What recently started out as a rather esoteric conversation about the objective of superannuation soon transformed into an emotional political debate about “reigning in superannuation tax concessions”. That’s hardly surprising because any serious discussion about the objective of superannuation inevitably leads to a debate about tax.
Therefore, we should make no mistake about it. The current debate is really all about whether and how to increase taxes on superannuation. In that sense, the Treasurer’s publication of a discussion paper titled ‘Legislating the Objective of Superannuation’ in fulfilment of an election promise may be viewed as a Trojan Horse.
Initially, the Treasurer did not hose down the politically damaging discussion about what he may or may not have in mind, but it didn’t take long for the government to walk back speculation by reassuring voters that any changes would be minor.
Unfortunately, this contradicts a promise made by the government when in opposition that it would make no changes to superannuation, at least in its first term in office.
The trouble for the government is that “the cat’s out of the bag”. Therefore, what could have been a relatively calm and logical policy conversation about the long term structure of the superannuation system has become a short term (maybe longer) political mess. At least the government has now clarified that the proposed tax increase will only apply to people with balances over $3 million, however, important questions have been raised about the treatment of unrealised gains and defined benefit funds. No doubt there will be many more nerve-wracking questions posed in coming months.
The government’s proposal is being sold politically on the basis that it’s only “the rich” who will be hit. And there’s a not so subtle subtext that they deserve to be. Understandably, the Coalition is running with the “hands off my super” line and is encouraging people to think about the serious possibility that the government is secretly planning to widen its proposal and attack lower balances. It’s not lost on commentators that the government is effectively starting that process by not indexing the $3 million.
The Australian community deserves so much better that this kind of ad hoc piecemeal policy on the run. Is it any wonder that people become nervous and susceptible to scare campaigns about what’s coming next?
Unfortunately, this kind of uncertainty and anxiety-inducing debate is common for superannuation. I remember over 30 years ago when a Labor government introduced the original 15 per cent tax on contributions and earnings of superannuation funds which were previously tax-free, the community was reassured that this was the end (indeed, the pinnacle) of superannuation tax reform. As a result, we were told that all Australians could now plan their futures with “certainty and confidence”. It turns out that nothing could be further from the truth.
For example, in 1996 the Coalition promised that if it won office, there would be no new taxes on superannuation. Soon after winning the election, the new Government introduced the 15 per cent superannuation surcharge on “high” income earners. In the face of criticism for breaking an election promise, the government claimed that there were two kinds of promises. It called them “core” and “non-core”. It argued that the superannuation surcharge was in the “non-core” category. It also claimed (just in case you didn’t buy the “non-core” argument), that the surcharge was not a tax at all, but a levy. Is it any wonder that voters become cynical?
The Coalition has never been convinced that compulsory superannuation is a good idea (suspiciously socialist or perhaps annoyed that it wasn’t their idea in the first place). It’s never had the political will or opportunity to completely dismantle the system, so it’s had to be satisfied with the “death by a thousand cuts” approach, for example, by reducing the increases in the compulsory contribution to 12 per cent (rather than the original 15 per cent) and promoting the politically appealing idea that people should be able to do whatever they like with their superannuation balances.
This brings us back to the objective of superannuation. One widely held view is that it’s a pool of public savings to be drawn down and fully expended by low and middle income Australians in retirement to replace the age pension. Others view their superannuation as private savings which they’ve worked hard to accumulate pursuant to certain legislated rules that should not be changed to their detriment. They believe that they should have the freedom to use their superannuation as they please, including for the purchase of a family home and even as an inheritance for their children.
The reality is that there are many arguments, options and positions on the objective of superannuation and the appropriate tax regime to support and regulate it. I’m certainly not suggesting that the superannuation tax regime should never be changed. After all, the system isn’t perfect. Therefore, it’s absolutely fine, even welcome, for the government to issue a thoughtful superannuation discussion paper for community comment which includes changes in the tax regime. However, before making any changes, I respectfully suggest that there should be an agreed set of principles underpinning any discussions, rather than “scaring the horses” and creating anxiety by hinting at predetermined conclusions about what should happen to the current tax regime.
These principles should include:
- Acceptance of and respect for the fact that the accumulation of substantial superannuation savings is a long-term task which many people plan and work hard to achieve over many decades;
- Acknowledgement that people (at all levels of wealth) make long term savings plans based on an accepted and understood tax regime, so that detrimental changes should not be made without considerable care, only after extensive public consultation and never retrospectively; and
- Agreement that if a government were to decide that changes are needed to the superannuation tax regime (which were not flagged before the previous election) their proposals should not be legislated during the current term, but should be put to voters at the next election, well before they are implemented (I acknowledge that the current government has decided, apparently for reasons of political strategy, to legislate their proposal now with a starting date after the next election).
By adopting these principles, we would create much greater trust in the superannuation and retirement incomes system, thereby enabling all Australians to retire with the “certainty and confidence” that they were solemnly promised over 30 years ago with the introduction of the mandatory superannuation guarantee arrangement in 1992.
