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2002-2003-2004
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF
REPRESENTATIVES
LIFE INSURANCE SUPERVISORY LEVY IMPOSITION AMENDMENT BILL 2004
EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister for Revenue and
Assistant Treasurer,
the Hon Mal Brough, MP)
Table of Contents
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1
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1.1 The Life Insurance Supervisory Levy Imposition Amendment Bill 2004 (the Bill) is part of a package of seven Bills that introduce a number of changes to the arrangements for the determination of the levies paid by regulated financial entities. These levies fund the vast majority of the costs of the Australian Prudential Regulation Authority (APRA) in pursuing its role of prudential supervision and regulation, and certain related activities undertaken by the Australian Securities and Investments Commission and the Australian Taxation Office.
1.2 The other six Bills in the package are the Financial Institutions Supervisory Levies Collection Amendment Bill 2004, the Authorised Non-operating Holding Companies Supervisory Levy Imposition Amendment Bill 2004, the Authorised Deposit-taking Institutions Supervisory Levy Imposition Amendment Bill 2004, the General Insurance Supervisory Levy Imposition Amendment Bill 2004, the Retirement Savings Account Providers Supervisory Levy Imposition Amendment Bill 2004 and the Superannuation Supervisory Levy Imposition Amendment Bill 2004.
1.3 The reforms contained in this Bill and its companion Bills give effect to the Government’s response to the Review of Financial Sector Levies. The Report of the Review of Financial Sector Levies, together with the Government’s response, was released on 7 May 2004.
1.4 The Bill separates the life insurance supervisory levy into two components. In addition, it changes the statutory upper limit applying to the levy set for the 2005-06 financial year in relation to life insurance companies. It also alters the calculation of the indexation factor used to establish the statutory upper limits applying in later years in a way that allows the statutory upper limit to increase at three percentage points annually in excess of movements in the Consumer Price Index.
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2.1 It is not envisaged that the Bill will have a financial impact on the operations of government. The Bill only determines the framework for how the life insurance supervisory levy is to be allocated among regulated entities. The total amount of funding required to be raised by the levy is determined in a separate process upon which this Bill does not have a direct impact. Regulated financial sector entities will continue to pay financial sector levies, which, in turn, will be used essentially to fund the operations of the Australian Prudential Regulation Authority, as well as certain related activities undertaken by the Australian Securities and Investments Commission and the Australian Taxation Office.
2.2 This Bill will result in there being two components to the levy applying to life insurers, an increase in the statutory upper limit for the restricted levy amount applying to the levy set for the 2005-06 financial year and the calculation of a higher indexation factor used to establish the statutory upper limits applying in later years.
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3.1 Clause 1 is a formal provision specifying the Short Title of the Bill.
3.2 Clause 2 indicates that the Bill will commence on Royal Assent.
3.3 Clause 3 makes clear that any Act specified in the Schedule is amended or repealed as set out in the Schedule and that the Schedule may also contain other provisions.
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4.1 Item 1 changes to $1,500,000 the statutory upper limit in section 5 for the financial year commencing on 1 July 2005. In relation to later financial years, the statutory upper limit continues to be calculated using indexation factors related to movements in the Consumer Price Index. The restricted levy amount determined as payable by a life insurance company for a financial year must not exceed the statutory upper limit at the time of the determination.
4.2 Item 2 changes subsection 7(1) to specify that the amount of levy payable by a life insurance company has two components. The first of these is a restricted levy component in which a levy rate on assets is made subject to minimum and maximum restricted levy amounts; this is essentially the same structure as the levy arrangement that has been applying over the last few years. The second component is an unrestricted levy component involving a levy rate on assets without any minimum or maximum unrestricted levy amounts.
4.3 Reflecting the introduction in the Bill of two levy components, item 3 replaces three paragraphs in subsection 7(3) to specify that the Treasurer is to determine in writing the maximum and minimum restricted levy amounts, the restricted levy percentage and unrestricted levy percentage.
4.4 Item 4 amends subsection 7(4) to clarify that the maximum restricted levy amount determined by the Treasurer must not exceed the statutory upper limit.
4.5 In replacing subsection 8(1), item 5 sets out the key step in the method for the calculation of the indexation factor for a financial year. It specifies that 0.03 is to be added to the number derived from the simple division of specified Consumer Price Index numbers.
4.6 Item 6 is a minor technical change to ensure that a cross-reference remains correct following the re-structuring of the subsection referred to in Item 5.
4.7 Item 7 indicates that the amendments made in the Schedule to this Bill apply for the financial year commencing on 1 July 2005 and each subsequent financial year.