At the Bloomberg Address today (25 August 2016), Treasurer Scott Morrison outlined his plan for ‘jobs and growth’ in the Australian economy. He called the speech, ‘Staying the course – strengthening our resilience in uncertain economic times’.
At the conclusion of the talk, I asked him about the statement he made in February 2016 at the SMSF Association National Conference in Adelaide. His exact words from that Conference are here, and I quoted the following extract directly to him to begin my question:
“One of our key drivers when contemplating potential superannuation reforms is stability and certainty, especially in the retirement phase. That is good for people who are looking 30 years down the track and saying is superannuation a good idea for me? If they are going to change the rules at the other end when you are going to be living off it then it is understandable that they might get spooked out of that as an appropriate channel for their investment. That is why I fear that the approach of taxing in that retirement phase penalises Australians who have put money into superannuation under the current rules – under the deal that they thought was there. It may not be technical retrospectivity but it certainly feels that way. It is effective retrospectivity, the tax technicians and superannuation tax technicians may say differently.”
I then said that a few months later, he had changed the superannuation rules in the 2016 Budget. So what happened to his thinking in March and April to lead to a change in his previously espoused principle?
Here is his reply (the Q&A session is not on his website):
“I stand by everything I said in that statement for the simple reason that the retirement phase remains tax-free. You know that. The retirement phase account, which under our proposal with a transfer balance cap, will mean that 99% of people who have balances less than $1.6 million will remain absolutely in exactly the same situation that I referred to.
The changes that we put forward, which I hope at least from my point of view as Treasurer I never have to revisit, and I certainly have no intention of revisiting them, will ensure that those rules are now set for the future.
Why did we have to change the superannuation system? Because we have an aging population and we have system that is frankly overly generous for large balances, and the cost of having those large balances and the tax concessions … which have only been there since 2007, by the way, they weren’t introduced by Henry Parkes or anyone else like that [Editor’s note: Parkes served five terms as Premier of New South Wales between 1872 and 1891]. Those arrangements were brought in when the Budget had a $20 billion surplus and $40 billion in cash.
What we have chosen to do is make the superannuation system more sustainable in future. We have targeted a higher rate of tax, true, at the whopping rate of 15% for earnings on balances above $1.6 million. That enables us to preserve the exact situation that I was speaking in favour of at the SMSF Conference. We allow 99% of people who have saved for their retirement to have the deal that I said they should have, that is, paying no tax on what they have contributed to superannuation over their lifetime.
I know there are those with balances more than $1.6 million who are unhappy about that. I know there are less than 100,000 people in the country who have already put more than $500,000 into super after their pre-tax contributions [Editor’s note: he probably means in after-tax contributions]. I know there are those on very high incomes who will be paying more on their contributions going into superannuation now than before.
The alternative to that is for me to tell my kids, ‘You’re going to have to pay higher taxes to support those concessions.’ I don’t think that’s fair and I’m not going to do it.”
Let’s put aside the inconsistency of saying “the retirement phase remains tax-free” and then saying “we have targeted a higher tax rate, true …”.
My point is not about the merits of the new policy proposals per se, but the inconsistency with the earlier admission that changing the rules ” … penalises Australians … who have put money into superannuation under the current rules – under the deal that they thought was there.”
The other major point is this: he says he never intends to revisit the changes put forward in the 2016 Budget. There is widespread expectation, not only hope, that a number of significant changes will be made, such as not backdating the $500,000 non-concessional cap calculation to 2007, or increasing it to $750,000.
To quote Margaret Thatcher, British Prime Minister, in 1980:
“To those waiting with bated breath for that favourite media catchphrase, the ‘U-turn’, I have only one thing to say: ‘You turn if you want to. The lady’s not for turning.'”
Sounds like the Treasurer’s not for turning either.
Graham Hand is Editor of Cuffelinks and attended the Address as a guest of Bloomberg.