16 September 2016
Common sense has prevailed; the retrospective superannuation cap is gone. Yesterday, the government said it would substitute a prospective annual cap of $100,000 on after-tax contributions for its unacceptable $500,000 lifetime cap with the clock wound back to 2007. Malcolm Turnbull has achieved a principled compromise on an issue that stoked anger within the Coalition and its base. It was a week of compromise, in fact, as government and opposition found enough common ground to pass $6.3 billion worth of savings measures. We need more of this. Through a lower house with a majority of one and an upper house with a sizeable crossbench, the Prime Minister must articulate a compelling economic narrative and negotiate his way towards the national interest.
In April last year, former treasurer Peter Costello warned of unintended consequences facing policymakers. “Increasing superannuation tax will make negative gearing more attractive again,” he wrote in The Daily Telegraph. Abolition of the $500,000 lifetime cap means we are less likely to see a shift of funds away from superannuation into other more bankable investments. The government went wrong in its budget in May when it approached the rules on superannuation not as retirement income policy but as an ill-considered revenue grab. As such, it was difficult to defend and became one of the reasons for the Coalition’s lacklustre campaign leading up to the July 2 election.
The effect of the superannuation changes would have been to blunt the incentives for self-funding retirees, a class needed to take the pressure off the (already unsustainable) Age Pension. The changes also sent a destabilising message: that governments could change the rules of the long-term investment game that superannuation represents. It was not just the $500,000 lifetime cap that rankled but its retrospectivity. Soon after the budget, a former senior public servant, Terence O’Brien, crystallised the problem in a letter to this newspaper: “A 60-year-old can today expect to live past 90, so superannuation needs to finance a further 30 years of sustained retirement living standards, ideally in a predictable taxation environment. There might be 20 to 25 governments over that 70 years of a typical worker’s saving and retirement, so it is important that there be some sense of fundamental ‘rules of the game’ governing superannuation rule-making and taxation — a ‘superannuation charter’, if you will.”
Paul Keating’s superannuation changes of the 1980s were grandfathered so as not to disadvantage people who had relied on the old rules when making investment decisions. So, too, were John Howard’s 2004 changes affecting the superannuation of MPs. Scott Morrison and Kelly O’Dwyer, then assistant treasurer, failed to convince when they insisted that the $500,000 lifetime cap was not in truth retrospective. Now, at least, there is the basis for restoring trust in the integrity of the system. And, in a political sense, there is the basis within the Coalition for renewed confidence in Mr Turnbull now that the superannuation policy has been shifted from the spurious “fairness” of the centre-left closer to a commonsense position on the centre-right. It was Mr Costello, again, who had put his finger on the problem. “The Coalition is flirting with higher tax on superannuation,” he wrote last December. “The longer it does so, the more it will give ground to Labor on the issue.” Even so, political posturing aside, there should be enough overlap in substance by now for Mr Turnbull to broker an agreement on superannuation with Bill Shorten. Opposition Treasury spokesman Chris Bowen had focused his criticism on the retrospectivity of Coalition policy, a policy to which Labor gave tacit approval by building its savings into its own costings for the election campaign.
In question time yesterday, struggling to be heard above the hyperpartisan ruckus, Mr Turnbull gave the opposition credit for its compromise on Tuesday’s omnibus savings bill. The Prime Minister said he wanted Australians to know that “with a little less grandstanding, a little less name-calling, a little more constructive negotiation, we (in parliament) can achieve great things for Australia”. As usual, the tone of question time suggested anything but consensus. Even so, the Prime Minister has little option other than the path of negotiation and compromise. Politics is the art of the possible and what is possible for Mr Turnbull is heavily constrained by the parliament elected on July 2.
As the Prime Minister put it in a Fairfax Media report yesterday: “The Australian people have elected the parliament that we’ve got and we are determined to work with it.” He suggested that negotiation could allow the passage of the double-dissolution trigger bills — for the Australian Building and Construction Commission and the Registered Organisations Commission — without the need to call a joint sitting of parliament. And the same spirit of compromise may see the government split its $48.7bn company tax package to pass on savings straight away to small business.