22 May 2019
The re-election of the Morrison government means people saving for their retirement can focus on what they need to do before June 30 instead of worrying how they might be hit by a slew of changes under a Shorten government.
In theory at least, the basic framework of superannuation as well as negative gearing, capital gains tax, the taxation of trusts, and dividend imputation — and even the tax-deductibility of accounting fees — is now protected from government intervention for the next three years.
“We now have some certainty in terms of government superannuation policy,” said Peter Burgess, the general manager technical services with AMP’s SuperConcepts.
“Now off the table are the Labor Party’s proposals to remove refundable franking credits which clearly would have impacted many SMSFs, reductions in contribution caps and other superannuation concessions.”
If Labor had been elected, the abolition of cash refunds for franking credits, which would have kicked in from July 1, would have made some savers think twice about investing in Australian shares, particularly those with self-managed super funds. It could have encouraged more ordinary Australians saving for their retirement to take the riskier path of investing in offshore shares.
Uncertainty about the treatment of super under Labor could have discouraged people with SMSFs from putting in extra post-tax dollars into their super before June 30. (Some 1.2 million Australians now have SMSFs in both accumulation and pension mode with total assets of $726 billion, a sizeable chunk of the $2.65 trillion in super as of December.)
But even for those without SMSFs, savers on lower incomes with blue-chip Australian shares would have worried about losing potential cash refunds once they moved into retirement.
Labor had decided to exempt people on the age pension from their proposed abolition of cash refunds for franking credits.
But the question is whether those in this situation actually knew of the distinction or, if they did, were prepared to believe it.
And if they did, they could have been encouraged to spend some of their savings to qualify for the age pension and still retain the potential for cash refunds from their franking credits after July 1.
Whichever way you cut it, Labor’s proposals were set to distort the system and generate concern that more tax hikes on savers and changes to the super system could be on the cards from a party focused on “taxing the rich”, including retirees.
A generation ago few ordinary Australians even had shares.
But now it is common for ordinary Australians heading to retirement to have a small portfolio of blue-chip shares including some such as Commonwealth Bank and Telstra held since their privatisations.
With its roots in the English class warfare mythology (which must be a mystery to a generation of aspirational new Australians from non-English backgrounds), the Labor campaign harked back to another era when ordinary Australians did not own shares.
Australian shares are the biggest single component of SMSFs which benefit from cash refunds once they move into retirement mode where their investments are tax-free. The fact is that the cash refunds from franking credits only benefit people whose tax rate is below the company tax rate of 30 per cent. People with marginal tax rates of 30 per cent or higher would never get franking credit tax refunds anyway.
Superannuation is not a big deal for the very rich and the poor rely largely on the age pension.
But the development of the compulsory super and the evolution of SMSFs created a new generation of middle-of-the-road Australians who had set their sights on managing their affairs for a self-funded retirement.
Constantly changing the goalposts to reduce the ability to contribute to super and reduce its attraction has already eroded some confidence in the system.
Labor was prepared to go another step further with its policies.
To be fair to Labor, the party decided that retirees and near-retirees with shares and those with SMSFs were easy targets, unable to organise themselves politically to oppose their proposed changes.
But they didn’t count on the well of concern in some circles about changes to super announced by the Turnbull government under Treasurer Scott Morrison before the 2016 election.
The Turnbull-Morrison government did a good job of portraying middle-income people wanting to put extra money into super as being greedy tax avoiders.
Anger at the tax changes, which included the imposition of the $1.6m cap on the amount which could be put into super in the tax-free pension mode, the end of the attraction of transition to retirement schemes and constantly lowering contribution caps — and the rhetoric surrounding the announcement — were all too easily dismissed. Indeed, if anyone knew the anger in some circles about the changes to super it would have been Morrison.
Some argue that anger almost cost Turnbull the 2016 election with otherwise Liberal voters not putting their hands in their pockets for donations or to help distributing how-to-vote cards and opting to make a protest vote for minor parties in the Senate.
Fast forward to this election and the Morrison government was all too willing to find itself back on the side of aspirational savers once Labor announced its policies. And having seen how easy it was for Morrison to change the rules on super a few years ago, there was a cohort of people like Geoff Wilson and Self Managed Super Fund Association chair Deborah Ralston who realised the need to lobby hard against the changes. Hopefully stability of the system can prevail and the results of the election will reduce the power of the Treasury to argue that super is an “easy nick” which can be targeted in the future for more tax revenue.