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Issue 117, 16
December 2005
Welcome to the latest issue of Thomson’s
Tax & Accounting Insight, your free news service for tax
and accounting professionals.
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Articles
in this edition include:
Editorial
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Call to
scrap super contributions tax: ASFA
ASFA has released its 2006 pre-Budget submissions calling on
the Government to remove the 15% superannuation contributions tax.
According to ASFA, scrapping the 15% tax on contributions to
superannuation would provide an average wage earner with an
additional $30 per week in retirement benefits, yet cost the same
as a $6 per week tax cut. ASFA also claimed that 75% of
respondents to a recent survey said they would prefer the removal
of the 15% contributions tax, instead of an income tax cut of $6 a
week.
ASFA CEO, Philippa Smith, said the abolition of the
contributions tax would mean the average wage earner would have up
to an additional $610 per year in their super account, equivalent
to an additional $29,000 (in today’s dollars) in superannuation
benefits after 30 years of standard 9% Superannuation Guarantee
contributions.
Other recommendations in ASFA’s pre-Budget submission
include:
- extending the superannuation
co-contribution threshold to allow the full benefit to be
claimed by people on incomes of up to $40,000 pa (phasing out
at $60,000 pa);
- abolishing the $450 per month
earnings threshold for Superannuation Guarantee payments,
giving low income earners access to compulsory super, and
making calculations less complicated for employers;
- abolishing the age-based
deduction limits for superannuation contributions on behalf of
those under age 50; and
- permitting funds to provide
projections of members’ final benefits as part of the annual
member reporting requirements.
For the more information about this topic, see the ASFA
media release of 13 December 2005.
This article first appeared in Thomson’s Super
News Alert (Issue 234 13 December 2005) delivered two
to three times a week to specifically cover superannuation
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Work Choices legislation: constitutional challenge likely
A High Court constitutional challenge against the Government’s
Workplace Relations Amendment (Work Choices) Bill 2005 ‘seems
likely’, according to former NSW Supreme Court judge and former
NSW Attorney-General, the Hon. Jeff Shaw QC.
Background
Broadly, the Workplace Relations Amendment (Work Choices) Bill
2005 seeks to establish a unified national system for industrial
relations, instead of the six distinct workplace relations systems
currently operating across the country.
Superannuation amendments
Among other things, the legislation contains a number of
significant changes for superannuation, including the removal of
superannuation matters from federal awards. However,
superannuation provisions in existing awards will be preserved
until 30 June 2008.
Constitutional challenge
In an article published in the Labour Council’s ‘Workers
online’, Mr Shaw notes that the Commonwealth is relying on the
corporations power in section 51(xx) of the Constitution to
override the state jurisdictions. Having refused to refer their
powers, the states have pledged to mount High Court challenges to
the takeover, Mr Shaw said.
Mr Shaw also outlines the arguments which might be raised to
challenge the use of the corporations power to displace state
industrial relations jurisdictions. In addition, he highlights the
known limits of the corporations power’s application, and the
questions which remain to be resolved in that regard. Broadly, Mr
Shaw suggests three potential arguments against the validity of a
national industrial relations system founded on the corporations
power:
- Overriding states’ IR systems beyond scope of
corporations power
Although the corporations power extends to allow the
protection of corporations, the proposed over-ride of state
industrial relations systems is qualitatively different from
such protection and is beyond the scope of the corporations
power. That is, there is a difference between the direct
protection of the activities of section 51(xx) corporations
and a forceful displacement of state industrial relations
jurisdictions.
In addition, the corporations power is both regulatory and
protective, but whether it can validly be said that the ‘protection’
of corporations includes the decimation of state industrial
relations systems is more problematic.
- Discrimination against states — Melbourne corporation
principle
Stands for the proposition that the federal nature of the
Constitution implies certain prohibitions on Commonwealth
action. The limitation consists of two elements:
- the prohibition against discrimination which involves
the placing on the states of special burdens or
disabilities; and
- the prohibition against laws of general application
which operate to destroy or curtail the continued existence
of the states or their capacity to function as governments.
- Statutory intention of section 51(xx)
The validity of Commonwealth laws resting on the corporations
power to create a national industrial relations system would be
weakened if it could be contended that the framers of the
Constitution did not intend to enable direct industrial
relations regulation under section 51(xx).
Workers excluded from a national system
Even in the event that the proposed new system was found to be
valid, Mr Shaw argues that it could not profess to be unified, as
its coverage would be both patchy and uncertain. In particular, Mr
Shaw suggests that the power in section 51(xx) of the Constitution
cannot support a uniform industrial relations system across all
employers, since it applies only to laws with respect to certain
sorts of corporations. Therefore, he considers that any industrial
relations system relying on the corporations power will not extend
to the employees of businesses which operate as sole traders,
partnerships or trusts. For example:
- employees of small to medium businesses (tend to be sole
traders or partnerships);
- owner-managers of unincorporated enterprises (representing
13% of workers);
- farmers and their employees (tend not to incorporate for tax
reasons);
- contract workers who do not contract directly with foreign,
trading or financial corporations;
- state Crown employees (i.e. the administrative edifice of
the executive) and for other unincorporated government
departments and, arguably, local government employees; and
- a range of others would find their position uncertain, with
their awards and rights subject to litigation.
Thomson ATP comment
The Government has also previously announced that it will seek
to amend the superannuation choice of fund legislation to allow
the Commonwealth to override state awards in respect of
superannuation from 1 July 2006: see 48 Super News Alert [2]. The
Government has indicated that it will use its corporations power
to override state awards in this respect, but it is yet to provide
details. Obviously, a successful challenge against the
Commonwealth’s use of the corporations power may prevent the
Commonwealth from giving effect to this extension of the choice of
fund regime.
However, if the Government encounters constitutional problems
in legislating its intention to extend the choice provisions to
state award employees, it is possible that the Government may
adopt a narrower interpretative approach of the choice of fund
exemption for state awards to achieve its policy objective.
For more information on this topic see Jeff Shaw & Monika
Ciolek, ‘A
law unto themselves’ (extract from the Evatt Foundation’s
‘State of the States’), Workers Online, Issue No 292, 2
December 2005, Labour Council of NSW.
This article first appeared in Thomson’s
Super
News Alert (Issue 229 6 December 2005).
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Labor policy to link super savings with infrastructure
investments
Federal Opposition Leader Kim Beazley has announced a Labor
policy that would seek to drive improvements in linking some of
the $740 billion held in superannuation funds with infrastructure
investments.
In announcing Labor’s ‘Blueprint for Building Australia —
Infrastructure and Investment’ in a speech to the AusRail
Conference in Sydney on 24 November 2005, Mr Beazley said
infrastructure projects can offer a low-risk and strong long-term
rate of return that makes them very appropriate to superannuation
funds. By definition, super funds are well placed to invest large
amounts of capital for a long-term return, Mr Beazley said.
According to Labor, the solution is not simply to give
superannuation funds incentives to invest in projects but to give
them projects to invest in. Mr Beazley suggested that direct
investment in infrastructure projects by super funds simply
requires that opportunities exist for infrastructure projects to
be privately owned through shares and other financial instruments.
For example, this could be when governments, including the
Commonwealth, part-own a project with the private sector, as
happens in a public-private partnership (PPP), Mr Beazley said. In
this model, Labor considers that superannuation funds would be
able to directly own a stake in the privately owned portion,
contributing capital to a project.
For indirect investment, Mr Beazley said entirely private
listed vehicles have been created to manage infrastructure
projects, with the revenue coming either from private user charges
or from governments paying for the public’s use. Again, Mr
Beazley said every indication is that superannuation funds would
be keen to invest in infrastructure in this way.
Finally, Mr Beazley said that a Federal Labor Government, if
elected, would provide the national leadership required to unlock
the huge potential for Australia’s superannuation funds to
exercise their investment discretion to invest in rebuilding
Australian infrastructure.
The full text of the Federal Opposition Leader’s speech
to the AusRail Conference, Sydney, 24 November 2005 is
available on the ALP website at <www.alp.org.au>.
Government’s response
The Assistant Treasurer responded to Labor’s infrastructure
blueprint by noting that 80% of superannuation assets are already
invested in Australia with a considerable portion already being
invested in infrastructure vehicles based on the appropriate
balance between risk and performance.
The Assistant Treasurer also warned that it would be unwise to
interfere in the decision making of super trustees to risk the
hard-earned savings of fund members on projects which may not be
financially viable. If a project is commercially viable and can
provide suitable returns, then trustees might consider investing,
Mr Brough said.
The Assistant Treasurer also suggested that the considerable
growth in super savings has taken place because people are
increasingly more involved in their investment choices and are
satisfied that reasonable protections are in place for their nest
eggs.
For further information see the Assistant Treasurer’s press
release of 24 November 2005.
This article first appeared in Thomson’s
Superannuation & Financial Services Bulletin (Issue 011, 30
November 2005). For more information, click
here.
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