Category: Save Our Super Articles

Annualised notional earnings on excess transfer balance – definition

annualised notional earnings on excess transfer balance has the meaning given by section 294‑215 of the Income Tax Assessment Act 1997 (“ITAA 1997“)

“annualised notional earnings on excess transfer balance” for a financial year is the sum of your notional earnings on excess transfer balance for each day in the financial year on which, at the end of the day, you had excess transfer balance in your transfer balance account:

Notional earnings on excess transfer balances

  • An excess transfer balance arises when an individual’s transfer balance account exceeds their personal transfer balance cap on a particular day. [Schedule 1, Part 1, item 3, section 294-30 of the ITAA 1997]
  • Notional earnings accrue on excess transfer balances. Notional earnings accrue daily and are generally credited towards an individual’s transfer balance account. This means notional earnings compound daily until the breach of the transfer balance cap is rectified or the Commissioner issues a determination. [Schedule 1, Part 1, item 3, item 3 in the table in subsection 294-25(1) and subsection 294-220(1) of the ITAA 1997]
  • The rate at which notional earnings accrue is based on the general interest change (sic). [Schedule 1, Part 1, item 3, subsection 294-220(2) of the ITAA 1997]
  • The daily rate is worked out as follows:

90 Day Bank Accepted Bill yield + 7 percentage points divided by the number of days in the year

  • The 90-day Bank Accepted Bill yield is the benchmark indicator for short-term interest rates. For example, during the 2015-16 financial year, the general interest charge averaged 9.2 per cent per annum. The indicator is published by the Reserve Bank of Australia.
  • A treasury portfolio minister may vary the daily rate downwards by legislative instrument. [Schedule 1, Part 1, item 1, subsections 294-220(2) and (3) of the ITAA 1997]and (3) of the ITAA 1997]

Budget 2016 Proposals and Opposition’s Policies – Update 27 September 2016

Government’s second tranche of proposed superannuation changes

UPDATE: On 27 September 2016 the Government released for public consultation the second tranche of exposure draft legislation and explanatory material to implement a number of the superannuation changes announced in the 2016-17 Budget.

Details of the Government’s second tranche is available here. Further information can be found on the Treasury website.

The Government also announced it will release the remaining proposed superannuation changes in the coming weeks.

The Government has allowed from 27 September 2016 to 10 October 2016 for Public Submissions; 13 days to consider 234 pages, 57,600 words of very complex, far-reaching proposed legislation. That makes a mockery of the concept of public consultation. Obviously, the Government wants to rush it through Parliament as soon as possible.

Save Our Super is considering the second tranche of the Government’s superannuation changes. However, even at this early stage, it is obvious that if the proposed legislation is passed by the House of Representatives, the Senate should subject it to careful scrutiny. It should refer the whole of the Government’s proposed superannuation package to a Senate Committee. The Senate Committee should invite and consider public submissions and objections. The Government’s and Treasury’s assumptions which underpin the changes should be open to public challenge. If not, why not? And why are there no grandfathering provisions to protect Australians who have acted on the existing rules and whom will be significantly affected by the changes?

Save Our Super will provide an update shortly. We will also provide a further opportunity for you to bring your concerns to the attention of the Senators and Members of the House of Representatives.

Save Our Super believes that grandfather clauses must be provided to protect all significantly affected Australians from a number of the remaining Budget 2016 superannuation proposals.

Labor dumped their election superannuation policies and made an increased tax grab on 26 June 2016 despite saying, just over a year ago, “If elected, these are the final and only changes Labor will make to the tax treatment of superannuation”. Labor has not announced any replacement superannuation policies.

 

Institute of Public Affairs’ submission to Treasury – lodged 16 September 2016

From the desk of Brett Hogan, Director of Researchipalogo

16th September 2016

Manager
Superannuation Tax Reform
Retirement Income Policy Division
The Treasury
Langton Crescent
PARKES ACT 2600

SUBMISSION ON EXPOSURE DRAFT OF SUPERANNUATION LEGISLATION

Dear Sir / Madam.
On behalf of the Institute of Public Affairs, please find enclosed this submission on the
Exposure Draft of the Australian Government’s:

  • Superannuation (Objective) Bill 2016;
  • Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016; and
  • Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulation 2016.

Given the limited time available for consultation, this submission will take the form of a letter
and concentrate on the proposed new objective of the superannuation system.

1. Introduction and Budgetary Context
Superannuation lies at the heart of important national policy questions about taxes, spending,
personal responsibility and the role of government.

Almost a quarter of a century after the introduction of compulsory superannuation, four out
of five Australians do not have enough savings to fully fund their retirement.

Yet rather than identify new ways to encourage all Australians to put more money into their
retirement accounts, the bipartisan approach of national policy makers is to treat the $2
trillion worth of private superannuation funds as just another source of taxation revenue.

The Institute of Public Affairs considers that for all the talk of ‘fairness’ and desire to rein in
so-called ‘tax concessions,’ it is out-of-control government spending and the desire to
increase taxation revenue that is driving these changes.

Australian Government spending has increased 1 from $271 billion per year in 2007-08 or
23.1% of Gross Domestic Product (GDP), to $445 billion in 2016-17 or 25.8% of GDP.


1 Australian Government, Budget Paper No.1:Budget Strategy and Outlook 2016-17, p 10-5

In 2019-20, spending is expected to pass $500 billion for the first time. So while it took 107
years for federal government spending to reach $271 billion it will take only another twelve
years to reach $500 billion and according to trend a total of only fourteen years to double it to
$542 billion.

Additionally, sometime shortly after 30 June 2017, Australian Government Gross Debt is
expected to pass $500 billion for the first time. Gross debt on 30 June 2007 was only $53.2
billion. 2

The Government should not seek to resolve these imbalances by raising taxes to ‘chase
spending,’ as former Treasurer Peter Costello was recently quoted as saying. 3

2. Recent Proposed Changes
On Budget Night, 3 May 2016, the Australian Government announced a swathe of new
changes to the taxation and regulatory treatment of superannuation, designed to raise $2.9
billion net over four years.

While most of these changes are not the subject of this consultation, the Institute of Public
Affairs would like to formally put on the public record its opposition to:

  • reducing the threshold for the 30% contributions tax from $300,000 per year to
    $250,000 per year;
  • reducing the pre-tax contributions limits from $30,000 and $35,000 to $25,000 per
    year;
  • limiting the amount of money that can be transferred into a retirement account to $1.6
    million; and
  • introducing a new $500,000 lifetime post-tax contributions limit backdated to 2007
    (subsequently replaced on 15 September 2016 with a $100,000 per year limit).

Restrictions on the amount of money that can be transferred into, or remain within, retirement
accounts, undermine the ability of the system to provide comfortable retirement incomes.

3. Primary Objective of Superannuation
In his Budget Speech on 3 May, the Treasurer said that “becoming financially independent in
retirement, free of welfare support, is one of life’s great challenges and achievements.” 4

The Institute of Public Affairs wholeheartedly agrees.

However, notwithstanding this philosophically sound statement, the Treasurer that evening
issued a joint Media Release with then Assistant Treasurer Kelly O’Dwyer to announce that


2 Ibid. p 10-13 3 The Australian, “Peter Costello’s Blast: Liberal Party Lacks Clear Vision,” 10 September 2016,
http://www.theaustralian.com.au/news/nation/peter-costellos-blast-liberal-party-lacks-clear-vision/newsstory/3e8974f875d3f85873eb2fb8d73a5c5d, Viewed 16 September 2016
4 Hon. Scott Morrison MP, 2016 Budget Speech, http://www.budget.gov.au/2016-17/content/speech/html/speech.htm,
Viewed 16 September 2016

the Government would “enshrine in law that the objective for superannuation is to provide
income in retirement to substitute or supplement the Age Pension.” 5

Tellingly, this Release also noted that the proposed objective “has been an important anchor
for the development of the superannuation changes included in the Budget.”

According to sections 4 and 5 of the Exposure Draft 6 of the Superannuation (Objective) Bill
2016, in fact the Government is proposing that this is now to be the ‘primary objective’ of the
superannuation system.

Section 6 states that any subsequent legislation relating to superannuation that is introduced
to Parliament must include “an assessment of whether the Bill is compatible with the primary
objective of the superannuation system.”

Contained within the Exposure Draft Explanatory Materials 7 for the two Draft Bills is a set
of five proposed so-called ‘subsidiary objectives,’ which are worth highlighting:

  • facilitate consumption smoothing over the course of an individual’s life;
  • manage risks in retirement;
  • be invested in the best interests of superannuation fund members;
  • alleviate fiscal pressures on government from the retirement system; and
  • be simple, efficient and provide safeguards.

While the Government appears to have adopted the primary and subsidiary objectives from
the Final Report of the 2014 Financial System Inquiry (FSI),8 it is noteworthy that the FSI
actually made six subsidiary objective recommendations, with the Government choosing to
leave out that the system:

  • be fully funded from savings.

In referring to this objective in its Final Report, the FSI said that:

“A fully funded system, as opposed to an unfunded system, is important for sustainability and
stability. The system is designed to be predominantly funded by savings from working life
income and investment earnings, where superannuation fund members in general have claims
on all assets in the fund.”

Concepts such as facilitating consumption smoothing, investing in the best interests of
members and managing risks in retirement, let alone that the system be fully funded from
savings, actually make a lot more sense than the proposed primary objective ‘to substitute or
supplement the Age Pension.’


5 Hon. Scott Morrison MP & Hon. Kelly O’Dwyer MP Joint Media Release, “A More Sustainable Superannuation System,”
3 May 2016, http://sjm.ministers.treasury.gov.au/media-release/053-2016/, Viewed 16 September 2016
6 Superannuation (Objective) Bill 2016 Exposure Draft, https://consult.treasury.gov.au/retirement-income-policydivision/superannuation-reform-package/supporting_documents/Exposure_Draft_Superannuation_Objective_Bill.pdf,
Viewed 16 September 2016
7 Exposure Draft Explanatory Materials, https://consult.treasury.gov.au/retirement-income-policy-division/superannuationreform-package/supporting_documents/Exposure_draft_Explanatory_Memorandum_Superannuation_Tranche_1.pdf, Viewed 16 September 2016
8 Commonwealth of Australia, Financial System Inquiry Final Report, November 2014,
http://fsi.gov.au/files/2014/12/FSI_Final_Report_Consolidated20141210.pdf, Viewed 16 September 2016

Yet it is the proposed primary objective that will be reference point for the superannuation
system, and against which all subsequent proposals for change will be judged.

It is of the gravest concern that maximising personal income in retirement is not deemed to be
the primary, or even a subsidiary, objective of the system.

The OECD has found 9 that the net pension replacement rate for average income earners in
Australia is only 58 per cent (53.4 per cent for women) when the generally accepted benchmark is 70 or 80 per cent.

Australia’s 2014 National Commission of Audit reported that 10 the proportion of retirees on
a full or part pension was expected to remain at around 80 per cent over the next three
decades.

According to the Government’s own Budget Papers, 11 the cost of ‘Income Support for
Seniors’ was $43.2 billion in 2015-16 and is projected to reach $51.8 billion just four years
later.

Superannuation initiatives that are implemented under the auspices of the proposed primary
objective are unlikely to help middle-income earners to significantly boost their income in
retirement or to allow large numbers of Australians to move off the full or part Age Pension.

Instead of proposing that the goal of the superannuation system is merely to take the place of
or top up the Age Pension, the aim should be to maximise the retirement incomes of all
Australians, and reduce dependence on welfare payments.

To this end, the Institute of Public Affairs would like to offer an alternative Primary
Objective for the superannuation system:

“The objective of the superannuation system is to ensure that as many Australians as
possible take personal responsibility for funding their own retirement. The Age Pension
provides a safety net for those who are unable to provide for themselves in retirement.”

The Institute of Public Affairs is happy to support the adoption of all six of the FSI’s
subsidiary objectives, if the primary objective is so amended.

Given that a bad objective is worse than no objective at all, the second-best option would be
to make no change.


9 Organisation for Economic Co-operation and Development, Pensions at a Glance 2015, http://www.oecd.org/publications/oecd-pensions-at-a-glance-19991363.htm, Viewed 16 September 2016
10 Australian Government, National Commission of Audit 2014, Chapter 7.1: Age Pension, http://www.ncoa.gov.au/report/phase-one/part-b/7-1-age-pension.html, Viewed 16 September 2016
11 Australian Government, Budget Paper No.1:Budget Strategy and Outlook 2016-17, p 5-26

4. Timing of this Consultation
It is disappointing that the Government has allowed only nine days between the release of the
draft legislation (Wednesday 7 September) and the close of submissions (Friday 16
September).

We note that the formal consultation period on proposed changes to the Working Holiday
Maker Visa Scheme (also known as the Backpacker Tax) ran from mid-August to mid-
September, which would have assisted that review to receive over 1,700 submissions. 12

Considering the important retirement incomes, taxation, welfare and social policy issues that
are involved here, a longer period would have resulted in additional, and more detailed,
responses.

5. Segregating Consultation on the Objectives from Substantive Proposals
We also question segregating public consultation on the proposed new superannuation system
objective from the arguably more contentious tax increases and contributions limits.

While we understand that the discussions that had been taking place within the Liberal and
National Parties may have delayed formal public consultation on the substantive proposals,
given that the whole package was developed and initially announced at the same time, the
Government should have delayed consultation on the objective as well.

6. Future Changes
If the objective of the nation’s superannuation system is merely to provide income in
retirement to substitute or supplement the Age Pension, then the taxation and regulatory
proposals announced in the 2016 Budget and amended on 15 September are only the beginning.

Once the principle has been established that superannuation taxes can be increased to pay for
government spending, that all major parties have voted for it, and that it doesn’t even
contradict the objectives of the system, then there will be no stopping future governments.

Kind regards,
Brett Hogan
Director of Research


12 Australian Government, Department of Agriculture and Water Resources website, “Working Holiday Maker Visa Review,” http://www.agriculture.gov.au/ag-farm-food/working-holiday-maker-review/submissions, Viewed 16 September 2016

Email to all Coalition Senators and MHRs from Terrence O’Brien – dated 19 September 2016

Dear Prime Minister, Treasurer, Ministers, Government Senators and Government MHRs

I wrote today to Messrs Gee and Buchholz in their roles as leaders of the Coalition Backbench Committee on Economics and Finance to convey  a copy of my submission of 16 September to Treasury on the first tranche of Government superannuation measures.

You will see I am critical of the process of consultation, the apparent separation of the new super tax expenditure measures from the tax increases on super, the Government’s proposed objective for its superannuation policy, and the content of some of the new expenditure measures.

My criticisms draw on the four articles by the Centre for Independent Studies which I forwarded with my earlier correspondence with you.

Yours sincerely

Terrence O’Brien

(Address and contact number supplied)

Email to Andrew Gee, MP and Scott Bucholz, MP from Terrence O’Brien – dated 19 September 2016

Mr Andrew Gee, M.P., Chairman
Mr Scott Buchholz, M.P., Secretary

Coalition Backbench Committee on Economics and Finance 
Parliament House, Canberra, ACT

Dear Sirs

Further to my e-mail of 8 September to you in your capacities as leaders of the Coalition Backbench Committee on Economics and Finance, I attach a copy of my submission of 16 September to Treasury on the first tranche of Government measures.

You will see I am critical of the process of consultation, the apparent separation of the new tax expenditure measures from the tax increases on superannuation, the Government’s proposed objective for its superannuation policy, and the content of some of the new expenditure measures.

My criticisms draw on the four articles by the Centre for Independent Studies which I drew on in my earlier correspondence with you.

Kind regards

Terrence O’Brien

(Address and contact number supplied)

Terrence O’Brien’s submission to Treasury – lodged 16 September 2016

16 September 2016

SUBMISSION ON FIRST TRANCHE OF SUPERANNUATION EXPOSURE DRAFTS – Terrence O’Brien, (Address and contact number supplied)

1.     Inadequate time for public comment

Providing only 7 working days for public input on the first tranche of complex super measures shows contempt for public consultation.[i]

An interested citizen may wonder: what is the reason for such a rushed consultation process for the subset of new super measures that are revenue ‘give-aways’, when all the closely related Bills to raise taxes on self-funded retirees and reduce the super savings opportunities of those nearing retirement are still weeks, if not months away?

To illustrate how far Australian super lawmaking  processes have degenerated to the cost of confidence in super, contrast the current exercise with the planning for and consultation around the last major change of strategic direction in Australian super law, the Costello Super Simplification exercise of 2006 and 2007.[ii]  A substantial discussion paper was issued with  the May 2006 Budget announcement of the measures, with an extended consultation over four months until September 2006.[iii] There was keen interest to comment: more than 1,500 written submissions and more than 3,500 phone calls from across the community. Modest revisions to the original ideas were incorporated into revised costing for the forward estimates period and incorporated into legislation introduced by end 2006, with effect from 1 July 2007.

2.     Inappropriate separation of legislative packages

It is wrong to separate consultation on the Budget super measures into a first tranche of $2.8 billion in revenue give-aways over the forward estimate period and a later tranche of yet-to-be-finalised tax increases of some $6 billion.  Both sets of measures are built on similar, highly contested assertions about the purpose, fairness, cost and effectiveness of super concessions. Logically, they ought be considered together, in both consultation and Parliamentary processes.

It would be economically irresponsible if the Government were to seek to legislate sequentially a first tranche of give-aways followed by a second tranche of tax increases.  If, for example, some of the $2.8 billion in new concessions proved on examination to be poor quality and unlikely to meet its stated objectives, that should affect the consideration of the $6 billion in super tax increases that in part pay for the new concessions.

One possible outcome of separate tranches is that the give-aways might be passed with populist cross-bench support despite Labor’s announced rejection of most of them[iv], and the tax increases postponed or rejected, further damaging the budget.  Alternatively, the tax increases could also be passed at a second stage (or further increased as Labor proposes[v]) with Labor and Green support.  The only clear message to super savers from these uncertainties is that superannuation law making has become chaotic and untrustworthy.

The Government should guarantee that all the Bills implementing the Budget’s super measures will be introduced to Parliament simultaneously as a package.

Not only should the new concessions and the increased taxes be considered together, they should all be subject to public examination by Parliamentary Committee, with the Committee calling on submissions and evidence from the public.  This would help overcome weaknesses in the derisively short consultation processes concluding today.

3.     Damaging mis-statement of objective(s) for superannuation

The Superannuation (Objective) Bill’s proposed primary objective for Government policies toward superannuation wrongly states that super merely “substitutes or supplements the age pension”.  This is as if the government stated the objective for  labour market law was that paid employment should ‘substitute or supplement government income support such as the Newstart Allowance’.[vi]  The Government’s intended super objective loses all sight of the fundamental economic and moral cases in an increasingly rich society for:

  • reducing systemic income tax and age-pension disincentives to long-term saving;
  • supporting thrift; and
  • increasing self-provision for retirement.

With this maladroit statement, the Government has turned its back on insights that have been clear since at least 1942[vii], and were applied through 30 years of super reforms during the Hawke-Keating[viii] and Howard-Costello years[ix].

The Explanatory material to Superannuation (Objective) Bill 2016 and Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 adds five subsidiary objectives (most rather abstract) to the primary objective in the Superannuation (Objective) Bill, with all six to be subject to unspecified, case-by-case ‘balancing’. This destroys any coherent guidance for policy, so again the message to super savers is that anything could happen to the taxation of their life savings.

 

The Treasurer nonetheless asserts that the primary objective has “guided the development of the Government’s reforms”.[x]  But as if to prove the uselessness of the government’s proposed ‘primary plus five other’ objectives, it is striking that the two draft Bills and the two draft Regulations in the first tranche do not themselves include illustrative statements showing the compatibility of their measures with the primary objective of the legislation (or any of the other five, for that matter) as would become compulsory if the Superannuation (Objective) Bill became law.  If the Government believes its stated objectives have any meaning, it should use them to provide clear and quantified illustrations of the estimated effects of its legislative proposals on self-sufficiency in retirement and numbers on the age pension.

4.      A better objective

An objective that better captures the reality of superannuation’s purpose is recommended by John Roskam: “The objective of the superannuation system is to ensure that as many Australians as possible take personal responsibility to save for their own retirement. The age pension provides a safety net for those who are unable to provide for themselves in retirement.”[xi]

5.      New tax expenditures on super

Critics of existing super concessions currently dominate public debate with false claims that the costs of present incentives are excessive, unsustainable and unfair. (Robert Carling’s paper for the Centre of Independent Studies explains why these claims are overblown, with many of the estimates “unfit for purpose”.)[xii] Against the backdrop of these criticisms, any proposals to create additional incentives costing $2.8 billion over the forward estimates must clear a high hurdle by demonstrating their cost effectiveness measured against any stated objective of government policy.

All measures in the first tranche fail that cost-effectiveness test. All seek to induce additional voluntary contributions into super by subsidy or concessions which are both complex and modest from the individual’s perspective, albeit costly to the revenue in aggregate.  The broader budget package destroys confidence in super through what Scott Morrison accurately called ‘effective retrospectivity’ [xiii], making complex new incentives less credible to savers than if confidence had been maintained.[xiv]

For an example of complexity defeating any intended beneficial impact, the Low Income Superannuation Tax Offset offers a non-refundable tax offset of up to $500 to the super fund of a low income saver with adjusted taxable income less than $37,000 and who has had a concessional super contribution made on their behalf. To the practically-minded, this $1.6 billion give-away poses three questions: how much, if anything, can someone earning under $40,000 a year afford to lock away in superannuation? How many of us could say what our ‘adjusted taxable income’ was, in terms of superannuation law? And what incentive to the low paid to save from very modest income for up to 40 years before they can access it is offered by a non-refundable tax offset to their super fund of up to $500?

Another illustration in Explanatory Statement to Exposure Draft: Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulation 2016 also highlights both the trust problem and the witlessness of those who write these illustrations.  “Ed is aged 67 and retired in July 2017.” He has $250,000 in his superannuation fund, and after downsizing to a smaller home, has $150,000 to invest.  Under one of the Government’s new give-aways costing $130 million, he is said to add the $150,000 to his super fund.  (The treatments of super balances under the income and assets tests for the age pension are complex, but it may well be that the main effect of downsizing his house and adding $150,000 to Ed’s super balance would be to greatly reduce the part aged pension he may be eligible for.)  After watching the super policy circus of the last 18 months in which three political parties competed to re-write the superannuation rule book to the disadvantage of self-funded retirees, why would Ed decrease investment in his principal residence and increase his exposure to super rule changes? Ed needs a good financial adviser.

Some measures seek to induce additional super contributions from those on low incomes, or into the super accounts of low income spouses.

Possible beneficiaries from these measures fall into three categories:  those who will have low income over their lifetimes; those who are lower income earners in high income households; and those who are low income at the start of their careers, but who will be richer later.

The first group will mostly not accumulate sufficient super balances to lift them above the means and income test thresholds for age pension eligibility at any plausible subsidy, and they will rightly retire on the age pension. That’s what it’s for. So for them, what was the point of the Government’s measure?   At best it might induce minor lifetime savings over their working life at the cost of suppressing their modest living standards while they worked.  As Simon Cowan has pointed out, exacting saving from people whose greater need was to spend the money merely boosts the demand for other forms of government income support.  For example, “A family of four with a single income earner on $75,000 a year pays $7,125 a year into superannuation but receives around $7,500 a year in family tax benefits alone.”[xv]

Lower income earners in high income households may indeed pocket taxpayer subsidies to achieve super splitting strategies with their partners. But they might well use those strategies anyway without subsidy. (Such strategies reduce the damage to lifetime savings from further retrospective rule changes by tomorrow’s governments to attack high super balances.) Or they may persist with family financial planning to pool their super funds in retirement.  (While ‘a man is not a financial plan’, couples are emboldened in this super pooling by trust in each other, common sense, common practice and family law, which treats superannuation entitlements as joint assets in a relationship.)

It is obvious why super funds, surely one of Australia’s worst examples of crony capitalism, want to use bogus ‘feminist’ arguments to harness taxpayers’ funds multiply the number of super accounts with low balances and high fees.  It is not clear why the Government should legislate to implement the social engineering implicit in such attempted equalization of spouses’ super balances.

Finally, for those who are temporarily low income at the start of their careers, there is no case for the Government trying to front-load their lifetime savings profile away from the savers’ own preferences.  Better the Government facilitate those preferences by not excessively restricting higher super savings later in life through miserly restrictions on concessional and non-concessional contributions.  This is another example of the interconnection between the first tranche measures and the super tax increases of the second tranche which necessitates their joint consideration.

6.      A better path forward

There are much better ways than the first tranche measures to improve the lifetime welfare and savings of lower income earners, such as illustrated in papers for the CIS by Simon Cowan (cited above) and Michael Potter[xvi]. A sensible selection from and development of those ideas would improve self-sufficiency and thrift, improve superannuation outcomes, improve retirement living standards, and improve budget outcomes. The Government should go back to the drawing board on its Budget measures.

 

 

[i] The following discussion refers to the first tranche package of revenue give-aways for which Treasury originally provided exposure drafts on 7 September 2016:

  • Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016
  • Superannuation (Objective) Bill 2016
  • Explanatory material to Superannuation (Objective) Bill 2016 and Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016
  • Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulation 2016
  • Explanatory Statement to Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulation 2016

To these were added, at some time during the short consultation period, two more exposure drafts:

  • Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulation 2016 – Low Income Superannuation Tax Offset
  • Explanatory Statement to Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulation 2016 – Low Income Superannuation Tax Offset

There was no extension of the consultation period to allow for the later provision of this last pair of drafts.

 

[ii] Peter Costello, A Plan to Simplify and Streamline Superannuation: Detailed Outline, Canberra, May 2006

 

[iii] Peter Costello, Simplified Superannuation – Final Decisions, Press Release 093 , 5 September 2006

 

[iv] Bill Shorten, Address to the National Press Club – Canberra – Wednesday, 24 August 2016:

“In a time of budget pressures, the Government should be closing unsustainably generous high-income loopholes in superannuation; not opening new ones.

This is why Labor will oppose the Government’s plans to:

–          Allow catch-up concessional superannuation contributions

–          Harmonise contribution rules for those aged 65 to 74

–          Allow tax deductions for personal superannuation contributions.

Despite the merit of some of those propositions, this new spending cannot be a priority, especially when it will set the Budget back $1.5 billion over the forward estimates and $14.7 billion over the next ten years.” http://www.billshorten.com.au/address_to_the_national_press_club_canberra_wednesday_24_august_2016

 

[v] Bill Shorten Address above, “We will not tie the $500,000 lifetime contribution cap back to 2007.

Instead, our changes will apply from Budget night.

This means Australians who have invested for their retirement in good faith based on clear rules, no matter how generous, will not be punished after the fact.

….

At the same time, I am proposing we lower the threshold for high-income super contributions from $250,000 to $200,000.”

[vi] I owe this analogy to John Roskam (cited below) and Rebecca Weiser and Henry Ergas, Strangling the goose with the golden egg:  why we need to cut superannuation taxes on Middle Australia , September 2016, IPA Research Essay, http://ipa.org.au/publications/2545/strangling-the-goose-with-the-golden-egg .

While 80% of age-eligible people receive some age pension, and only about 20% of those of workforce age receive government income support, the analogy still holds:  no one thinks a citizen should be indifferent between being  unemployed and receiving welfare.

[vii]  Robert Menzies, The Forgotten People, 22 May 1942 http://www.liberals.net/theforgottenpeople.htm

“The great vice of democracy – a vice which is exacting a bitter retribution from it at this moment – is that for a generation we have been busy getting ourselves on to the list of beneficiaries and removing ourselves from the list of contributors, as if somewhere there was somebody else’s wealth and somebody else’s effort on which we could thrive. ….

“Now, have we realised and recognised these things, or is most of our policy designed to discourage or penalise thrift, to encourage dependence on the State, to bring about a dull equality on a fantastic idea that all men are equal in mind and needs and deserts: to level down by taking the mountains out of the landscape, to weigh men according to their political organisations and power – as votes and not as human beings?  …..

We have talked of income from savings as if it possessed a somewhat discreditable character. We have taxed it more and more heavily. We have spoken slightingly of the earning of interest at the very moment when we have advocated new pensions and social schemes. I have myself heard a minister of power and influence declare that no deprivation is suffered by a man if he still has the means to fill his stomach, clothe his body and keep a roof over his head. And yet the truth is, as I have endeavoured to show, that frugal people who strive for and obtain the margin above these materially necessary things are the whole foundation of a really active and developing national life.”

[viii] Paul Keating, The Story of Modern Superannuation , Australian Pensions and Investment Summit, Sanctuary Cove, Queensland, 31 October 2007

[ix] Peter Costello, Address to the Investment and Financial Services Association, Tuesday, 13 June 2006,  http://www.petercostello.com.au/speeches/2006/2105-address-to-the-investment-and-financial-services-association-canberra

[x] Scott Morrison, Superannuation reforms: first tranche of Exposure Drafts, Media Release 7 September 2016. http://sjm.ministers.treasury.gov.au/media-release/094-2016/

[xi] John Roskam, The Turnbull Government Backs An Unprincipled Purpose Of Super, 9 September 2016, http://ipa.org.au/news/3555/the-turnbull-government-backs-an-unprincipled-purpose-of-super

[xii] Robert Carling, How should super be taxed?, Centre for Independent Studies, Policy,  Vol. 32 No. 3 (Spring, 2016), pp13-18, https://www.cis.org.au/commentary/policy-magazine

[xiii] Scott Morrison, Address to the SMSF 2016 National Conference, Adelaide, http://sjm.ministers.treasury.gov.au/speech/001-2016/ :  “Our opponents stated policy is to tax superannuation earnings in the retirement phase. I just want to make a reference less about our opponents on this I suppose but more to highlight the Government’s own view, about our great sensitivity to changing arrangements in the retirement phase. One of our key drivers when contemplating potential superannuation reforms is stability and certainty, especially in the retirement phase. That is good for people who are looking 30 years down the track and saying is superannuation a good idea for me? If they are going to change the rules at the other end when you are going to be living off it then it is understandable that they might get spooked out of that as an appropriate channel for their investment. That is why 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. But when you just look at it that is the great risk.”

[xiv] On the damage to trust in super caused by ungrandfathered tax increases, see Terrence O’Brien, Grandfathering super tax increases, Centre for Independent Studies, Policy, Vol. 32 No. 3 (Spring, 2016), pp3-12. https://www.cis.org.au/commentary/policy-magazine

[xv] Simon Cowan,  Building a better super system, Centre for Independent Studies, Policy,  Vol. 32 No. 3 (Spring, 2016), p 20. https://www.cis.org.au/commentary/policy-magazine

[xvi] Michael Potter,  Don’t increase the super guarantee, Centre for Independent Studies, Policy,  Vol. 32 No. 3 (Spring, 2016), pp27-36, https://www.cis.org.au/commentary/policy-magazine

Save Our Super’s Submission to Treasury – lodged 14 September 2016

Save Our Super’s Submission to Australian Treasury on the Australian Government’s First Tranche of Exposure Drafts of Proposed Superannuation Changes.

First, Save Our Super submits that all of the Government’s proposed superannuation legislative changes, which the Treasurer announced on 3 May 2016 as part of Budget 2016, should be put simultaneously to the Australian people as a complete package of Exposure Drafts for their consideration. The package should not be split up into separate tranches, and each tranche then be treated as being independent of the other/s. They are not; they are interdependent.

The first tranche’s proposed tax expenditure of $2.61 billion depends on the proposed tax increases of $5.7 billion intended to be raised by the remaining proposed superannuation changes. It should not be a two-step process. That is unsound public policy.

For example, as may be the case, the Government should not first try to get the tax expenditure changes through the Parliament and then seek to rely on their passage, to justify the tax increases to be raised by the Government’s remaining proposed superannuation changes.

Further, sufficient time should be given for proper public consultation of the complete package of Exposure Drafts. Much more time than the nine days allowed for the first tranche should be allowed for such a fundamental and far-reaching package of superannuation changes.

Secondly, Save Our Super submits that the proposed objective of superannuation should be uncoupled from any reference to the statutory Social Security age-pension. They serve different purposes. The statutory Social Security age-pension provides a safety net. It is for those Australians who, for whatever reason, have been unable to have available for their retirement years, sufficient funds to provide an income to enable them to live in an appropriate manner .  

John Roskam of the Institute of Public Affairs has suggested that:

An objective for superannuation that was centred on dignity and choice in retirement could be expressed in the following way. ‘The objective of the superannuation system is to ensure that as many Australians as possible take personal responsibility to save for their own retirement. The age pension provides a safety net for those who are unable to provide for themselves in retirement’.” (see, http://ipa.org.au/news/3555/the-turnbull-government-backs-an-unprincipled-purpose-of-super).

Save Our Super supports and adopts that approach. It submits that the Government should do likewise.

Email to all Coalition Senators and MHRs from Terrence O’Brien – dated 9 September 2016

Dear Prime Minister, Treasurer, Ministers, Government Senators and Government MHRs

I wrote yesterday to Messrs Gee and Buchholz in their roles as leaders of the Coalition Backbench Committee on Economics and Finance to convey four recent studies on superannuation and retirement income policy to be published by the Centre for Independent Studies  in the forthcoming edition of its magazine, Policy.  I hope the studies will be helpful to consideration of the Budget superannuation measures.

I also conveyed my impressions of some important developments since the four studies were finalised. I undertook to circulate the studies and my letter to other Government members, and do so today as attachments to this letter.

Yours sincerely

Terrence O’Brien

(Address and contact number supplied)

Attachments to the email dated 9 September 2016:

https://saveoursuper.org.au/letter-to-mr-andrew-gee-m-p-chairman-and-mr-scott-buchholz-m-p-secretary-from-terrence-obrien/

https://www.cis.org.au/app/uploads/2016/08/32-3-obrien-terrence.pdf

https://www.cis.org.au/app/uploads/2016/08/32-3-carling-robert.pdf

https://www.cis.org.au/app/uploads/2016/08/32-3-cowan-simon.pdf

https://www.cis.org.au/app/uploads/2016/08/32-3-potter-michael.pdf

Letter from Kelly O’Dwyer, MP to Jack Hammond QC – dated 16 September 2016

kodwyerDear Jack,

As someone who has contacted me in relation to the Government’s superannuation reforms, I thought you may be interested in an announcement that the Treasurer and I made this week regarding modifications to the superannuation reform package to make it fairer, more flexible and sustainable.

First, can I thank you for your feedback on the policy. It has been very helpful to receive constructive input from local members of my community.

The revised package will provide greater support for Australians investing in their superannuation with the primary objective of providing an income in their retirement.

Kelly O’Dwyer – Minister for Revenue and Financial Services

Specifically, the $500,000 lifetime non-concessional cap will be replaced by a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000 per year from 1 July 2017. Individuals will continue to be able to ‘bring forward’ three years’ worth of non-concessional contributions.

Individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional (after tax) contributions from 1 July 2017.

By limiting eligibility to make non-concessional contributions to those with less than $1.6 million in superannuation, it targets tax concessions at those who have an aspiration to maximise their superannuation balance and reach the transfer balance cap of $1.6 million.

Eligible small business owners will continue to be able to access an additional CGT cap of up to $1.415 million.

In order to fully offset the cost of reverting to a reduced annual non-concessional cap, the Government will not proceed with a change to contribution rules for those aged 65 to 74. The Government will instead keep the current arrangements that allow people to contribute to their superannuation up 75 years if they are working. This will encourage individuals to remain engaged in the workforce, which will benefit the economy more generally. While the Government remains supportive of the increased flexibility this measure, it can no longer be supported as part of this package, given the changes to non-concessional contributions.

From 1 July 2018 flexibility will be improved by allowing the ‘catch up’ of unused portions of concessional contributions on a rolling five year basis for individuals with balances under $500,000. This will help people with broken work patterns.

For further information I attach a copy of the Media Release, Press Conference and Fact Sheets on the Government’s superannuation changes.

Again, I very much appreciate the feedback that you provided on the Government’s policy and look forward to staying in touch.

 

Kind regards,

Kelly

The Hon Kelly O’Dwyer MP

Federal Member for Higgins

Minister for Revenue and Financial Services

 

A   Suite 1, 1343 Malvern Rd, Malvern VIC 3144

P   03 9822 4422    F  03 9822 0319

E   kelly.odwyer.mp@aph.gov.au

W  www.kellyodwyer.com.au

 

 

….

 

Budget 2016 Proposals and Opposition’s Policies

UPDATE: On Thursday 15 September 2016, the Government announced it had abandoned its proposal for a life-time non-concessional contributions cap of $500,000 on all non-concessional contributions made since 1 July 2007. The Government also made other changes to the Budget 2016 superannuation proposals.

Save Our Super is presently reviewing the implications of those changes and will provide an update shortly.

Save Our Super believes that grandfather clauses must be provided to protect all significantly affected Australians from a number of the remaining Budget 2016 superannuation proposals.

Labor dumped their election superannuation policies and made an increased tax grab on 26 June 2016 despite saying, just over a year ago, “If elected, these are the final and only changes Labor will make to the tax treatment of superannuation”. Labor has not announced any replacement superannuation policies.

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