Peter Costello

Media Transcripts

Simplified Superannuation, Medibank Private, economy, State Liberal parties - Joint Press Conference with the Minister for Revenue & Assistant Treasurer The Hon Peter Dutton MP

Joint Press Conference with the Minister for Revenue & Assistant Treasurer
The Hon Peter Dutton MP

Parliament House
Canberra

Tuesday, 5 September 2006
12.50 pm

SUBJECTS: Simplified Superannuation, Medibank Private, economy, State Liberal parties

TREASURER:

In this years Budget the Government announced a plan to simplify and streamline superannuation, a plan to commence on the 1 st of July 2007. We announced that we would consult on transitional details and we opened the provision for that to be done until August of this year. The plan was very well received. It was described as bold and effective by former Labor Minister Susan Ryan. Gary Weaven, former ACTU Industry Fund advocate said ‘the Government’s Budget initiatives have proved the Liberal Party is now the official party for superannuation’. And at its heart the plan proposes to sweep away tax on end benefits which are paid from a taxed superannuation fund. So if it’s a lump sum from a taxed superannuation fund it’s tax free, if it’s a pension from a superannuation fund it’s tax free, all of the complex RBLs and age based contribution limits have been swept aside and we have standard contributions and no taxation on exit from a taxed fund.

We received 1,500 submissions in response to the plan and they were overwhelmingly positive. The plan has been endorsed in all of its key principles. In fact I am not aware of anyone who has opposed it, and to date, although they have not announced a position, the Opposition has not even opposed it.

I am in a position today to announce the transitional rules that we have decided after consultation. The first is for people who were planning a large payment into superannuation under the current rules and would have become subject to the contribution limits. We are announcing that, subject to any applicable work test, they will be able to put $1 million of post-tax contributions into superannuation before the 30 th of June 2007.

From the 1 st of July 2007 the contribution limit is $150,000 per annum, but for people aged less than 65 they will be able to bulk that up into a three year contribution. That is, they will be able to make $450,000 in one year, provided they forgo their entitlements in years two and three, and then they can start again. In addition to those annual caps of post-tax contribution, small business people will be entitled to put $1 million, from the sale of their small business assets held for 15 years, into superannuation. For many small business people their business is their superannuation, and of course, that is $1 million per person in the business. In a husband and wife business that would be $2 million collectively. Settlements from injuries resulting from permanent disablement will also be able to be paid into superannuation. The caps will be indexed to Average Weekly Ordinary Time Earnings, but they will only be adjusted in $5,000 lots, so that we don’t get odd numbers applying on the way through. We want to keep these limits as simple and standard as possible.

We are also announcing a transition in relation to Eligible Termination Payments for people who have existing employment contracts, a five year transition period to the 1 st of July 2012. We are announcing some changes in relation to Tax File Numbers. The object is that all new entrants into superannuation will have to give their Tax File Number to the superannuation fund and with the existing stock the object is to get as many Tax File Numbers as possible. It will not be compulsory, however, for the existing stock of people in superannuation funds where the contributions are less than $1,000 per annum. And that is in particular view of the fact that you would have numbers of itinerant workers, casual workers and the like. The concessional amount of lump sum from an untaxed source will be increased from $700,000 to $1 million and the supervisory levy on
self managed superannuation funds will be increased to $150 per annum, which is much more like the costs of actually administering those funds.

Can I say that all of the transitionals that I announce today will be to the benefit of people investing in superannuation. The transitionals will be for limited periods, the biggest of course the $1 million limit between now and the 30 th of June 2007, and the plan stands in its entirety. This is the biggest reform to superannuation that Australia has ever seen. It smashes through the complexity of the current RBLs – Reasonable Benefit Limits – and aged based contributions, the differential taxations in relation to lump sum and pensions. It makes superannuation the best investment a person can make in their lifetime.

And my message is this – the earlier you get into investing in superannuation, the better that investment will be. This feeds into the Government’s policy agenda of encouraging people to maintain their connection with the workforce. These very advantaged tax rules apply to people who take superannuation after 60. And if you take your superannuation after 60 tax free, then you may be able to maintain a connection with the workforce even on a part-time basis where your superannuation is not taken into account on your taxable income. And your taxable income from part-time employment starts again at the bottom rate with the tax free threshold and the low 15 per cent marginal rate.

This is all about encouraging people to save through their lifetime to maintain a connection with the workforce full-time up until 60, and to encourage them to remain connected to the workforce thereafter.

I want to pay tribute to Peter Dutton, the Assistant Treasurer and Minister for Revenue, who has worked with me on these proposals. The detail of these proposals will appear on the Treasury website. The Government will introduce legislation to enact this far-reaching reform this year and it will take effect from 1 July 2007.

PETER DUTTON:

Well Treasurer thanks very much. I just want to make a couple of quick points. The first, I think the most obvious, with the ageing of the population, this gives the Government the opportunity to market superannuation to younger people in particular in a way we have not been able to do before. Superannuation was a complicated system to explain, in particular to young people in years gone by, and this is a revolutionary change and gives us the capacity to explain in simple terms the benefits of superannuation, the benefits of younger people in particular investing in superannuation to make for a brighter future, not just for them but for the country as well.

The second point that I make is that this reform process is of particular benefit to people who are self-employed and in small business. And the Government has delivered in spades to people who are in small business over the last 10 years. But this really is a plan for them as well and it is a significant way forward.

The third point that I want to make is in relation to Labor’s response. Today marks the 119 th day since the Treasurer made the announcement on the 9 th of May about this revolutionary change to superannuation, a change which will benefit many thousands of Australians as they go into retirement. Kim Beazley has still adopted in relation to superannuation the “Three Minds” policy, the Labor “Three Minds” policy, the “yes, no, maybe” policy. It has been 119 days since the Government made these revolutionary changes in relation to superannuation and still, after that period of time, Labor has not been able to decide whether or not they are going to support the simplification of superannuation, a benefit to older people as they retire to live a much better lifestyle than they were able to before, and it really is on Mr Beazley’s shoulders now. The obligation is on Labor to decide whether or not they support this revolutionary change, whether or not they are going to support maturing Australians in retirement to set themselves up for a much brighter future. Thank you.

TREASURER:

Are there any questions?

JOURNALIST:

The cost of the scheme Treasurer has gone up by $1 billion since you announced it at the Budget, about half of that is in administration costs, can you just say to us what those administration costs are and is Treasury able to give you any longer term cost estimates of what the (inaudible) are likely to be over a longer period of time or is there (inaudible) to keep growing?

TREASURER:

When the plan was announced in the Budget as a $6.2 billion plan over four years, that did not include administration costs. The administration costs which Departments have now agreed on over four years there is $0.5 billion. Most of that relates to the administration of the Tax File Number system with superannuation and also in the Department of Families and Community Services there is the administration of the changed assets taper in relation to the pension. So they are not substantive costs over a four year period. The policy changes which we announced today, principally in relation to the transitionals, will add $0.4 billion. So essentially, that is where the costs change has occurred, but that was always to be expected. The plan is absolutely sustainable on a financial basis, both now and into the future. The $6.2 billion was already factored into the Budget bottom line so the only change from this will be the net Budget impact of the additional $1 billion or so. And I do actually believe that the financial incentive to hang on to 60 rather than the preservation age which is currently 55, and the financial incentive to maintain part-time employment after 60 will produce enormous benefits on the revenue side on the Budget as well.

JOURNALIST:

Is this the end phase of superannuation reform or can you see how the system might not be perfect and still might need some changes?

TREASURER:

In politics you never say never but this is as close to never that we can get. Here we are, we’ve got tax on pre-83, post-83, pre-94 invalidity, post-94 invalidity, we have got different tax on exempt, we have got different tax on the first $140,000, different on the RBLs and different thereafter. And all of those rules are replaced by one simple rule – no tax on end benefits. No tax on end benefits for lump sums, no tax on end benefits for pensions. And that is because in a taxed fund the money is taxed as it goes in and therefore it should not be taxed when it comes out. Now, aside from that, the only rules that we have to remember is a $150,000 cap on the employer contribution, and a $150,000 cap on the post-tax contribution. No RBLs, no age based limits. Yet what I would say to every young person in Australia – you can get your employer to put up to $50,000 into super, get as much as you can as early as you can because after 60 you will be getting that money back tax free.

JOURNALIST:

Treasurer, on the road to simplicity there is some fairly complex transitional arrangements, I guess necessarily. Short of going to a financial adviser what simple advice, if there is any, can you give someone contemplating retirement sometime between now and July next year? Their question I think will be, should I go now or will I be better off to wait after July.

TREASURER:

There is no question that the, if you are over 60, there is no question that the rules after 1 July next year are much better. That is, you will pay less tax after 1 July next year if you are 60 or over. I am not in the business of giving financial advice, but if I were, what I would say is with the attractiveness of superannuation the more saving people can get into superannuation, the more advantage they will receive. And the message I really want to get through here is, don’t wait until you are 55 or 60 to think about superannuation. I want 20 year olds, I want 30 year olds, I want 40 year olds to think about putting money aside now. $50,000 a year of employer contributions, start early and you can rest assured that when that money comes out after you are 60, it will come out tax free. You will not find a better tax preferred investment than superannuation.

JOURNALIST:

Mr Costello, why didn’t you go the full hog on the Tax File Numbers and to clean up all of those little accounts after the (inaudible) superannuation (inaudible)?

TREASURER:

We are going to try and clean them up. We are going to have the Tax Office running matching between Tax File Numbers and superannuation accounts, matching names to try and go to people and say, you have not given your Tax File Number, here it is, would you please give it to your superannuation fund. And we think we can nearly get the full way but we thought it would be too onerous frankly, on people who have very small contributions, if they hadn’t given their Tax File Number to apply the top withholding tax rate. We thought that the revenue risk would not be great if it is under $1,000, we will encourage them to do it and in the future all new people will do it. But we just thought for the small sums involved to apply the top withholding tax rate to people who are going to be low income earners could be unfair.

JOURNALIST:

I have got three questions actually, but I will start with the one at the (inaudible) of the last one you just referred to saying that it will not be a better (inaudible) in super. Australians now have $300 billion in bank deposits, is there a risk that given the bank deposits clearly are not tax preferred, is there a risk that the banks are going to suffer an erosion of those deposits and become even more reliant on overseas markets to supply them with funds?

TREASURER:

Well, I think the difference between a bank deposit and superannuation is the difference between short term and long term saving. I think people hold money in bank accounts when they think they are going to want to access it in the shorter term. You hold money in superannuation because you are not going to access it in the short term. You can’t get it at all until 55 and you can’t get it with these tax advantages until after 60. And the other point is, and I don’t want to argue the competitive merits of various financial products, but I would observe that the returns on superannuation funds tend to be in advance of the return you get on a bank account deposit. And I think that is another reason why people have tended to put more into superannuation when they feel they can lock their savings up for a long term.

JOURNALIST:

Will the banks (inaudible) long term lending so if we are only using them for short-term deposits, doesn’t this create an unstable situation for the banking sector?

TREASURER:

Well you know, the banks are in the business of making money, the banks are operating the financial system where large sums are moving around and being held at short-term and the banks have to look at matching their liabilities.

JOURNALIST:

I have a question for Mr Dutton if I can, you referred to Labor…

TREASURER:

This is your last question.

JOURNALIST:

…you referred to Labor not having sort of stated its position. Well we get the press releases, we know what the debate is, they are arguing they want you to give a compact breakdown of which of the costing for each of the different four main changes spelt out on page one, why aren’t you going to do that? I mean it looks like, makes it look like you have something to hide if you don’t sort of give the detail?

DUTTON:

Well, a couple of points. First, is there is nothing to hide and I haven’t seen the press releases from Kim Beazley that would indicate what their position was or what questions they had, and I am amazed that Mr Beazley hasn’t had any public utterances about superannuation or response to the Government’s plan full stop. We have spelt out the arrangements, the costings are in the Budget Papers that was presented on the 9 th of May, we have provided today following the consultation period which finished on the 9 th of August where the costs are, and the basic principle for Mr Beazley is does he support more simplicity in superannuation or not? We have not heard one word from him in relation to the biggest announcements to superannuation reform in the history of this country in 119 days and it is amazing that he has still been unable to make up his mind after that period, whether or not he supports the Government’s reforms to help people save for their retirements.

JOURNALIST:

Just on the contributions, or submissions that you received from Australians, there is quite a lot, 1,500 and 3,500 phone calls, and I notice that the post tax contribution has been quite dramatically increased. Was that the main concern by ordinary Australians?

TREASURER:

Look I wouldn’t say it is the main concern of your average punter, because your average punter doesn’t have a million dollars sitting around. I think that was something that was raised by the industry, the cap of a million dollars, and certain people who probably would have put in place a strategy over the course of their lifetime which meant they were going to bulk up in their later years of employment. No I think most of the phone calls to be frank were just people wanting information as to how they should invest and when they should do it. I think they were most of the phone calls. I think the written submissions where more people who were involved in the industry.

JOURNALIST:  

Under the old system, the current system, a lot of the superannuation experts say that you should be trying to save about 14 per cent of your salary to have a comfortable retirement. Have you got any study or any actuarial evidence that shows the benefit, the equivalent benefit under the old system that the new system will be, that is like say 11 or 12 per cent of earnings?

TREASURER:

Yes I have. In fact we put that out in our paper which we released with the Budget and we gave case studies of people who had the 9 per cent Super Guarantee after various periods in the workforce, say 20 or 40 years, what their replacement income would be under the old system and what it would be under the new system and they improved. I didn’t bring the Budget paper here with me but I can certainly give it to you.

JOURNALIST:

Do you think 14 per cent should be, is achievable by most or would you envisage for example future changes in increasing the Guarantee?

TREASURER:

We are not looking at increasing the SG, the Super Guarantee, it is 9 per cent. What we say is in addition to the SG is here are the alternatives: one, you can put some of your own after tax money in; two if you are a lower income earner you can take advantage of the Government’s
co-contribution scheme, whereby if you put a dollar in the Government will put $1.50 in on your behalf. Thirdly, for some other people, they ask the employer to put more than the 9 per cent in which they can do up to $50,000 and of course for people who don’t have superannuation we still have the aged pension. So we are not proposing to increase the compulsory contribution of the employer but we have incentive for you to ask it, for you to put your money and for lower income earners for you to get a Government co-contribution.

JOURNALIST:

 You see these changes as completely resolving the debate about adequacy of the existing of super saving system?

TREASURER:

Look I think these changes are such as to (a) make superannuation much more attractive; and (b) simpler, and I think people will have more confidence in the system if it is simpler. I think what has worried people up until now is you go and see your financial planner, he talks to you about lump sum versus pension, complying pension, allocated pension, different taxation arrangements, it is mind numbing stuff and I think a lot of people, come out and say, my goodness, let me put it in the bank or something and what I want to say to these people if you are in a taxed fund - no tax after 60, no tax if it is a lump sum, no tax if it is a pension, no tax. Only two other rules you have to remember: $50,000 a year from the employer and $150,000 a year from yourself, they are the maximums. And wait and see it grow. Now somebody here will make the obvious point to me that it’s not just the beneficial taxation that will count here, it is the return. I can’t do much about the return, other than keep the economy strong.

JOURNALIST:

Treasurer, on the punter point you mentioned before, how are people in the mortgage belts of Western Sydney and areas like that more concerned about, you know, they’re meeting the higher interest rates and fuel costs they simply don’t have, as you say the 20 to 40 year olds, you know that extra $150,000.

TREASURER:

Nobody is saying they have $150,000, that is the absolute limit. They might have $500, they might have $1,000. If you happen to be a lower income earner, a middle to low income earner, if you put $1,000 of your money in, the Government will put $1,500 in. You know this one of the best investments you will ever see. The Government will actually match you 150 per cent. So these are just the absolute limits. Very few people are going to be able to hit the absolute limit but $500 maybe a year, maybe $1,000, but whatever you can get in there is going to come out and it is going to come back with spades. And you know I would say to a lot of people at the moment, what should I do with my money, should I put it in the bank, should I buy a share, should I put it into property? Let’s think about superannuation.

JOURNALIST:

Treasurer, quick question on Medibank Private, what do you make of Alan Jones’ suggestion this morning that not giving shares to existing members would amount to an act of theft?

TREASURER:

The Government set up and invested the capital in Medibank. The policy holders are like the policy holders of a general insurance company, they pay a premium and they get an indemnity, but just as with a company which is an insurer, the capital is owned by the shareholders, in the case of Medibank Private the capital is owned by the Government.

JOURNALIST:

But the policy holders in NRMA and GIO (inaudible).

TREASURER:

It is a totally different situation. This was set up by the Government as a Government business, it was never a mutual. It was not set up by policy holders. Policy holders did not set up Medibank Private, nor did they invest their capital. Policy holders pay premiums and got indemnity cover, the Government set it up. It is like Telstra. Telstra was a Government business, people paid their phone bills and they got a service but it wasn’t a mutual, it was owned by people who had the telephones.

JOURNALIST:

Mr Costello figures out this morning show the tax receipts hit a record $80 billion during the quarter, of course the lion’s share of that would be Commonwealth tax receipts. Are Commonwealth tax receipts today a record as a share of GDP now?

TREASURER:

No, most definitely not. The record tax to GDP record, a record which will never be equalled, was Paul Keating and the Labor Party back in the late 80s. We will never get within cooee of the Labor Party’s tax to GDP record.

JOURNALIST:

 Treasurer, just an issue on the State divisions ahead of the meeting later this week, do you think the greatest challenge facing the Liberal Party divisions is one of policy or one of personnel, do you think that some of the older MPs (inaudible) moved along?

TREASURER:

Look, we are going through a number of State elections, they are going to be hard fought elections. We have one on Saturday, I wish our candidates every success, we have one in Victoria in November I wish them every success and we have one in New South Wales and I wish them every success.

JOURNALIST:

 Do you believe that discussions of this nature, such as the one on later this week are likely to be problematic, are you concerned that…

 TREASURER:

 I think it could be very useful. I won’t be there myself because I am going to APEC tomorrow.

JOURNALIST:

 Treasurer, on superannuation and equity there is, I think it is fair to say, isn’t it, that people who have already made excess contributions, for example CEOs who may receive a golden handshake, will get a particularly large windfall from these superannuation changes, whereas low income earners might not get any benefits because they don’t pay any end benefits tax anyway. Was there a more equitable way to have done these changes?

 TREASURER:

No. And by the way, who has such a plan? Has the Labor Party put forward an alternative plan?

There is only one plan running here. Any other questions?

JOURNALIST:

 On the strength of the economy, would you be concerned if you see annualised growth coming back under the 3 per cent tomorrow?

 TREASURER:

Look I think our forecast for 2005-06 is 2 ½ per cent. That was our forecast and we will see what it is tomorrow. All right thank you all very much.

5 Sep 2006

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