Thank you very much Paul, and it’s a great pleasure to be here at PwC in your beautiful new building. I can see why you moved literally just across the road because you don’t get fabulous views like this in all of Melbourne so you’ve chosen a terrific place.
And it’s great to be great to be with all of you and many of the faces I see are very familiar ones in what is going to be a very busy year in superannuation.
And as well as assisting Scott Morrison in helping to put together the budget through my role on the Expenditure Review Committee, I’m also doing my bit by providing the Treasurer with a brand new taxpayer who is due to arrive just before Budget day.
Last week in the press a prominent commentator described me, as the Minister for Revenue and Financial Services, as being “obsessed with taxation”.
To me it seems a little bit like accusing the health minister of being obsessed with hospitals or the defence minister being obsessed with battle ships, so I guess I should probably take it as a compliment.
But the truth is my guiding philosophy and that of the Coalition is simple and twofold – we aim to be overall a low-tax government, but also we also insist that everyone should be meeting their tax obligations and that those who aren’t should be held to account.
In other words, we advocate a system that is fair and has integrity gives everyone the assurance that what they contribute is necessary.
We can’t have one without the other.
In short I believe we should aim to tax as lightly as possible, but I don’t believe in a self-help taxation system.
Now I know there are some people in this room who feel they are probably paying more than their fair share in tax. And it is true that the top 10 per cent of income earners pay 50 per cent of personal income tax.
Last year the Government introduced changes to superannuation that will tax some people with superannuation accounts in the drawdown phase.
But the reality is that this tax is on earnings above balances of $1.6 million only is still well below marginal rates. So there are still very significant tax incentives for people to have their funds inside a superannuation fund.
We did make these changes in order to make the system fairer and more sustainable into the future. After all, the idea that you can opt-out of taxation at the age of 60 years (and growing), that is, that you can have age-based taxation, no matter what you earn is hardly fair to the next generation and the future generations that will follow.
Tax changes to superannuation also enabled us to initiate a raft of key reforms and other flexibility measures, which I am also pleased to run through today.
But of course, none of this can be considered in isolation and particularly in isolation to the Australian economic outlook.
Economic outlook
Australia has enjoyed twenty-five years of consecutive annual economic growth. And we are unique in that.
Our economy is faring well as it transitions from mining investment-led growth to broader-based growth.
During 2015–16, our economy grew by 2.7 per cent, which is well above the OECD average and faster than every other economy in the G7.
Our commodity exports are ramping up as Australia just posted a record trade surplus of $3.5 billion for the month of December 2016.
And, since 2013, the Coalition Government has seen almost 560,000 jobs created, while unemployment has fallen to 5.7 per cent after a post-GFC high of 6.3 per cent.
This month, the International Monetary Fund highlighted Australia’s strong economic performance.
The IMF endorsed the Government’s commitment to supporting jobs and growth through policies that will boost infrastructure, innovation and also investment.
And on the horizon, there are many opportunities in Asia for our services sector, and our investor interest in the Australian Government Bond market is also strong.
But there are always challenges and risks for our economy and there is no room for complacency.
At home, we know that it is important to tackle a Budget left by the former government with deep deficits and very high debt.
We are also seeing a rise in anti-globalisation sentiment in some countries and regions, making it difficult to maintain or advance economic reform momentum.
Over the longer term, low productivity and investment growth, compounded by weak trade growth are also risks to global growth.
China, our largest trading partner, is also going through change as its economy slows from a period of extraordinary double-digit growth to single-digit growth.
The Turnbull Government knows that we have lived through a remarkable period of prosperity, but the future growth isn’t a foregone conclusion. And we have to make the right decisions today to pave the way for the future.
And that is why we are executing our economic plan to drive growth and drive job creation. And it is a plan that has a number of components.
We are cutting taxes to encourage investment and more jobs. For instance, our enterprise tax plan which includes tax concessions for small and medium businesses, and business tax cuts for all Australian businesses, will drive our international competitiveness, will drive investment and create more jobs.
We are expanding access to overseas markets, with our export trade deals that give Australians the opportunity to sell their products and their services into the fastest growing markets in the world, while at the same time reducing the cost of everyday goods, putting more money back into household budgets.
We are creating a brighter and better educated Australia through our Innovation and Science Agenda which sees more of our children studying science and technology, and more research and investment into the technologies for the future.
And as another example, our Defence Industry Plan not only delivers the capabilities our defence forces need, but also provides the high tech platform that encourages advanced manufacturing, delivering new opportunities and also new jobs.
We know that we need to continue to act to secure the future growth of the Australian economy so that Australians in this generation and the next can continue to enjoy the high standards of living and access to services that they expect and demand of Government.
Superannuation reforms
Now, when it comes to superannuation, the Turnbull Government knows we need a system that is fit for purpose now, and also into the future.
The superannuation system must be well-equipped to tackle head on, the challenges of the significant shift in Australia’s demographics.
The 2015 Intergenerational Report showed that by 2055, the number of Australians aged 65 and over is projected to more than double, while one in every 1,000 people will be 100 years or older.
This is a good thing, we’re all living longer and healthier lives.
But at the same time, the number of people of working age for each person aged 65 years and over is decreasing.
Now this will put enormous pressure on health and aged-care costs — not to mention our retirement income system.
These are the reasons why it is critical that the taxation settings of the superannuation system are affordable and well-targeted, and why it is important that all Australians are still encouraged to save for their own retirement.
Now, I acknowledge that many of you here today may have been affected by our changes legislated at the end of last year.
But at its heart the Government’s reforms consist of a package of measures that will improve the sustainability, flexibility and integrity of our superannuation system overall.
Let me spend a brief period of time taking you through those measures.
Objective of superannuation
Superannuation is one of the great bipartisan policies in Australian political history.
Given this – and its remarkable growth into an industry that manages more than $2 trillion in deferred wages on behalf of the Australian people – it is really quite extraordinary to think that, until now, there has been no legislated objective for our superannuation system.
Which means, like the Financial System Inquiry found, this lack of clarity around the superannuation objective has led to governments of all persuasions making short-term, ad-hoc decisions, adding complexity and imposing unnecessary cost.
In short, without a very clear, unambiguous objective, Australians cannot have long-term confidence in the superannuation system.
That is why we have got legislation currently before the Senate that will define the objective of superannuation as being ‘to provide income in retirement to substitute or supplement the Age Pension’.
This is a fundamental change that makes it clear that the core purpose of the superannuation system is not for tax minimisation or estate planning but rather to provide for retirement income.
And perhaps, more importantly, it will mean for the first time, politicians will have a framework by which they must evaluate future taxation changes, measuring competing proposals and examining the effectiveness of the system.
I’m pleased to see that there has recently been a Senate Economics Committee report that has recommended the passage of this legislation.
And there is also another important recommendation in the Committee report. They recommended the Government periodically assess and report on the compliance of future superannuation taxation reforms with the objective, as part of the five-yearly Intergenerational Report. I believe that this is a very worthy recommendation and the Government is going to consider it very, very closely because I believe that it will give people confidence in knowing that taxation reforms will not happen on an ad-hoc basis but will be considered holistically every five years.
A better targeted system
The objective of superannuation was an anchor for the Government in developing our Superannuation Taxation Reform Package.
We approached these important and significant reforms comprehensively and holistically because we know how important it will be for our children and our children’s children to have a superannuation system which is sustainable.
Many of the sustainability measures will come into effect on the 1st of July this year and will ensure tax concessions are both targeted and affordable.
We have introduced a $1.6 million cap on the total amount that individuals can transfer into the retirement phase tax-free which will impact less than 1 per cent of retirees, although, I suspect many in this room.
We are also lowering the concessional contribution caps to $25,000 per year, and the non-concessional cap to $100,000 per year.
These changes will help strike a balance between sustainable concessions and encouraging people to be self-reliant and self-sufficient in retirement.
The Government also introduced a Low Income Superannuation Tax Offset.
This means that those with an income up to $37,000 will receive a refund of the tax paid on their concessional contributions, which is capped at $500.
This will benefit around 3.1 million Australians — two-thirds of whom are women.
A flexible system
Flexibility in the superannuation system is another focus for the Government, and we’ve taken several significant steps in this area.
For example, all Australians under 75 who satisfy the work test will be able to be able to claim a tax deduction for personal superannuation contributions to eligible funds irrespective of their employment arrangements.
We’ve introduced tax-offsets to allow people to make contributions to their low-income spouse’s superannuation.
And those with interrupted work arrangements can also roll over their unused annual concessional caps to ‘catch up’ to superannuation contributions if they have the capacity to do so from the 1st of July next year.
For these people with irregular income or work patterns — such as tradespeople, contractors, small business owners, women and men returning to work, or even people who just find they have a little more income because they no longer need to pay things like school fees, these people will all be able to benefit from the tax concessions to the same extent as those people who have got regular income.
We have also ensured the settings are there to encourage the development of innovative retirement income stream products by extending the tax exemption to other products.
Removing barriers to choice
Supporting the family, giving people choice in their lives and building a nation that encourages wealth creation are fundamental principles that I believe in and the Turnbull Government stands for. I believe that every individual has the right to control their own destiny.
And it is my great privilege, as Minister with responsibility for superannuation, to shape retirement income policy in a way which helps people achieve these things.
And today, we see more than one million Australians, who for a variety of reasons want to be autonomous, have elected to use a self-managed superannuation fund to take control and actively invest in their retirement future. This is a great thing.
In fact, during the past decade alone, the number of SMSFs in Australia has grown by 87 per cent to almost reach 575,000 in June last year — with an average of 36,000 new funds established in each of the past four years.
The SMSF sector is the fastest growing in terms of members.
But only a Coalition Government believes in choice in superannuation. It was a significant policy change in 2005 when the Coalition government introduced choice of fund and enshrined that as a fundamental principle of the system.
That is, to ensure that employers must provide their employees with a choice of superannuation fund for compulsory contributions.
But, believe it or not there is still more to be done in this area because 12 years on from the landmark introduction of choice in super, there are still around a million people that are covered by federal enterprise bargaining agreements that restrict choice in their superannuation fund.
Throughout my time as Minister I have heard stories of how this lack of choice is having a real impact on Australians trying to save for their retirement.
Take a young worker, who works in hospitality two days a week under one enterprise agreement with a mandated superannuation fund, and in retail three days a week under a different enterprise agreement with its own mandated superannuation fund.
They can’t direct their superannuation payments to one fund. And with multiple superannuation accounts come multiple fees and multiple payments, taking critical funds out of superannuation at the very beginning of this young person’s working life eroding, obviously, the compounding benefit that would have otherwise been provided.
Or to take another example, a researcher in their 60s, and this came up through the Trade Union Royal Commission, prevented from contributing to their own self-managed superannuation fund as a result of their relevant enterprise agreement, seeing them worse off at a critical stage of their working life.
The result of this for these individuals shackled to funds they didn’t choose to sign up for is threefold:
- it prevents them from making decisions about their savings,
- it discourages their engagement, and
- it limits competition between funds – including the for someone choice to manage their own funds and their own savings.
That is why, in March 2016, I introduced a Bill that would allow employees to choose their fund where they are employed under a workplace determination or enterprise bargaining agreement.
And while the Bill lapsed due to the election, we have every intention of continuing to progress this as an important reform in 2017.
Integrity in the system
But it is not only the fairness, flexibility and choice in superannuation that provides confidence in the system, but also strong governance arrangements.
For millions of Australians who choose to outsource management of their retirement nest eggs to experts in the area, the Government must, and will, ensure that well-governed standards of oversight and accountability are the foundation of the legislation governing the system.
The superannuation system is growing.
It is compulsory, it is complex, and boasts characteristics that are, generally, not found in standard markets.
And, the superannuation industry must always remember that it is their immense privilege and responsibility to manage over $2 trillion in mandated deferred wages on behalf of the Australian people.
For these reasons, the Turnbull Government is committed to ensuring that all superannuation funds – whether they be retail, corporate or industry funds – put the interests of their members first, ahead of their own interests, or the interests of any other related entity.
Part of this is a legal requirement for a minimum number of genuinely independent directors on boards of every superannuation fund.
And the Government is going to progress these reforms again this year.
Financial advice
The Turnbull Government has also taken the necessary steps to ensure that future retirees have access to the highest quality advice when it comes to superannuation products.
Access to appropriate financial advice can significantly improve someone’s long-term financial wellbeing. However, reduced trust acts as a barrier to consumers seeking financial advice in the first place.
That’s why the Government has delivered on its commitment to raise the education, professional and ethical standards of financial advisers.
Under the Professional Standards reforms, which passed through the Parliament earlier this year, an independent standard setting body will be established to govern the professional standing of the financial advice industry.
The independent body will be responsible for:
- developing and setting the education and professional development requirements;
- developing and setting an industry exam; and
- developing a Code of Ethics.
The new regime will commence from the 1st of January 2019. From this date, new advisers entering the profession will be required to hold a relevant degree rather than what can occur today, which can be as little as four days’ worth of training before someone can hang up their shingle and call themselves a financial adviser.
Existing advisers in the industry will have until 1 January 2021 to pass the exam, and until 1 January 2024 to meet education standards that are equivalent to a degree.
The reforms also include a uniform Code of Ethics for the industry and from 1 January 2020, all advisers will need to comply with that Code of Ethics. The Code will ensure that people will have access to financial advisers who will provide advice in their clients’ best interests.
Closing remarks
So, let me finish by thanking you for the opportunity to join you today.
The Government does want to encourage investment, to see our economy to grow, and to create the right environment for all of you to create even more jobs for the Australian people.
The Government also wants an efficient and modern superannuation system and a system that operates and functions for all Australians.
So, 2017 is going to be another busy year and I look forward to your feedback, I look forward to your questions and thank you for your attention.
Thank you.