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Treasurer wants super fixes, then stability

Treasurer Scott Morrison is facing some tough choices in his forthcoming budget, with an election before the end of the year and a deficit that continues to blow out. He has ruled out the $35 billion item, increasing the GST to 15%, and he has to scrape around for dollars without offending too many people. His focus is likely to be expenditure cuts rather than significant new taxes.

At the SMSF Association National Conference in Adelaide today, he expressed a desire to fix some inefficiencies in the superannuation system, and then aim for a long period of stability.

He made one point firmly. He does not want to tax people in the retirement phase. Stability and certainly for people looking 30 years ahead is important. He said we should not penalise people who have put money into super using the current rules (cue lots of applause). This is retrospectivity, even if it is not called that. He was clear and he obviously criticised the Labor proposal to tax retirement incomes.

Morrison wants as many Australians as possible to achieve financial independence in retirement. It should be part of Australia’s long-term plan, with fewer people relying on transfer payments. His vision for super includes more targeted incentives.

(The previous day, Assistant Treasurer Kelly O’Dwyer announced a Productivity Commission review of the efficiency of the superannuation system, including, “This review is not about delaying change, it’s about making sure that the system is dynamic for the modern world.”)

Super concessions

There is not a lot of headroom due to fiscal problems, so the Government has looked at suitability and sustainability of retirement incomes. But using his new favourite expression, he does not want to “sell the Australian people a unicorn”. That is, something that does not exist.

Some changes are coming. He highlighted that 42% of people increase their assets in their last five years while on the pension, and another 25% remained the same. This money should be funding retirement and old age. He said that allowing people to keep their own money is different from giving them a pension. Welfare payments and tax incentives are fundamentally different. The welfare payment comes from someone else (more applause from audience).

He will be looking at a better balance between income tax and super incentives. He showed the oft-quoted chart from the Murray Inquiry on distribution of superannuation concessions by income level, where more than half the benefits go to the wealthiest 20%.

While “… saving for the future is tremendous, it’s not a bad thing at all”, he wondered whether savings would occur anyway without such incentives. Those on high incomes are unlikely to draw a pension regardless. It’s healthy that the majority of income in retirement in the future will come from super and not the age pension, and this should be encouraged, but are the incentives right?

Stability and certainty

Super is not an estate planning vehicle. Morrison said we all want to leave assets for our children, and the taxpayer should help independence in retirement, but not also increasing inheritances.

He said that superannuation is too rigid, and we should encourage flexibility and choice. Fees in APRA-regulated funds are falling too slowly compared with their asset growth, and this will be a focus of the Productivity Commission. Employees should choose where their money goes. Some people covered by enterprise bargain agreements are forced to go into certain funds. This can disadvantage people who work in multiple jobs, who end up with multiple funds.

Targetting incentives to those who need them

The Government is also looking at how changes can be made for people who have interrupted work careers. For example, it could increase the caps on contributions after a loss of work, to allow a catch up in super balances. This includes carers who have to leave the system to look after family members due to personal bad luck. They are also considering lifetime caps.

Every concession must carry its weight, so they are all being looked at. He wants to target incentives at those who are most likely rely on the age pension. But the system is a combination of concessions, and we cannot start again. We have to work with what we have. It’s a furphy that people spend their money so they can access the age pension.

Limits on negative gearing

Negative gearing has some excesses that should be curbed, and eligibility needs to be fair. But some 70% of people have a loss on their investment property of less than $10,000 a year and only one property. Nurses, teachers, police, they buy one property to provide for the future, they are doing it for security. They are not the problem, yet negative gearing is demonised. He said, "I won’t tax them more." (Cue more applause).

The value of superannuation

Super is the centrepiece of the retirement income system, other than the age pension safety net. Many people have not had the benefit of a full super system all their working lives and they rely on the welfare system through no fault of their own.

There are many other issues in super other than tax. Let’s have a super debate about governance and efficiency and targeting and not only tax.

He hoped that after some changes in the superannuation system, there would be a 'landing point' and a long period of stability. The super rules should not then be reviewed in every budget.

He also added that he is keen on the fintech opportunities, and he sees the service sector transformation replacing the mining boom. He hopes financial services will be part of this, including taking wealth management skills into the Asian region.

The full text of the Treasurer's speech is linked here.


Graham Hand is Editor of Cuffelinks and attended the SMSF Association Annual Conference courtesy of the Association.

February 28, 2016

Andrew Boal's expectations may well eventuate. There is a lot of kite-flying from both sides of politics and lobby groups pushing industry, retail and SMSF sectors, spliced into young savers and old dis-savers.

Andrew Boal
February 28, 2016

Reducing the amount of the tax concession provided to high income earners on their contributions seems likely, most likely by extending the Division 293 tax threshold to capture more people (or via a version of the Henry model). Limiting the amount of investment earnings that are tax free in the drawdown phase is also likely, such as by putting a cap on the amount that can be "rolled over" into a tax free drawdown product. At the same time, we need the new regulations ASAP that will put deferred lifetime annuities (DLAs) on the same regulatory footing as other retirement income products.

February 20, 2016

So basically a collection of populist political fluff aimed at generating said applause rather than achieving an equitable, sustainable tax system that funds future expenditure while continuing to encourage (rather than distort) the sensible allocation of capital within the economy?

Well, did anyone expect anything more from a property industry lobbyist turned federal treasurer? I For one don't.

February 19, 2016

As for the debate on negative gearing. If the average worker is buying property to provide for a future income, why is this treated differently to superannuation. Why is there a cap on the amount I can claim against my taxable income for superannuation deductions but not on losses from property investing?

Why not combine these tax deductions and set a higher limit? People would then have the choice of investing in property or superannuation funds for their future income.

February 19, 2016

Govt's are so hamstrung by the voting block of baby boomers. Therefore, there never will be changes that adversely cost baby boomers any retirement income, as Australia cannot afford boomers on the dole (pension). Thus any changes to Super etc will only affect younger generations and "new" negative gearing arrangements

Bruce Gregor
February 19, 2016

This looks like being the worst set of ministers the retirement industry has ever had to deal with. The goal of better integration of age pension and super looks dead. With changes already made (with support of greens) there are now 300,000 retirees whose income will fall by up to $13,000pa from next year because of assets test change. No grandfathering or grandmothering here. Is this retrospective change? What should they do now after having left the workforce 10 years ago? Busking?

Andrew B
February 19, 2016

I agree 100%. The reduction in the assets threshold places the affected retirees in a new poverty trap. The Treasurer, in his previous Human Resources role, failed to realise that the "rich" retiree with say $1m cannot, at the Centrelink deeming rate, achieve as much income as the full Age Pension.
Meanwhile, the retiree's cash balance shrinks with living expenses and drives the retiree ever closer to qualifying for a full Age Pension that might otherwise have been avoided.

February 19, 2016

“Welfare payments and tax incentives are fundamentally different. The welfare payment comes from someone else”.

As soon as I read this I realised meaningful super tax reform was destined to fail. Fundamentally both reduce the funds available for a government to provide services such as health, education and defence. The most significant difference is that government pensions, in theory anyway, assist those most in need while the major beneficiaries of superannuation tax incentives are those who probably don’t need them at all. Ideologically the current treasurer, and as you would expect, those at a SMSF conference, do not have a problem with this.


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