The Federal Govt broke it, now it should fix it

When you discover, more than two years after the event that you’ve stuffed up a policy initiative, such as Stronger Super, you really owe it to the electorate to fix it properly.

Memo: Treasurer, Wayne Swan. CC: Assistant Treasurer, Bill Shorten. When you discover, more than two years after the event that you’ve stuffed up a policy initiative, such as Stronger Super, you really owe it to the electorate to fix it properly.

However, the critics are right in describing your Federal Budget effort to fix the excess contributions tax unintended consequences from the 2008 Stronger Super initiative as a ‘band-aid’ solution.

The band-aid descriptor seems highly appropriate in circumstances where the Budget provides that people can access only a one-off refund of their excess contributions – and only if those contributions amounted to less than $10,000.

By any objective measure, that represents a very limited concession on the part of the Government and one that will not prevent many well-meaning superannuation fund members finding themselves innocently caught up in a highly punitive tax regime.

The Government’s Budget measure will not stop people being exposed to an accumulative tax rate of 93 per cent – rather, it will simply reduce the numbers likely to be exposed. Further, no one will be allowed to err more than once.

In circumstances where Shorten was, himself, unwittingly caught by the excess contributions rules and where even the Tax Commissioner, Michael D’Ascenzo expressed concerns about the punitive consequences, the industry had every right to expect the Government to do more about fixing a problem of its own making.

The best that can be said for the Budget is that, at first blush, it would not appear to have unduly added to market uncertainty around Government policy with respect to financial services.

However, the financial services content of the 2011-12 Budget needs to be weighed against the still undelivered financial services content of the 2010-11 Budget – not least the absence of any specific legislation around higher contribution caps for over 50s and the progressive lifting of the superannuation guarantee to 12 per cent.

The reality confronting the financial services industry is that it needs to work in the knowledge that Australia has a minority Labor Government that is currently carrying two successive years of Budget-related financial services policy, plus a raft of intended changes flowing from the Future of Financial Advice (FOFA) reforms.

Lifting the superannuation guarantee remains inextricably linked to the imposition of a Mineral Resource Rent Tax, while the FOFA changes will undoubtedly be the subject of horse-trading with the major industry stakeholders and within the Parliament.

A recent Wealth Insights index revealed that sentiment among financial planners was in decline even before the Government announced its latest FOFA intentions. Given the loose ends and uncertainty, it is little wonder.