Category: Newspaper/Blog Articles/Hansard

No saving grace in this super stuff-up

The Australian

9 August 2016

Judith Sloan Contributing Economics Editor

 

Government’s superannuation package is a mess.

The superannuation package Scott Morrison announced in this year’s budget is turning into a complete shemozzle.

The Liberal Party’s membership is in revolt — that is, among those members who haven’t already resigned.

There is a widespread sense of betrayal. There are also some specific criticisms about the package: it’s over-engineered , unworkable, unfair and the figures are wrong.

The real reason Malcolm Turnbull knocked back Kevin Rudd had nothing to do with Rudd’s poor interpersonal skills but rather Turnbull’s realisation that his party base would go into complete meltdown had he supported the former prime minister’s candidacy for the position of UN secretary-general .

Turnbull and Morrison probably now realise they have been played for mugs by the bureaucrats in Treasury and Prime Minister and Cabinet who have long held the ambition to unwind what they see as the unjustifiable superannuation tax concessions.

You have only to check out the highly erroneous but enormous values put on these concessions, as presented in the annual tax expenditure statement released by Treasury, to pick up the agenda that the activist bureaucrats have been running.

We also know that in 2014 Treasury advised Joe Hockey as treasurer to ditch the tax-free status of superannuation pension income and to impose much higher taxation on contributions using marginal tax rates minus a rebate, even though this latter piece of advice was essentially unworkable. Hockey had the sense to reject the advice.

We also should not overlook the fact, to a man and a woman, the senior officials advising the government on superannuation matters will receive unimaginably generous defined benefit superannuation payments on retirement (more than half of their final salary ) that are barely affected by the budget measures. Note the salaries of these senior public servants have been jacked up significantly in recent years and that their personal financial contributions to superannuation while working are trivial.

No need to save up, pay tax and make non-concessional contributions for this lot.

And if any of them die before their spouse or partner, then a two-thirds pension is paid to the surviving spouse or partner until that person dies.

For them, paying a few thousand dollars more tax each year on their (indexed) retirement incomes is just chicken feed compared with the impact of the superannuation measures on those who have accumulated superannuation balances in good faith under the rules that applied at the time.

That stuff about “commensurate measures” the Treasurer was going on about at budget time was just a ruse.

Here’s an idea. Why don’t these senior officials agree to forgo the benefits of the defined benefit scheme and instead be given an account of, say, $1.6 million to be used to generate a retirement pension? Any residual amount would be returned to the commonwealth when they die. After all, the Treasurer thinks the income generated from a fund of this size is perfectly adequate.

The core problem now for Turnbull and Morrison (and we can throw in Finance Minister Mathias Cormann and Revenue and Financial Services Minister Kelly O’Dwyer ) is how they can construct a more palatable superannuation package without completely undermining their own leadership.

But we shouldn’t think a nip here and tuck there will cut it. There has to be a fundamental rethinking of some of the measures, including ditching some of them altogether. The backdating of the lifetime cap on non-concessional contributions has to go, for instance .

But the real issue is this: as long as there is a cap on the final taxfree superannuation balance, there is really no need for many of the other measures. After all, people have paid the full whack of tax on non-concessional contributions , so why would we want to restrict them?

And talking of the cap, $1.6m is the wrong figure given the low rates of return retirees can expect and the longevity risk that they bear. Had the old reasonable benefit limit remained in place, it presently would be $2.5m. So this is the sort of figure the government should be considering.

But there is an even more fundamental problem with the cackhanded budget measures.

With all the restrictions in place, including the unrealistic figure of $25,000 on annual concessional contributions, most people won’t be able to get to the maximum balance that the government regards as being worthy of tax-free status.

By and large, people are able to save seriously for their retirement only when their mortgage is paid off or is relatively low and the kids are off their hands. But the government’s one-size-fits-all measures simply fail to acknowledge this lifetime pattern.

The real worry for our fiscal future — Turnbull and Morrison will be long gone — is that the combination of the restrictions being contemplated will mean that many people just give up on the dream of self-providing for their retirement and instead plan to rely on the age pension, full or part.

If there is any spare money in the meantime you may as well invest in buying a better home or upgrading your present one — Morrison doesn’t seem to object to this form of estate planning. It’s only superannuation that is an evil form of estate planning, even though non-dependent beneficiaries pay 15 per cent tax on inherited superannuation.

Another big hint for the government that it has seriously messed up is the endorsement of the measures by journalists and commentators working for leftwing media outlets, including the ABC.

Any sane Liberal treasurer would be aghast at the degree of backslapping from people who wouldn’t vote for the Coalition if their lives depended on it.

And what a bad look it would be if the Turnbull government were to rely on Labor or, worse, the Greens to secure the passage of the superannuation measures through the Senate.

The Labor parliamentary leadership group just couldn’t believe its luck when Morrison announced the superannuation measures on that fateful night in May.

Opposition Treasury spokesman Chris Bowen never thought he could go that far and get away with it, politically speaking.

Now Labor will seek to wave through most of the measures in the knowledge that it will be Turnbull and Morrison who will be politically damaged. And in the meantime the champagne corks will be popping in the boardrooms of the union-controlled industry super funds.

Does it get any better than this for Labor? Does it get any worse for the Liberal Party?

Turnbull and Morrison probably now realise they have been played for mugs.

Don’t bite the hand that feeds

The Australian

6 August 2016

Grace Collier Columnist Melbourne @MsGraceCollier

 

The government will pay at the next election if its treachery continues

 

“I fear we will get slaughtered next election,” said the text, and it was hard to disagree.

 

The parliamentary term is just beginning but already Bill Shorten seems to be running the country by proxy, and the Liberals seem to be running on empty.

 

Who knows what the Turnbull government stands for or where it is taking us? More important, how many of its traditional supporters even care? The base has been slapped in the face one too many times.

 

At the election last month, Liberal voters fired a warning shot by voting against the party in the upper house. Without real change, next time the lower house votes will go elsewhere too. The government appears to be adopting Labor’s agenda and making a cowardly attack on its supporters in the process.

 

Realistically, what are the chances of the next three years going well? As for the government’s economic mantra, the best example of jobs and growth can be seen within the expanded cabinet.

 

Senior Liberals concede that at the next election, they will need to pay people to hand out how to vote cards. Where will the money come from? No one knows. Once the superannuation policy was announced, donations ceased; Malcolm Turnbull had to bail out his own election campaign.

 

All this, and branches around the country are now in open revolt. Tony Abbott’s foolish deficit levy was an insult begrudgingly endured, but the superannuation policy is madness and many will fight it to the death.

 

Take the federal electorate of Higgins in Victoria. According to several sources within the electorate, donations towards the sitting member, Kelly O’Dwyer , are drying up. According to insiders, there are two plans being floated, both designed to remove O’Dwyer because of her advocacy for the policy.

 

One suggestion is to put up an alternative Liberal candidate to challenge at the next preselection, due in 18 months. The other suggestion is to leave O’Dwyer in place and put up an independent to cruel the party’s chances of retaining the seat.

 

O’Dwyer is said to be panicking, which would be understandable. This isn’t a case of a few disgruntled nuff-nuffs having a rhetorical whinge. These people are substantial, with significant resources and serious intentions. Anyone they back is going to go a long way. O’Dwyer’s career is evidence of that. In the past, some have been disappointed with the representation in Higgins, claiming it has been inadequate. Now there is fury at O’Dwyer’s meek acceptance of the policy. Supporters feel O’Dwyer is not sticking up for the people who put her into the privileged position she enjoys today.

 

Former Liberal benefactor John McMurrick, who has resigned from the party recently, helped O’Dwyer for years, from the time Peter Costello stood down. McMurrick says he is “devastated at the way O’Dwyer has handled this matter, considering I have given her 200 per cent support” .

 

Fern Blackman, who worked for O’Dwyer as a booth captain in 2013, as well as in her campaign office for three months, resigned from the party. She says, “It’s just bizarre that the only people the government are targeting are their base. They are treating their friends very shabbily.”

 

O’Dwyer’s office says her campaign was well resourced and she won with a two-partypreferred swing of less than 2 per cent. Sources in her corner say the complaining should be disregarded because it is merely the “cronies” of Victorian Liberal Party president Michael Kroger agitating for a candidate Kroger may prefer and Costello may not.

 

Those interviewed deny this. “Do you think we are so stupid that we are going to do all this because of some problem between Kroger and Costello?” said one.

 

A group of MPs despise Kroger and ride on the coat-tails of their association with Costello, whom they greatly admire. However, skill doesn’t transfer by osmosis; none of these operatives comes close to matching Costello’s talent or performance. Can you imagine Costello waxing lyrical about the need to lower taxes while putting them up, advocating a policy because it hurts only the wealthiest 4 per cent or taking people’s retirement savings on the grounds the government needs the money?

 

When people are facing a reduced standard of living in old age because a government has broken its promises and is acting unfairly and retrospectively to harm them financially, this generates extreme anger. Petty participation in a political grudge between two men is of no interest to busy people.

 

For example, and for the purposes of disclosure, the government’s plans will disadvantage me, so I am motivated towards criticism; I am not the least bit interested that two men with whom I am barely acquainted don’t like each other. Readers can rest assured that in the interests of pushing for policy change, both the Costello and Kroger “factions” will be lambasted equally.

 

At this point, the government is giving every indication the policy will not be amended substantially. Before the election, it begged people to back off their criticism with promises of change later. Now, it claims it has a mandate to proceed with the policy unaltered. Treachery of this kind will not be forgotten.

Coalition lives or dies by Morrison’s performance

The Australian

6 August 2016

Terry McCrann Business Columnist Melbourne

Scott Morrison is the last best and indeed only hope of the Turnbull government. It lives — brutally, maybe even just survives — or dies, in chaos and ignominy, on the Treasurer’s success or failure.

I do not mean or even just quixotically hope that Morrison can somehow succeed in waving some magical fiscal wand, slashing taxes and the deficit simultaneously and winning seamless Senate approvals.

Success in this contemporary economic and political context will be a far more modest affair. But any such success, limited as it might realistically be, will turn on Morrison aggressively projecting himself in this government and more specifically in this cabinet, as a 21st century version of the Paul Keating of the second half of the Hawke government in the 1980s.

Or to be more precise, as Keating subsequently projected himself and his role as being — perhaps in something of a posthoc rationalisation of his relentless stalking and ultimate toppling of someone who was easily Labor’s most successful prime minister and indeed the “bronze medal holder” in the pantheon of PMs behind the incomparable Robert Menzies and John Howard.

In essence Keating claimed that he became the PM-in-effect for the last four years of the Hawke government, providing both the policy grunt and political leadership in the PM’s “absence” . It is an interpretation that is a matter of some considerable contention.

Whatever the truth of that, Morrison has to become that Keating, of fact or fiction: because someone has to, given both the aimlessness and ineptitude of Malcolm Turnbull and the fact that there is quite simply no one else.

The PM’s party deputy, Julie Bishop? Pu-leeze . She’s too busy “projecting” herself into international forums, when she’s not attempting to do the same for a certain former PM.

It all comes down to Morrison and the absolute fulcrum is his superannuation proposals.

Now two weeks ago, I argued they had become the fundamental defining issue of his treasurership. Either he fixed the mess he unveiled on budget night or he announced his total unfitness to be treasurer.

That stands. But I would now take it to a broader and more defining level: fixing the mess — frankly, walking back from what he proposed — is the sine qua non of Morrison asserting himself into that more fundamental role of giving this government both policy cohesion and direction and political viability in the absence of the PM.

Turnbull’s , for want of a better word, performance in the 10 months leading up to the election was quite simply abysmal. As I wrote in April, he had proved himself to be a dud. In the month since the election, his performance has been depressingly worse. Not only has he “done” nothing in policy terms, not even just some articulation of where the Turnbull government would like to head; he’s given not the slightest indication that he’s spent the time working out that policy direction and a political strategy built around, but not exclusively, dealing with the Senate reality.

That in itself is just a continuation of his pre-election “approach” : as I’ve previously noted, in becoming PM, he was an example of “the dog who caught the car” — not having the faintest idea of what to do with it.

Pre-election he refused to engage in any meaningful, far less effective, way with the disparate individuals who comprised the crossbench, culminating in his “inspired” double-dissolution and Senate voting change tantrum.

Does anyone seriously believe that the “Sun King PM” of Bill Leak’s cartoons will deign to stoop to smooge with Pauline Hanson, who with her four senators is now the absolute fulcrum of getting any non-Labor /Greens legislation through the Senate?

The contemporary concern operates on two levels. The first is the drift and aimlessness; the second is not just the reality of letting the opposition fill the policy and political space left vacant, but even a willingness to do so. To let Labor and the Greens govern in effect from opposition.

In no small part this is because Turnbull finds it hard to disagree with what appeals to Labor and the Greens; further — and dangerously — he is likely to see, in various accommodations with either Labor or the Greens, the path through the crossbench complications.

This gives even greater heft to my point that the government must walk back from the worst idiocies of its super proposals; it would be all too easy to claim “success” in passing them essentially unchanged via a “Grand Coalition” with Labor.

As I argued two weeks ago, the great danger was a replay of the 2014 budget, when Labor was only too willing to pass tax increases — specifically, the high-income levy — but none or few of the spending cuts.

It’s bad enough that we are shaping up for an extended repeat. But worse, this process will start with “bad” tax increases, in the form of the super proposals.

They are mendable. Broadly, the two ceilings — the $1.6 million “retirement” pot and the $500,000 for after-tax contributions — need to be increased.

Morrison has first to accept they need major refinement. He also has to drop his hairychested silliness that any changes must be fiscally neutral. We need the “right” policy, not one that just “adds up” .

And “adds up” to absolutely no real fiscal point; for the changes will make four-fifths of very little real difference to the budget bottom line in the short term. But they would seriously damage it in the long term by encouraging even more investment in both negatively geared property and the family home, and by encouraging otherwise self-funded retirees to “retire” instead to the old-age pension.

For both the survival of the Turnbull government and for some hope of good policy that can also be politically effective, it is a case of Morrison or the bush.

He can prove he is fit to be both treasurer and PM, or we can start counting the days to Turnbull’s toppling.

Does anyone believe the PM will stoop to smooge with Pauline Hanson?

SMSF’s tax arrangements in retirement savings review

Australian Financial Review

Aug 3 2016 at 6:27 PM Updated Aug 3 2016 at 6:27 PM

by Joanna Mather

Tax arrangements for the million Australians who have self-managed superannuation funds will form part of a sweeping review of the $2 trillion retirement savings system.

In an attempt to guarantee value for money and prevent gouging, the government has asked the Productivity Commission to come up with ways to assess the efficiency and competitiveness of the super system.

In a report released this week, the commission said there was a belief in some quarters that operational efficiency of SMSFs should not form part of the exercise because they are so different to retail, industry and corporate funds.

But the commission decided SMSFs would be included wherever possible. In fact, consideration would be given to whether SMSFs face any unique barriers to accessing particular investment markets due to, for example, a lack of scale.

“Similarly, the commission will also look at how taxation is managed in SMSFs compared with institutional funds, and what implications this has for member balances,” a draft report said.

There were more than 550,000 SMSFs with about $590 billion in assets as at June 2015.

The commission noted that investment performance by SMSFs tended to be below other funds and they are also more expensive to run.

It said Australian Taxation Office figures suggested the estimated average operating expense ratio, as measured by operating expenses as a proportion of assets, for SMSFs was 1.06 per cent.

“ATO data indicate that smaller SMSFs have higher average operating expense ratios than larger ones.

“For example, over the 2010-14 period, the average operating expense ratio was in the range of four to 12 per cent for SMSFs with less than $100,000 compared with less than 1 per cent for SMSFs with over $1 million.”

Past studies have examined the impact of SMSF scale on their cost competitiveness, the commission said.

For example, a report commissioned by ASIC found that SMSFs with balances of $200,000 or more were likely to be cost competitive with APRA-regulated funds provided trustees undertook some or all of the administration themselves.

And balances over $500,000 could provide equivalent value for money on a full-service basis where administration has been outsourced.

The ASIC report also found SMSFs potentially become less cost competitive in the retirement phase, as member’s draw down on their balances.

“Participants to this study and previous inquiries, such as the Financial System Inquiry, emphasise that costs and fees are only part of the story: some people want the flexibility to pick their own investment options, some start with small funds but expect to expand them with asset transfers in the future, and some keep their costs to a minimum by doing much of the administrative work themselves,” the commission said.

 

Save Our Super: Turnbull and O’Dwyer are breaking super promises

The Australian

30 July 2016

Grace Collier Columnist Melbourne @MsGraceCollier

In Melbourne’s Malvern Town Hall on June 20, about 250 people gathered for a Save Our Super meeting. On the stage sat three empty chairs representing Malcolm Turnbull, Bill Shorten and assistant treasurer Kelly O’Dwyer. The Prime Minister and the Opposition Leader had promptly declined the invitation to attend. O’Dwyer, the local member of parliament and the person with carriage of the superannuation issue, declined to attend at the last minute.

“Not only did she not attend, until mid-afternoon on the day of the meeting she had not even responded,” says Jack Hammond QC, founder of the community-based group Save Our Super. “Worse, the response only came after I phoned a senior member of the Liberal Party, advised that Kelly had not responded to earlier messages, and said it was a very bad look.”

O’Dwyer was contacted for comment but did not respond.

Hammond goes on to say, “In 1915, superannuation earnings were exempted from income tax, but now, for the first time since then, a government intends to tax the earnings on people’s pension savings accounts.”

In the past, O’Dwyer gave the impression she respected the savings of retirees. Consider this, in March 2013, from Hansard. It was part of a passionate speech based on letters from people who were worried that Labor might steal their super.

“We on this side have given an undertaking not to muck around with superannuation … We understand the importance of certainty when people are sacrificing and saving for their retirement. We understand the importance of good and responsible economic management so that the government does not have to put its hand in the pockets of the retirement savings of Australians. It is quite, quite wrong. That is why we will stand up for all Australians who want to work hard … and be rewarded for their efforts. They should not be penalised.”

Now, though, those on that side do intend penalising Australians who want to work hard. The Turnbull government is going to put its hands into their retirement savings. O’Dwyer no longer thinks it is “quite, quite wrong” to do so. In March this year, O’Dwyer said: “No one has a right to a super tax concession. It is a gift that the government should only provide when it makes sense.”

A gift. Letting people keep their own money is now considered a gift by a Liberal government. This government can’t manage the economy well, at least not without taking these gifts away.

This week, on Sydney radio 2GB, Scott Morrison admitted as much. “This is a package that deals with fairness, sustainability, but above all it is also contributing to getting the budget back into balance.”

Above all. So there you have it. Taking money from retirees is essential because, above all, Turnbull and his team cannot do their jobs and cut back wasteful spending.

The Save our Super website lists the Treasurer’s “12 tax-free superannuation promises”. They make for damning reading. It is hard to pick a favourite, but this one from a doorstop in May last year is as good as any: “The government has made it crystal clear that we have no interest in increasing taxes on superannuation either now or in the future … unlike Labor, we are not coming after people’s superannuation.”

Supporters of the changes point to people who have millions in super, and ask why their income should be tax exempt. First, these people have obtained the money lawfully; and, importantly, these people have done in good faith exactly what the government told them to do. Now they find themselves treated as tax dodgers.

Hammond says, “There are two basic principles of superannuation: trust and certainty.” He says a successful, fair superannuation system requires the government to accept these two principles. Trust in the system is destroyed when ministers make and break promises. Certainty is broken when governments change longstanding rules, then penalise people who have planned their financial lives around those rules. For this reason, when rules are changed, the existing rules must be grandfathered for those who have relied on them.

Readers who wish to fight the Turnbull government over this issue can do the following:

  • Contact your local member and complain. Give them a good telling off. It may not change anything but it may make you feel a bit better.
  • Liberal Party members can resign, signal their intention to resign, refuse to donate and volunteer.
  • Liberal Party and Nationals branches can contact the PM’s office and request a copy of the draft superannuation bill. They then can call meetings to discuss the draft bill and write to the PM with changes before parliament resumes on August 30.
  • Go to the Save Our Super website, register your support and attend future meetings.

It defies belief that a Coalition government would act so foolishly. The question is this: exactly who came up with this stupid idea? The hunt is on, a team of insiders is collecting evidence and the answer is expected in the near future.

Superannuation reforms could hit half of SMSF trustees

Australian Financial Review

July 28 2016

Sally Patten

Half of all self-managed superannuation fund trustees face a hit from the Coalition’s proposed super reforms, and the controversial plan to limit transfers to a super pension to $1.6 million will hit one in five over the age of 65.

Research by the SMSF Association and actuarial certificate provider Accurium found that 48 per cent of self-managed super fund trustees would have been affected by one or more of the super measures had they been in place in the 2015 financial year.

Since July last year, the median account balance of self-managed super funds that were at least partly in the pension phase rose 3 per cent. This suggests that the number of superannuants who stand to be hit by the reforms will be higher  by July next year when they are scheduled to take effect.

Transferring super into a pension is a common strategy because earnings are tax free so long as regular withdrawals are made.

Concessions unuseable

The research found that 70 per cent of self-managed scheme members who contribute more than $25,000 a year to super will not be able to take advantage of a concession offered by the government allowing savers to carry forward unused pre-tax contribution limits for up to five years.

SMSF Association chief Andrea Slattery said she was working closely with the government “behind the scenes” in an effort to try to amend some of the reforms. She conceded that Treasurer Scott Morrison was likely to proceed with the majority of the proposed changes contained in the May budget. But Ms Slattery argued that reducing non-concessional super contributions limit to $25,000 from $30,000 or $35,000, depending on the savers age, was too drastic.

“We believe there needs to be some re-thinking around the $25,000 cap,” Ms Slattery said. She also expressed concern about the complexity of administering the $1.6 million super pension transfer ceiling.

Even under the current rules, the proportion of couples in self-managed funds who have an 80 per cent chance of being able to afford a comfortable lifestyle in retirement has fallen to 70 per cent from 75 per cent a year ago, the research found. This was blamed on inflation and the dismal outlook for investment returns.

“The deterioration in the global economic outlook has, on average, led to lower investment returns. More capital is needed today with lower expected returns to support the same level of spending over retirement,” the research paper concluded.

The 4.2 per cent median return recorded by self-managed funds operated by older members in the year to June 2015 was considerably less than the 6.2 per cent average return of the previous five years.

The SMSF Association and Accurium found that if a 65-year old couple wanted to lead a comfortable retirement, which would cost $59,000 a year to fund, with a 95 per cent degree of confidence, they would need $1 million in super savings. If a couple wanted the same degree of confidence they could spend $70,000 a year in retirement, they would require $1.5 million in super savings. Self-managed fund trustees typically aimed to spend about $75,000 a year in retirement.

The Australian – Letters to the Editor – 25 July 2016

Grace Collier (“Super folly will cost Libs dearly”, 23/7) correctly identified some of the unfairness that the proposed caps on superannuation contributions and superannuation balances will cause for women. Similar issues will also apply to married couples where only one partner has superannuation or each has very unequal superannuation balances.

This may have arisen because only one partner worked or one had a better paying job, or because one partner made lump sum withdrawals to pay off a mortgage or to recontribute into the other partner’s fund to reduce administration fees.

Another possibility is that they have been planning for years to top up their superannuation when an investment property is sold.

There should be transitional provisions to allow couples (and others) who are seriously disadvantaged by the proposed, clearly retrospective, changes to rearrange their superannuation balances.

A more serious issue is the unworkability of the cap on tax-free balances. Not all assets in a fund earn at the same rate and some of the annual increase in a fund may be unrealised capital gain. For shares, that amount will vary daily. Who will decide which gains are taxable, especially if a person has more than one superannuation account? One thing is for sure, administration fees will rise.

A far simpler scheme would be to impose a tax on the actual earnings of the total superannuation holdings of each individual.

The relevant amounts can be easily calculated by the fund and forwarded to the contributor for inclusion in their annual income tax return if the tax-free limit is exceeded. A special concessional tax rate could be set for these excess superannuation earnings.

Ian Wilson, Chapel Hill, Qld

Surely the superannuation debate is being approached from the wrong direction.

Let people contribute as much as they want (after all, it is an investment in various activities of the country’s economy) but apply a modest tax to what is withdrawn.

At a time of good government revenues, John Howard and Peter Costello were over generous when tax was removed completely from the amount withdrawn from a fund on the basis that it had already been taxed, albeit at 15 per cent. Let’s say that the first $100,000 drawn down is tax-free, the majority would not be affected.

Then a tax of say 10 per cent could be applied to amounts between $100,001 and $300,000, and 20 per cent tax above that.

Applied to all superannuation pensions, whether from defined benefit schemes or others, this would be a much fairer process, particularly in relation to the extravagant pensions awarded to retired parliamentarians.

Douglas Moore, Moonbah, NSW

 

In your editorial (“Super solutions must be Prime Minister’s priority”, 22/7) you correctly highlight Janet Albrechtsen’s critique of the government’s failure to grandfather superannuation arrangements to budget night.

Unfortunately, a serious defect in Scott Morrison’s Treasury-concocted Robin Hood superannuation changes — taking from the wealthy to give to the poor — is that these taxed savings of the wealthy will gradually dwindle with time and their wealth will be redirected into other tax minimisation arrangements, while the cost of entitlements handed out to low-income earners will rapidly escalate, as all government entitlement programs have in the past, leading to greater budget deficits — such are the unintended consequences of little- though-out grandiose government plans seeking an appearance of fairness while attempting to raise more revenue.

Mort Schwartzbord, Caulfield, Vic

 

Grace Collier’s elegantly written article clearly spells out how the heavy-handed nature of the Coalition’s proposed changes to superannuation will particularly deny middle aged women the ability to amass sufficient savings in superannuation to provide a reasonable retirement income.

In mathematical terms the Coalition has over-specified their model of change with too many constraints, such that few will be able to achieve the objective of a tax-free limit of $1.6 million in superannuation savings.

Grace is right; keep a tax free limit but “let people reach that cap in whatever way they can”.

Thomas Hogg, East Melbourne, Vic

 

Until I read Grace Collier (“Super folly will cost Libs dearly”, 23/7), I didn’t understand how bad are the Turnbull-Morrison super changes.

Christopher Game, Alphington, Vic

 

Come, come Grace Collier, self-reliance and personal responsibility are such old-fashioned virtues.

E. J. Ash, Boreen Point, Qld

 

So, Scott Morrison is still our federal Treasurer and Mathias Cormann remains as Finance Minister. These two mugs should get together and form a Lotto syndicate, they must be the luckiest blokes in Australia.

Brian Pymont, Frenchs Forest, NSW

Turnbull tax reform: don’t undermine the integrity of super

The Australian

July 20 2016

JANET ALBRECHTSEN
Columnist Sydney @jkalbrechtsen

f77def5408a3655f79085fe41049424eThe story of how the Turnbull government stitched up the poorest policy by a Liberal government in decades is told in one short letter to The Australian from a former Treasury official and an explosive email sent to the Liberal Party campaign director by a party donor.

In a letter sent to this newspaper a week after the May 3 budget, Terence O’Brien wrote: “Assistant Treasurer Kelly O’Dwyer doesn’t seem to understand why the increased tax on superannuation will destroy trust in saving to fund one’s retirement.” He explained that past increases in superannuation taxation had been grandfathered, so that those who saved based on previous legislative incentives were not disadvantaged. O’Brien wrote that the May budget changes meant that someone putting money into super “can never again trust a government not to change the rules”.

O’Brien’s 40-year career has been spent working in federal Treasury, the Office of National Assessments, the Productivity Commission, the OECD and the World Bank. He is not a Liberal Party member. His letter formed the basis of a longer, even more compelling critique of the government’s superannuation changes. It will be published in the Centre for Independent Studies’ September issue of Policy magazine and O’Brien sent a truncated version via email to Scott Morrison on Sunday afternoon, ahead of Monday’s Liberal partyroom meeting.

O’Brien’s analysis is devastating. In it, he details where the Turnbull government went wrong with super, which is “the most enduring and inflexible commitment of savers’ lives”.

It is a 40-plus year commitment, writes O’Brien. “A 60-year-old can today expect to live past 90, so superannuation needs to finance a further 30 years of sustained retirement living standards, ideally in a predictable taxation environment. There might be 20 to 25 governments over that 70 years of a typical worker’s saving and retirement, so it is important that there be some sense of fundamental ‘rules of the game’ governing superannuation rule-making and taxation — a ‘superannuation charter’, if you will.”

O’Brien sets out how the 1975 Asprey taxation review set down principles to guide the “long-term (superannuation) commitments entered into by taxpayers on the basis of the existing taxation structure”. “It would be unfair to such persons if a significantly different taxation structure were to be introduced without adequate and reasonable transitional arrangements,” concluded the report.

Paul Keating’s changes to super laws in 1983 and 1988 were carefully grandfathered to maintain the integrity and trust involved in the long-term commitment by taxpayers to their superannuation. Protecting the integrity of super explains why the 1997-98 budget changes, raising the preservation age from 55 to 60 by 2025, were grandfathered. The same integrity principle meant super changes in 2009 to lower the limit on concessional contributions were grandfathered. It was the same reason changes in 2004 by the Howard government to the super scheme for members of parliament were carefully grandfathered, so as not to disadvantage those MPs who started saving via superannuation rules then applicable when they entered parliament before 2004.

Protecting the trust element of a working life commitment to savings via super explains why a Productivity Commission study last year found that “people significantly affected by major (superannuation) rule changes have generally been afforded grandfathering provisions that maintain their previous entitlements”.

Maintaining the sustainability and reliability of superannuation explains the meticulous policy process behind Peter Costello’s 2006-07 simplified super reforms. As O’Brien outlines, the process was well-researched and extensively detailed in an 80-page paper that attracted 1500 submissions over four months of consultation before the Howard government settled on the new super laws. The changes, which came into effect on July 1, 2007, were a model of carefully considered changes to laws that governed the retirement earnings and living standards of taxpayers who had saved for decades. By backdating its own super changes on budget night this year to that high watermark of careful policymaking on July 1, 2007, someone in the Turnbull government has a sick sense of humour.

More important, on May 3, the Prime Minister and Treasurer blew up the nation’s superannuation piggy bank, which for decades has been carefully con­structed on the basis of savers trusting the integrity of the system. The high price of the government’s breach of trust in rushing ahead with ill-conceived, dishonest and rushed superannuation changes is laid bare in a private email sent by Melbourne businessman John McMurrick to the Liberal Party campaign director Tony Nutt on May 16.

McMurrick is a long-time Liberal Party member. For 15 years he has donated to the party and raised funds through the Higgins 200 Club, a group responsible for funding the campaign efforts for the blue-ribbon seat of Higgins. McMurrick has helped raise millions of dollars, first for Costello, then for O’Dwyer.

In his email to Nutt, McMurrick details how his frustration and disappointment with the Liberal Party didn’t happen overnight. “Some years ago we arranged a fundraising dinner … in Toorak,” McMurrick wrote. “Tony Abbott was then the opposition leader and he was the guest of honour. I think that there were 10 guests at something like $10,000 per head. Tony spoke very well and when question time came he answered a couple of questions and then when the next question came Peta Credlin stood up and said, ‘I’ll take that question Tony.’

“The guests looked at each other in amazement. A few questions later and the same happened again. After the dinner had finished two of the guests approached me and said, ‘I have no intention of paying $10,000 to listen to Tony’s chief of staff answer questions. We paid to hear Tony.’

“I knew that we had a problem.”

McMurrick’s email details later episodes where party members were left speechless at the behaviour of Abbott and his chief of staff when McMurrick and the Higgins 200 Club tried to raise money for the party. When he tried to arrange for donors to meet Abbott in Canberra or Sydney, Abbott himself agreed, yet there was no reply from Abbott’s office. “We were blocked,” McMurrick told The Australian on Monday.

When Turnbull became Prime Minister, McMurrick continued his fundraising efforts and set in motion plans for a dinner that would raise $200,000 to $300,000. McMurrick never heard back from Turnbull’s office. A few days after the budget, McMurrick received one of the usual emails from Nutt asking for donations. The Turnbull government’s super changes were the last straw for this stalwart Liberal member, donor and fundraiser.

McMurrick reminded Nutt the Turnbull government had said they “were not going to touch superannuation”. Including this from Morrison on May 25 last year: “Taxing superannuation is a bad idea, I don’t support it.” And this from the Treasurer on February 18: “I fear that the approach of taxing in that retirement phase penalises Australians who have put money into superannuation under the current rules — under the deal that they thought was there. It may not be technical retrospectivity but it certainly feels that way. It is effective retrospectivity, the tax technicians and superannuation tax technicians may say differently.”

Indeed, Morrison, the Treasurer who said “we will not tax your super”, received a three-page email last Saturday from Melbourne QC and founder of the Save Our Super group Jack Hammond. “You made at least 12 ‘tax-free superannuation’ promises in May-June 2015 … We believe you should be reminded of your broken promises,” wrote Hammond.

The breach of trust also explains why McMurrick’s email to Nutt ends with his resignation from the Liberal Party. “Tony, because of the above I cannot continue to work and to raise funds for the Liberal Party. I have been a fierce supporter for some 40 years and a very active fundraiser for many years. Consequently, I have written to the Higgins 200 Club and resigned as a committee member and as a normal member, effective immediately, and I have also written to the Liberal Party, Victorian division and resigned as a member effective immediately … I cannot support a party that acts in, what I consider to be, such a dishonest manner.”

McMurrick isn’t the only party member to down tools over the government’s super fiasco, which is why Turnbull had to tip his own money into the campaign.

And before the Labor Party starts crowing about its credentials on maintaining the integrity of the super system, remember Chris Bowen supported the findings of the 2013 Cooper report that called for principles of certainty, the ability of people to plan for their retirement. Except that Labor decided on uncertain policy: pocketing the Coalition’s super savings without telling voters exactly what their policy was.

The question is not whether governments can change super laws. Neither is this a case of the rich calling for an end to the age of entitlement — except for them. During the past few decades, both Labor and Liberal governments have altered super rules carefully with the aim of maintaining the integrity of the system and the trust at the heart of lifetime savings commitments by taxpayers.

While McMurrick awaits a response from Nutt, the question is how the government responds to this episode, which marks the nadir of bad policy as a quick revenue grab. Tinkering won’t heal the wounds or return reliability to the super system.

Super solution must be Prime Minister’s priority

The Australian

July 22 2016

Editorial

When parliament resumes on August 30, the Turnbull government will need a policy and a political solution to resolve the controversial superannuation changes it announced in the budget on May 3. It is planning to release draft legislation within weeks, before consultations with the superannuation industry and consumers. After doing relatively little since the election, Malcolm Turnbull needs to settle the superannuation issue as soon as possible by placating anger in Coalition ranks and negotiating with the opposition — or with minor parties in the Senate — to secure support for reform. Only then, more than four months after the budget, will the government be able to move on from an issue causing anger and confusion.

Coalition MP George Christensen has threatened to cross the floor over the proposed $500,000 cap over non-concessional contributions and changes to the $1.6 million pension fund transfer cap. In a tight parliament, the Prime Minister would face a humiliating defeat if he failed to secure opposition support for his proposals and other Coalition MPs joined Mr Christensen in crossing the floor in the House of Representatives.

Scott Morrison and Revenue and Financial Services Minister Kelly O’Dwyer are digging in against the revolt, insisting the government’s election policy is essential for ­budget repair. The problems of the proposals were summed up on these pages yesterday by Janet Albrechtsen, who cited the objections raised by former Treasury official Terence O’Brien in a letter to The Australian after the budget. Mr O’Brien detailed how the changes would reverse four decades of certainty for investors. Under the Hawke and Howard governments, taxpayers who had invested in superannuation on the basis of existing tax structures were “grandfathered” from subsequent changes. The Turnbull government’s proposals, in contrast, have breached trust in the integrity of the system.

This should be Mr Turnbull’s starting point in leading the debate, which he must do. Bill Shorten, who promised to play a constructive role in the new parliament, probably would relish the opportunity to negotiate with the government to shape the final reforms, which would allow him to claim some of the credit.

Opposition Treasury spokesman Chris Bowen told the Financial Services Summit as much yesterday, flagging Labor’s broad support for the reforms, apart from the “retrospective nature” of some changes. Labor also showed it supported the changes during the election campaign when it factored $3 billion in savings from them into its own costings while promising to “revisit” the proposals.

Government ministers argue that the point of super is building retirement income, not minimising tax. Fair enough. But in struggling to save for retirement — when a $1m super balance reportedly provides the same lifestyle as the aged pension — certainty and tax incentives to save are vital. Taxpayers, if not politicians, know that cutting concessional contributions will reduce the incentive to put away extra savings, ultimately increasing our ageing population’s reliance on welfare.

Scott Morrison needs to fix his superannuation mess or go

The Australian

July 23 2016

Terry McCrann Business Columnist Melbourne

Superannuation is now the fundamental defining issue of Scott Morrison’s treasurership. Either he fixes the mess he unveiled on budget night or he announces his total unfitness to be treasurer.

Indeed, his failure to demonstrate even the slightest understanding of how and why he got it wrong — far less, any comprehension of the more substantive and more complex policy issues involved — suggests an incapacity to do the job.

Very simply but very significantly, what is proposed is just very bad policy. It was always going to be the outcome of a process corrupted from gestation, as it aimed solely at generating revenue and devil take any consideration of good policy.

There is not the slightest indication of any substantive analysis of the impact of the proposed changes on the superannuation system in the long term; far less its integration with the old age pension and retirement incomes and social welfare costs overall.

That’s one side of the failure; that it could prove one the great fiscal “own goals” of recent memory, if it ends up encouraging — or more simply, just forcing — more people to move out of self-funded retirement on to a full or part pension, plus all the other taxpayer-funded benefits that would then accrue.

The entire, the only purpose of the superannuation tax concessions is to encourage people to preferably fully but at least partially self-fund their retirement.

It is “penny wise and, very, pound-foolish”, if you initiate price signals that persuade people to take the, even reduced, concessions upfront and then end up still on the taxpayer teat in their, truly and most likely long-extended, “golden years”.

Even if that’s not bad enough — the utter failure to integrate the super changes intelligently with overall retirement incomes reform — what made it worse, was the incomprehension of the negative intersection with other investment dynamics.

Again, quite simply, you cannot go down this single-issue path, which Morrison has blundered on to, without at least considering the consequential impacts with negative gearing, capital gains tax and both the tax and social welfare exemptions of the family home.

To put it in simple terms which the Treasurer could hopefully understand: if you make superannuation less attractive as an investment, savings will move from it to other still tax-advantaged alternatives like investment and owner-occupied properties.

Further, at the risk of this getting a little too complicated for the Treasurer (and, it seems, Treasury) to understand, you will even encourage funds inside super to move in that (and other) directions to minimise the payment of the extra super tax you expected to reap.

To take the most obvious example: someone in retirement with a super balance of more than the proposed $1.6 million tax-free cap would split their assets, so that all the taxable-income-generating assets were in the $1.6m pot and all those generating no taxable income or indeed tax credits would be in the taxable pot.

This is what happens when you have one focus: raise revenue — an objective demonstrated most graphically by how exactly we ended up with the three major changes.

I am informed that initially only the two caps were proposed — the $1.6m tax-free retirement pot and the $500,000 for lifetime after-tax contributions.

But that just wasn’t going to raise enough revenue. Indeed, it would have been almost revenue neutral when you accounted the offsetting cost of the new concessions.

So Treasury was sent back to the drawing board to come up with a big hit that would give the package at least the appearance of contributing to so-called “budget repair”.

It came back with the reduction in the cap for concessional contributions to $25,000 and reducing the income point to $250,000 at which the contributions tax goes up from 15 per cent to 30 per cent. These will raise $2.45 billion over three years and so, hey presto, the whole package became revenue positive.

But talk about selling a cohesive retirement incomes policy for a mess of fiscal potage. Add up all the measures and they are projected to raise the grand total of $3.4bn net over the four years. As a consequence the four-year aggregated budget deficit will be $84bn instead of $87.5bn. We’ve been saved from fiscal Armageddon.

In fact, the real deficit as opposed to the Treasury and Treasurer projected deficit over the four years will be at least $120bn and the real net tax outcome of the changes will almost certainly be less than projected as investor behaviour changes and tax savings are targeted inside and outside super elsewhere.

In sum, these changes will really contribute four-fifths of five-eighths of very little to “budget repair”. A treasurer who cannot understand these simple realities should not be sitting in that office. That’s before even getting to the, ahem, more “challenging” issues.

Start with the need to model lifetime employment patterns — on a realistic 21st century basis when people are supposedly going to have eight to 10 jobs in very different industries and probably in very different geographic locations. Then factor in likely investment returns and increasingly complex risks. What are thus the likely retirement super balances?

Arguably, it will be impossible to build sufficient balances from concessional contributions, especially when Canberra takes 15 per cent going in; unless you specifically allow much greater contributions when people are in their 50s and (hopefully) finally earning serious money.

Arguably you should have a much higher ceiling on the after-tax contributions because in the world of tomorrow there will be far fewer people earning salaries and certainly not regularly for lifetimes. Or, more sensibly, have only one combined ceiling for all contributions — say, for purposes of illustration, $3m. You can get there either pre-tax or after-tax — your choice, or what’s available for or you.

In short, start from the position of what we want super to achieve, and then ground the tax concessions in the real world of both future employment and investment returns.

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