Tag: certainty

Nothing Treasury says is of the slightest value

The Australian

4 February 2017

Terry McCrann

The embarrassing mush that Federal Treasury produced in its annual Tax Expenditures Statement was bad enough in its own terms. What’s worse was how it pointed to the total decline into utter irrelevance of an institution that used to be the very foundation of rigorously rational policy analysis and advice.

In very simple terms, the central department in commonwealth governance is useless. This should be, this is, a deeply disturbing development. Federal political governance is broken. So too is the bureaucratic. Almost literally, nothing Federal Treasury says is of the slightest value.

Now, Treasury’s budget forecasts, MIS-forecasts, have already long placed an embarrassing question mark over its analytical credibility. Year after year Treasury not only got its forecasts wildly wrong, but in doing so demonstrated a disturbing disconnect from reality.

Sure, you can excuse, up to a point, a margin of error in getting specific forecasts not quite right; but it is an altogether different matter if that error — correction, errors, plural — flows from a more basic, more pervasive failure to actually understand what is going on in the world.

Former treasurer Wayne Swan owns the “four years of surpluses” line that he infamously trumpeted in his 2012 budget speech — we “own” the $135 billion of deficits that actually happened.

But Treasury was a co-owner of the incompetence in its analytical framework and application. Now we have its claim in the Tax Expenditures Statement that the family home’s exemption from capital gains tax cost the federal budget a staggering

$61.5bn a year, every year, and rising inexorably with increasing property values. A claim that was seized on and breathlessly projected — how surprising — by the Fairfax press.

Once upon a time, so-called tax expenditures had a very legitimate, indeed necessary, place in the Treasury analytical firmament and policy advice: to keep both budgets functionally and governments politically honest.

A government can provide a handout either by a specific spending allocation or by a tax deduction or rebate for that expenditure made directly by the citizen. Even though the two are not mirror opposites it is an important contribution to the public policy debate, and to fiscal clarity, to broadly identify such “spending” on the revenue side of the budget.

But what was intelligent and specific has developed into a sort of Marxist Keynesian all-pervasive orthodoxy, to ruthlessly identify all variations from a tax norm as a tax expenditure, and running now to 160 pages of detailed mush.

Treasury’s tax norm in the family home case is the marginal personal income tax rates. So the $60.5bn “tax expenditure” flows from not applying the capital gains tax at all ($27.5bn) and then also adding the cost of the 50 per cent CGT “discount” ($34bn).

This shows an analytical approach of mind-bogglingly blinkered ideological stupidity. Taking it to its “logical” conclusion, the Treasury should estimate the “tax expenditure” of not taxing all income at the 49 per cent top marginal tax rate (for this year, including Joe Hockey’s “budget repair” levy). Including by the bye, company tax as well: why should the income of a company deviate from the personal income tax norm?

Indeed, in ideological purity, it should estimate the tax expenditure of not taxing all income at 100 per cent. Anything that the government leaves you with is just as much a “gift” as a direct spending item.

Now Treasury thinks it cleverly escapes from the ultimate lunacy of its ideological

— it is not analytical — approach, by defining the tax norm for estimating tax expenditure deviations as the progressive personal income tax scale, including the low-income tax-offset.

It acts as if these scales have been mandated from heaven. It doesn’t seem to understand that such a progressive tax scale is just as much a deliberate policy design choice as choosing to only tax 50 per cent of a capital gain.

So in denying that, stating that capital gains “should” be taxed at the full personal tax rate; in logic it should also be stating that all personal income “should” be taxed at the top marginal rate. Or alternatively — why not? — at the lowest marginal tax rate.

This brings us to the really disturbing heart of the Treasury ideological inanity: the inability to understand the qualitative difference between revenue and spending. The one is not the negative of the other spending.

A decision not to tax is not the same thing as a decision to spend. To state that it is, was of course exactly captured in the unified — ideological Treasury bonding with political government — assertions of the Rudd-Swan-Gillard years that tax increases were budget “saves”.

Yes, the very specific decision to provide a form of spending by a tax deduction/rebate, can be so identified. That for example a government payment for childcare is qualitatively the same as providing the tax offset.

But would Treasury care to identify what form of government spending could replace the non-taxation of a capital gain on the sale of a family home? What is the “spending spending” that could mirror the “tax spending”?

We could do much the same with most of the other so-called “tax expenditures” in the 160 pages: emanations all of, as I note, a Marxist-Keynesian mindset. But I want to finish on a related example which demonstrated an even greater harm to the national interest: Treasury’s “climate action modelling”.

The Treasury of then secretary Ken Henry and his right-hand man David Gruen — Henry’s gone to lusher fields in the National Australia Bank, but Gruen now resides in the warm embrace of the prime minister’s office — purported to show we could dramatically increase the cost of energy and it would make all-but no difference to economic growth. This announced a Treasury not simply divorced from reality but from the entire history of the human race; with its advance based entirely — entirely — on energy becoming increasingly cheap, plentiful and secure. Time to drain the Treasury swamp.

Wednesday, February 22, 2017

Clarity on the new super rules, wealth management’s hot topic

The Australian

7 February, 2017

Monica Rule

Scott Morrison’s controversial super changes come into effect in just four months.

Perhaps the outstanding issue for wealth management in recent times has been the major changes announced for superannuation.

For many people, there is a sense that the changes have only become clear very recently as the final legislation did not get passed until the end of 2016. Worse still, many people were misled by earlier reports which attempted to capture the changes before they were finalised by the government.

Either way, we suddenly find ourselves in February 2017 with only four full calendar months before Scott Morrison kicks off the new regime on July 1. Self- Managed Super Fund members need to understand the basics: Today I want to spell out the key changes and importantly identify some variations that have become clear this year.

The $1.6m cap

 

The change most people are familiar with is the $1.6 million transfer balance cap. For the sake of convenience I will simply refer to this as the “cap”. What you may not know is that the cap will apply in two instances.

First, it is the limit on the amount of net capital that can be placed on an SMSF member’s pension account where the earnings are tax exempt. Amounts above the cap need to be moved to the accumulation phase or taken out as a lump sum. The second instance is where the cap will apply to a member’s total superannuation balance. If a member’s superannuation balance exceeds $1.6m, they will be prevented from making further non-concessional contributions into their SMSF.

Now I should point out that there are some contributions which do not count towards the $1.6m pension cap or superannuation balance cap.

Compensation payments for personal injury, received by SMSF members and contributed into their SMSFs are not counted towards the $1.6m superannuation balance cap or the $1.6m pension cap. This means members can have a pension account in excess of $1.6m.

On the other hand, if a small business taxpayer transfers the proceeds from the sale of active assets up to the value of $1,415,000, or capital gains from the sale of an active asset of up to $500,000 into their SMSF (under the Small Business CGT concessions) the contribution will count towards their superannuation balance. If the amount exceeds $1.6m, then the member will be restricted from putting any more non-concessional contributions into their SMSF.

Transition

 

SMSF members turning 65 during the 2016-17 financial year need to understand the changes to the bring forward non-concessional contributions cap. There will be a transitional non-concessional bring forward cap of $460,000 or $380,000 depending on when the bring-forward cap was triggered. If you want to take advantage of the full $540,000 cap you need to make the whole bring-forward, non-concessional contribution of $540,000 before June 30, 2017.

There will also be a $500,000 limit that stops you from being eligible for the catch- up concessional contributions, where you can use any of your unused concessional contributions cap, from July 1, 2018, on a rolling basis for up to five years. Where an SMSF member exceeds their $1.6m pension cap by up to $100,000 at June 30, 2017, the new law allows the member six months to remove the excess from the member’s pension account. However, the member will still be recorded as having exceeded their $1.6m transfer balance cap and will not be eligible for any indexed increases of the cap in the future, even if they reduce their pension account balance below $1.6m.

Different treatment

 

Members need to be aware that withdrawals from their pension are recorded differently depending on the type of withdrawal. While a partial commutation reduces a member’s $1.6m pension cap, an ordinary pension payment does not. This is an important distinction for members who want to put more money into their pension account.

Reversionary pensions and death benefit pensions are also treated slightly differently under the $1.6m pension cap. Although both pensions count towards a dependant recipient’s pension cap, reversionary pensions are not counted towards the cap until 12 months after the deceased member’s death. The amount counted towards the cap also differs. For a reversionary pension it is the amount in the deceased’s account at death whereas with a death benefit pension, it is the accumulated amount when it is paid to the dependant.

Estate planning also needs to be considered more carefully where the deceased member’s children receive their superannuation entitlements. The children may not be able to take a pension of up to $1.6m, or may be able to take a pension in excess of $1.6m, depending on whether the deceased was receiving a pension at the time of their death. While the changes may cause concern, in my opinion knowledge is your best defence. Understanding how the changes will apply to you and taking early action will help you to navigate these changes with more certainty.

Monica Rule is an SMSF specialist and author of The Self Managed Super Handbook.

 

www.monicalrule.com.au

Wednesday, February 22, 2017

Avoid tax traps in super shift

The Australian

31 January 2016

Monica Rule

One of the biggest issues facing all advisers this year is how to guide investors through the forthcoming changes in super — importantly, there is a need here to get your house in order or you could be facing a hefty tax bill.

It is also crucial that investors understand the mechanics of capital gains tax relief if they are considering selling assets prior to the new rules coming into force.

The new $1.6 million cap, which takes effect from July 1, places a limit on pension accounts that receive tax-free investment earnings. If you have more than $1.6m in your pension account, you must either retain the excess in your accumulation account (where the investment earnings are taxed at maximum of 15 per cent) or withdraw the money from superannuation.

If the excess is not removed, you will incur an excess transfer balance tax of 15 per cent in the 2017-18 financial year and your pension will be deemed as not being in pension phase from the start of the financial year.

This may mean your pension income is no longer tax free when you receive it. If an SMSF member moves some of their pension assets back to the accumulation phase before July 1, 2017, they can apply for capital gains tax relief so they only pay tax on the capital growth of assets from July 1.

SMSF trustees can choose which assets they provide the relief to and do not need to sell assets to apply the CGT relief. However, the CGT relief is not automatic and an SMSF will need to make an irrevocable election, in the ATO’s approved form, before it lodges its 2016-17 tax return. The relief deems an asset to be sold on June 30, 2017 for its market value and repurchased at that price. This ensures only gains from July 1 onwards will be taxed.

If the CGT relief is applied and an SMSF asset was segregated prior to November 9, 2016, then the entire capital gain arising from the segregated assets will be disregarded. If an SMSF uses the unsegregated method (because it has assets that support both a pension account and an accumulation account) then the notional capital gain on the non-exempt portion will be included in the SMSF’s assessable income for the 2016-17 financial year. It is worth knowing, however, the SMSF can elect to defer the notional gain until the asset is sold.

SMSF members also need to be aware that by choosing the CGT relief, they must wait a further 12 months before the CGT discount can be claimed.

New year’s checklist

Members affected by the new law will need to discuss their situation with their accountant or financial planner. Here’s a list of the key items to be considered:

  • Members under the age of 60 with multiple pensions need to consider whether to commute the pension with the higher taxable component to minimise the tax payable on their pension
  • Members with a pension which commenced prior to January 1, 2015 need to decide whether they wish to preserve their entitlements to the age pension and the Commonwealth Seniors Healthcare
  • If a member is withdrawing the excess amount from their SMSF, then they need to weigh up the benefit of the $18,200 tax-free income threshold and their marginal tax rate compared to the 15 per cent superannuation tax
  • The new reduced contribution limits may make future contributions more
  • Whether to maintain assets with unrealised capital losses at their original cost base, and reset the cost base of assets with large
  • If there are plans to sell assets soon, it may be more tax effective not to apply the relief due to the 12-month waiting period to claim the CGT
  • Whether choosing the CGT relief will produce the best tax result. It may depend on when the member retires and the expected growth of the SMSF assets. For example, if a member is within the $1.6m cap and will retire soon, it means their SMSF will wholly convert to pension mode. Applying the relief to an asset may cause the SMSF to be taxed on the deferred notional capital gain when the asset is sold. If the relief was not chosen, this tax may not arise as the pension’s earnings exemption would otherwise apply.

Monica Rule is an SMSF specialist and author of The Self Managed Super Handbook.

Wednesday, February 22, 2017

More working for longer to ensure decent retirement

The Age

25 January 2017

John Collett

Workers are retiring at age 61, on average. Just two years ago they were retiring at age 58.

Roy Morgan Research surveys more than 50,000 people a year on all sorts of things, including asking those intending to retire in the next 12 months what age they will be when they retire.

The sudden rise in the retirement age maybe a blip and doesn’t mean that the age of those intending retirees is going to keep rising at the same rate.

But there are likely to be factors that have made the current crop of soon-to-be retirees work for longer.

Many of those on the cusp of retirement are probably feeling that the odds of them being able to afford a comfortable retirement have lengthened.

Rules tighten

There’s the tightening of access to the age pension that took effect at the start of this year. And the qualifying age for the age pension is gradually rising from 65. For those born since January 1,1957, it is 67.

The “preservation” age, the age at which we can access our super savings when retired, is increasing from 55 and will be age 60 for anyone born since July 1,1964.

And then there are the lower caps on how much can be contributed to super.

It’s true that most of these measures, apart from the pension age rising to 67, are targeted at the better off. Ordinary workers are not affected and anxiety is being created by perception, not reality.

After all the political argy-bargy over changes to the age pension and super during the past several years, that they should have had their confidence in the system knocked is no surprise.

Many older people are concerned that if they put money into super that a future government might make it more difficult to access their money as a lump sum or tax-free.

Lower returns

But low returns on safe investments, such as term deposits, have probably also contributed to a feeling that it’s prudent to keep working for longer.

The Australian sharemarket had a bumper year in 2016 with a total return, including dividends, of 11.8 per cent. But that followed a return for 2015 of 3.8 per cent and a return of 5.6 per cent in 2014.

However, the returns on super over the past three calendar years have not been bad because most people have their retirement savings with their funds’ balanced option, which spreads the money between asset classes.

That means if one or two asset classes don’t do that well, some of the others will pick up the slack.

Superratings’ data shows that the median-performing balanced option returned 7.3 per cent during 2016, 5.6 per cent in 2015 and 8.1 per cent in 2014.

The reality is that super is doing the job that it is meant to do and further major changes seem unlikely.

And for home owners, the chances of a future government ever including the value of the house in the assets test for the age pension are vanishingly small.

Wednesday, February 22, 2017

Superannuation doubts drain $1.5bn from system

The Australian

23 November 2016

Michael Roddan – Reporter | Melbourne | @michaelroddan

Uncertainty surrounding the government’s superannuation reforms is continuing to dissuade savers from contributing to their retirement savings, at the same time as the $2 trillion industry is suffering signs of a generational shift where retiree drawdowns on their pensions are now out­weighing the amount of new ­contributions.

Data from the Australian Prudential Regulation Authority ­yesterday showed total contributions into the super system dropped 1.5 per cent over the year to September, a $1.5 billion drop year-on-year.

A near 5 per cent drop during the three months to September added to the 11.3 per cent contributions fall suffered by the sector in the June quarter, as the proposed super shake-up met with a “triple-whammy” of market-moving votes — Brexit, the Australian election and US election — to frighten savers on to the sidelines.

The fall comes as the government’s super reforms are set for debate in the Senate, where Labor has flagged its intention to seek amendments to the bill, after the package passed the House of Representatives last night.

Opposition treasury spokesman Chris Bowen said the reform package was “better than nothing” and said Labor would support its passage through the Senate if its amendments were not successful. “What we will do … is make sensible suggestions about how it can be improved,” Mr Bowen told parliament.

The reforms, unveiled at the May budget and which were the source of heated debate during the federal election, will limit non-concessional super contributions to $100,000 a year and introduce a $1.6 million cap on tax-free pension accounts.

While there was an absolute increase of 7.4 per cent in super ­assets to $2.1 trillion over the year, the APRA figures also revealed a dramatic slide in net contribution flows, which slumped nearly 20 per cent.

The wealth management industry is set for a rough ride over the coming decade as fund inflows wane, with super managers staring at a generational shift where baby-boomers start to draw down on savings. Supported by compulsory contributions from employers, the funds management industry has recorded enormous growth over the past 20 years, but shifting demographics will soon start to threaten the rivers of gold.

Jeremy Cooper, architect of a recent government review into the super sector, said the industry was expecting to move into the net drawdown phase in the 2030s, but those estimates would have to be revised if the 18.7 per cent slide in net contributions this year established a trend.

“More people were taking money out of the system than they were the previous year, by quite a bit,” Mr Cooper told The Australian.

“It may be explicable by some one-off thing, but it’s still quite a big jump.

“The proportion of people entering retirement is steadily increasing, but you wouldn’t have expected it to jump that big.”

About 700 Australians retire every day and the retiring population will grow at an average rate of 2.5 per cent for the next 10 years.

Chris Kelaher, chief executive of wealth management group IOOF, which has more than $100bn in funds under management, said the proposition that super contributions were going to taper off into nothing was “just a bit naive”.

“Obviously there’s a point in time in the future where the net flows into the system may vary negatively,” Mr Kelaher said. But he said greater longevity and longer pension phases would help support demand for wealth management.

Mr Kelaher said this year’s dip in personal flows was due to the US and Australian elections and the Brexit vote, but he argued that after the government’s reforms were passed people would ramp up contributions.

“You’ve had a triple whammy this year,” he said.

“You put those … things together and then you’ve had very soggy markets in January and everyone’s sitting on the sidelines and figuring it out.”

Association of Superannuation Funds of Australia chief executive Martin Fahy said the tax changes to superannuation would make the system more equitable and sustainable, and he called on the Senate to pass the reform package. “This legislation should be passed without undue delay to provide the certainty people need to make voluntary contributions to their superannuation,” Mr Fahy said.

The APRA data also showed more people were moving away from large funds and into self-managed super funds, where assets had grown 8 per cent over the year to $636bn.

Elsewhere, research from Morningstar showed the majority of super funds recorded losses in October, with a median return of negative 0.7 per cent. Industry funds were the top performers over the past 12 months, with Cbus returning 6.6 per cent.

Wednesday, February 22, 2017

Save more, get less: how the new super system discriminates

The Australian Business Review

26 November 2016

Tony Negline Wealth Columnist

There are two harsh realities of the new superannuation laws — first, they discourage those on average wages from saving and second, the way it works they will discriminate against a layer of investors who have saved more than others.

It should never be this way — no doubt it was never the express intention of the new regime — but this is how it has come to pass.

Let me use some case studies I have used before, but now are more relevant than ever. At their worst they clearly reveal the new discrimination now legally enshrined in the system

We will assume you’re in a relationship, that you’re both aged at least 65 and own your home without debt. Our main area of focus will be your super assets, which is your major investment. In all our case studies we will assume you want a super pension from a non-public sector super fund which will pay you 5 per cent income. All income is paid to you tax-free.

For the sake of simplicity, we will assume that this super pension started after December 2014, which means the account balance is deemed under Centrelink’s income test. Apart from your home and your super, you own $50,000 of personal use assets including your car. You have no other assets.

All of our examples will consider the assets test thresholds that will apply from January next year.

Case study 1
You have $1.6 million in super assets. In this case you will receive no age pension and therefore your income is $80,000 per annum.

Case study 2
You have $200,000 in super assets. Your super pension will pay you $10,000 and you will be eligible for the full age pension of $34,382 including the pension and energy supplements. Total income is therefore $44,382.

Case study 3
What happens if you have $500,000 in super assets? Well you receive total income of $45,732 — a part-age pension of $20,732 and $25,000 from their super pension.

Case study 4
What about $700,000 of super assets? You will receive a super pension of $35,000 and a part-age pension of $5132 which means their income is $40,132.

Case study 5
Finally, what about those without $1 million in super assets? You receive no age pension and need to live off all their super pension of $50,000.

What does all this mean? You can have less assets but more income each year.

To spell it out, you can have $500,000 in super and you will be better off in terms of annual pension payments — super and government pension combined — than a couple with $700,000.

What’s the sweet spot? It would seem to be about $339,143 in super assets. At this level your total income will be $50,236.

Let’s compare the income a couple with $500,000 in super assets receives ($45,732) with the $80,000 income a couple will receive if they have $1.6 million in super. Those with the higher balance have more than three times the assets but only receive 75% more income.

The government says it changed the super system to make it fairer and more equitable. These are the reasons for the $1.6 million pension cap, the $250,000 income threshold for higher contributions tax, the lower contribution caps and the refund of contributions tax for lower income earners. Based on all our cases above do these arguments really hold?

For those earning anywhere between 80 per cent and about 180 per cent of average wages — that is between $65,000 and $150,000 — it takes a lot of effort and sacrifice over many years to save a meaningful amount of money towards retirement.

After looking at our case studies, why would you bother saving anything more than compulsory super and living in the best home you can afford that it is very well maintained?

Anyone earning $50,000 each year, which increases at 2 per cent each year while their super grows by 5 per cent after all taxes, fees and charges, and receives compulsory superannuation, will have $400,000 in super assets after 31 years of work.

At that point if they were to retire they would receive 100 per cent of their pre-retirement income.

Clearly there is a distinct disincentive for people in this situation to work for longer or to try and earn a higher salary.

Of course you can always argue the person with higher savings in the system is better off — we don’t know how future pension incomes will work and they have the option to spending their capital if they want … but that’s not the point. The point is the system has built-in discrimination.

Tony Negline is author of The Essential SMSF Guide 2016-17 published by Thomson Reuters.

Sunday, June 18, 2017

Super reform: Kelly O’Dwyer should hang her head in shame

The Australian

9 November 2016

Judith Sloan | Contributing Economics Editor | Melbourne

The government knows its superannuation legislation is deeply flawed. Its efforts to contain the consultation process — allowing a week for parties to comment on hundreds of pages of new law — haven’t prevented those who actually understand these things to declare much of it is unworkable.

Where tax legislation language is appropriate, the new laws use inappropriate accounting concepts. The rules contain unrealistic start points and maximise the compliance costs associated with the transfer balance cap of $1.6 million.

For those with several superannuation accounts, including one providing a defined-benefit income stream, expect to be unfairly treated. By using the one multiplicand (16) of annual pension income irrespective of age to calculate the implied transfer balance amount, anyone over the age of 70 is essentially done in the eye.

But it is good for the public servants who have given the government such dodgy advice, who will retire on unimaginably generous money courtesy of a recent salary increase and the benefit from the new rule.

But here’s the thing: the government doesn’t care. In particular, the responsible minister, Kelly O’Dwyer, doesn’t care. All she wants is the legislation to be rammed through parliament and she will do almost anything to achieve this dubious objective. The fact that, in due course, there will be many more older people on the Age Pension doesn’t worry her. She will be gone by then.

The fact there will be even higher taxes imposed on superannuation in due course because the Liberals were more than happy to impose additional taxation on current and retired superannuants to the tune of $6 billion over three years won’t bother her either.

She doesn’t care about the extraordinarily high compliance costs or the fact the changes benefit the industry (read union) super funds at the expense of self-managed superannuation funds. She’s from the Graham Richardson school of politics — whatever it takes.

And then we have the Labor Party wheeling and dealing, even though the super policy it took to the election was a Harry met Sally policy: we’ll have what they are having and book the same savings.

Now it turns out that this was actually a bit of a porkie and Labor wants to impose some further changes that will raise an extra $1.4bn over the forward estimates.

Labor Treasury spokesman Chris Bowen wants the annual non-concessional contributions cap to be $75,000 rather than $100,000 and the 30 per cent contributions cap to kick in at an adjusted salary of $200,000 a year rather than $250,000.

And Kelly can say good night to her carry-forward arrangements in relation to unused concessional contributions as well as eliminating the work test for older people. These were really the only sweeteners in the Liberals’ super package announced at budget time, apart from the pointless low-income superannuation tax offset.

All the time, Liberal backbenchers stay mum, in part because most wouldn’t have a clue and in part because those who should object are more worried about their career prospects than prosecuting the case for lower taxes and small government.

The only ray of hope is that Malcolm Turnbull regards the changes demanded by Labor as a bridge too far (and Labor won’t budge) and that enough crossbenchers won’t co-operate.

Going back to the policy drawing board would be the best outcome at this stage.

Friday, January 4, 2019

Coalition’s super proposals and Labor’s policies – Update November 2016

The Coalition Government’s super proposals

Government’s second tranche super proposals:

On 27 September 2016 the Coalition 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 Budget 2016.

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

For public submissions on the second tranche, the Government allowed from 27 September 2016 to 10 October 2016; 13 days to consider 234 pages, 57,600 words of very complex, far-reaching proposed legislation.

O’Brien’s, Hammond QC’s and Save Our Super’s second tranche joint submission to Treasury:

On 10 October 2016, Terrence O’Brien and Jack Hammond QC, on behalf of themselves and Save Our Super lodged with Treasury their joint submission in response to the second tranche. That joint submission is available here.

Tax Institute’s second tranche submission to Treasury:

On 10 October 2016 the Tax Institute lodged its corresponding submission to Treasury. It is available here. It is also publicly available on http://www.taxinstitute.com.au/leadership/advocacy/read-submissions.

In Save Our Super’s opinion, the above submissions demonstrate that the Coalition’s proposed superannuation changes are wrong in principle and unworkable in practice.

Government’s third tranche super proposals:

On 14 October 2016 the Government released for public consultation the third tranche. Details of the Government’s third tranche are available here. The Exposure Draft Bill and Explanatory Material are available on the Treasury website. Public submissions closed on Sunday 23 October 2016; 9 days later.

O’Brien’s, Hammond QC’s and Save Our Super’s third tranche joint submission to Treasury:

On 23 October 2016, Terrence O’Brien and Jack Hammond QC, on behalf of themselves and Save Our Super lodged with Treasury their joint submission in response to the third tranche. That joint submission is available here.

The limited time allowed for submissions in response to the second and third tranches, makes a mockery of the concept of public consultation. Obviously, the Government wants to rush the superannuation changes through Parliament as soon as possible.

Second and third tranche submissions sent to Coalition

On 10 October 2016 and 24 October 2016 respectively, we wrote to Messrs Gee MP and Buchholz MP in their roles as leaders of the Coalition Backbench Committee on Economics and Finance and sent them copies of:

  1. Terrence O’Brien’s, Jack Hammond QC’s and Save Our Super’s joint second tranche submission and the Tax Institute’s second tranche submission: and
  2. Terrence O’Brien’s, Jack Hammond QC’s and Save Our Super’s joint third tranche submission.

Subsequently, we wrote to all Coalition Senators and Coalition MHRs and sent them copies of those submissions.

Labor’s super policies
On 26 June 2016, Labor dropped their 2016 election superannuation policies.  Subsequently, they proposed increased superannuation taxes, despite saying in their policy released just over a year previously, that “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.

Save Our Super’s position:

Save Our Super believes that all Parliamentarians should promote and support superannuation policies and legislation which contain grandfathering provisions that maintain the previous entitlements of those Australians who will be significantly affected by major rule changes to the then existing superannuation provisions.

We are convinced 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.  On any view, the recently released details of the measures deserve far more detailed scrutiny than has been possible to date in the unreasonably short time made available for consultation.  Moreover, the fragmentation of the measures into tranches of drafting has prevented any integrated overview of how the measures fit together.

UPDATED PETITION

The Federal Coalition Government has made a number of changes to its Budget 2016 superannuation proposals. Consequently, Save Our Super has updated its earlier email petition/s to take into account those changes.

Thank you if you signed the earlier petition/s. Please support, or continue to support, Save Our Super by completing our updated petition here.

 

Tuesday, December 13, 2016

Submission on third tranche of superannuation exposure drafts

23 October 2016

SUMBISSION ON THIRD TRANCHE OF SUPERANNUATION EXPOSURE DRAFTS

Terrence O’Brien and Jack Hammond QC,

on behalf of themselves and Save Our Super

 

  1. Table of Contents
  2. Summary. 2
  3. Inadequate time for public comment 4
  4. Inappropriate separation of legislative packages. 4
  5. No statement relating tranche measures to objective(s) for superannuation. 4
  6. Why have annual non-concessional contribution limits?. 5
  7. If annual contribution limits continue, why lower them?. 7
  8. A significant contribution to growing complexity. 8
  9. Retrospectivity and effective retrospectivity in the new measures. 8
  10. If lowering annual contribution caps, grandfather for those close to retirement 10
  11. A better path forward. 13

Declaration of interests:

Terrence O’Brien is a retired public servant receiving a super pension from a defined benefit, ‘untaxed’ fund. He would be adversely affected by some of the measures in the second tranche.

Jack Hammond QC is in the process of retiring from his barrister’s practice. He would be adversely affected by some of the measures in the second tranche.

2.    Summary

There are much better ways than the three tranches of measures released so far to improve the lifetime welfare and savings of lower income earners, improve retirement living standards, and improve budget outcomes. The Government should go back to the drawing board on its Budget measures.

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.

On any view, the recently released details of the measures deserve far more detailed scrutiny than has been possible to date in the unreasonably short time made available for consultation.  Moreover, the fragmentation of the measures into tranches of drafting has prevented any integrated overview of how the measures fit together.

The third tranche Bill proposes reducing the annual concessional (ie before tax) contribution limit by 17% to $25,000 (or by 29% for those over age 50), and the annual non-concessional (ie after tax) contribution limit by 44% to $100,000.

The existing annual contribution limits were created to limit the accumulation of large super balances and have largely achieved that purpose. The number of current large super balances is small as a proportion of total super account balances: 0.5% have over $2.5 million, with most of these balances lawfully accumulated before the implementation of existing law. Those bygones are bygones, and are not a reason for further tightening restrictions on future contribution limits.

If the Government proceeds with its proposed $1.6 million general transfer balance cap (criticised in our submission on tranche two measures), that cap would make the annual non-concessional contribution cap redundant and it could be removed. Instead, the proposed reductions in contribution caps increase the obstacles to current workers ever reaching the Government’s $1.6 million cap (or any other target of their choosing), and reduce welfare by restricting savers’ flexibility to accumulate super savings as their circumstances permit.

For example, for a worker in mid-career with about $340,000 in super (the ‘sweet spot’ that maximizes the combined retirement income from a super pension and a part age pension), the proposed reduction in the non-concessional contribution limits increases the time taken to save up to the super balance cap of $1.6 million by almost 90%, to 13 years, compared to 7 years under the existing contributions cap.[i]

Consider also the living standards offered by a super balance of $1.6 million held by one person of a couple retiring today at age 65. They can expect an indexed annual retirement income of some $72,700 (from age 65 supplemented with part pension from age 82 until death or age 100, assuming an optimistic 5% nominal return net of fees and 3% inflation).[ii] This is about 90% of average weekly earnings. To retire on 90% AWE hardly seems an indecent aspiration, especially if it motivates those who are hard-working, affluent enough and thrifty enough to save hard and forgo easier options to rely on a part age pension.

To combine the general transfer balance cap with lowered annual contribution caps clearly doubles the strength of the message to savers seeking to meet their own preferred standards of retirement income. That message is: “Don’t bother”. The Government has for the first time directly prescribed what it considers a super balance sufficient for retirement ($1.6 million), and has tightened contribution restrictions to hinder reaching even that benchmark.

If alternatively, the Government did not continue with its proposed general transfer balance cap, some case for annual contribution caps would remain. If in that case the Government still wanted to lower them, it should grandfather the reductions for those close to retirement who have planned on the basis of the existing caps and have insufficient time to utilise alternative strategies. The principles for such grandfathering were established by the Asprey inquiry and have been used successfully for forty years. Continuing to utilize them would help contain the damage to trust in super and in super law-making processes.

3.     Inadequate time for public comment

Many of the issues in this third tranche of material have already arisen in first and second tranches, so comments on those issues are abbreviated in this submission.   Paragraph references below are to the Exposure Draft Explanatory Materials for tranche three unless otherwise noted.

Providing only 5 working days for public input on the third tranche of complex super measures shows contempt for public consultation. These are measures that deal with Australians’ life savings, and the realisation of their plans for independent retirement. The measures extensively revise the most complicated aspects of the income tax law affecting individuals, and inject considerable new complexity.

See earlier submissions for comparisons to better consultation processes used in the past.

4.    Inappropriate separation of legislative packages

The compartmentalization across three tranches of draft material for comment has compounded the inadequacies of consultation and has made it difficult to identify connections and interactions among concepts. This submission seeks to touch briefly on some of those cross-cutting issues in the limits of the time available. But the compartmentalized and rushed consultation greatly increases the risk of unintended consequences and the likely need for future unsettling legislative change to repair errors.

5.    No statement relating tranche measures to objective(s) for superannuation

Like the two previous tranches, the third tranche draft bill lacks any statement of rationale against the Government’s stated primary objective (“.. . to provide income in retirement that substitute or supplements the age pension”[iii] ) plus five subordinate objectives.

Our earlier submissions have argued that the Superannuation (Objective) Bill’s proposed objectives for Government policies toward superannuation are unworkable and inappropriate. Yet that proposition can be tested by applying the objectives to the current draft Bill in a statement such as will be mandatory from 1 July 2017.

We are now told that “The final Explanatory Memorandum that will accompany the Bill will provide the overarching policy context.”[iv]  The lack to date of any stated policy context, four months after the announcement of the measures (and their reversal of the Government’s pre-Budget super policy positions) makes considered consultation needlessly difficult. Indeed, the whole process is like starting a construction at the top floors, and finishing up with the foundations.

The documentation asserts (para 3.3) that “The measure will improve the sustainability and integrity of the superannuation system.” No evidence is offered for either of those claims, and as our submission on tranche two measures argues, there is no sense in speaking of ‘sustainability’ in the structure of the super tax concessions: as super balances grow, the Governments tax take from contributions and accumulation grows, and the considered, well-researched and well-costed strategic decision of 2005-06 not to collect tax on most retirement income streams remains unchanged. The focus of taxation of growing commitments to life-long savings in superannuation on the contribution and accumulation phases is no more ‘unsustainable’ than the identical focus of taxation on growing sums in savings accounts, which are also untaxed in their drawdown phase.

6.    Why have annual non-concessional contribution limits?

Concessional and non-concessional contribution limits were introduced to limit the accumulation of large super balances, and seem to be largely succeeding in that objective.

The explanatory material rationalises this objective oddly: “To ensure superannuation is being used for its primary purpose of saving for retirement, and not for tax minimisation, there are limits on the amount of non-concessional contributions individuals can make.” (para 3.4)

As noted in our earlier submissions, special tax treatment of super since 1915 is not a gift to super funds or savers: it exists to remove the significant disincentive to long term saving from the interaction of a progressive tax on nominal income with the provision of a generous age pension. It makes no sense to accuse citizens who lawfully follow incentives to save in super of ‘tax minimisation’ beyond some arbitrary (but apparently ever-evolving) point. In April 2016, the current contribution limits were apparently appropriately scaled to defend thrift against discouragement by income tax and the age pension. In May 2016, citizens lawfully fully utilizing those legislated limits were apparently guilty of ‘tax minimisation’. What changed?

All saving in super is in one sense ‘tax minimisation’ – that is how the incentives achieve their intended effect. Branding savers who follow lawful incentives ‘tax minimisers’ in an attempt to rationalize an otherwise unexplained tax increase does not seem a helpful guide to policy development, but rather adds to the destruction of trust in super. It reminds all super savers that today’s lawful thrift transparently encouraged by government incentives enacted through Parliament is open to excoriation as tomorrow’s ‘tax minimisation’.

While anecdotes of very large super balances still circulate, there are relatively few such balances and most of the current high balances were accumulated under previous rules (or in the absence of rules). A 2015 report by Ross Clare for the Association of Superannuation Funds of Australia suggested that there is a small proportion (around 0.5 per cent) of super savers who have very high account superannuation balances (above $2.5 million). Most large balances existing today owe their existence to former incentives that, in times past, were unbounded or much less restricted than at present.[v]

In super taxation policy, the homely adage that ‘bygones are bygones’ is particularly important. Superannuation has a uniquely long lifespan, with current retirees living off savings which began to be lawfully accumulated as long ago as the middle of the last century. Policy design for super tomorrow requires the comparison of future marginal costs and future marginal benefits of alternatives open to choice today.

It is a significant misdirection to tomorrow’s super policy to point to relatively few large super balances built on decades of savings under the less restrictive laws of the past as justification for additional restriction in future laws, when current laws already heavily restrict any future accumulation of high balances.

If the Government proceeds with the proposed $1.6 m general transfer balance account cap, it is not clear why any non-concessional contribution limits would be necessary going forward; their role today would in future be taken by the cap. These comments focus, as does the draft Bill, on the non-concessional contribution cap which bear the brunt of the Government’s new restrictions, being cut by 2 ½ times the percentage cut in concessional contribution cap. This is notwithstanding the fact that against the pre-paid consumption tax which is the most defensible benchmark for neutral treatment of long term savings, non-concessional contributions are (as their name rightly suggests) no concession at all. Indeed, against that benchmark, users of a non-concessional contribution, having paid tax at their top marginal tax on their contribution, are still over-taxed by the 15% tax on subsequent earnings within the fund.[vi]

Continuing with any annual non-concessional contribution limits merely restricts the flexibility with which individuals can adapt to their personal circumstances and maximise their super savings when they are able to, up to the limit of the cap.  For example, a small business owner may envisage retiring and rolling the proceeds from selling their business into a super fund. Or another individual may receive a bequest. To reduce the rate at which they can save towards the cap would seem to serve no revenue purpose, but would reduce their welfare and potentially the total that could be saved in super. Alternative tax-efficient forms of long-term saving such as negatively-geared real estate or the principal residence would likely produce a less productive allocation of scarce capital from an economy-wide perspective.

If, nevertheless, the Government were to seek revenue from past balances lawfully saved by taxing them more heavily, there should be a very clear understanding of the effective retrospectivity of that course, with all of the costs to trust in super, legitimacy and future savings. Such retrospective measures should not be misrepresented as responding to a prospective problem.

7.    If annual contribution limits continue, why lower them?

The measures propose a 44 % cut in the annual non-concessional contribution cap, and a 17% cut in the concessional contribution cap (or by 29% for those over age 50). Yet the explanatory materials claim:

By reducing the non‑concessional annual caps and restricting their use to those with balances less than the transfer balance cap, this measure will better target the tax concessions to encourage those who have aspirations to build their superannuation balance up to the limit of the transfer balance cap while retaining the flexibility to accommodate lump sum contributions from one-off events such as receiving an inheritance or selling a large asset. (para 3.4)

Contrary to this unsubstantiated claim, lowering the contributions limits sends the opposite message — discouragement — compared to simply leaving the existing limits in place. Consider the case of a super saver in Tony Negline’s ‘sweet spot’: about $340,000 in super, the amount that maximizes the combined retirement income from a super pension and a part age pension.[vii] To move from that super balance to $1.6 million by non-concessional contributions would take almost 90% longer, 13 years after the proposed cut, compared to 7 year under the existing cap.

That is a powerful message:  not only is the Government for the first time prescribing a maximum to the most tax-assisted saving limit to force reallocation of lawful savings by those who have already saved a lot; it is simultaneously prescribing lowered limits in annual saving rates for those in their late-career savings phase that will prevent many not already at the cap from ever reaching it.

The combined message from tranche two and tranche three measures is that the optimum saving strategy is $340k or so in super, a part age pension, a valuable house and many other options to keep savings outside the pension asset test.

The upshot of this and the other two tranches’ measures is likely to be to increase total Government retirement income costs over time, while crimping the rise in Australians’ retirement living standards – failures of policy that apparently have not been detected within the government’s asserted analytical framework of one principal objective plus five subordinate objectives for super policy.

As SMSF adviser Daryl Dixon has noted:

There’s about 2000 people with a hell of a lot of money in super. Right?

There are at least 20 to 30 thousand with a lot of money in an owner–occupied house worth 5 to 10 million or more, and there’s no capital gains and there’s no tax on the profits of the house.[viii]

8.    A significant contribution to growing complexity

By far the greatest source of complexity in the superannuation measures is the introduction of the new structure of ‘transfer balance accounts’, ‘general transfer balance caps’, ‘personal transfer balance caps’ and ‘excess transfer balance’ taxes, as detailed in our submission on the second tranche measures.

While the concepts of concessional and non-concessional contribution limits are at least familiar to savers from the present law, lowering them as proposed adds to complexity through the need to plot their interaction with the new transfer balance cap apparatus. The Explanatory Materials take some 9 pages to explain the interaction of the contribution limits with the transfer cap (pages 9 to 18).

9.    Retrospectivity and effective retrospectivity in the new measures

Under present law, an individual can make $540,000 of non-concessional contributions by bringing forward 3 years’ of the current non-concessional contribution cap of $180,000. Various media commentary has advised super savers to make use of this provision before new laws take effect (if passed by Parliament) on 1 July 2017.[ix]

However it seems from the ‘transitional provisions’ of the Bill discussed at paras 3.57 to 3.66 of the draft explanatory materials that the new Bill, if passed by Parliament, would retrospectively (in the narrowest sense of the term) penalize that bring-forward, by allowing a $180,000 contribution for 2016-17, but allowing only a reduced $100,000 for each of 2017-18 and 2018-19 (assuming no indexation by the CPI of the contribution caps by 2018-19).

Precisely how the saver will be retrospectively penalized after 1 July 2017 for a lawful bring forward of non-concessional contributions made before 1 July 2017 is not clear in the time made available for consultation and with the draft explanatory material. Para 3.44 flags another area where treatment of defined benefit schemes has not yet been resolved by advisers. However, paras 3.41 to 3.43, and new material governing how the Commissioner for Taxation must (or may) respond to ‘excess’ contributions through the issue of release authorities (13 pages of material from para 10.1 to 10.68) contain illustrations of the assessment of penalty taxes under Division 293. Once again, the extraction of penalties in such a situation is a retrospective change of law in the narrowest sense.

Beyond this issue of narrow retrospectivity, there is the broader issue of ‘effective retrospectivity’ as defined by Treasurer Morrison in his address of 18 February 2016.[x] A generation of savers (those aged around 40 to 60) now enjoying peak career earnings and planning lifetime peak contributions to their super balances in the lead up to retirement would have their savings plans destroyed by the radical cuts to contribution caps (and especially the 44% cut to non-concessional contributions caps).

Many of those late career savers are too close to retirement to be able to devise alternative strategies for self-funded retirement, and will likely choose a path of more reliance on a part age pension and the construction of wealth in avenues not penalized by the age pension means test. To limit the destruction in trust in super among that savings group, the Government should grandfather its measures along the principles outlined by Justice Asprey and used over the last 40 years in other tax increases on superannuation. Application of those principles is further references below.

10. If lowering annual contribution caps, grandfather for those close to retirement

The challenges of facilitating gradual increases in super taxes while not destroying confidence in super were addressed most thoughtfully by the late Justice Kenneth Asprey, who was commissioned by the outgoing McMahon Government to report on the Australian taxation system. Asprey made his Committee’s final report to the Whitlam Government. His recommendations at first had little apparent effect, but it they drove all the major advances in Australian tax reform over the following quarter century:

The capital gains tax, the fringe benefits tax, dividend imputation, the foreign tax credit system, the goods and services tax (he called it a “broad-based value-added tax”) — all were proposed in the Asprey report.[xi]

The Asprey insights into the need to grandfather super tax increases, and his principles for how to do that while preserving necessary policy flexibility to respond to changing circumstances, are summarised in the following Box.

More recently, the Gillard Government’s Superannuation Charter Group led by Jeremy Cooper addressed concerns about the future of the super savings and the way policy changes have been made.[xii] The Charter Group reported to the second Rudd Government in July 2013 with useful proposals in the nature of a ‘superannuation constitution’ that would codify the nature of the compact between governments and savers, including:

  • People should have sufficient confidence in the regulatory settings and their evolution to trust their savings to superannuation, including making voluntary contributions.
  • Relevant considerations, when assessing policy against the principle of certainty, include the ability for people to plan for retirement and adjust to superannuation policy changes with confidence.
  • “People should have sufficient time to alter their arrangements in response to proposed policy changes. This issue becomes more acute for those nearing or in retirement, who have fewer options and less time available to them (for example, to increase contributions or remain in the workforce longer).” [xiii] (emphahsis added)

Box: Grandfathering principles: Asprey Taxation Review, Chapter 21, 1975

Principle 1    21.9. Finally, and most importantly, it must be borne in mind that the matters with which the Committee is here dealing involve long-term commitments entered into by taxpayers on the basis of the existing taxation structure. It would be unfair to such persons if a significantly different taxation structure were to be introduced without adequate and reasonable transitional arrangements. ………

Principle 2    21.61. …..Many people, particularly those nearing retirement, have made their plans for the future on the assumption that the amounts they receive on retirement would continue to be taxed on the present basis. The legitimate expectations of such people deserve the utmost consideration. To change suddenly to a harsher basis of taxing such receipts would generate justifiable complaints that the legislation was retrospective in nature, since the amounts concerned would normally have accrued over a considerable period—possibly over the entire working life of the person concerned. …..

Principle 3    21.64. There is nonetheless a limit to the extent to which concern over such retrospectivity can be allowed to influence recommendations for a fundamental change in the tax structure. Pushed to its extreme such an argument leads to a legislative straitjacket where it is impossible to make changes to any revenue law for fear of disadvantaging those who have made their plans on the basis of the existing legislation.   …..

Principle 4    21.81. …. [I]t is necessary to distinguish legitimate expectations from mere hopes. A person who is one day from retirement obviously has a legitimate expectation that his retiring allowance or superannuation benefit which may have accrued over forty years or more will be accorded the present treatment. On the other hand, it is unrealistic and unnecessary to give much weight to the expectations of the twenty-year-old as to the tax treatment of his ultimate retirement benefits.

Principle 5    21.82. In theory the approach might be that only amounts which can be regarded as accruing after the date of the legislation should be subject to the new treatment. This would prevent radically different treatment of the man who retires one day after that date and the man who retires one day before. It would also largely remove any complaints about retroactivity in the new legislation ….

These Charter Group suggestions would also appear to support the use of grandfathering in the case of the Government’s proposed restriction on non-concessional contributions.

Since at least 1994, concessional contributions caps have specifically recognized that capacity to save rose later in workers’ careers, so caps for those over 50 were substantially higher than for those under 35.[xiv] For an over-50 in 1994, the annual concessional contribution limit was $62,200, and had been indexed to over $105,000 by the time of its abolition under the Costello simplification reforms of 2006. These earlier high caps of course help explain why some very high super balances still exist today.

Treasurer Swan’s 2009-10 Budget lowered the annual concessional contributions cap from $50,000 to $25,000 for those under 50. But for those aged 50 and over for the 2009-10, 2010-11 and 2011-12 financial years, the cap was lowered from $100,000 to $50,000 per annum.

The 2009-2010 Budget papers noted:

‘Grandfathering’ arrangements were applied to certain members with defined benefit interests as at 12 May 2009 whose notional taxed contributions would otherwise exceed the reduced cap. Similar arrangements were applied when the concessional contributions cap was first introduced. [xv]

Similarly, regulatory changes that affected savers’ planning for retirement late in their working careers were phased in to spare those closest to retirement and to give advance notice to those further from retirement to make adjustments to their financial affairs. An example was the 1997-1998 Budget confirmation of phased increases in the preservation age from 55 to 60 by 2025..[xvi]

A further illustration of recent relevance from the intersection of superannuation and the aged pension is the grandfathering of existing account-based superannuation pensions outside the aged pension income test, rather than deeming them as income counted against the test from 1 January 2015 as part of the revisions to that test.[xvii]

Further details showing how grandfathering adverse changes to superannuation and related retirement income parameters has been used over the last 40 years are contained in Terrence O’Brien’s paper for the Centre for Independent Studies, Grandfathering super tax increases.[xviii]

11. A better path forward

There are much better ways than the three tranches of measures released so far to improve the lifetime welfare and savings of lower income earners, such as illustrated in papers for the CIS by Simon Cowan and Michael Potter[xix]. 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.

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.

On any view, the recently released details of the measures deserve far more detailed scrutiny than has been possible to date in the unreasonably short time made available for consultation.  Moreover, the fragmentation of the measures into tranches of drafting has prevented any integrated overview of how the measures fit together.

[i] Tony Negline, Saving or slaving: find the sweet spot for super, The Australian, 4 October 2016.

[ii] Trish Power, Crunching the numbers: a $1.6 million retirement, SuperGuide, 23 May 2016.

[iii] Scott Morrison and Kelly O’Dwyer, Superannuation reforms: first tranche of Exposure Drafts , 7 September 2016

[iv] The Treasury, Superannuation reform package – tranche three, online Consultation Hub, accessed 21 October 2016.

[v] Ross Clare, Superannuation and high account balances, Association of Superannuation Funds of Australia, April 2015.

[vi] Ken Henry et al, Australia’s Future Tax System: Report to the Treasurer, Part Two; Detailed analysis, Volume 1, Box A2-1p 97

[vii] Tony Negline, Saving or slaving: find the sweet spot for super, The Australian, 4 October 2016.

[viii] Daryl Dixon and Nerida Cole on Nightlife with Tony Delroy, ABC, 12 July 2016.

Election over: now they want to take more of your Super and Labor may allow it

[ix] See, for one example, Will Hamillton of Hamilton Wealth Management, Six most common questions on superannuation, The Australian, 1 October 2016.

[x] Scott Morrison, Address to the SMSF 2016 National Conference, Adelaide, 18 February 2016

[xi] Ross Gittins, A light on the hill for our future tax reformers, The Age 15 June 2009.

[xii] Jeremy Cooper, A Super Charter: Fewer Changes, Better Outcomes: A report to the Treasurer and Minister Assisting for Financial Services and Superannuation, Canberra, 5 July 2013.

[xiii] ibid, p 47

[xiv] AMP, Submission on Concessional Contributions Caps for Individuals Aged 50 and Over, March 2011.

[xv] Australian Government, Budget 2009-10, Budget Paper No 2, part 1, Revenue Measures, Canberra 12 May 2009.

[xvi] Trish Power, Accessing super: Preservation age now 56 years (since July 2015),

MLC Super Guide, 5 July 2015.

[xvii] Liam Shorte, Age pension changes: keeping your super grandfathered, Intelligent Investor, 26 August 2014.

[xviii] Terrence O’Brien, Grandfathering super tax increases, Centre for Independent Studies, Policy, Vol. 32 No. 3 (Spring, 2016), pp3-12.

[xix] Michael Potter, Don’t increase the super guarantee, Centre for Independent Studies, Policy, Vol. 32 No. 3 (Spring, 2016), pp27-36,

Wednesday, November 9, 2016

Budget 2016 Proposals and Opposition’s Policies – Update 18 October 2016

Government’s second and third tranches 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.

On 14 October 2016 the Government released the third tranche. Details of the Government’s third tranche are available here. The Exposure Draft Bill and Explanatory Memorandum are available on the Treasury website. Submissions will close on Friday 21 October 2016.

Government’s second tranche:

For Public Submissions on the second tranche, the Government allowed from 27 September 2016 to 10 October 2016; 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.

O’Brien’s Hammond QC’s and Save Our Super’s second tranche joint submission to Treasury:

Save Our Super has considered the second tranche of the Government’s superannuation changes. On 10 October 2016, Terrence O’Brien and Jack Hammond QC, on behalf of themselves and Save Our Super lodged with Treasury their joint submission in response to the second tranche. That joint submission is available here.

Tax Institute’s second tranche submission to Treasury:

On 10 October 2016 the Tax Institute lodged its corresponding submission to Treasury. It is available here. It is also publicly available on http://www.taxinstitute.com.au/leadership/advocacy/read-submissions.

Today we wrote to Messrs Gee MP and Buchholz MP in their roles as leaders of the Coalition Backbench Committee on Economics and Finance to convey a copy of Terrence O’Brien’s, Jack Hammond QC’s and Save Our Super’s joint submission and the Tax Institute’s submission, both lodged 10 October 2016 with Treasury on the second tranche of Government superannuation measures.

We also wrote today to all Coalition Senators and Coalition MHRs and sent them copies of those submissions.

Those two independently and separately compiled submissions complement each other. In our opinion, the first demonstrates that the Government’s second tranche proposed superannuation changes are wrong in principle; the second that they will be unworkable in practice.

We are convinced 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.  On any view, the recently released details of the measures deserve far more detailed scrutiny than has been possible to date in the unreasonably short time made available for consultation.  Moreover, the fragmentation of the measures into tranches of drafting has prevented any integrated overview of how the measures fit together.

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.

Support our joint submission:

Tell your Coalition Senators and Coalition Members of the House of Representatives that you support Terrence O’Brien’s, Jack Hammond QC’s and Save Our Super’s joint submission in response to the second tranche of the Government’s superannuation changes. Your message can be more effective if you also tell your personal story to your local Federal representatives.

Please send an email, write a letter, phone and/or call in and see your Federal Senators and local MP. Please ensure you include your residential address as they will take more notice of their local constituents. We are sure they’d love to see you!

Thursday, November 3, 2016

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