Can a super tax egg be unscrambled?
Mike Taylor writes that if the Federal Government imposes changes to the superannuation tax regime in the May Budget, it may take an entire Parliamentary term before a Coalition Government finds itself in a position to wind back those changes.
Financial planners positioning their clients with respect to allocations towards superannuation over the next three years need to be conscious of a key reality – whatever changes the Gillard Government imposes on superannuation taxation arrangements in the May Budget will not quickly be reversed.
That is why the Shadow Assistant Treasurer, Senator Mathias Cormann, last week affirmed to Money Management that it was important for the financial services industry to campaign against the changes before they occurred.
Specifically asked whether a Coalition Government would be in a position to wind back the Government’s proposed super tax changes, Cormann made clear that nothing was guaranteed and that everything would be dependent on the shape of the Budget an Abbott Government would inherit.
“The time to stop further Labor Government attacks on people’s retirement savings is now,” he said. “We’ve called on the superannuation industry to stand up for their members against a Labor Government that wants to use their members’ retirement savings like an ATM to fund their wasteful spending.
“We don’t want to see any more tax increases targeting super in the Budget, given Labor has already imposed more than $8 billion in additional taxes targeting people doing the right thing by saving for their retirement.
“And we have drawn a clear line in the sand. The Coalition has made a firm commitment that in Government we will not make any detrimental unexpected changes to superannuation policy settings, including taxation arrangements.
“But given the state of the Budget after five years of Labor, we won’t be able to fix every new additional mess Labor creates between now and the election on day one.
“So super fund CEOs who are concerned about more Labor tax attacks on super should join the Coalition in our fight to protect people’s retirement savings now and not wait until after the election,” Cormann said.
In other words, whatever changes the Government imposes on the superannuation tax regime in May will likely have a shelf-life of at least two further years and, quite possibly longer, depending upon the policy priorities which evolve over the Coalition’s first term of Government.
It is in these circumstances that the financial services industry needs to follow the example of the Association of Superannuation Funds of Australia (ASFA) in using its pre-Budget submissions to put substantial arguments to the Government about avoiding the creation of unnecessary disruption.
The ASFA submission, filed with the Government last week, pointed to what it described as “two serious conceptual shortcomings in the Treasury analysis” behind the Government’s proposed tax policy changes:
- The tax concession estimate is calculated on the basis that investment earnings outside of superannuation would be taxed like interest from a bank account. The reality is that investment earnings outside of superannuation attract various concessions, including a 50 per cent discount on capital gains on assets held for more than 12 months. As a result the Treasury figures overestimate the tax concession that flows from the concessional treatment of investment earnings within a superannuation fund.
- 2The more serous conceptual problem is that the Treasury analysis assumes that it is the same 1 or 5 per cent that stays at the top of the income distribution for a 37-year period from age 30 to 67. This is unrealistic and misleading.
The submission then went on to restate ASFA’s call for an appropriate assessment of tax settings being applied to superannuation to ensure that it achieves its original objective of ensuring that Australians can retire with dignity.
Of course the problem for ASFA and other financial services organisations in an election year – and with a Government facing almost certain defeat – is that the incumbent administration has little to lose and therefore no great imperative to consider longer-run implications of any of the policy changes it ultimately makes.
Further, the types of policy changes it has flagged seem likely to have little or no impact on its core constituency within the industry funds, albeit that a few members of UniSuper and Cbus may find reason to complain.
The bottom line, however, is that if the Government does what it is signaling it intends to do in the 2013 Budget, then superannuation is going to become a less attractive investment option for many upper-income earners – and planners are going to have to adjust their recommendations accordingly.
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