Category: Newspaper/Blog Articles/Hansard

AMP underlying profit falls amid super uncertainty

The Australian

18 August 2016

Michael Roddan Reporter Melbourne @michaelroddan

The nation’s biggest wealth manager AMP has unveiled a hefty fall in underlying profitability as wealth management inflows shrink amid the government’s proposed superannuation shake-up, and as insurance claims surge.

AMP (AMP) today booked a net profit of $523 million for the six months through June, a 3 per cent increase year-on-year. The group said its underlying profit was down 10 per cent as higher claims in its wealth protection business and volatile investment conditions hampered earnings.

Revenue, however, slumped 29 per cent to $6.1 billion during the period.

AMP shares opened down 5 per cent at a five-week low of $5.50.

The slide in revenue came as cashflows into AMP’s Australian wealth management business dropped by 50 per cent to $582m, down from net cashflows of $1.15bn the same time last year. AMP said its weak retail and corporate super platform net cashflows were a product of investment market volatility and weaker investor confidence given uncertainty around proposed changes to superannuation.

“AMP Capital, AMP Bank and our New Zealand business have performed strongly, while Australian wealth management has demonstrated resilient performance in a difficult market environment,” chief executive Craig Meller said.

“While first half claims experience was poor, we continue to focus on improving the outcomes for customers and shareholders in our wealth protection business, with actions underway to improve capital efficiency and reduce volatility,” he said.

Mr Meller said AMP would be overhauling its insurance business to stem the tide of claims. The wealth protection arm booked operating earnings of $47m, down from $99m a year go.

“To address performance in the insurance business AMP is strengthening income protection assumptions, repricing, continuing the transformation of claims management and accelerating our capital management initiatives,” Mr Meller said.

AMP has over 5,400 employees and manages more than $220bn in assets and will pay a 14c interim dividend, in line with the prior year’s final dividend.

Libs press Morrison to double super contributions cap to $1m

The Australian

August 20, 2016

David Crowe Political correspondent Canberra @CroweDM      Glenda Korporaal Associate Editor (Business) Sydney @GlendaKorporaal

Scott Morrison has hit another barrier in his bid to legislate a $6 billion tax hike on superannuation, as Liberal MPs insist on bigger changes to the divisive budget measure before they sign off on the plan when parliament ­resumes within weeks.

Liberals MPs told The Weekend Australian their constituents wanted greater concessions than the Treasurer’s mooted proposal to lift the $500,000 lifetime cap on post-tax super contributions to $750,000 in order to soften the impact on workers and retirees.

With more talks scheduled for the week ahead, Mr Morrison is being asked to lift the cap to $1 million in the hope of ending the ­dissent over the policy, so it can be fast-tracked through the Coalition partyroom and put into force.

Angry at the way the super tax hike has been handled since the May budget, government backbenchers said a substantial compromise would be needed to assure Liberal Party supporters that their complaints had been heard and acted upon.

The proposal to lift the cap to $750,000 was only one option in the talks with backbenchers over recent days, as Mr Morrison and Financial Services Minister Kelly O’Dwyer try to test the ground for a compromise before parliament meets on August 30.

Jason Wood, the Liberal MP who holds the marginal seat of La Trobe in Melbourne’s outer east, said a higher threshold was needed to meet demands from voters.

“I am keen to lift the $500,000 cap to $1 million, as I think this is fair,” he told The Weekend ­Australian.

“I am pushing for higher, as that is what my constituents want. There is a great deal of consult­ation and seeking feedback.”

Other MPs said the signals on the lifetime cap were being sent to test the backbench mood, but would not be enough to silence complaints when the Coalition partyroom holds a crucial meeting to approve the package.

Strong critics of the super tax increase, including former cabinet minister Eric Abetz, have kept up their warnings against the ­reforms, while industry groups are calling for more detail before ­deciding on their position.

A more significant compromise proposal is to scrap the planned start date for the lifetime cap, July 2007, to fend off accusations of “retrospective” taxation, but this would sacrifice most of the measure’s $550m in forecast tax revenue over the next four years.

Mr Morrison and Ms O’Dwyer made no comment yesterday on their consultations. The super package would raise $6bn but uses half of this to fund greater super benefits for parents returning to the workforce and workers on incomes of less than $37,000 a year, leaving $3bn to improve the budget bottom line over four years.

The government is insisting that any changes to the super tax revenue would have to be offset by savings elsewhere in the portfolio.

MPs warned against paying for the compromise on high-end super taxes by scaling back the benefits to ordinary workers from the Low Income Super Tax Offset. “You couldn’t possibly do that,” said one Liberal.

Super fund groups welcomed indications that the government may be considering changes to its budget measures but said they did not go far enough. While some groups want to increase the proposed $500,000 post-tax cap, there is widespread agreement that the more critical issue is to ­retain the current caps on concessional contributions, which are proposed to be cut from $30,000 a year, and $35,000 a year for people over 50, to $25,000 a year.

“We would welcome increased flexibility around the non-concessional lifetime cap, whether it be through an increase in the cap or by specific carve-outs,” Andrea Slattery, the chief executive of the Self Managed Super Association, said yesterday. “We would welcome a shift in start date of the measure but we understand any changes would have significant revenue impacts.”

She also warned that there would need to be an analysis of any proposed “carve-outs” for lifetime events such as divorce.

The Weekend Australian understands there will be no special treatment for funds received from inheritances. Simon Swanson, the chief executive of ASX-listed wealth management company Clearview, said an increase in the post-tax contribution cap would allow ­people who had interrupted work patterns to “catch up” in saving for their retirement.

“An increase of the contrib­ution cap to $750,000 would give those people who leave the workforce for an extended period a chance to catch up, thereby ensuring they don’t need any support from the pension,” he said.

It’s not intergenerational theft




Greedy pigs on the cover of the Grattan Institute report


Catallaxy Files – Judith Sloan

20 August, 2016

Grace Collier is completely on the money to call out the Grattan Institute for releasing tacky, biased pap and using cheap undergraduate humour to make its point.  A picture of pigs with their snouts in the trough as representing people who have worked hard and saved according to the applicable superannuation rules.

In its campaign to impose higher taxation in order to fund bigger government, the Grattan Institute has come out with some completely loony proposals ($11,000 annual concessional contributions cap –  is this a joke?) dramatically to increase taxation on superannuation, proposals which have appealed to our left-leaning government.

Read my lips: we don’t have age-based taxation.  Current income is taxed in the same way irrespective of age.  The taxation of savings is another matter and every economist (not that Daley is not an economist) knows that savings need to be taxed in a different way from current income – apart from the little twinks at Grattan.  (Wood should know better, by the way.)

(What’s that you say?  The pigs are actually the staff at the Grattan Institute who have their snouts in the trough courtesy of two Labor governments just giving away taxpayer money ($30 million) without any competition and with nary a proposal as the ends to which the monies would be put.)

Here’s the key section of Grace’s piece:

Most MPs don’t understand their own policy, let alone where it came from — a publicly funded left-wing think tank, the Grattan Institute.

Its report Super Tax Targeting is sexist and ageist. It urges the government to take money off “rich old men” who don’t need it and are committing “intergenerational theft” anyway via their superannuation accounts.

Further, self-funded retirees should be aware the authors of the report — John Daley, Brendan Coates and Danielle Wood — regard them as greedy pigs. Look at the report’s cover, pictured [above].

Sceptics who doubt the Liberals would be so foolish as to adopt the institute’s leftist agenda should seek out the report on Google and read just the first page.

Back in June, when a public furore broke out about the policy, the institute put out a media release by Daley and Coates. It was titled “Tax-free super is intergenerational theft” and said: “A number of politicians have struggled this week to explain the Turnbull government’s proposed changes to superannuation … this complexity explains why intergenerational ‘theft’ through superannuation has continued for so long. No one has ever explained why we should have an age-based tax system … some of these voters are now objecting vociferously to losing their privileges but they were never justified in the first place.”

I sent off emails asking the Coalition powers-that-be to deny their superannuation policy was based on or informed by the report, and whether they deny meeting the authors. The Treasurer and Revenue and Financial Services Minister Kelly O’Dwyer declined to offer a denial and sent back a statement saying they talked to everyone.

The Grattan Institute was formed in 2008 and $30 million of taxpayer funds has been given to it.

It is housed in taxpayer-funded accommodation at the University of Melbourne and is crammed to the rafters with ex-Labor staff. All of this, in itself, is not such a bad thing. What is life without diversity? We can’t all be productive members of society. But the problem is that a body such as this shouldn’t be setting Coalition policy.

How on earth did this happen? Who knows, but the PM and his wife are listed on the “Friends of Grattan” web page as individual financial supporters. Further, Lucy Turnbull has been on the board since December 2012. So in the absence of any other rational explanation for the Liberals’ superannuation madness, there is always that.

Morrison’s super backdown does not go far enough

Australian Financial Review

19 August 2016

Sally Patten

Superannuation funds, including self-managed super funds and their advisers, welcomed Treasurer Scott Morrison’s proposed backdown on one of the most controversial super measures contained in the May budget, but say they don’t go far enough.

The SMSF Association said it would welcome either raising the planned lifetime ceiling on after-tax super contributions to $750,000 from $500,000, or bringing forward the start date until budget night.

“We would like to see an increase in flexibility around the non-concessional caps, whether it be raising the cap, introducing carve-outs or bringing forward the start date,” said SMSF Association chief Andrea Slattery.

In May Mr Morrison said the after-tax contributions ceiling would be backdated until 2007.

In addition to raising the after-tax contribution limit or moving the start date, the Turnbull government has said it will allow savers to exceed the ceiling for certain “life events”, such as divorce settlements.

Ms Slattery said that the super package would need to be looked at in its entirety, adding that she had concerns over the granting of carve-outs for certain windfall payments on the grounds that they could make the super system more complex to administer. Ms Slattery suggested that raising the proposed annual $25,000 before-tax contribution limit, particularly for savers over the age of 50, was a more important issue.

However shadow treasurer Chris Bowen said the super backdown was an example of government dysfunction along with the “rolling fiasco” of the census, and the fighting retreat over banks.

“Malcolm Turnbull and Scott Morrison told us before the election they would stand by every word of the superannuation policy,” he said. “Today we see leaks out of the government on the front page of the Financial Review that the government is preparing to walk away from its $500,000 dollar cap on superannuation.”

Labor said it was disingenuous for the government to spend this week demanding the Opposition honour the spending cuts it pledged to back during the election campaign when the government was diluting its own savings proposals on super.

“(Mr Morrison) should be on the front foot and tell people, the superannuants of Australia, those who have invested in good faith under existing rules just what his policy is,” he said.

“We were told just a few weeks ago that the government would be ready and on the front foot before Parliament. Well, Parliament meets the week after next, and now we read, no, the legislation won’t be ready for some time.”

Welcoming the Coalition’s “consultative approach”, the Association of Superannuation Funds of Australia said the government’s proposed $25,000 annual non-concessional limit needed re-thinking. The new limit is considerably lower than the current annual contributions limits of either $30,000 or $35,000 depending on a member’s age.

“ASFA has consistently supported the broad thrust of the budget changes as we believe they make the system more equitable and sustainable, but has indicated that further consideration and analysis needs to be applied, particularly to the proposed reduction in annual concessional caps,” an ASFA spokesperson said.

“The concessional caps affect all Australians and affect their ability to achieve adequacy and that’s why it is important,” Ms Slattery said.

The SMSF Owners’ Alliance welcomed a move to raise the lifetime ceiling from $500,000, but argued that Australians should be allowed to contribute to their super accounts until they hit the proposed $1.6 million super pension transfer limit, another contentious measure unveiled in the May budget.

SMSF Owners’ Alliance chairman Bruce Foy said it was critical that retirees already drawing a private pension be allowed to retain all their savings in a tax-free pension and not have to move amounts above $1.6 million back into a so-called accumulation fund which attracts a 15 per cent earnings tax.

Mr Morrison has made it clear that he will stand by the policy of allowing retirees to transfer a maximum of $1.6 million into a tax-free private pension.

“The $1.6 million cap is a retrospective measure for people who have set assets aside. At the very least the $1.6 million cap should be raised. It should be grandfathered for people in the pension phase,” Mr Foy said.

The Financial Services Council said it welcomed the sign that the government was considering moving the start date for the introduction of the $500,000 lifetime contributions ceiling.

“Any measure that is backdated by almost a decade will have issues with implementation and with information retrieval, especially as superannuation is currently transitioning from a paper-based system to a digital system,” said Sally Loane, chief executive of the FSC.

The Association of Superannuation Fund Trustees said the proposed $500,000 cap was an important equity measure.

“Treasury has importantly confirmed that the 2007 start date relates to calculations around individual cap limits going forward. It does not mean that anyone who may have already put in more than $500,000 in non-concessional contributions will have to withdraw amounts above the cap,” said David Haynes, AIST executive manager of policy.

Older super savers ‘thrown to the wolves’

Australian Financial Review

17 August 2016

by Sam Henderson

Many believe a $25,000 pre-tax contribution cap is too restrictive and does not adequately encourage Australians to save more in retirement

A reader in his 50s with $700,000 in super has a good chance of hitting $1.6 billion by retirement age, writes Sam Henderson who answers your questions on super.

Q: I am in my mid-fifties with a super balance of $700,000, largely achieved by making use of the pre-budget annual non-concessional cap over the last few years since the mortgage and private school fees have finally been put behind us. I had a perfectly sound plan in place to achieve a healthy super balance in line with Rice Warner’s lucky 40-year-olds over the next 10 years, using a combination of concessional and non-concessional contributions. But with the new flat $25,000 annual cap on concessional contributions, and having already used up the proposed retrospective $500,000 non-concessional cap, how can I possibly now achieve my pre-budget plan or even anything close to it? Some 40-year-olds may indeed be crying wolf, but I feel that we 50-somethings are being thrown to them! David

A: David, you are correct but only assuming you receive no return on your money, which is unlikely. I thought I’d run a quick rudimentary spreadsheet on the numbers and you would need to attain a return of 6.5 per cent compounded per annum to attain a little over $1.6 million in 10 years. According to SuperRatings, the average return over the past five years has been around 5.5 per cent for a super fund so assuming you received this return, it may be estimated that you could end of achieving a retirement lump sum of a little south of $1.5 million. Depending on your risk profile, experience, knowledge and preparedness to borrow money, gearing might magnify the returns (and potentially losses) to attain a figure well in excess of $1.6 million.

Incidentally, despite requiring a little faith in the future and an assumption that no further detrimental changes to super will affect you (lets hope not!), I don’t think you will be too far from the mark.

For the record, I do agree with you that the $25,000 is too restrictive and does not adequately encourage Australians to save more in retirement. It is proposed that superannuants will be able to use non-utilised years of the $25,000 (essentially saving it up and making a lump sum of up to $125,000 and still be able to claim a tax deduction). It’s further proposed that they will be able to contribute to super over the age of 65 without having to meet the work test until 75. This will help those people needing to pump up their super using lump sum contributions from the sale of assets or an inheritance.

All of this is increasingly important in a lower interest rate environment when $1.6 million may not create the income stream it did when interest rates were at 7 per cent. I should also note how highly problematic it is attempting to navigate the advice process in this environment after the government has made such impactful announcements without any of them having seen the light of parliament yet.

Q: I am another who will be caught out by the proposed changes to the transition to retirement pension rules. I do not classify myself as wealthy and I did not use the pensions to avoid tax. I believe that I have used them as intended and am now almost completely retired. I would like the option of doing interesting work if it came my way but it looks like that will be denied. I am also annoyed that the government has misrepresented the Productivity Commission which actually suggested that more information is needed to see who used TTR pensions and for what purpose before changes were made. The government is applying collective punishment to all who used the TTR pensions. I am now 68 and hence am well above my preservation age. I have a term allocated pension and an allocated pension in a self-managed super fund. Is it true that if I fully retire before the end of this financial year, the earnings for these pensions will continue to be tax-free? If so, I feel that it is ironic that the government will force a highly educated and experienced person (Ph.D.) from the work force but will draw no additional tax revenue. Michael

A: Thanks for your question, Michael. Your answer is far simpler than you may imagine. Attaining age 65 (three years ago) is a full condition of release so you should be receiving a full account-based pension not a transition to retirement (TTR) pension. TTRs are only for people from preservation age (age 56 at the moment) to age 64. This should have been changed by your administrator or accountant when you turned 65. You really have very little to worry about given the changes.

Essentially, you may continue to work or you may retire but either way, your pension will remain tax-free and you may also retain an accumulation account for as long as you like although it may be prudent to have as much as possible in a pension phase.

The only caveat is if you have greater than $1.6 million in your individual account, although I doubt you’d have a TAP if you are in this situation and the proposals are yet to pass parliament.

These questions are answered without the full financial and lifestyle details of readers and must therefore be taken as general advice. We recommend you speak to a qualified financial adviser for complete and comprehensive advice.

Financial planner Sam Henderson is CEO of accounting, advice and funds management firm Henderson Maxwell ( To submit a question, please email: Published questions will win a free copy of Sam’s book The One Page Financial Plan (Wrightbooks, RRP $29.95) – remember to include your mailing address in your email.
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Doubling super cap to $1million would ‘satisfy’ restive Coalition backbencher

Australian Financial Review

21 August 2016

Jacob Greber

Liberal National MP George Christensen, who has threatened to cross the floor against Treasurer Scott Morrison’s $6 billion crackdown on high-end superannuation concessions, has signalled that doubling the $500,000 lifetime cap would bring him back within the fold.

In a sign of how far restive backbenchers are demanding Mr Morrison go in winding back the Coalition’s super plan, Mr Christensen said that lifting the cap to $1 million “would satisfy most concerns” over the government’s policy.

Raising the lifetime non-concessional contributions cap would almost certainly wipe out most of the budget benefit from the $550 million measure and leave the Coalition wide open to opposition attacks that the government is demanding curbs to middle-class welfare while failing to share the pain on its wealthy political base.

Labor is expected to ramp up this issue in coming days.

Mr Christensen’s intervention follows revelations in The Australian Financial Review last week that Mr Morrison is considering either lifting the cap to $750,000 or making it prospective.

Government ministers maintained their stance over the weekend that they were consulting the industry and party colleagues, with Mr Morrison spending much of last week travelling around the country canvassing alternatives.

Financial Services Minister Kelly O’Dwyer was tight-lipped about the cap on the ABC’s Insiders on Sunday, but declined opportunities to deny the cap is now under review.

“We’re doing what we always do when it comes to legislation, we are consulting very broadly,” Ms O’Dwyer said. “We’re making sure that there are no unintended consequences. We’re making sure that we get it right.”

She emphasised that the Coalition’s super policy was about ensuring more flexibility for savers and allowing lower-income earners to increase their concessional contributions caps, with a rolling $125,000 allowance over a decade.

She said that would add up to $250,000 that could be put into super.

“We’re going to be legislating an objective for superannuation that says that it is for the retirement incomes of Australians that will either supplement or substitute for the aged pension,” she said.

“Now that is where our package has been tied together through this particular objective. The non-concessional contributions is one aspect that people have highlighted.”

There is growing anger within Labor that the Coalition is watering down its proposed curbs to high-end superannuation at a time when the opposition is being encouraged to support the government is cutting welfare supplements to low and middle-income families.

Both sides of politics denied on Sunday that they had reached a deal to halve a $700 payment, with both saying they haven’t been approached by either side.

Opposition frontbencher Brendan O’Connor said Labor will keep its election commitments but had to scrutinise a proposed omnibus bill with a bundle of measures to ensure the government was keeping its promises.

He added that if the government was going to put such a premium on keeping promises it should go ahead with its cuts to the super concessions as laid out in the May budget.

Super change a case of intergenerational equity: Morrison

The Australian
8 August, 2016
David Crowe Political correspondent Canberra @CroweDM

Scott Morrison has countered the idea of giving wealthier Australians any relief from a new $500,000 cap on some of their superannuation, saying the change should go ahead to ensure “intergenerational equity” for younger workers.

The Treasurer conceded the case for “technical” changes to the budget package but held out against calls to change the start date for the $500,000 cap on after-tax contributions, a measure that has ignited warnings about retrospective taxation because the threshold will apply from July 2007.

Mr Morrison said the policy was “sound” and Australians who had already benefited from tax breaks on super would have to accept tighter rules, along with younger workers who will never benefit from the previous more generous concessions.

“So I think there is a real intergenerational equity here and those who stand most to benefit from those changes have the biggest balances, the biggest incomes and have made the biggest tax-free contributions,” he told the Australian Agenda program on Sky News yesterday.

A backlash against the super tax increases caused turmoil within Liberal ranks during the election campaign, as members withdrew support at polling booths and some quit the party.

Malcolm Turnbull and his ministers are holding to the $6 billion tax increase, which adds $3bn to the budget bottom line after helping fund a rise in super for millions of workers on salaries of less than $37,000 a year through a super tax offset.

Labor has embraced the $3bn saving and the Greens back the reform to super tax concessions, suggesting Mr Turnbull and Mr Morrison will have the numbers to legislate the changes if they can address complaints in the Coalition partyroom.

The $500,000 cap raises $550 million over four years but would raise very little if the start date were shifted to this year.

Draft legislation is expected from Financial Services Minister Kelly O’Dwyer in weeks but the date is not expected to change.

Mr Morrison said those who had already made non-concessional contributions of $500,000 should accept the new cap. “They have an average balance of $2m in their super — $2m. And they have actually on average contributed $700,000,” he said.

Derryn Hinch wary on super, seeks ABCC compromise, live export ban

Australian Financial Review

12 August 2016

Ben Potter

Derryn Hinch, the celebrity journalist turned senator-elect, says he has problems with the Turnbull government’s plan to wind back superannuation tax breaks for the rich.

Mr Hinch, who had a liver transplant five years ago, also said he wanted a compromise on the government’s construction industry watchdog, a ban on livestock exports and a million more organ donors.

Mr Hinch won a Victorian Senate seat in last month’s federal election, making him one of 12 crossbench senators the Turnbull government will have to court to pass bills spurned by Labor and the Greens.

He told AFR Weekend he got a lot of feedback on the super changes during the campaign “and if they say it didn’t affect their vote they are dreaming”.

The government wants to cap the super nest egg on which earnings for over 60s are tax free at $1.6 million, limit non-concessional contributions to $500,000 and cut the cap on annual concessional contributions for over 50s to $25,000 from $35,000.

The measures are aimed at reining in the budget deficit and defusing criticisms the super concessions favour the rich. But they were criticised for breaching a convention against retrospective legislation, and triggered a backlash among coalition supporters.
Fear of retrospectivity

“The thing that hurt them most was the fear of retrospectivity. I think that – rightly or wrongly – is what they fear the most,” Mr Hinch said. He said voters who did something five years ago in order to fund their retirement in 2025 didn’t like being told they had done the wrong thing.

Treasurer Scott Morrison this week offered exemptions for “life events” such inheritance and divorce payouts.

Katy Gallagher, shadow financial services minister, said Labor wanted to wind back costly super tax breaks for the rich and would work “constructively” with the government, but didn’t have any details.

On the Australian Building and Construction Commission, Mr Hinch said he didn’t want to “risk anything that will hurt workers but I also loathe corruption, so somewhere between those two we’ll work out where to go”.

The government wants to reinstate the ABCC to combat systemic corruption and illegal activity by construction unions and some employers uncovered by the trades union royal commission.

Mr Hinch wants to get a million more organ donors by changing the rules so that grieving family members can’t overrule a donor’s election. He said he expected live animal exports to be “the biggest battle” of the coming parliamentary term.

The livestock industry and nationals leader Barnaby Joyce – a staunch supporter of live exports – says monitoring of offshore slaughter has improved since the former Labor government slapped a shortlived ban on the trade in 2012. But Mr Hinch said “if you don’t know the Vietnamese are beating the shit out of cattle with a sledgehammer you can’t police it”.

Correcting Morrison’s senseless superannuation strategy

The Centre For Independent Studies

Robert Carling – Spectator Flat White

Scott Morrison is reportedly open to the idea of exemptions to his proposed $500,000 lifetime cap on after-tax superannuation contributions for defined ‘lifetime events’ such as inheritance, divorce or even a lottery win.

Though the details are yet to be unveiled, the broad contours are sufficient to place this notion squarely in the category of regulatory abominations. As I reached for one word to capture what is wrong with the policy, ‘capricious’ sprang to mind, and my dictionary definition (‘inconsistent; guided by whim’) confirmed its fitness for purpose.

The $500,000 limit is bad policy, but granting exemptions for ‘lifetime events’ is a very bad way to fix it. When governments look around for narrowly defined groups to receive special dispensations from a general rule, we can be sure the principle of equality before the law has gone out the window. Why is an individual who has inherited or won a large sum more deserving than one who has simply accumulated it through saving and investing?

At a more practical level, any attempt to draw legislative boundaries around selected ‘lifetime events’ is bound to leave cracks to be exploited by those not intended to benefit, and will invite claimants who see their particular circumstances as being worthy of new exemptions.

If the $500,000 limit stands, it should apply to everyone, without exception. But better still rethink it to address legitimate concerns that have been raised. For a start, the amount is too low. It is a draconian reduction from the current limit of $540,000 over three years to $500,000 over a lifetime. The current limit may be too generous, but the proposed limit is too low to give people the opportunity to accumulate a balance that will give them a good retirement income — particularly those who for one reason or another do not have the opportunity to maximise pre-tax contributions throughout their lifetime.

It is not as if the government would be blowing up its budget by allowing a more generous after-tax contributions limit. The only concession is that the income from the contributions is taxed at ‘only’ 15%. Big deal! All household saving would ideally receive such treatment in recognition of the severe anti-saving distortion imposed by taxation at full marginal rates.

Then there is the alleged ‘retrospective’ dimension. Counting after-tax contributions back to 1 July 2007 against the new cap is not retrospective taxation. Nobody will pay more tax now on contributions made in the past. And the government is not requiring anyone who exceeded the new cap up to May 2 2016 (budget night) to remove the excess from his or her super funds.

But the new cap is retrospective in the sense that people were managing their affairs in the years from 1 July 2007 to 2 May 2016 according to regulations they had every reason to believe applied to them, but which are now to be retrospectively re-written. Had they known from 1 July 2007 that a lifetime cap of $500,000 applied, they may have organised their finances differently.

The obvious remedy is to apply any new limit prospectively from the date of announcement, and if that allows someone who already has a lot in super to put in another $500,000 or whatever the new after-tax limit might be, then so be it. Get over it, Scott. And spare us the appeals to fiscal rectitude. The budget deficit is not an excuse for poor policy. In any case, a new and retrospectively applied cap on after-tax contributions does two-fifths of very little to rectify it.

Robert Carling is a Senior Fellow at the Centre for Independent Studies

Morrison holds firm on super

Australian Financial Review

9 August 2016

Jennifer Hewett

Scott Morrison refuses to concede that the decision to backdate the lifetime limit on non-concessional superannuation contributions to 2007 is anathema to Liberal philosophy.

Scott Morrison doesn’t do reverse easily, if ever. The Treasurer’s approach to politics may not be the same as Paul Keating’s famous description of his own style – “downhill, one ski, no poles”. But when Morrison’s focused on his target, he doesn’t really contemplate changing course – or even creating an effective diversion.

Right now that target is achieving even the most modest claim to maintaining fiscal discipline any way he can, but most certainly including curbing superannuation tax concessions.

So despite the extreme level of agitation in his own party about his proposed superannuation changes – including rather pointed advice on super from other predecessors like Peter Costello – Morrison’s not sounding as if he has any intention of making substantive concessions to even the most passionate of criticisms.

Instead, he is holding firm to this view despite an increasingly heavy personal political cost to his own standing within the party and the very real potential that his judgment may be overturned by colleagues.

It’s true the draft legislation is now likely to grant certain exemptions from the proposed $500,000 lifetime cap on non-concessional super contributions in case of special events like compensation payouts or divorce settlements.
Concept of fairness

But Morrison is still not conceding the key and savage complaint of the party membership and many of his own colleagues, including some very senior ones.

This is that the decision to backdate the lifetime limit on non-concessional superannuation contributions to 2007 is anathema to Liberal philosophy or to any concept of fairness because it is retrospective.

Nor is he in any way inclined to lift the proposed new limit of $1.6 million as the maximum amount that can be allowed to remain in the untaxed pension phase of super. In his view, that limit doesn’t mean that people aren’t still receiving a tax benefit for savings above that amount. They are just no longer getting it tax free.

He is also convinced the budget cannot afford to alter the large announced reductions in the annual limits of super contributions taxed at a 15 per cent concessional rate.

These are now supposed to fall to a maximum of $25,000 a year from the old rates of $30,000 a year and $35,000 for those over 50.

Instead, he keeps insisting that he cannot consistently argue the need for cuts to family tax benefit supplements while simultaneously rejecting any diminution of already generous tax benefits to those who tend to be much wealthier.

He is deaf to the argument that these are the same people who will be entirely or largely self funding their own retirement rather than relying on access to the aged pension.

The Department of Treasury, which has always greatly disliked super concessions, has never accepted this argument either. That’s despite the obvious difficulties in making realistic estimates of how much such reductions in super concessions will eventually add to the taxpayer cost of funding the pension.
Low-risk investments

Now Treasury finally has a Treasurer, and a Liberal one at that, who seems to agree with this logic.

Nor does Morrison accept the position that in an era of abnormally low returns indefinitely, an amount of $1 million or even $1.6 million no longer generates much annual income from the low-risk investments favoured in retirement.

Instead, he maintains he’s telling people who earn a lot less than those able to put $500,000 after tax into super that their family tax supplement has to go in order to pay for child care changes.

“How can I look them in the eye and at the same time say ‘Oh no, I am going to protect this interest over here who are sitting on half a million bucks that they want to load in and stuff in so they can pay less tax on it,” he declared on radio this week.

That’s hardly going to win him votes among existing or aspiring self-funded retirees or the more traditional Liberal voters.

Ironically his biggest supporters of superannuation changes are more to be found within the Labor Party and the industry super funds, especially as he is using half of the supposed $6 billion in super savings over four years to bolster the super accounts of low-income earners.

His own colleagues are far less persuaded about the whole thing but they are most particularly aggrieved on the issue of retrospectivity and the 2007 start date.
Locking in benefits

They were as astounded as the industry was when Morrison unveiled his budget on May 3 and want this measure, at the very least, to only start from that date. Many of them know to their campaign fundraising cost that it harmed their ability to raise money or other support from their usually faithful “base” of strong Coalition backers.

Yet for Morrison, the typical “grandfathering” adopted to assuage those most affected only translates into locking in benefits for those who have already enjoyed advantages.

Given such a depth of feeling and the narrow margin of Coalition numbers, this strict view is going to prove another key test of Morrison’s ability to hold the line. Not to mention his own prospects in the party.

Morrison’s previous popularity with the conservative wing of the Liberals has never really recovered from his role in the demise of Tony Abbott last year. That overwhelmed his earlier hero status as the Immigration minister who finally stopped the boats as promised. As Social Services Minister, he did negotiate through the Senate some significant changes to pension eligibility without attracting much obvious public ire.

As Treasurer, he’s regarded as a big improvement on Joe Hockey. But the doubts remain and the pressure on him can only intensify in an era with no spare money and no spare numbers. Especially on super.

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