Originally published in The West Australian, 6 June 2016
Superannuation has been simmering since Budget night but this week things boiled over for the Government and super is now a bona fide election issue.
Let me be clear — confused and convoluted super policy is good for accountants but it’s not in the public interest, which is why we’re calling this out.
Proposed changes to caps and levels of taxation featured heavily in the much-anticipated leader’s debate at the National Press Club and we’ve since been treated to day-after-day of claim, counterclaim and attempted clarification on the details.
We’ve seen various ministers proffering differing explanations for how the new super regime will work and just who will be affected. It all begs the question: if the people responsible for the policy aren’t clear on the detail, how can the community be expected to deal with it?
Prime Minister Malcolm Turnbull may attempt to brush off contradictory answers from his ministers by saying the misunderstandings were a result of super policy being “notoriously complex” but reports of growing internal discontent indicate his response is not credible.
With growing community-wide confusion and outright resentment, it’s clear the Government has touched a raw nerve. Try as they might to pitch the changes as only affecting a tiny percentage of the very wealthy — “people on very high incomes and people with very large balances” as the Prime Minister describes them — as the broader impacts become clearer, the number of everyday Australians who’ll be caught in the net grows.
Anyone involved in the transition to retirement scheme will now be paying 15 per cent tax on earnings that were previously tax exempt.
Anyone from any socioeconomic group who inherits a house and tries to put the money into super is immediately in trouble. With the median house price in Perth at well over $500,000, it is easy to see how an average person could max out the new $500,000 lifetime non-concessional contributions cap in one fell swoop.
Inheriting a house from your parents is not atypical, nor will it apply to only 4 per cent of the population.
This is reinforced in the results of a survey of our members in public practice. These are the professionals at the coalface, every day advising Australians, young and old, rich and poor, about their retirement savings options. Nearly 40 per cent of the 1300 respondents reported the changes would affect more than 20 per cent of their clients and more than a quarter say more than 30 per cent will be affected.
Be warned, the clock is already running on these issues. The lifetime non-concessional contributions cap is set to apply from Budget night and takes into account all of a person’s non-concessional contributions into super all the way back to 2007. No matter how much politicians object to the “R” word, this is inarguably retrospective — and it’s regrettable.
In the final report of a recent inquiry, the Australian Law Reform Commission highlighted that “retrospective laws make the law less certain and reliable” and that “a person who makes a decision based on what the law is, may be disadvantaged if the law is changed retrospectively”.
Certainty is as important to our retirement savings as it is to common law and certainty is what’s been undermined.
The fact that we’re in the midst of an election campaign means the Government is in caretaker mode, so it will be difficult to get answers to a range of fundamental questions. Yet we know the Australian Taxation Office is being inundated with queries because they’ve asked advisers to “prioritise” requests so they can manage their workflow.
Caps and limits don’t promote retirement savings, they incentivise alternative investment strategies.
Given market behaviour, we may well see a spike in negative gearing of investments and an increase in the price of traditional franked dividend-paying shares — with question marks over the predicted tax revenues from these measures.
Pressure on these policies is mounting and uncertainty is the order of the day, which is ironic given the Government’s parallel move to enshrine the purpose of superannuation as being for retirement savings. It’s as if they’re having one last dip into the super honey pot before their own rules make it impossible in the future.
Alex Malley is chief executive of CPA Australia