July 22 2016
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.