BT's Bradley Cooper, Mercer's David Knox, and the SMSF Association's Jordan George and Deborah Ralston

While the SMSF Association’s opposition to the Labor party’s proposed cull of excess franking credits is well known, its head of policy believes further complaints would draw attention away from the broader purpose and value of self-managed superannuation funds.

Speaking on a panel at the SMSF Association’s National Conference in Melbourne this morning, Jordan George said the organisation wanted SMSFs to be thought of as more than just a “tax outcome”.

“It’s really important that we don’t go, effectively, whingeing too much about tax changes to SMSFs, because people shouldn’t be just establishing SMSFs for tax advantages,” George said. “There should be a greater rationale for it.”

The policy, which Labor announced in March last year, entails switching off the existing concession that gives tax refunds for excess dividend imputation credits. In explaining the proposal, shadow treasurer Chris Bowen singled out SMSFs as “major” beneficiaries of the existing policy, with some funds “receiving cash refunds of more than $2.5 million per year”.

The proposed changes would apply from July 1 this year and would improve the budget’s bottom line by $59 billion over the medium term, Labor states.

If Labor did gain power with a win in the upcoming federal election, the party’s plan would probably face strong opposition in the Senate, which could delay legislating the removal of franking credits until 2020.

The SMSF Association has been one of the vocal critics of the proposed changes. Even after Labor shifted its stance to exempt pensioners from the franking credit cull, SMSF Association chief executive John Maroney expressed “serious reservations” about the efficacy and fairness of the policy.

This theme continued at the conference, where BT chief executive Brad Cooper said the policy compounded instability and further eroded people’s confidence in the superannuation system.

“When people start preparing for retirement, they want to have confidence that they’re participating in something with stable rules [that aren’t] going to be reversed out on you at some later point,” Cooper said.

Mercer senior partner David Knox, who was on the panel with Cooper, agreed. Knox said he looked at the policy through an “equity lens” that has two components.

“One is vertical equity, which very bluntly means that those that have capacity to pay will pay more.” Knox explained. “It’s the horizontal equity, I think, where this runs amok. That is, where two individuals are otherwise in the same situation, they should pay the same amount of tax. And that is not going to apply under the proposed policy.”

Knox also made the point that, should Labor win the next federal election, whether it could get the policy passed through Senate in its current form would be “an interesting question”.

George said the way in which the policy “zeroed in on SMSFs” was “striking”. He said it was “something we’ve never really seen before, such a blunt way of hitting a taxpayer in such an unfair way”.

Ultimately, however, he emphasised there was a danger – for the SMSF Association at least – in placing too much emphasis on tax issues.

More attention must be given to the other reasons people set up self-directed funds, George indicated, such as choice and control.

“While we don’t think these policy changes are the right ones, let’s not get too focused on them being pointed at SMSFs,” George said. “There needs to be a broader rationale for why people establish self-managed superannuation funds.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.
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