Category: Newspaper/Blog Articles/Hansard

Kelly O’Dwyer’s Valedictory Speech to Parliament

20 February 2019

Ms O’DWYER (Higgins—Minister for Women and Minister for Jobs and Industrial Relations) (16:34): on indulgence—I start today with the words that concluded my very first speech in this place:

I will never forget that politics is about people and that people can make a difference. That is why I am here. I look forward to playing my part in building an even better Australia …

Going on a decade as the federal member for Higgins, I believe that I have been able to do that.

As anyone who has had the honour of serving in this place knows, you cannot make a contribution in this place without a lot of support. I want to start by thanking the people of Higgins for the privilege of representing them in this place and for entrusting me to represent their issues, both big and small. I especially want to thank them for giving me the opportunity to share in important moments in their lives and those of their families.

I also want to thank the extraordinary members of the Liberal Party. I joined the Liberal Party as a 17-year-old because I believe that people should be free to choose their own paths in life—that they should be rewarded for their hard work and enterprise

—and that everyone, regardless of background or circumstance, deserves respect and the opportunity to live their best life. Thank you for giving me the opportunity to prosecute those values in this place. I have been extremely fortunate to have such a strong electorate conference executive, led so brilliantly by my good friend Mark Stretton, who is here today with his beautiful family. I’m grateful to them, as well as every member of my hardworking committee.

I feel the same debt of gratitude to the Chairman and patrons of the Higgins 200 Club and their families during my time here—Peter Bartels AO, the Hon. Peter Costello AC and current chairman, Richard Murray. Each has been a source of thoughtful advice and wonderful friendship. Peter Costello has also been a great mentor and a terrific example of integrity in political life. And while we haven’t always agreed on everything, I am the better for our robust discussions. I look forward to many more in the years ahead.

I want to place on record my sincere thanks and appreciation to the hundreds of volunteers, supporters and friends who have backed me with their time, money and expertise over four elections. In particular, I want to thank Andrea Coote, a Higgins Liberal powerhouse, who has helped direct each of my campaigns. The people, though, on the frontline each and every day are the people who work for you. And some, like the brilliant Sarah Nicholson and Tania Coltman, have been on the journey with me from the very beginning.

Working in politics is more than just a job. It is a vocation. Like us, our staff want to serve their community and their nation and change lives for the better. The expectations and pace is unrelenting, and the sacrifices demanded of them and their families are very real. I have had the good fortune to work with the very best team in the country—

people who are caring, bright, intellectually curious, loyal, hardworking and determined and who go above and beyond because they believe in our common Liberal cause.

Amongst them are women and men who I hope will serve in this place or the other. I say to each of them and their families a heartfelt thankyou—you enrich the fabric of our nation, I cherish your friendship and I look forward to celebrating your many personal and professional achievements in the decades to come.

Anyone who knows me knows that family means everything to me, and without them I wouldn’t be here. I’m joined today by my loving parents, Karen and Dan, who instilled in me a strong moral compass that has always been my guide. My colleagues can blame them for my forthright manner, because they taught me from a young age that you have a responsibility to communicate your view clearly, no matter how difficult and no matter the cost, and that above all else you must be true to yourself.

Two of my wonderful siblings are also here—my sister Kate and my brother, Tom, who together with my sister Nicki, who is overseas, are the very essence of tolerance, loyalty and love. I look forward to spending more time with them and their partners, along with my gorgeous and clever nieces, Lily, who is here today, Izzy, Lara and Charlie.

I met my husband, Jon, 24 years ago at university, and I am so glad that we are on life’s journey together. I have relied on his advice, his reservoir of love and understanding, his truth telling, his great intellect and his selfless devotion to our family. Jon works part time and is the primary caregiver in our family, ferrying children to child care, kinder and all manner of other things. He twice took extended paternity leave so that I could serve in cabinet and parliament and breastfeed our children. Whilst Jon trained as an engineer and a lawyer, I think he now sees his core competency as logistics. He is, quite simply, a great man, wonderful husband and brilliant father, and I just love him to bits.

There is no doubt, though, that our greatest achievement in life is our two beautiful, happy, confident and loving children, Olivia and Edward. Livvy and Edward, you make my heart sing, and I love you more than words can express. There is nothing that gives me greater joy than being your mum.

From the outside, politics can look like a brutal business—and it can be. There is a ferocity and urgency that is a permanent overlay to everything that is said and done here, because politics affects everyone, because the decisions made in this place affect the choices and opportunities of millions of Australians and the sort of Australia that we are and that we might become. In the battle of ideas, robust debate is critical and accountability for decision-making essential. Those who serve here have a responsibility to think deeply about the challenges that we face as a nation. Today I want to reflect on four themes that have dominated my thinking and my approach as a backbencher and minister.

The first is the intergenerational bargain. I believe that each generation has an obligation to try to put the next generation in a stronger position than the one they inherited, or, at the very least, to make sure that they are no worse off. That is why I chaired an inquiry into foreign investment and residential real estate as a backbencher. It is why I have championed key infrastructure projects like the Melbourne Airport Rail Link and the congestion fund as a member of the Expenditure Review Committee. These are essential reforms aimed at increasing the supply of more affordable housing for all Australians. The intergenerational compact is why, as a member of the ERC, I am proud to have played my part in containing spending growth and returning the budget to surplus, in the face of an obstructionist Senate, so that we can get on with paying down Labor’s debt legacy. Labor’s budgets, and the trajectory they established for future years, were quite simply an enormous exercise in intergenerational wealth transfer from our children and our grandchildren to us. It is wrong to expect the next generation of Australians to fund a higher standard of living for us than they can ever reasonably be expected to achieve for themselves, yet this is a direct consequence of a spend-now

pay-later philosophy. This is exacerbated further when you consider the ever-diminishing ratio of working-age Australians to fund the growing expenditure of an ageing population.

Given all this, as Assistant Treasurer and later as Minister for Revenue and Financial Services, I realised it was important to make modest tax changes to broaden our overall income tax base and put superannuation on a sustainable footing. It wasn’t popular amongst all of my constituents and divided opinion amongst sections of my party’s membership, but it was the right thing to do, and I am grateful to the Liberal party room for unanimously endorsing our final package. (Highlight & underline by SOS). After all, how could it be right that a young person on average earnings, with a substantial HECS debt, faced a higher tax bill on the interest earned on their home deposit savings than a person who owned their own house, had a free university education and was paying no tax on the income earned from millions saved in superannuation? We must never forget that in this place we have a dual responsibility, both to the voters of today and to those that economic historian Niall Ferguson so eloquently describes as ‘as yet too young to vote or as yet unborn’.

The intergenerational compact demands that we be fair to both.

That leads me to the second theme I want to touch on: fairness. Fairness is more than a one-word slogan hijacked to denote the redistribution of income. It has many dimensions. We must always ask the questions: fair to who and fairer on what measure? Those who choose to work harder and longer deserve to be rewarded. Those who put their capital on the line to invest in new enterprises that create jobs should have the opportunity to see the fruits of their efforts. Government tax policy that smothers initiative and enterprise and deters risk-taking and hard work is inherently unfair. This is why, together with the Prime Minister, I am proud to have contributed to legislated tax cuts for small and medium-sized businesses and tax cuts for individuals that will see the 37 per cent tax rate eliminated altogether. Our upper personal income tax rates are still too high, though, and our top marginal tax rate kicks in at too low a level. As our budgetary position improves over time, I hope that both of these issues are addressed.

Equally, it is absolutely not fair for some to treat their tax obligations as optional. If profit is earned in Australia, it must be taxed in Australia. Failing to close loopholes and enforce the law can cheat Australians of vital services and infrastructure and can mean higher taxes for those who do the right thing. I am proud to have closed loopholes that allowed multinationals to try to avoid their tax obligations, doubled penalties on large companies ripping off the taxpayer, strengthened the Australian Taxation Office and established the Tax Avoidance Taskforce. As a result, around $7 billion has been collected from large corporations, multinationals, private groups and wealthy Australians. In response to the MAAL, around $7 billion in sales income is being returned to Australians each year, plus hundreds of millions of dollars in GST revenue. Just this week, my whistleblower protections for those who expose corporate and tax misconduct were finally legislated. I’m also proud to have commissioned the first comprehensive review of the black economy, which is estimated to cost our economy up to $50 billion a year. Tackling the black economy will reduce the tax burden on everyone. Budget announcements last year have demonstrated our progress, but it is clear that there is more to do.

The third issue I want to touch on is the role of women in our society and economy, and the perennial work-life struggle. We sell ourselves short as a nation if we don’t maximise the talents and expertise of both halves of our population. There should be no limit on what girls and women can aspire to and no limit on what they can achieve. As a feminist, I have always believed that girls and women deserve an equal stake in our society and our economy. We want women to make choices that are right for them and right for their families. Choice is a good thing. But we must also be mindful that a choice today can have long-term consequences. So that means that we need to have better pathways back into work after having children, more flexible work arrangements to accommodate family responsibilities and more affordable childcare arrangements. In essence, it means helping women to build their financial security.

It also means giving men more flexibility in work to take on caring responsibilities.

Men love their children and want to be part of their lives, and children love their fathers. Yet the number of men who work part-time remains well below that of women, and I call this the flexibility gap. We need to normalise flexibility for men and ask, ‘What are the barriers? Should we have a target?’ We began work on this area during my time as Minister for Women, and I encourage my successor to continue it.

I’m proud to have delivered the inaugural Women’s Economic Security Statement, with over $100 million dedicated to help build women’s financial security through practical actions that boost their skills and employability, smooth their return to work, help them to establish their own businesses, and improve their economic recovery following critical life events such as family separation or domestic violence. I hope future governments commit to this important annual statement to keep a strong focus on gender equality.

I was pleased to announce funding for the first ever national inquiry into sexual harassment in the workplace and introduce legislation to enshrine minimum standards in the workplace for family and domestic violence leave. I’m glad this passed with the support of the whole parliament.

In my party, I’m proud to have instigated the Enid Lyons Fighting Fund to give extra financial assistance to women fighting elections. We need more of them to succeed. I hope the example of female trailblazers in this place since Federation, as well as my own lived experience, demonstrate to women contemplating public service that you can have a family, serve at the highest levels and make a serious and lasting contribution to your country. My decision not to recontest is a very personal one, and simply reflects, after four elections, a shift in my priorities.

The intergenerational bargain, fairness and women’s issues all animated me before I came into this place. I never imagined that I would see them intersect in what many consider to be one of the driest policy areas—superannuation. I said in my first speech:

We face big challenges, and I will not duck the task of tackling those challenges.

Reforming the superannuation industry has been one such challenge. Workers are mandated by government to defer 9.5 per cent of their wages today to save for their retirement. The system has seen our national savings pool grow to $2.8 trillion, which is a great achievement.

We want to encourage people to be self-reliant in retirement—that is a good thing— yet, when I came to the portfolio, some Australians were unable to take full advantage of concessional contributions because of their work arrangements. We fixed it through reforms to deductible personal contributions so that everyone benefits. I was also particularly concerned to ensure women and men with career interruptions weren’t denied access to the benefit of tax concessions for their years out of the workforce. We enacted catch-up contributions to address this. We also acted to ensure low-income Australians were not paying more tax on their mandated superannuation contributions than on their take-home pay. Our measure now benefits more than three million Australians, including around 1.9 million low-income women, to the tune of around half a billion dollars each year. These reforms all improve the system.

But there remains a deeper problem. Millions of Australians have been cheated of billions of dollars in their retirement savings. Young people have seen their accounts drained to zero through multiple accounts, multiple sets of fees and multiple insurance premiums. People have been forced into poor-performing funds through backroom deals and enterprise agreements that take away their choice. For too long, the industry has been putting their interests ahead of those of their members. They have forgotten that the money they hold on trust is not the banks’ money, the unions’ money or the funds’ money. It is the members’ money. It is their wages, so the system must work for them.

I’m proud of the action that I took to pursue a series of member-first superannuation reforms to end the rorts and rip-offs in the sector and to better protect Australians’ retirement savings. Many of these reforms were endorsed by the landmark Productivity Commission report on the superannuation system and the financial services royal commission. Thankfully, many have now been legislated, despite lobby groups using members’ money to try to block them. They include boosting the retirement savings of around three million Australians by about $6 billion, thanks to automatically reuniting lost and inactive low-balance accounts; capping fees on low-balance accounts and banning exit fees on all accounts, which will save members over half a billion dollars in 2019-20 alone; providing APRA with greater powers to crack down on dodgy funds; and introducing tougher penalties on fund trustees, including, for the first time, up to five

years in jail.

I’m also pleased that, today, we reintroduced legislation to implement my proposed reforms to improve default insurance arrangements, by making insurance cover opt-in rather than opt-out for new members under 25 years of age and for those with low- balance accounts. It is a scandal that people are defaulted into insurance that they don’t know about, don’t want, don’t need and, in some cases, can’t even claim on. If those opposite finally see sense and support our bill without amendment, it will mean up to $3 billion each year in retirement savings for millions of affected members. I also look forward to legislation being introduced which will give victims of crime, including victims of child sex abuse offences, access to the superannuation of their perpetrators as compensation.

There remain other areas to progress. Funds should have a greater focus on retirement incomes. The retirement income covenant is an important start, but more must be done in this area. I remain hopeful that parliament will extend choice of fund to the around one million Australians who are currently restrict from doing so. I also remain hopeful that parliament has the strength to tackle the long-vexed issue of default funds, where people make no active choice about their fund or how their money should be invested. In my view, given that the government compels Australians to put an ever- increasing percentage of their wages into superannuation, it’s only right that the government should offer up a solution to look after those foregone wages. It is my strong view that a conflict-free, low-fee government default fund could benefit millions of Australians by utilising the investment management expertise of the Future Fund. It would boost retirement incomes by taking advantage of economies of scale and would stop Australians from being defaulted into underperforming funds.

Fixing the superannuation system can be best summarised as getting a better deal for consumers. This has been a constant thread through the fabric of my ministerial and constituent work. I’m glad that we called the royal commission into the banking and financial services sector. It was the right thing to do. We were so keen to address the issues we had already identified that we underestimated just how strong a disinfectant the sunlight from a royal commission would be. (Highlight & underline by SOS). I’m pleased that the royal commissioner’s report endorsed many of the reforms that we progressed in the interim. I’m particularly proud of establishing the Australian Financial Complaints Authority, a one-stop shop to enable consumers and small businesses access to fast and free dispute resolution for banking, insurance, superannuation and financial advice. The government will extend its remit to look back 10 years.

The royal commission also endorsed the work we had done to design a compensation scheme of last resort for financial misconduct. I’m pleased the government has agreed to establish such a scheme. Time will tell, but I expect that our strengthening of ASIC, including the overhaul of its leadership and the introduction of an enforcement-focused deputy commissioner, will also have a big impact. A strong financial services system is essential to job creation. On that theme, I’m particularly proud of reforms to overhaul our insolvency laws and facilitate crowdsourced equity funding, which will support entrepreneurship and innovation.

At a local level, I have enjoyed resolving many diverse issues, but none has been more satisfying than securing a permanent home for the very first children’s hospice in Australia. Very Special Kids does the work of angels, helping families with the care of profoundly ill children and supporting families dealing with unimaginable grief when a child dies. I am exceptionally grateful for their work and will continue to champion them so that they get the world-class facilities that they need.

An issue that resonated strongly with me and my electorate was same-sex marriage. One of the most nerve-racking days that I had as a new MP was the day that I walked into the Federation Chamber to announce my support for same-sex marriage. Many warned me it was a career-limiting move, and maybe it was at the time, but I believe it was the right thing to do. I am proud that it will be the legacy of a Liberal government to have legislated same-sex marriage.

This brings me to the fourth and final issue, the quality of our democracy itself. My

time in this place has coincided with a deterioration of trust in both this institution and, indeed, the very concept of democracy. Social media and a proliferation of tribal echo chambers have led to warped perceptions of Australians’ views, a failure to listen to alternative ideas and a decline in genuine policy debate and civil discourse. Time spent in the community is the best antidote. However, technology has accelerated our lives and our expectations. Complex policy issues in an increasingly complex world don’t usually have an easy answer. The default response here should not be to immediately outsource decision-making to unelected people. Sometimes parliamentarians need to prosecute the case for patience and a deeper conversation with their electorates.

Equally concerning is the transformation of the Senate. It is now neither a house of review nor a house to protect the state’s interests. Rather, it has become a forum to frustrate the government’s agenda and the will of the people. This has contributed to undermining faith in our democracy and its institutions, and long-term policy outcomes for our country.

As my final observation in this place, I think that elected governments should be able to implement their mandates. I support the proposition endorsed by the Senate President for major parties to consider implementing an Australian version of the Salisbury convention. This would mean parties agreeing to abide by the convention that the Senate won’t obstruct the passage of legislation to effect government policy which has been fully and fairly disclosed to the Australian people well before voting commences in an election.

In conclusion, I would like to thank my colleagues, including a number that I have worked with across the aisle, and, in particular, Julie Bishop for her friendship and guidance. I am lucky that before I came into this place I had two lifelong friends who were already here: the Speaker of the House, Tony Smith; and the President of the Senate, Scott Ryan, who are both like big brothers to me—and, like big brothers, can both delight and infuriate me!

I want to place on record my thanks to Malcolm Turnbull for his friendship and also his great support of me when I gave birth—the first serving cabinet minister to do so. He also made me the youngest female cabinet minister, and, together with Scott Morrison, gave me portfolios with complex policy issues to work through. I have loved the intellectual stimulation and technical detail that has come with the second-largest legislative workload in this place. I would like to place on record my gratitude to the many hardworking public servants in my various portfolios, and the teams of people who enable our parliament to function.

To the Prime Minister: thank you for your friendship, your determination, your courage and your leadership. It has never been more needed than now. I know that, with you, our country is in good hands. I thank the House for its indulgence.

Double tax hit haunts near retirees

The Australian

18 February 2019

Simon Benson – National Affairs Editor

More than half a million Australians approaching retirement could suffer a double tax hit to their savings plans under Labor’s policy to axe franking credit refunds and curb negative gearing, new tax data analysis says.

More than 40 per cent of the 1.3 million people who already claim tax deductions on their rental properties are between 45 and 59, Australian Taxation Office figures show.

With an average rental loss of $9500, this group would also stand to lose the most from the scrapping of the scheme.

The government will claim that those already in the planning stage of their retirement would have two major retirement investment options taken off the table with the scrapping also of franking credit refunds, which are relied on by 900,000 Australians and mainly those in retirement.

While those already negatively gearing property will have their current arrangements grandfathered under Labor’s policy, the data reveals that people approaching retirement relied most on the tax deduction.

Negatively gearing property would be available in the future for only those buying new investment dwellings. The government argues that the impact would mean a significant investment option would be removed in the future for people planning for retirement.

Josh Frydenberg plans to revive the government’s campaign against Labor’s tax plans with a property industry roundtable this morning in Canberra hosted by the Property Council of Australia.

The council has warned against any changes to negative gearing or capital gains tax,

claiming the risk was too great, considering the current cycle in the housing market.

The Treasurer will use the roundtable to muster support among industry groups, which include the Master Builders Association and the Real Estate Institute of Australia.

The ongoing analysis of the 2015-16 ATO tax data being conducted by Mr Frydenberg’s office has revealed that Labor’s twin tax policies were heavily weighted against middle-aged Australians approaching retirement and those who had already finished their working lives.

Those aged between 45 and 59 represented the largest group to lose money from the scrapping of negative gearing on established dwellings.

This represents more than 525,000 Australians or 40 per cent of the 1.3 million Australians who claim rental losses on investment properties.

Of these, a total of 183,000 were aged 45-49, 183,000 aged 50-54 and 160,000 aged


The ATO data is the same that has been used by the government on numerous occasions to attack Labor’s policies.

Mr Frydenberg said Labor’s “retiree tax” punished aspiration and no one would be hit harder by Labor’s housing tax than Australians approaching retirement.

“More than half a million Australians aged between 45 and 59 years of age will be worse off and have their hard-earned investment smashed by Labor’s changes to negative gearing,” he said.

“Not only is the proportion of those affected by Labor’s housing tax highest in this age group, their rental loss is the greatest too: the average net rental loss for those aged between 45 and 59 is around $9500, well above any other age group.

“This is the same age group that is working hard to put their retirement plans in place and who will also be punished by Labor’s retiree tax.

“In a double whammy for Australians approaching retirement age, not only will Labor raid their nest egg, they will also punish those who have invested in the housing


“As a retiree under Labor, if you own your home it will be worth less, if you rent a home it will cost you more and if you invest in shares you will earn less.”

An exclusive Newspoll published last week by The Australian showed strong opposition to Labor’s $55 billion plan to scrap franking credit refunds.

Senior Labor sources privately admit the so-called “retiree” tax is unpopular but have calculated it would impact mainly Coalition voters rather than their own.

Last week, Bill Shorten stood by the policy, despite increasing pressure to modify or scrap it, saying he was “not for turning” on the policy.

In response, Mr Frydenberg said: “Another saying of (Margaret) Thatcher would have been more apt: ‘The problem with socialism is that you eventually run out of other people’s money’.”

Labor says the tax measures address an imbalance in the system that favours the well- off. It says only 2 per cent of Australians would be affected by the scrapping of franking credit refunds, while reducing the capital gains tax discount from 50 per cent to 25 per cent would mostly affect the top 10 per cent of income- earners.

Retirement dream at risk from Labor policy

The Australian

18 February 2019

Luke Griffiths – Journalist

Veterinary surgeon Derek Wells laments that his retirement plans have been thrown into disarray because of Labor’s proposed crackdown on franking credits for self- funded retirees.

Mr Wells planned to retire this year so he and wife Lyn, also a vet but now retired, could indulge themselves a little after 40-plus years of hard work.

Instead, the couple are gripped by anger and anxiety.

“I wanted to retire but I just cannot because we’re going to lose income and, with that, lifestyle and choices,” Mr Wells said at the couple’s home in the Adelaide Hills town of Echunga, 35km southeast of Adelaide.

The couple have cut their expenditure wherever possible in anticipation of a Labor government that they said would slash up to $20,000 — or one third — of their annual retirement income because of its plan to abolish a scheme that delivers cash payments for excess franking credits which was introduced by the Howard government.

They hope, but are not confident, the Senate will block Labor’s proposed measures, which they liken to elder financial abuse.

“We’re sitting down and working out what we can afford, trying to change electricity providers because we’re in South Australia and the prices are horrendous,” Mrs Wells said. “We’re trying to cut back on insurance … at the moment it’s a nip-tuck here, a nip-tuck there, because it’s a lot of extra money to find.

“The anxiety is something that every day we speak about because we’ve been waiting to do some things for 40 years and with the stroke of a pen, or a vote, the rules will suddenly change.”

The couple, who said they were not affiliated with any political party, have been self- employed most of their lives and have managed their own superannuation for more than two decades.

They are proud they’ve never had to rely on government handouts, yet Mr Wells, 63, dismissed the notion that all self-funded retirees were wealthy.

He said he and his wife were hardworking, middle-class Australians who followed expert advice and invested in companies that paid fully franked dividends.

“This is abuse of older people by Labor, coming up with a system to make it really hard for them … taking away any ‘cream’ they may have, making it harder for them to live. It’s just crazy,” Mr Wells said.

“This is not something society should be doing. It should be looking after older people, not picking on them. You try to have some pleasure in retirement and they’re taking away all that because you just won’t have the money for the things you want to do.”

Mrs Wells, 62, said Labor had framed its argument in simple terms — “really good one-liners” — that suggested those affected had done something wrong.

Mrs Wells said she was also angry with the Liberals after then treasurer Scott Morrison tinkered with superannuation in the 2016 budget. “Unfortunately, superannuation has become the government of the day’s honey pot.”

Labor tax hikes to bite workers

The Australian

18 February 2019


Policy by policy, Josh Frydenberg is slowly but surely enlightening voters about how much the opposition’s tax changes would cost them. From retirees’ loss of franking credits and a higher marginal tax rate to super changes and a crackdown on capital gains and negative gearing, hundreds of thousands of Australians are realising they stand to be disadvantaged by thousands of dollars or more a year.

Given current property price trends, especially in Sydney and Melbourne, real estate investors do not need further dampeners.

At the very least, Bill Shorten and Chris Bowen owe it to the public to reveal when their planned hike in capital gains tax and negative gearing restrictions would take effect. They should also state if they would factor in the state of the property market before proceeding with their property tax grab, or even delay it until conditions improve.

As reported today, the Treasury has crunched the numbers, finding more than half a million taxpayers aged from 45 to 59, with an average rental loss of $9500, would be hardest hit by Labor’s housing tax.

The Treasurer is correct when he says workers approaching retirement face a double whammy under the opposition. Those who own homes or who have invested in rental property would find their assets worth less. Those renting would pay more. And those who have invested in shares would earn less through the loss of franking credits.

Aside from creating widespread personal hardship, such policies would discourage workers from being thrifty to ensure they are self-supporting in retirement, rather than relying on taxpayer-funded pensions.

The divisions between the major parties on tax and encouraging workers to keep more of their hard-earned money for retirement are stark. The question for voters is how widely they are prepared to open their wallets to fund Labor’s profligate social programs.

Labor’s superannuation and related proposals

Daniel Butler, Director (

Shaun Backhaus, Lawyer (

The next Federal election, according to our current Prime Minister Mr Scott Morrison, will be held in May 2019 and, if the Labor Government is elected, significant change is likely. Thus, a brief ‘stock take’ of what the superannuation landscape will look like under a Labor Government is set out below.

Cash refunds of franking credits

Labor proposes to deny cash refunds of franking credits from 1 July 2019. This proposal would largely impact individuals and self managed superannuation funds (‘SMSFs’).

In its “Pensioner Guarantee” media release on 27 March 2018, Labor claims that the distributional analysis shows:

  • 80% of the benefit of cash refunds of franking credits accrues to the wealthiest 20% of retirees;
  • 90% of all cash refunds to superannuation funds accrues to SMSFs (just 10% goes to APRA regulated funds) despite SMSFs accounting for less than 10% of all superannuation members in Australia; and
  • The top 1% of SMSFs receive a cash refund of $83,000 (on average) – an amount greater than the average full time salary (based on 2014-15 ATO data).

Under the proposed “Pensioner Guarantee”, Labor claims:

  • Every recipient of an Australian Government pension or allowance with individual shareholdings will still be able to benefit from cash refunds. This includes individuals receiving the Age Pension, Disability Support Pension, Carer Payment, Parenting Payment, Newstart and Sickness Allowance.
  • SMSFs with at least one pensioner or allowance recipient before 28 March 2018 will be exempt from the changes. For example, if one member was receiving a part Centrelink age pension of $100 before 28 March 2018, the SMSF will be exempt under the proposal.

Thus, under Labor’s proposed “Pensioner Guarantee” an individual who receives an Australian Government pension or allowance will be exempt regardless of whether their pension or allowance commenced before or after 28 March 2018. However, Labor will only exempt an SMSF if the member receiving the pension or allowance was a member of the fund prior to 28 March 2018. Note that there does not appear to be any sound reason or logic why SMSFs with a member who subsequently becomes entitled to an Australian Government pension or allowance should miss out on a cash refund.

The Tax Institute’s Senior Tax Counsel, Bob Deutsch, in his TaxVine report on 5 October 2018 noted that:

  • Interestingly, of the around 1,160,000 individuals who claim around $2.3 billion in cash refunds, 320,000 of them are expected to be exempt as a result of the “Pension Guarantee”. Accordingly, there will be around 840,000 individuals who will be subjected to the proposal.
  • In the context of SMSFs, there are around 420,000 people involved in such funds, with the funds receiving around $2.6 billion in refunds. Around $1.3 billion of these refunds are received by SMSFs that are in full pension mode with each of these SMSFs on average having assets in excess of around $2.4 million (almost 50% of the $2.6 billion in refunds goes to SMSFs with considerably more than $1.6 million in super savings).

Large industry and retail superannuation funds typically will be able to offset any franking credits received against tax payable in each FY and will therefore generally not be adversely affected by this proposal.

The SMSF Association’s submission dated 29 October 2018 to the House of Representatives Standing Committee on Economics on the inquiry into the implications of removing refundable franking credits stated:

Under the proposed policy individuals with the same circumstances, in the same refundable position, will incur a different results depending on the vehicle they choose to hold their shares. Most notably, SMSF members are worse-off under the ALP policy than other superannuation fund members who are in pension phase and benefit from franking credits. The ALP policy proposes that refunds from dividend imputation are appropriate for almost all investors except for SMSF investors and those shareholders with low taxable incomes.

The SMSF Association’s submission also noted that the proposal will:

  • Result in a change in asset allocation, eg, from Australian franked shares to international equities, property or more risky investments.
  • Result in more members joining SMSFs to assist in soaking up franking credits. Refer to DBA Lawyers’ Admit a Conditional Member offering.

Moreover, some SMSF members will also consider whether having a pension in retirement phase is worthwhile if the fund is ‘burning’ excess franking credits. The example below shows that an SMSF with two members each with $1.6 million are no worse off converting to accumulation phase (ie, commuting their account-based pensions) as they substantially reduce their wastage of franking credits that would no longer result in a cash refund under Labor’s proposal to stop cash refunds. The SMSF also accumulates greater assets for the longer-term in the concessionally taxed superannuation environment by not having to pay out annual pension payments to its members.

In particular, the Dividend Wasted SMSF (see below example) where the two members are both in pension phase (ie, in retirement phase) with 45% of the fund’s investments in Australian franked share investments, has a $24,686 wastage of franking credits under Labor. Under current law, this fund would receive a $24,686 cash refund.

In contrast, the Dividend Offset SMSF (see below example) has the same share portfolio as the Dividend Wasted SMSF but is fully in accumulation mode. This fund only wastes $5,486 of franking credits. Under current law, this fund could also obtain a $24,686 cash refund if both members received a pension in retirement phase.

Example – SMSF converting to accumulation to reduce franking credit wastage

Dividend Wasted SMSF

Dad 1600000 ABP – ECPI
Mum 1600000 ABP – ECPI
Total funds 3200000
Sundry income 70400
Dividends 57600
Total income 128000
Tax thereon 0 ECPI
Franking offsets 24686 wasted

Dividend Offset SMSF

Dad 1600000 Accumulation mode
Mum 1600000 Accumulation mode
Total funds 3200000
Sundry income 70400
Dividends 57600
Total income 128000
Tax thereon 19200
Franking offsets 24686
Franking offsets 5486 wasted


Australian franked share investments 45% 1440000
Yield (excl franking credits) 4% 128000
Company tax rate 30%
100% franking applies 30/70

Account-based pension (‘ABP’)
Exempt current pension income (‘ECPI’)

Naturally, if a refund is available to individuals or SMSFs prior to 30 June 2019 (but not afterwards), then a greater distribution prior to this proposal being introduced may be more attractive. Thus, there are many companies carefully examining what their optimal dividend distribution policy is prior to 30 June 2019.

There has also been considerable press coverage of Labor’s franking credit proposal since it was announced.

Taxation of trusts

Bill Shorten in his ‘A Fairer Tax System For All Australians’ Media Release dated 30 July 2017 announced that:

  • Labor will introduce a standard minimum 30% tax rate for discretionary trust distributions to mature beneficiaries (people over the age of 18).
  • Under Labor, individuals and businesses can continue to make use of trusts – and trusts will not be taxed liked companies.
  • Labor’s proposal will not apply to certain trusts such as:
    • special disability trusts;
    • testamentary trusts;
    • fixed trusts or fixed unit trusts;
    • charitable and philanthropic trusts;
    • farm trusts (query what these are); and
    • public unit trusts (listed and unlisted).

Broadly, under the current law:

  • Unit trusts do not pay any tax provided the trustee distributes its net income to unitholders prior to each 30 June.
  • Where an SMSF is a unitholder of a unit trust, the SMSF trustee pays a maximum of 15% tax on unit trust distributions.
  • An SMSF will typically only pay 10% tax on unit trust distributions of net capital gains (after allowing for the one third CGT discount) on the disposal of assets held for more than 12 months.
  • An SMSF in pension (retirement) phase does not pay any tax on unit trust distributions subject to each member’s transfer balance cap (‘TBC’) limit.

While the Labor proposal is aimed at levying a minimum 30% tax rate for discretionary trust distributions to adult beneficiaries, this proposal is not supposed to apply to fixed trusts. This is technically a very limited category of unit trust, with the vast majority of SMSFs investing in nonfixed trusts. It is important to consider what is meant by ‘fixed’ and what definition will apply.

Broadly, trusts are divided for tax purposes into fixed and non-fixed trusts for trust loss purposes under schedule 2F of the Income Tax Assessment Act 1936 (Cth) (‘ITAA 1936’). There are strict criteria on what is a fixed trust under this test. Most other trusts fall into the broad category of nonfixed trusts and these trusts are broadly treated as discretionary trusts for tax purposes.

In relation to superannuation funds investing in unit trusts, the ATO currently do not administer the law in this strict manner but without clarity on Labor’s proposal, it is expected that the test that will be adopted by Labor would be the test in schedule 2F of the ITAA 1936, or a similar test.

Labor could therefore, unless SMSFs investing in non-fixed unit trusts are carved out, tax SMSFs at a minimum of 30% on trust distributions received from many unit trusts. This would have a significant impact on the net after tax returns that these trusts derive after the new trust’s tax regime proposed by Labor is introduced.

To explain by way of a brief example:

Non-fixed unit trust distribution to SMSF

A unit trust distributes $10,000 of net income to an SMSF unitholder.

Under current law:

The SMSF will generally pay $1,500 in tax (assuming no net capital gain is included).

Under Labor’s proposal:

The SMSF will pay $3,000 tax (assuming no net capital gain is included).

However, if the unit trust qualifies as a fixed trust, the tax should be $1,500 (ie, as under current law).

It is noted that if the unit trust is non-fixed, the ATO currently administer the law in a more practical manner as outlined in TR 2006/7. Broadly, provided distributions by the unit trust are made proportionately based on unitholding proportions, rather than based on a discretion, the ATO will typically not apply a 45% tax rate under the non-arm’s length income rule in s 295-550 of the Income Tax Assessment Act 1997 (Cth).

Chris Bowen as quoted in the Financial Review on 11 August 2017 stated:

The claim that self-managed super funds could be hit by Labor’s trust proposal (‘SMSFs could be hit by Labor Trust proposal, August 9) is simply wrong…

…Labor’s policy to apply a minimum rate of tax on certain distributions targets income splitting and will not have any impact on fixed unit trusts, including non-geared unit trusts owned by superannuation funds. Technical legal classifications between fixed versus non-fixed trusts are longstanding issues readily resolved within the taxation system and completely distinct from Labor’s announcement to curb income splitting through discretionary trusts.

For guidance on how the ATO currently administers this area, refer to TR2006/7 and PCG 2016/16. Unless an appropriately drafted unit trust is obtained upfront, there can be considerable downstream hurdles with seeking to change a non-fixed trust to a fixed trust, including duty, land tax and other potential implications, especially if the ATO change its current administrative practice.

Broadly, for large public offer managed investment trusts, less stringent tests apply in determining whether such a trust qualifies as a fixed trust.

The Tax Institute’s Senior Tax Counsel, Bob Deutsch, has also noted that it is still uncertain how Labor’s policy on how it proposes to tax trust distributions will apply in practice. For example, will the general CGT discount apply, will any tax offset apply like a franking offset in respect of a dividend from a company, and what types of trusts will be considered fixed and non-fixed?

Moreover, Labor’s policy has created considerable uncertainty for investors and business people seeking to undertake investments or enter into new business structures given this broad brush proposal. A discretionary trust has been a popular ‘structure’ to accumulate assets and to operate a business in but in view of Labor’s proposal many may now want the greater certainty offered by a company given the future outlook for trusts is so uncertain.

Labor should therefore urgently provide clearer guidance on its trust’s tax proposal especially on what trusts will be carved out of its proposal.

Superannuation guarantee

Labor propose to increase the current superannuation guarantee charge rate from 9.5% to 12% as soon as practicable instead of the current gradual increase – which is already current law to 12% from 1 July 2025 – see table below. Should this be achieved, Labor then proposes to achieve its original objective of increasing the minimum rate to 15%.

Period Rate
1 July 2018 to 30 June 2019 9.5%
1 July 2019 to 30 June 2020 9.5%
1 July 2020 to 30 June 2021 9.5%
1 July 2021 to 30 June 2022 10.0%
1 July 2022 to 30 June 2023 10.5%
1 July 2023 to 30 June 2024 11.0%
1 July 2024 to 30 June 2025 11.5%
1 July 2025 to 30 June 2026 and onwards 12.0%

Labor will also pursue policies that seek to reduce the extent of unpaid superannuation in Australia, and seek to improve the ability of workers to recover their unpaid superannuation as an industrial right.

Non-concessional contributions cap

Labor will lower the annual non-concessional contributions (‘NCC’) cap from $100,000 to $75,000.

Naturally, this impacts the bring-forward cap which will reduce from $300,000 to $225,000 (ie, 3 x $75,000).

Naturally, NCCs are subject to the $1.6 million total superannuation balance limit.

Division 293 threshold

The threshold at which high income earners pay additional contributions tax will be lowered by Labor from $250,000 to $200,000.

Rolling 5 year catch-up concessional contribution cap

Members with a total superannuation balance of less than $500,000 are currently permitted to make additional concessional contributions (‘CCs’) where they have not reached their CCs cap in the prior five FYs. This can effectively equate to a rolling five year average CC cap of up to $125,000 that can be made in one FY where the member in year 5 has made no CCs in the prior four FYs commencing after 1 July 2018.

For example, if a member and their employer only contributes $10,000 of CCS in FY2019, the member will effectively have an unused CC carry forward cap of $40,000 in FY2020 (ie, $15,000 unused CC cap in FY2019 plus a $25,000 CC cap in FY2020).

Tax deduction for personal superannuation contributions

From 1 July 2017 the Turnbull Liberal National Government abolished the 10% rule which provides greater flexibility for individuals to claim personal superannuation contributions.

Labor propose to reintroduce this 10% rule to again restrict personal contributions.

By way of background, under current law individuals can make CCs up to the CC cap following the removal of the 10% test on 30 June 2017 regardless of their employment circumstances.

As you may recall, broadly, the 10% test prior to 30 June 2017 precluded individuals from claiming personal superannuation contributions where they earned more than 10% of their overall earnings from employee type activities.

For example, under current law, if an employer makes superannuation contributions of $10,000 on behalf of an employee, the employee may make an additional $15,000 of personal CCs to superannuation, and claim a deduction for this amount despite having 100% of their earnings from being an employee (subject to having sufficient taxable income to offset the deduction).

Note that the $1.6 million total superannuation balance test does not restrict CCs but does limit NCCs when the member’s total superannuation balance exceeds the $1.6 million threshold.

For more information on personal deductions, refer to:

Low income superannuation tax offset

The ALP’s 2018 National Platform, ‘A Fair Go for Australia,’ states that Labor will maintain a low income superannuation tax concession (currently called the low income superannuation tax offset, ie, ‘LISTO’) and will develop policies that will further support low income earners to save for their retirement. Further, Labor will review the interaction between the age pension and superannuation.

Low income earners may receive a tax offset of up to $500 per FY on their CCs to help them save for their retirement. Broadly, to be eligible for this payment, the member’s adjusted taxable income must not exceed $37,000 and 10% or more of the member’s total income must have been derived from business or employment.

Ban new LRBAs

Labor is committed to banning SMSFs entering into new limited recourse borrowing arrangements (‘LRBAs’). As part of Labor’s housing affordability policy, in April 2017, it announced that it would ‘restore the general ban on direct borrowing by superannuation funds, as recommended by the 2014 Financial Systems Inquiry’. A media release by Bill Shorten at this time claimed this would ‘help cool an overheated housing market, partly driven by wealthy SMSFs’.

Pension exemption limit of $75,000 p.a.

Mr Chris Bowen in his ‘Positive Plan to Help Housing Affordability’ media release on 18 January 2019 stated that Labor has already acted to reduce the generosity of tax concessions for high income superannuants – to moderate concessions for Australians with superannuation balances in excess of $1.5 million. This item was published in SMSF Adviser’s news on 23 January 2019 which noted that Labor first announced this $1.5 million limit in April 2014.

If elected, it would appear that there is the prospect that Labor will further limit the tax exemption for earnings on superannuation balances in pension phase that exceed $1.5 million. While it has never been clear how this proposal would actually operate in practice, it is broadly understood that earnings on assets supporting income streams in retirement phase will be tax-free up to $75,000 p.a. for each member (note that a 5% p.a. yield on $1.5 million of pension assets equates to $75,000). However, earnings above $75,000 would be taxed at 15%.

It is also expected, based on a prior Labor announcement, that assets acquired prior to the start of this new regime will be grandfathered for capital gains tax (‘CGT’) purposes. Broadly, under this announcement it would appear that net capital gains on assets acquired after this new regime commences would be added to the income earned subject to the $75,000 exempt earnings threshold in respect of each financial year (‘FY’).

An example from a prior Labor Fairer Super Plan noted that a 63 year old retired lady called Susie with $1.8 million invested in super who received a $90,000 pension (reflecting a 5% yield), would pay 15% tax on $15,000 of her pension amount above the first $75,000 tax free amount, excluding applicable levies.

While there has been recent media coverage of this proposal, I am not convinced this proposal will be introduced as initially outlined. Given the $1.6 million transfer balance cap (‘TBC’) is now firmly implemented with all its associated machinery and appears to be largely working as planned, I suspect that Labor may not want to introduce a whole new system that may prove very difficult in practice to implement and operate. If any further limit on the pension exemption is introduced, I suspect it will be to reduce the $1.6 million TBC amount or to freeze any future indexation of the general $1.6 million TBC threshold. Recall that the $1.6 million TBC amount will be indexed in $100,000 increments in line with CPI.

Limit negative gearing

Labor stated in its ‘Positive plan to help housing affordability’ that it will limit negative gearing to new housing from a yet-to-be-determined date after the next election (which is expected to be 1 July 2019). All investments made before this date are not be affected by this change and will be fully grandfathered.

This will mean that taxpayers will continue to be able to deduct net rental losses against their wage income, providing the losses come from newly constructed housing.

From a yet-to-be-determined date after the next election (which is expected to be 1 July 2019) losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities. These losses can also continue to be carried forward to offset the final capital gain on the investment.

Bob Deutsch, CTA and Senior Tax Counsel of The Tax Institute, confirmed in The Tax Institute’s blog ‘Labor’s negative gearing restrictions – how might they work?’ (23 November 2018) that the Labor Party’s proposed changes to negative gearing would apply across the board to all investments. Previously it was thought that Labor’s negative gearing restrictions might only apply to property investment.

Bob Deutsch’s article states:

So, to the proposals themselves – after some interrogation of the Labor party, I have been able to confirm that Labor’s restrictions on negative gearing will apply (after a yet-to-be announced commencement date) to all investments and it will apply on a global basis to every taxpayer. In other words, it will apply to property and shares alike (and any other relevant asset classes) and it will apply by looking at a taxpayer and assessing their overall investment income as measured against their overall investment interest expenses.

Both these points are critical to an understanding of what is proposed, and while Labor has previously hinted at both outcomes, I can now confirm that the policy design will be precisely along these lines.

After examining three different practical examples, Bob Deutsch’s article states:

…, the key to dealing with the proposed fallout from Labor’s restrictions on negative gearing – management of portfolios in order to have regard to the restrictions on negative gearing, will become crucial.

In addition, purchasing properties in the name of the family member best able to manage any negative gearing restrictions will also be vital.

Naturally, this proposal may encourage taxpayers to enter into negative gearing strategies before Labor’s negative gearing restrictions are introduced.

CGT discount

Labor proposes to reduce the 50% general CGT discount available to individuals on asset disposals where the asset has been held for more than 12 months under div 115 of the Income Tax Assessment Act 1997 (Cth) to 25% from 1 July 2019.

Labor has stated in its ‘Positive plan to help housing affordability’ that:

  • All investments made before this date will not be affected by this change and will be fully grandfathered.
  • This policy change will also not affect investments made by superannuation funds.
  • The CGT discount will not change for small business assets. This will ensure that no small businesses are worse off under these changes.
  • Labor will consult with industry, relevant stakeholders and State governments on further design and implementation details ahead of the start date for both these proposals.

Bob Deutsch’s article states:

The practical effects of these housing affordability policies are not yet clear. For example, investors might sell properties in the basis that, due to these incoming laws, property investment may be less attractive in the future leading to lower prices. Conversely, investors may decide to hold on to grandfathered assets to enjoy the expected capital gains on that asset rather than sell, which could lead to less properties for sale.

As you would be aware, superannuation funds are only entitled to a one third CGT discount on assets held for more than 12 months (broadly to the extent the pension exemption does not apply). Labor has noted that the CGT discount applicable to superannuation funds would not be reduced.

Deductions for tax advice

Labor propose to limit deductions for tax advice to $3,000 a year. Individuals, SMSFs, trusts and partnerships are to be subject to the cap while companies would not be.

We query if this limit will apply on a per entity basis or whether it might apply on an aggregated ‘associated’ entities basis. It can often be difficult, for example, to determine where advice for an individual ends and advice for their ‘associated’ entities begins.

Paul Drum, CPA Australia, head of policy, believes:

… this proposal needs a lot more work as many Australians go through significant one-off life events such as a divorce, inheritance or retirement, when they require specialist advice that could cost well over $3,000. Simply carrying out proper planning for large life events such as commencing a business or working overseas could easily exceed this cap. This sort of planning is necessary to ensure tax laws are properly followed and taxpayers don’t fall foul of the ATO.

In an article available via the Financial Review, the Institute of Public Accountants president Andrew Conway, is said to be ‘vowing to mobilise the large accounting workforce to oppose the measure in the lead up to the next election’ (‘Accountants vow to campaign against $3000 cap on managing tax affairs’, 13 January 2019).

It is yet to be determined if this limit will include litigation costs, ATO audit costs and ATO interest payment costs. There have also been calls for a small business concession to be applied.

With so many other proposed changes to tax laws likely to require advice, many would readily exceed this proposed cap simply trying to understand these changes and manage their affairs accordingly. In Australia, there is one certainty in superannuation and tax law –– constant change.

Invariably the devil is also in the detail. We understand from a number of leading tax academics that Australia has a reputation for being one of the most complex tax systems in the world and probably ranks second to the USA. The constant ongoing complex changes to superannuation and tax rules will keep Australia as a leader in complexity.

In particular, responding to a relatively straight forward ATO review or audit can easily exceed a $3,000 threshold which is becoming increasingly likely for many.

Further policy proposals

Labor also has planned policy releases leading up to the election which are not yet publically available. Namely, as outlined in ALP’s 2018 National Platform, ‘A Fair Go for Australia,’ Labor proposes to:

  • Ensure that the superannuation guarantee is legislated to become part of the national minimum employment standard (NES) so that it is enforceable as an industrial entitlement. Broadly, this will, among other things, give employees access to the Fair Work Commission and pursue other industrial remedies for unpaid contributions.
  • Maintain a low income superannuation tax concession (currently called the LISTO) and will further support low income earners to save for their retirement.
  • Review the interaction between the age pension and superannuation.
  • Implement policies that work towards closing the significant gender gap in superannuation savings, including eliminating the $450 minimum threshold for compulsory employer contributions.
  • Initiate within the first 6 months of taking office an expert review to examine the adequacy of mechanisms to strengthen the superannuation balances of women, including options for government contributions to account balances where the account balance is very low.
  • Legislate to provide superannuation contributions on the Federal Government paid parental leave scheme.

General observations

A number of Labor policies are proposed to commence by 1 July 2019 or when an announcement is made after the election. However, in view of the election being likely to take place in May this year, it may prove difficult for Labor to introduce changes with a 1 July 2019 commencement date.

Naturally, until a proposal or change becomes law, it should not be relied on as law. History has also shown that there is considerable uncertainty with relying on legislation by media release. For example, one of the worst policy blunders that comes to mind here was the lifetime non-concessional contributions (‘NCC’) cap of $500,000 that was proposed to apply from the 3 May 2016 Federal Budget by the Turnbull Liberal National Government with effect from the announcement of the 2016-17 Federal Budget on 3 May 2016. This proposal was scrapped and a $1.6 million total superannuation balance cap was introduced in September 2016 following substantial adverse feedback.


If Labor are elected, there will be considerable superannuation and tax changes that are likely to have wide ranging impact.

Like the last round of major changes to the superannuation system in mid-2017, these proposed changes may take years to finalise and properly implement.

It was only a few years ago that both major political parties promised stability within the superannuation system, as the $2.7 billion plus of superannuation investments are a major part of Australia’s financial system.

Constant changes to the superannuation rules undermines investor confidence.

DBA Lawyers is continually reviewing developments as they unfold and refining its services to keep on top of ongoing changes. We also offer an extensive range of education (aka CPD) training to keep you ahead of the changes.

Related articles

For further reading, please see the below articles:

* * * * * *

Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit


15 February 2019

Banking royal commission: Hayne gives super the attention it richly deserves

The Australian

Judith Sloan, Contributing Economics Editor

5 February 2019

The final report of the royal commission released yesterday contains 76 recommendations. Seven of these relate directly to superannuation.

Notwithstanding the importance of superannuation — it is noted in the report that the current amount of superannuation assets under management amounts to 140 per cent of total GDP — superannuation was given relatively little direct attention during the course of the investigation. There were only two weeks of public hearings devoted to the topic.

However, there is considerable meat in some of the recommendations, although some options that were canvassed were rejected — for example, the prohibition of for-profit super funds. By the same token, the report contains discussion of the need for the careful handling of conflicts of interest by the trustees of retail funds and the requirement to serve the best interests of fund members above all other interests.

Unsurprisingly, there is some overlap between the recommendations of the royal commission and those of the Productivity Commission report on superannuation. Commissioner Kenneth Hayne is very attracted to superannuation members having only one default fund and that arrangements need to be put in place to ensure members do not accumulate multiple funds (with multiple fees and charges and insurance coverage) unwittingly.

The government has legislation that has been passed by the house that will give power to the Australian Taxation Office to consolidate inactive and low-balance accounts.

Given that Bill Shorten has already declared Labor will support all the royal
commission recommendations, there should be no problem with Labor allowing this bill to be passed by the Senate.

Hayne also examines the governance of funds and queries whether the equal representation model of industry super funds is always fit for purpose. While baulking at legislated directives of the composition of trustee boards, he clearly thinks there will need to be changes to ensure properly qualified trustees are fulfilling the sole purpose of benefiting members rather than meeting the needs of their nominating organisations.

There are also some useful suggestions such as prohibiting the deduction of fees for advice from MySuper products; a ban on canvassing for super through telemarketing, for example; and a proscription of treating of employers by superannuation funds in order to entice them to select particular default funds. This latter recommendation could call into question sponsorship arrangements that many super funds have in place.

In sum, the small section of the final report of the royal commission on super contains a number of sensible recommendations, some of which are already in the pipeline.

With Labor’s support, some changes can be made quickly while others will take a little longer.

The key is that the interests of members must be at the heart of the superannuation system.

Both the regulatory framework and the activities of the regulator must ensure that this principle is always met.

Coalition to fast-track superannuation vote

The Australian

2 February 2019

Simon Benson, National Affairs Editor

The Morrison government will frame an election battle over superannuation reforms, as the $2.7 trillion sector braces for a sweeping shake-up following what is expected to be a damning final report of the Financial Services Royal Commission on Monday.

Josh Frydenberg yesterday accused the opposition of blocking reforms — backed by the Productivity Commission and expected to be addressed by commissioner Kenneth Hayne in his final report — that would hand the prudential regulator extra power to target dozens of underperforming super funds and up to 1.6 million accounts held in poor-performing MySuper funds.

The Weekend Australian understands the government will move to bring on a vote on its legislation in the Senate when parliament resumes on February 12 in what will be a direct challenge to the opposition to support the reforms.

The proposed powers would give the Australian Prudential Regulation Authority the ability to take corrective action against underperforming funds and even shut down habitual offenders. Five-year jail terms for directors who fleece members’ funds and fines of up to $420,000 are also being considered.

The superannuation sector is preparing for a major shake-up following scathing evidence about the underperformance of funds across the spectrum, including negative returns for some members. The MySuper default funds would be the primary targets of the legislation.

It is widely expected in the industry that the final report of the royal commission, handed to Governor-General Peter Cosgrove and the Treasurer yesterday, will include changes to APRA’s ability to intervene in the management of super funds.

A Productivity Commission report into superannuation, released to the government in December, found a mixture of 29 underperforming funds across retail, industry, corporate and public sector funds, including specific issues with default products.

There are currently 1.6 million accounts in underperforming MySuper products.

The Treasurer moved this week to draw Labor out on the superannuation reforms ahead of the release of the royal commission’s final report.

“The legislation that the Coalition has introduced into parliament, which is supported by the independent Productivity Commission, will provide APRA with critical additional powers to drive out underperformance in the superannuation industry,” Mr Frydenberg said yesterday.

“It is beyond belief that the Labor Party will not support penalties for superannuation directors who breach the law. Who are they trying to protect?

“When Bill Shorten was minister for financial services and superannuation, he did nothing to increase APRA’s powers to deal with underperforming funds or impose penalties on trustee directors who breach the law.

“The Coalition’s primary focus is to maximise the money that Australians have when they retire so they can enjoy the retirement they deserve. The legislation that the Coalition has in the parliament helps deliver on this objective.”

The Treasurer yesterday also took the attack to Labor over other powers in the legislation that included allowing the ATO to consolidate automatically multiple and inactive super accounts into a member’s primary super account to address an estimated $6.5 billion in missing super funds.

The government says that, in some cases, people in poor-performing funds would retire $500,000 poorer than if they were in an average fund.

Mr Frydenberg cited a scenario from the Productivity Commission where a person aged 21 starting on a $50,000 salary and retiring at 67 would be more than $500,000 worse off when they retired if they defaulted to a bottom-quartile MySuper product versus a top-quartile MySuper product.

Opposition Treasury spokesman Chris Bowen has accused the government of
cowardice by not presenting the Protecting Your Super legislation to the Senate yet. Mr Bowen has flagged similar powers for APRA to act against underperforming funds under a Labor government but has claimed the Coalition’s proposed model is flawed.

The Weekend Australian understands the government late last year privately floated amendments that would have watered down the legislation to get support for the bill in the Senate.

Mr Bowen said last night he would welcome the bill being brought on for a vote and had already indicated to the government Labor would back the bill if the Coalition accepted the opposition’s amendments. “Our amendments improve the bill by allowing APRA to carve out funds where APRA is convinced that (it) is in the best interests of the member and/or there are high-risk occupations,” Mr Bowen said.

Under current laws, directors of trustees do not face civil or criminal penalties for breaching their duties. Evidence provided to the royal commission found a significant flaw in the regulator’s powers and ability to hold directors to account.

The Productivity Commission report recommended that the government’s reforms be legislated and suggested they could have gone even further in reform of the sector. The report said that although the legislation would not fix problems in financial system governance, including those identified by the commission and the royal commission, the package was “welcome and warrants support”.

Mr Frydenberg said the legislation would also give APRA powers to reject a change of ownership of a fund, such as that which occurred under the failure of Trio Capital in 2009, when $176 million was wiped from members’ benefits. The Financial Services Council said it would not be speculating on what the royal commission’s final report might contain in relation to the expected shake-up of the superannuation sector. FSC chief executive Sally Loane said in relation to greater powers for APRA: “The FSC strongly supports policy outcomes that provide regulators with the powers to ensure poor-performing super funds of any kind lift their performance or merge with better- performing funds.”

The government has indicated it will adopt the recommendations of the royal commission, first called for by Mr Shorten.

Chris Bowen’s so wrong: our listicle shows you why

The Australian

1 February 2019

Judith Sloan, Contributing Economics Editor

I hadn’t heard the term “listicle” until I was reading about the downsizing of digital media outfit Buzzfeed. Evidently it just loves a listicle — an article based entirely on a list. Mind you, the topics of these lists sound pretty childish and fatuous.

So let me put together a serious list based on the serious policy errors Labor’s Treasury spokesman Chris Bowen has made by proposing to cancel cash refunds for excess franking credits.

  • Paying too much attention to advice from the former treasurer and prime minister Paul Keating is a big mistake. Keating’s view of the world is that if he didn’t introduce it, it must be wrong.
  • It was always an oversight that cash refunds for franking credits were not offered to those on low incomes who pay no or little tax.
  • There are plenty of examples of refunds being paid to people and businesses who pay no net tax. After all, close to half the population pay no net tax, yet many of them receive a tax refund after the close of the financial year. Is Bowen going to get rid of this arrangement?
  • And let’s think about trade unions, charities and not-for-profits. They don’t pay any tax but Bowen is proposing that cash refunds for these entities be retained. Some trade unions have net assets of more than $100 million and have substantial stockmarket investments.
  • Why would Bowen think that exempting recipients of the Age Pension who registered before March 28 last year from the cancellation of cash refunds makes any sense? If you have signed up to the Age Pension after this date, it’s just bad luck and you will be treated differently from your mate down the street in the same income and asset position.
  • Bowen is mistaken that this policy hits the rich. The rich, particularly after the government implemented the $1.6m superannuation tax-free cap, will be able to use the tax they pay to claim the franking credits, either in full or part.
  • It is those retirees who just miss out on the Age Pension who will be badly hit, because they will simply lose the cash refunds without any compensation. And there are one million of them.
  • Would Bowen tell one of his unionised mates that it’s fine to have their pay cut by $3000 or $5000 or $7000 each year because “the age of entitlement is over”?
  • Older women, many of them widows, will be the worst-affected group.
  • By the way, Bowen should declare that he is not a licensed financial planner when he tells retirees that they have overinvested in franked Australian shares and they should diversify into overseas equities and unfranked Australian shares (many of which don’t pay dividends).
  • Bowen is undermining the case for increasing the superannuation guarantee charge (from 9.5 per cent to 12 per cent) because individuals and couples who save more in superannuation and go over the asset/income thresholds of the Age Pension will actually be worse off.
  • There is no fiscal difference between a government offering tax deductions/rebates and paying cash refunds, and Bowen should know this in terms of the budget bottom line. It would be more honest for him to propose ditching the whole dividend imputation system, if that’s his view.
  • The notion that the elimination of cash refunds will “save” $11.4 billion over the forward estimates should be treated with a grain of salt. Watch retirees rearrange their affairs to qualify for the Age Pension, which will offset the savings.

ALP goads seniors angry over franking credit crackdown: vote against us

The Australian

31 January 2019

Simon Benson, National Affairs Editor

Joe Kelly, Political Reporter and

Greg Brown, Journalist

Bill Shorten has defended Chris Bowen for saying retirees who don’t like Labor’s dividend imputation crackdown are “entitled to vote against us”, saying his Treasury spokesman was merely pointing out there was a “choice in policies”.

The Opposition Leader said Labor was being upfront with voters about how it will raise revenues by clamping down on “unsustainable tax concessions”.

He said axing cash refunds for franking credits would enable a Shorten government to spend more on services such as health and education.

“Chris was saying there is a choice in policies, and that is sensible. There is always a choice,” Mr Shorten said.

“We respect all Australians. That is why we are putting all of our policies out in advance. We have done something unusual in Australian politics: we are explaining how you pay for things before we then say how you use some of that money.

“But I think it is appropriate that we shut down unsustainable tax concessions. Why are we the only country in the world who will let people claim an income tax refund when they have paid no income tax in that year? It is generous but it is not sustainable.”

Mr Shorten said Labor would be a better choice than the government for retirees because it would lower electricity bills, make private health insurance more affordable and unfreeze the Medicare rebate for patients.

He rejected claims by World Vision and the Cancer Council that Labor’s franking

policy would lead to reductions in donations.

“What I can say to charities in the future is that because of a Labor government the causes you are most interested in are going to get a better deal in funding from a Labor government,” he said.

“We should have a health system that doesn’t rely on charity but relies on your Medicare card. “

‘PM: a two-fingered salute to retirees’

Scott Morrison says Mr Shorten will give the “two-fingered salute to retirees” if he becomes prime minister as the government ramps up its attack on Labor’s $55.7 billion dividend imputation crackdown.

The Prime Minister leapt on comments from Mr Bowen, who said self-funded retirees upset with Labor’s plans to axe cash refunds for franking credits were “entitled to vote against us”.

“This is the arrogance. They so think they are going to win the next election. They so think it that they just don’t care,” Mr Morrison told 2GB radio.

“And they will change it all. They will basically just give the two fingered salute to retirees right across the country and they just dare them.”

Mr Morrison said people were “turning up in droves” to committee hearings on the policy in Queensland, saying the rooms had to be expanded to fit in all the concerned self-funded retirees.

He said World Vision and the Cancer Council say the policy would reduce donations to charities.

“(Mr Shorten) hasn’t just got his hands into retirees pockets he’s got his hands into the donations bucket at the train station,” Mr Morrison said.

More than 50,000 voters across the nation’s 10 most marginal seats stand to lose up to $2700 a year under Labor’s policy.

On the Opposition Leader’s negative gearing reforms, Mr Morrison claimed the policy would “take 30 per cent of buyers out of the housing market” and lead to a “price collapse”.

“And if you get a shock to the housing market like this, then that will affect the economy because of consumer confidence. That’s when it runs onto jobs,” Mr Morrison said.

“It is like when you buy a new car. The minute you drive it off the lot it falls in value. That is what Labor’s policy is going to do to the value of your home.”

ALP goads seniors: vote against us

Chris Bowen has told self-funded retirees upset with Labor’s $55.7 billion franking credit crackdown to “vote against us”, as new data reveals more than 50,000 voters across the nation’s 10 most marginal seats stand to lose up to $2700 a year on average under the opposition tax grab.

Drawing battlelines months out from a May election, Bill Shorten’s Treasury spokesman yesterday appeared to pit older Australians against working families after dismissing the grievances of retirees concerned about losing their cash refunds for excess franking dividend credits.

Josh Frydenberg last night told The Australian “Labor’s not listening; Labor doesn’t care”, and accused the opposition of “arrogantly” ignoring the concerns of self-funded retirees.

“Bill Shorten is obsessed with class warfare and pitting one Australian against another for political gain,” the Treasurer said. “His retiree tax is designed to punish aspiration and those who have taken personal responsibility for their own retirement.”

Mr Bowen’s remarks came as new analysis of tax data shows the policy, a key Labor measure set to raise $55.7bn in revenue over 10 years, would be a potential trigger issue at the election in May, with up to 8 per cent of voters claiming the refunds in the 10 most tightly held electorates.

Confirming yesterday that Labor had no intention of modifying or delaying the election policy, despite admitting it would not be popular with many Australians, Mr Bowen said the refund scheme cost taxpayers almost as much as was spent by the commonwealth on public schools: “If they (voters) feel very strongly about this, if they feel that this is something which should impact on their vote, they are of course perfectly entitled to vote against us.”

National Seniors Australia and the Self-Managed Super Fund Association yesterday hit back at Labor, warning that many people would simply restructure their affairs and go on to the pension.

Mr Bowen later told The Australian that his remarks could in no way be construed as offensive as they were merely an expression of people’s democratic rights.

“It’s a pretty unremarkable revelation that we live in a democracy and people are under no obligation to vote for a party if they don’t like its policies,” he said.

Referring to Coalition claims of Labor arrogance, Mr Bowen said: “There’s nothing more arrogant than promising ‘no cuts to schools, to hospitals, to the ABC and SBS’ before the 2013 election and then delivering those cuts in the 2014 budget.”

According to the most recent available tax data, but factoring in the redrawn electoral boundaries for the next election, more than 4000 voters in the north Queensland seat of Herbert — held by Labor on a margin of 0.02 per cent — claim an average of $2295 in cash refunds annually. In the Liberal-held regional Victorian seat of Corangamite, now notionally Labor on a margin of 0.03 per cent, almost 9000 voters claim an average of $2036 a year in cash refunds. The highest refunds were claimed by 5000 people in the regional Queensland seat of Flynn, held by the Coalition on a margin of just 1 per cent.

While Labor is unlikely to lose seats on the back of the policy, senior party sources have admitted it could have an impact in seats it is targeting to take from the Coalition.

National Seniors Australia chief advocate Ian Henschke said he had received no guidance from Labor about whether older Australians who had restructured their finances to receive the Age Pension would be exempt from the crackdown.

Within weeks of announcing its original dividend imputation policy last March, Labor backtracked under pressure from seniors groups, setting up a pensioner guarantee that quarantined those on government pensions or allowances with individual shareholdings.

“We have members who tell us that they are just sitting outside the pension at the moment,” Mr Henschke said.

“They are not pensioners, but they could adjust their affairs to get the pension so they can get the franking credits … we wonder whether the full amount that Labor says it will get from this is going to eventuate.”

SMSF Association head of policy Jordan George questioned whether the Labor policy would claw back the forecast $55.7bn in revenue over the decade. He said some SMSF trustees with assets under the part Age Pension assets limit of $848,000 could choose to hold their Australian shares in their own name instead of in an SMSF. This would allow them to qualify for the pensioner guarantee and retain their refundable franking credits, given that Labor imposed a cut-off date of March 28, 2018, under which SMSFs with at least one pensioner would be exempt from its crackdown.

“This is another example of how taxpayers can move assets around to avoid the application of Labor’s franking credit policy,” Mr George said. “The type of behavioural change will undermine Labor’s anticipated revenue gain.”

Mr Frydenberg accused Mr Bowen of arrogance. “Labor has arrogantly told over one million Australians to vote against Labor: people who have simply saved for their own retirement, people who are not necessarily rich, people who have taken personal responsibility to save for their retirement,” the Treasurer said.

“Australians’ retirement savings should be protected, not raided, as Labor is promising to do.”

Mr Frydenberg described Mr Bowen’s claim that the cash refund scheme cost taxpayers almost as much as was spent by the commonwealth on schools as a mistruth. “The truth is that Labor’s retirees tax on their own numbers raises $55bn over a decade while government spending on schools is over $307bn for the same period,” he said.

In response to questions from Labor MP Matt Thistlethwaite, the Parliamentary Budget Office, which costed the opposition’s policy, made clear in November that it had considered the possibility that some people might reduce their assets so that they were eligible for the Age Pension and therefore no longer subject to Labor’s policy. “The PBO’s assessment is that under current policy settings, there are already strong incentives for individuals to reduce their assets in order to qualify for the Age Pension, particularly for those with assets just above the threshold for the Age Pension asset test,” the PBO said.

“While a small number of individuals may choose to reduce their assets and qualify for the Age Pension as a result of the proposal, this would be unlikely to materially affect the costing.”

ATO data for 2015-16 shows the value of claimed franking credits peaks for both men and women over the age of 75 years. While the ATO measured the full value of franking credits claimed — not just those that were refunded in cash — it reveals that the demographic group that most benefits from them are older females. The ATO figures show that 170,614 women aged 75 and over claimed $1.2bn in franking credits worth an average of $6561. This compares to the 159,380 men aged 75 and over who claimed $955,109 in franking credits over the same period worth an average $5993.

Cat out of the bag on hostility to older voters

The Australian

31 January 2019

Simon Benson, National Affairs Editor

Labor’s tax philosophy is based on an easily understood principle: tax those who aren’t your people and funnel it through to those who are.

It is a formula most often cloaked in terms of fairness and inequality.

So the extraordinary thing about Chris Bowen’s tax taunt yesterday was not so much what he said, but that he said it at all.

The opposition Treasury spokesman’s challenge to older voters that they don’t have to vote Labor if they don’t like his plans to take $55 billion in dividend imputation cash refunds from them, tore away that cloak. He may have been stating the obvious, but it was a rare articulation of Labor’s hostility to this demographic and the politics at play.

This is a new demographic division that pits two distinct groups against each other — self-funded retirees and working families.

Bowen would be the first to admit privately that this policy was a gamble from the start.

It took less than two weeks for it to be torn up and redrafted when it was pointed out by this newspaper that pensioners were also going to be dragged into the net and that, contrary to the policy’s claim, many of its beneficiaries were in no way rich.

Australian Taxation Office data shows that the most numerous group claiming tax credits on their Australian share dividends — but not necessarily the refunds — were women older than 75. The aggregate amounted to a value of about $1.1bn a year.

Labor is likely to get away with the cash grab, however. Only those who receive the refunds have any idea what in fact they are and how they work. As far as Labor is concerned, these are largely people who don’t vote Labor.

The assumption is that very few other people care and Labor is unlikely to lose a seat over this policy.

What senior Labor figures do now admit, however, is that a decent campaign by the Coalition on this could be the difference between Labor taking marginal regional Queensland seats from the Liberal National Party.

Labor’s policy gives the government the best chance yet to sandbag those seats where the Liberal Party base, the over-55s, still feel burnt by the Coalition’s super reforms.

None of this is in any way enough yet to force a reconsideration by Bowen or Bill Shorten on the policy.

It represents a quarter of Labor’s $200bn-plus spending program.

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