adopting those assumptions, the Government has been hiding from the people of New South Wales a significant liability that the full glare of the global financial crisis revealed to the whole community. We must pay something toward that liability of more than $30 billion. What is the impact? It is important that everyone in New South Wales understands the impact. It may sound like financial engineering or simply statistics and numbers, but this sort of approach has a real impact for people across New South Wales. That was shown by the Government's approach to the proceeds from the sale of New South Wales Lotteries.
Years of pursuing this sort of approach with unfunded superannuation obligations has obviously left a hole in the State's finances. Clearly, if the State is unable to meet those unfunded obligations it has a commitment to provide funds from the State budget. However, the Treasurer announced in the budget that the Keneally Government has decided to invest $510 million of the $850 million received from the sale of New South Wales Lotteries into the State's unfunded superannuation liability. That is an admission of guilt. The Government has admitted that the unfunded superannuation obligations have not been treated with the seriousness they deserve; they have been put aside and deferred for future generations to deal with. And the community of New South Wales has seen the costs of that today.
If a future fund had been set up all those years ago and if part of incoming surpluses—certainly, there was record revenue coming in during that period—had been put into that fund, the Government would be in a much better position. It would not have to put proceeds from the sale of New South Wales Lotteries towards this fund. If it had managed the unfunded superannuation liability appropriately on a yearly basis, rather than pushing it out, that $510 million could have been invested in many worthwhile infrastructure projects across the State, whether they are roads, transport or health.
Every community across this State is entitled to say, "Why was that $510 million not put into critical infrastructure that we deserve?" The answer is simple: At best, State Labor has ignored this long-term liability in unfunded superannuation. At worst, Labor has been manipulating assumptions to the point of saying that the liability is lower than it actually is. The full glare of the global financial crisis, together with adopting the most up-to-date accounting standards, has shown that the Government has no choice but to deal with its liability. So an opportunity has been lost to the people of New South Wales. The Government's lack of appropriate financial management means that $510 million cannot be invested in local road requirements, hospital requirements or railway requirements.
In conclusion, I support the tenets of the bill, which bring the legislation up to date and in line with Commonwealth superannuation laws and employment arrangements. However, I note the difference between New South Wales Labor's approach and the Howard Government's approach to unfunded superannuation liabilities. I emphasise to members that it is important to deal with long-term liabilities in an appropriate manner. Every budget should be used as an opportunity to address long-term liabilities; if the Government does not do that, we saw what happened in the recent budget. The State Government has taken $510 million that could have been invested in necessary infrastructure and put it into an unfunded liability existence it has denied during the whole time I have been in this place. We commend the bill, but we highlight that the State Labor Government has failed this State in the way it has dealt with unfunded superannuation liabilities generally.
Mr ALAN ASHTON
(East Hills) [11.33 a.m.]: I will comment on the contribution of the shadow Treasurer shortly. First, in supporting the Superannuation Legislation Amendment Bill 2010, I will focus on a couple of aspects of it. I recognise that it is, in a sense, an attempt to bring some anomalies in superannuation legislation in line with Federal legislation. It is not just the result of changes under the Rudd Government but going back to the previous Howard-Costello regime. This bill also provides amendments related to the State Authorities Superannuation Scheme, commonly referred to as SASS, which was closed to new members in 1992. The first of these proposals applies to former members of SASS with deferred benefits in the scheme. Typically, these are benefits held in SASS when the member moves to private sector employment and must leave their benefits in SASS.
Often, part or all of these benefits are not immediately accessible under Commonwealth superannuation legislation. Currently deferred benefits must be paid out or transferred out of SASS when the former member reaches the retirement age of 58. The transfer is automatically to First State Super when the former member fails to nominate payment or transfer to another complying superannuation fund. Affected former members are unhappy with the current compulsory transfer. That is one reason the legislation has been introduced. Under the proposed amendments, they will no longer have to leave the fund with which they have a longstanding association. Former members will be able to elect to retain their deferred benefits in SASS past the age of 58.
The member for Manly gave us a history lesson. I recall the early 1990s when Nick Greiner, Bruce Baird and others sold off the banks and a lot of other public infrastructure. Suddenly, I was no longer able to go to the State Bank or have my insurance with GIO; my accounts were to be sent to Suncorp in Queensland or some other private organisation in Victoria, all at the whim of whomever the Government determined in a letter sent to me. Let us understand that some members—most of them are probably on this side of the House—still believe that governments have a role in insurance, owning ferries and the like. I note that the alternative Treasurer spoke about selling assets. The irony is that members opposite are on the record as not wanting to sell ferries and electricity. The Coalition will probably snatch defeat from the jaws of victory next March. It will be interesting to see what a Coalition government does with electricity—I mean no disrespect to the member for Baulkham Hills, because I know the significant and proper role he would play if he were still here in March—when the Opposition fought so hard not to sell electricity only 18 months previously.
I return to the bill but I will digress further, as is my wont. The changes reflect the discontent of former members at having to leave SASS. It also reflects the wider range of investment options that are now available because there are more players in the market. Let us understand that insurance in Australia has one big problem—it also relates to superannuation—that is, it is a very small player on the world stage. We found this out years ago when we were trying to renegotiate payments for people who won compensation claims. Australia is only a small bit-part player on the world stage where money is moved around. Unfortunately, that also limits opportunities for people to invest their superannuation in other organisations. As I said, many of them want to remain loyal to a group they have been with for 30 or 40 years, especially if one has worked in a government instrumentality.
There are approximately 11,000 former members of SASS with deferred benefits in the scheme. The last amendment, involving SASS only, facilitates death and disability award arrangements for New South Wales ambulance officers. The award was negotiated to provide benefits for ambulance officers in the event of death and incapacity. I know that was supported on all sides of the House because it is a similar situation for police, fire brigade employees or anybody who dies or is incapacitated during their employment. The Ambulance Service of NSW Death and Disability (State) Award was made in February 2008 to provide benefits for ambulance officers in the event of death and incapacity. The award has transition arrangements for ambulance officer members of the SASS scheme to have additional benefits covered in the scheme.
Under the award transition arrangements, SASS members with additional benefit cover are entitled to their additional benefit from SASS plus a top-up amount to bring the total benefit up to the award benefit for death or total and permanent incapacity. The transition arrangements apply until these ambulance officers have an opportunity to elect to opt out of their additional benefit cover. The bill provides a regulation-making power to allow for such an election. SASS members are unable to revoke their additional benefit cover without the amendments. Obviously, that is why we have introduced the bill.
Ambulance officers who elect to opt for additional benefit cover will be fully covered for the award death and total and permanent incapacity benefits, as well as the award partial and permanent incapacity benefits. Ambulance officers who elect to remain with additional benefit cover will be entitled to the additional benefit death and total and permanent incapacity benefits from SASS, and the award partial and permanent incapacity benefits. About 870 ambulance officers are in SASS, with 535 having additional benefit cover.
The shadow Treasurer referred extensively to superannuation unfunded liabilities. This Government is prudent with its triple-A credit rating, which has never been threatened. The Government is maintaining that rating. It is not double-ABs or down to Cs. America was running at D-minus. I was interested to hear the shadow Treasurer refer to the global financial crisis—a term that the Opposition was not prepared to use because it says it did not happen. Why? It almost appears not to have happened because the Rudd Government saved the jobs of hundreds of thousands of Australians with various programs. If we listened to shock jocks, whinge-radio types and those who write in the local media—especially those who have jumped ship from the Daily Telegraph
to the Sydney Morning Herald
and vice versa—we would believe that there never was a crisis.
Mr Geoff Provest:
Mr ALAN ASHTON:
I have named them previously.
Mr Geoff Provest:
Do it again.
Mr ALAN ASHTON:
Daryl Maguire, Jonathan O'Dea, and from now on I will call him Mr 125 per cent, the member for Tweed, and my good mate from Revesby.
Mr Daryl Maguire:
Name the journos!
Mr ALAN ASHTON:
I don't have to name the journos. They know who they are. I am not going to out those sorts of people, as it would be terribly unfair. Members of the Opposition know who they are because one of them was offered a job as media adviser to the Leader of The Nationals. Now that he is with the Daily Telegraph
he may not have to take up that job. Opposition members do not believe this crisis occurred, yet the alternate Treasurer, the would-be Treasurer—and up until recently the would-be Premier—acknowledged that there was a global financial crisis. I noticed he looked rather glum yesterday when the Leader of the Opposition put on a very poor performance, I have to say. He was trying to be good Barry for six weeks—
Mr Daryl Maguire:
Point of order: Opposition members have listened to the member for East Hills for quite some time and have interjected, but he is well and truly straying from the leave of the bill. I ask you to bring him back to the bill.
ACTING-SPEAKER (Mr Wayne Merton):
Order! I have extended considerable latitude to the member for East Hills. I am absolutely certain that he is about to refer to the leave of the bill.
Mr ALAN ASHTON:
To the point of order: Mr Acting-Speaker, you will note that when I was giving my erudite and wonderful speech I was the victim of interjections from the member for Wagga Wagga and the member for Tweed. I am entitled to reply to them. Hansard
has a record of the interjections. While I take the point—and I do not disagree with the Chair—Opposition members take the risk if they interject on me.
ACTING-SPEAKER (Mr Wayne Merton):
Order! The member for East Hills will return to the leave of the bill.
ACTING-SPEAKER (Mr Wayne Merton):
Mr ALAN ASHTON: I am also entitled to cover points raised by the shadow spokesman, as I am doing. He admitted that there was a global financial crisis, and the mantra being put out there by the Opposition is that there is no global financial crisis. There is always a degree of unfunded liabilities. I would like to have an opinion from the member for Manly, the alternate Treasurer, and from the erudite interjectors, including the member for Wagga Wagga, who is the leader of the pack today, on totally unfunded liability. That is unlike him because he is normally much more polite. One never puts all one's money into an unfunded superannuation liability because it will not necessarily be paid out when one reaches retirement age, which will prevent them from doing what they want. In today's newspaper an article said that a gentleman named Tony Abbott has a $710,000 unfunded liability on his house that he did not declare in his pecuniary interests.
Mr Jonathan O'Dea: Point of order: Mr Acting-Speaker, the member for East Hills is flouting your ruling. He is straying from the leave of the bill.
Order! Mr Abbott's mortgage is not relevant to this bill. I have extended a considerable degree of latitude to the member for East Hills. A man with his experience in this place understands that he must return to the leave of the bill. He will not talk about Mr Abbott, like many others.
Mr ALAN ASHTON:
Yes, I guess they are. This bill is an attempt to bring into line something that this Government needed to do because of the Federal Government—it was started by the Howard-Costello Government and not by the Rudd-Gillard Government. The shadow Treasurer talked about the future fund. Superannuation is an increasing problem. I will end on the mining tax because it is in the news. People might pretend that it has nothing to do with New South Wales but we have coalmines in the Hunter Valley and other places and goldmines in other parts of New South Wales.
I was sad to see the big characters such as Clive Palmer—who looks as though he is from one of those Monty Python movies and keeps vomiting everywhere, so I will nominate him—say, "What do we want? No taxes"; "What do we want? No taxes now". It makes ordinary people realise that the Federal Government's mining tax will affect their superannuation. We will be able to go from 9 per cent to 12 per cent and maybe beyond, something that is critical for ordinary workers to understand. In the past it was 3 per cent until the Keating-Hawke governments increased it to 9 per cent.
As a country we need to save more and spend less. We need to recognise that when the baby boomers retire—including the member for Wagga Wagga and his cohorts, the member for Keira, the member for Macquarie Fields and me—we will face a massive problem paying out superannuation and other benefits if we are not more creative about people putting more money into superannuation schemes so that the money can be invested in productive enterprises in the country. Clearly, my speech has been well received and has impressed all, including members and guests in the rooms of Parliament House. My daughter is keenly watching, if she is not studying hard for university.
Mr JONATHAN O'DEA
(Davidson) [11.46 a.m.]: We are currently debating the Superannuation Legislation Amendment Bill 2010. I appreciated the entertaining contribution of the member for East Hills, who is obviously rattled by the significant swing in the Penrith by-election on the weekend. While the Opposition does not oppose this bill, I will focus on a couple of aspects of it. Why was the bill not introduced earlier? Has the failure to introduce this bill earlier resulted in any financial exposure to either the fund or the New South Wales Government? I am not sure why ambulance officers were not covered in previous legislative changes covering police and firefighters. The delay in respect of the superannuation tax aspects is more potentially concerning as it may have resulted in a financial exposure to either the fund or the Government.
I understand that employer contributions, including salary sacrifice contributions made from 1 July 2007, have been taxed by the Commonwealth Government at an extra 31.5 per cent once those contributions exceeded $1,000 in an income year if the employee in question opened their superannuation account before 1 July 2007 and has not provided their fund with a tax file number. If someone has not provided their tax file number to the superannuation fund, the superannuation fund will pay extra tax of 31.5 per cent on top of the standard 15 per cent contributions tax. The superannuation fund is taxed rather than the individual. However, the superannuation fund generally will take the equivalent amount from the member's account. That tax has been imposed from 1 July 2008. I note in its current digest the Legislation Review Committee noted:
While it is relatively straightforward for accumulation funds to deduct the additional tax from accounts of members who have not supplied their tax file numbers, it is more complex for defined benefits schemes such as the closed New South Wales schemes in question.
The schemes in question include the Police Superannuation Scheme, the State Authorities Superannuation Scheme, the State Authorities Superannuation Non-contributory Scheme and the State Superannuation Scheme. The bill enables those schemes to reduce the benefits of relevant members in relation to superannuation obligations.
The apparent need for this bill suggests that the SAS Trustee Corporation has not been collecting or has had real difficulties in collecting the 31.5 per cent tax from 1 July 2008. As we approach the end of the 2009-10 financial year, some two years later, I ask the question of the Parliamentary Secretary: Why was this legislation not introduced earlier? I ask him to clarify the issue as to potential exposure for either the fund or the Government, and therefore the taxpayer, and also request that he state quite clearly when these amendments were first requested by the SAS Trustee Corporation. Certainly, I think, we deserve to know whether there is a financial exposure that has resulted from this possible hole in the law. In addition, it would also be appreciated if the Parliamentary Secretary would advise the House as to when the regulations for this bill will be completed, as they are required to give effect to the bill and may cause further problems with further delay.
Dr ANDREW McDONALD
(Macquarie Fields—Parliamentary Secretary) [11.51 a.m.], in reply: I thank members for their support of the Superannuation Legislation Amendment Bill 2010. This bill introduces changes to the Police Regulation (Superannuation) Act 1906, the State Authorities Superannuation Act 1987, the State Authorities Superannuation Non-contributory Act 1987 and the Superannuation Act 1916. The amendments in the bill are in response to Commonwealth tax changes and requests from the trustee, the SAS Trustee Corporation. The bill also assists ambulance officers in New South Wales with their award death and disability arrangements.
The bill will allow the trustee, the SAS Trustee Corporation, to recoup the additional tax incurred for members who have not supplied their tax file numbers. The Commonwealth imposes this tax on the superannuation fund itself, not the member concerned. Without action, the liability from this tax is borne by the fund and consequently by all its members. The measures in the bill are expected to serve as an incentive for members to supply their tax file numbers to the SAS Trustee Corporation. Further amendments implement death and disability award arrangements for ambulance officers, which provide benefits in the event of their death or incapacity. The bill will facilitate ambulance officers, who are members of the State Authorities Superannuation Scheme, to opt out of their additional benefit cover from that scheme. If they elect to do so they will become fully covered by the newer award arrangements.
The final amendments will allow former members of the State Authorities Superannuation Scheme to retain their deferred benefits in the scheme when they reach the age of 58. The bill ceases the current compulsory transfer to First State Super by allowing former members to elect to keep their benefits in the State Authorities Superannuation Scheme and take advantage of the wider investment options now available in the scheme. Affected former members of the State Authorities Superannuation Scheme are expected to welcome the change, which will allow them to continue their longstanding association with the scheme. The bill was developed in consultation with the trustee, the SAS Trustee Corporation, and the Ambulance Service of New South Wales. I commend the bill to the House.
Question—That this bill be now agreed to in principle—put and resolved in the affirmative.
Motion agreed to.
Bill agreed to in principle.
Passing of the Bill
Bill declared passed and transmitted to the Legislative Council with a message seeking its concurrence in the bill.