The Australian Financial Review
25 November 2016
This week’s super changes have removed a Costello-era savings incentive that in tougher times had morphed into unaffordable middle class welfare. The budgetary result of the changes is a saving of $2.8 billion over four years, one of the larger wins in an unspectacular pre-election 2016 budget. But it is also part of a transforming moment for super itself.
The new measures limit to $25,000 the amount that can be paid at concessionary tax rates, lowers to $250,000 the income threshold at which a higher tax rate of 30 per cent (rather than 15 per cent) kicks in, and caps the size of a superannuation account at $1.6 million, or enough to pay for about four government age pensions.
That has reduced the attraction and scope of super as a serious tax shelter for the estates of the wealthy. And the new limits fit neatly with the Murray inquiry’s recommendation, taken up by government, to make retirement income the sole purpose of super, enshrined in law. The idea is reduce the leeway for tinkering with the system for political advantage – now a bad habit in Australian politics.
The latest changes have caused heartburn in the Liberal base. Malcolm Turnbull rightly observed last week that it is near impossible to guarantee that there will be no losers from any specific policy change designed to promote the overall good. He knows the political pain of that: this week’s super changes upset the Coalition’s heartland constituency of self-funded, self-reliant retirees and savers, people already hit with lower earnings in the post-crisis, low-yield world. Their anger over the disruption to their retirement savings plans, made in good faith within existing rules is understandable. That anger, funnelled through the Coalition backbench, forced Treasurer Scott Morrison to abandon the government’s plans to impose a $500,000 lifetime limit on post-tax or non-concessionary super contributions, backdated to contributions since 2007.
Critics stretched the definition to call that retrospective taxation. Yet governments often make decisions that render past investment decisions less fruitful, such as investing in limited taxi plate licences or in a factory that has been protected from competition. As the Henry tax review pointed out, there are good reasons to tax savings, or capital, relatively lightly and uniformly. Yet, faced with a chronic budget shortfall, governments do need to need to make hard decisions, including those that are going to upset their own base. And even with all of these changes, superannuation will still be highly concessionary: the amount of money that can attract the concessions will just be smaller.
There is still considerable work to do to overhaul the super system. Financial Services Minister Kelly O’Dwyer drew some giggles this week when she told an industry super conference that the government will once again push for union-dominated industry super funds to have a minimum one-third independent directors, the same as banks which have been in the headlines for the wrong reasons. The dominance of officials from the declining institution of the trade union movement is out of step for a retirement incomes system that has become more than just another workplace benefit. It is now a $2 trillion component of the financial system and its governance should reflect that. There is much talk about diversity in corporate governance, yet industry super funds maintain a rigid quota of representation from trade unions. And there are nasty black spots in union super too: such as the royal commission into trade unions uncovered with the repeat law-breaking Construction, Forestry, Mining and Energy Union’s influence over the Cbus superfund. Banking governance rules in banking surely would not allow such a law-breaking body, with clear links to organised crime, to have any links to a prudentially supervised financial institution trusted with billions of dollars of retirement savings. Regrettably, superannuation remains overly politicised. Both sides of politics should work to reduce this, not exploit it.