Australian Institute of Superannuation Trustees ABN 19 123 284 275
Ground Floor 215 Spring Street Melbourne Victoria 3000
Ph: 8677 3800 Fax: 8677 3801 Email: info@aist.asn.au Web: www.aist.asn.au
17 August 2009
Ms Christine Barron General Manager Indirect Tax Division The Treasury Langton Crescent PARKES ACT 2600 By E-mail to: financialsupplies@treasury.gov.au
Dear Ms Barron Consultation Paper on the Review of the Financial Supply Provisions We have been in discussion with Mr Rob Dalla-Costa of your office regarding a submission in respect of Consultation Paper, and have been granted an extension. Mr Dalla-Costa has requested that we provide a “high level” submission by close of business Monday 17 August 2009. Please accept this letter is that high level submission. We intend to make a more detailed submission in due course. AIST position In general, our position is that the present legislative regime for financial supplies should be retained, and we strongly oppose any reduction in the 75% RITC rate. In relation to the option of replacing the existing legislative framework with a principle or set of principles, we strongly oppose this proposal. While the financial supply provisions are a complex area of law, it is one which has been thoroughly reviewed and implemented over the 9 years since the introduction of the GST. Over that period, funds and other organisations in the superannuation sector have put in place systems and process, have trained staff, and have implemented software to manage their GST compliance under the present rules. Removal of those rules would lead to significant costs in reviewing systems and processes, retraining staff, and modifying software systems. We do not believe that the purported benefits justify the likely costs. In relation to the option of amending the existing law, we acknowledge that there may be scope for clarification of the regulations concerning reduced credit acquisitions. While we are not in position to make detailed recommendations at this stage, we intend to provide that detail in our final submission.
In relation to the extent of RCAs and the RITC rate, we strongly support continuation of the current arrangements. Any reduction in the RITC rate would lead to higher costs for funds, and this would immediately lead to increased costs for members. We note that a high RITC rate is required as major acquisitions by superannuation funds have a high value-add component, due to their generally labour-intensive character. In this context, we do not believe the RITC rate is distortive, but rather effectively addresses the in-source bias. Background to our position The fees charged by superannuation funds are presently the focus of considerable media and public scrutiny. In May this year, the then Minister for Superannuation and Corporate Law, Senator the Hon Nick Sherry, announced the establishment the Cooper Review and we will be making a submission to the Review in due course. As you will be aware, the Review will investigate, among other aspects, the fees and costs in the superannuation industry,. Our members have strongly advocated to us that they would like our submission to focus on costs imposed by Government on the superannuation industry, as well as other costs. In this context, it would be regrettable if the Government were to implement changes to GST law which have the effect of increasing costs across the superannuation industry. The Consultation Paper makes reference to “consumption distortions” (page 3) arising from the treatment of financial supplies, and states that “This may bias consumption to more financial services than might otherwise occur.” Given the fact that superannuation is mandatory in Australia, and the generally low level of voluntary savings, we do not see a strong case for addressing this distortion, at least in relation to superannuation funds. In relation to the dist I hope this submission meets your requirements, and we will be in touch with Mr Dalla-Costa in due course to finalise our full submission. If you or any of your staff have any questions in relation to this submission, please feel free to contact me on (03) 8677 3840.
Yours sincerely
Andrew Barr Policy & Research Manager