In the space of only a few hours, the Financial Planning Association of Australia flew its brightly coloured kite of tax-deductibility for financial planning fees, and the Assistant Treasurer, Senator Arthur Sinodinos, shot it down.
Neither move was surprising, and neither move was unreasonable. But that should not be the end of the issue. Rather, it should be the start of a serious conversation about whether a fee paid for financial planning services should legitimately be tax deductible – and what the industry has to do to make it happen.
(There’s a second discussion, on whether all financial planning “fees” are, in fact, equal and therefore equally deserving of consideration for tax deductibility – but let’s leave that for another time.)
The proposal for tax deductibility of fees was rekindled by the FPA in its pre-Budget submission to Treasury. The FPA based its call on how the Future of Financial Advice (FoFA) reforms eliminate conflicted remuneration, and at the established link between an expense incurred for the purpose of generating assessable income and tax deductibility.
The Institute of Public Accountants (IPA) raised the same idea in its submission, released over the weekend.
The government, for its part, thought about the potential cost to the Budget, and about its task of returning the Budget to surplus, and has concluded it is an expense the nation can’t afford.
All parties have an understandable argument – as far as they go.
But no government in its right mind – let alone a government so resolutely in cost-cutting mode as the current one – could countenance giving such a blatant leg-up to practitioners in an industry whose consumers are so consistently being told that their protection is being undermined by legislative amendments, and which they are told so often is rife with conflicts and lurks that benefit practitioners ahead of consumers.
A few weeks back I wrote that the industry would have to deal with fallout that comes from even appearing to lobby for changes that could be portrayed as winding-back consumer protection, and from trying to reintroduce forms of payment that can be said to put planners’ interests ahead of consumers. Boy, did I cop some heat for that.
I hate to say I told you so (OK, to be honest, I don’t hate it that much), but that fallout is playing out right now. On the weekend just passed alone, exactly this message was published, here and here. And in the past week or so you can add this one. These are not the only examples. Truly, there are elements of the financial planning industry that seem hell-bent on their own destruction. And they also present a crystal clear case study of what happens when self-interest blinds one to all other considerations. That they apparently still do not understand the damage to the industry’s reputation that has directly arisen from lobbying for these amendments to FoFA continues to beggar belief.
Nevertheless, the FPA and the government are on the same page when they say they want to improve access to financial planning.
One of the key arguments for amendments to FoFA was to reduce red tape and hence costs for financial planning businesses, which would have been passed on to consumers. Allowing a tax deduction for financial planning services would reduce the effective cost further still, and help make it affordable for more people.
It seems inconsistent that a government can, on the one hand, introduce a compulsory savings scheme, but then extend no assistance when it comes to making decisions on how to save most effectively.
One of the reasons the government wanted to raise standards in financial planning was because poor advice – and outright fraud in some cases – was jeopardising a retirement incomes policy designed to reduce the burden of the age pension. Avoiding poor advice and fraud is one way of protecting superannuation savings; actively encouraging the use of advice to maximise savings is another.
The cost argument is understandable from a government in savings mode. But it would be short sighted to reject the proposal for short-term reasons if there’s a positive long-term benefit to the Budget bottom line. In the longer-term, good advice produces higher taxable incomes.
The government may have other legitimate reasons for rejecting the tax deductibility proposals, and rightly so, but to date the only one it’s nominated publicly is the cost. If that’s the sole argument, then this idea may yet get up.
It’s an idea – and a good one – even if its time has not yet come.
