The Australian July 9, 2016
Judith Sloan – Contributing Economics Editor Melbourne
To what extent did the superannuation changes announced in the budget contribute to the Liberal Party’s poor electoral outcome?
All week, Scott Morrison has peddled the line that superannuation was irrelevant. His argument is, in the 10 seats in which voters are most affected by the changes, the party held on. In half of the cases there was a swing to the Liberal Party. Let me tell you: the Treasurer’s remarks are just spin. The superannuation issue came close to derailing the Liberals’ campaign as floods of complaints were fielded; party resignations from longstanding members were reluctantly accepted; donations dried up; and previously willing volunteers refused to help in any way.
In NSW, there was such a shortage of volunteers there was little scope to offset the impact of unionists and GetUp! supporters brought in to urge a vote for Labor to the people waiting in line to record their votes.
But the impact did not end there. The raft of ill-considered and over-engineered changes that were announced out of the blue on budget night, just days before the campaign began, represented a fundamental breach of trust for many Liberal Party supporters.
After all, Tony Abbott, before and after the 2013 election, had made it perfectly clear that there would be no adverse changes to the taxation of superannuation during his term of government.
This pledge was reinforced by then treasurer Joe Hockey in last year’s budget, when he declared “there will be no new taxes on superannuation”. He went on to say: “I want to reassure all Australian workers that they can have confidence in their retirement plans.”
And if that’s not bad enough, in February Morrison himself told the audience at a superannuation conference: “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.”
That statement lasted less than three months, when the taxation of superannuation suddenly was described in the budget papers as amounting to “estate planning and tax minimisation”. Numerous changes were announced to extract an additional $6 billion across the forward estimates from people on higher incomes and those who had entered into superannuation arrangements in good faith, including those now on transition-to-retirement plans.
To justify the breaking of a promise, Morrison emphasised how the changes would affect only 1 per cent or 4 per cent of the population — his figures moved about a lot but were always wrong. (The actual figure is close to 10 per cent; Morrison should never have relied on Treasury for information or advice.)
But what was his point? There aren’t many of you and, sure, you have played by the rules, but we are prepared to do you in the eye because it suits the present government. Let’s face it, it was Tony’s promise and Malcolm is not bound by his commitments.
And, by the way, we can recycle some of the money to give a tax break to low-income earners who are going to end up on the full age pension in any case. The ABC, Fairfax Media and left-wing think tanks even may give us a pat on the back for our audacious but reasonable changes to superannuation, changes that go much further than Labor’s proposals.
The clear message to those affected by these changes, now and in the future, was that they could just suck it up. After all, Assistant Treasurer Kelly O’Dwyer had described superannuation tax concessions as, bizarrely, a “gift from the government”. On this logic, the gift could be taken back any time by the government — actually, by the small number of out-of-touch ministers who planned the heist.
But when did the percentage of the population that might be affected by a change become the driver of good policy? Would it be sensible to apply a 99 per cent marginal income tax rate to the top 1 per cent of income earners and declare it good policy because so few people are affected? When did such base utilitarianism drive Coalition policy?
The superannuation fiasco didn’t get any better during the campaign. Neither Foreign Minister Julie Bishop nor Resources Minister Josh Frydenberg could explain the changes to the transition-to-retirement provisions during a Melbourne radio program. These provisions actually affect a lot of people on modest incomes.
Bishop subsequently made the suggestion that she would explain the superannuation changes after the election. Was she kidding? Did she think this was helping?
And she was quickly pulled into line when she declared there could be some changes to avoid “unintended consequences”.
Morrison, stubborn and unyielding, wasn’t having a bar of any backing down.
Mind you, he had quickly backed down on the backpackers’ tax, another fiasco of the government’s making. And he has been forced to make one concession on super in relation to non-recourse loans backed by non-concessional contributions.
Then there was Labor’s response to the government’s super changes. No doubt opposition Treasury spokesman Chris Bowen was blown away by the scale and daring of the changes; it made his proposals look modest by comparison. Labor simply was proposing to impose the 30 per cent contributions tax under Division 293 on those with (adjusted) incomes of $250,000 a year or more rather than the present $300,000 a year or more and to levy a 15 per cent tax on super retirement income streams above $75,000 a year.
Had the two parties been playing bridge, the Liberal Party then effectively bid seven no-trumps. It matched the changes to Division 293; it set a maximum superannuation balance of $1.6 million from which tax-free income could be sourced, never to be topped up; it reduced the annual concessional contributions cap to $25,000 a year; it introduced a lifetime concessional contributions cap of $500,000 backdated to July 1, 2007; and it imposed a 15 per cent tax on transition-to-retirement income streams.
Bowen must have thought he was dreaming. He would never have dared to go this far lest he be accused of blowing up the superannuation system, particularly in terms of its role as a substitute, in part or in full, for the age pension.
But what the heck, Labor was happy to go along for the ride. And in the final week of the campaign Labor effectively declared that it would adopt the Liberals’ superannuation policy with the one exception of the retrospective element of the non-concessional contributions cap. While details were vague, it took on board the full budget savings.
This last-minute switch of policy by Labor, which never would have occurred were it not for Morrison’s budget announcements, doubtless caused some extremely reluctant Liberal Party supporters to hold their noses and vote for Liberals in the lower house. The Senate, of course, was a different story. Labor also played dead in many of the most affected electorates — for example, Higgins, Kooyong, Goldstein, North Sydney.
Assuming that the Coalition is returned to power, there is no choice but for the government to fully reconsider the superannuation changes. The best outcome would be to ditch all of them for now and go about systemically assessing the much smaller number of changes that can be justified in the name of good public policy, seek a mandate from the electorate at the next election, then implement the changes. Only in this way can the Liberal Party hope to re-engage with its base.
It was never just about superannuation; it was a matter of trust.