If Tony Abbott and his Coalition want a second term in government, they must keep their hands off superannuation.
In the election campaign, Tony Abbott promised that there would be no major changes to superannuation in his first term. In fact, he did make one significant change: his government abolished a reasonable superannuation taxing arrangement devised by the now opposition leader Bill Shorten on superannuation funds in pension mode.
That was six months ago. Now, once again, Treasury is trying to trick a government into attacking self-managed funds and superannuation pension tax rates.
It’s important to remind all those involved of the facts.
Self-managed funds are required by Australians to administer an increasing number of superannuation funds because the big institutions charge huge fees. It’s true that some self-managed funds have been established to leverage residential property, but that’s a very new development and is a side issue that can be dealt with very easily by changing recent rules.
As has been shown in survey after survey, self-managed funds equal or outperform the high-fee managers. We are going to see more than 60 per cent of our retirement pension mode income in self-managed funds until the overpaid sleepy managers decide to manage properly and charge sensible fees.
Attacks by Treasury and others on the fact that funds in pension mode pay no tax have been disguised as an attack on self-managed funds. Those who want to attack tax-free retirement incomes are entitled to do so, but attacking self-managed funds misses the issue. They are merely a low-cost way of maximising the legislated benefits.
Anything Treasury says about superannuation should be ignored. Normally you can rely on Treasury to give you the facts but in its reports on superannuation, it operates in a fact-free, highly opinionated zone, which makes their advice useless. That makes it hard for politicians on both sides. In the Labour years, Treasury put out a statement which claimed that Australian taxpayers were subsidising superannuation by some $30 billion dollars a year. That statement was complete nonsense, with gaping mathematical errors that would have been picked up by most year 7 students.
Not only did Treasury get the mathematics wrong but, to boost the numbers, it assumed a 7 per cent return in future years when much lower return assumptions would have been be far more realistic. Then it forgot about the revenue benefit that comes from reducing dependence on the aged pension -- a key reason why superannuation exists. More recently it put out another report, which showed it has learned nothing. This time it avoided mathematical errors but presented the material in a way that the ignorant media and others would conclude that the cost of superannuation was still $30bn, which is mathematical nonsense.
Evaluating the cost and benefits of superannuation requires proper analysis. It needs accurate sums, realistic returns, and calculations of pension cost reductions etc. When you have done that, you can have a realistic discussion.
The previous Labor government correctly worked out that the Treasury figures were total nonsense, so used some of my sums and came up with a taxing arrangement on superannuation funds in pension mode. It said that the first $100,000 of pension mode superannuation income (indexed) will be tax-free, but you will pay 15 per cent on any income above that.
There were unfair complexities created that needed to be sorted out but it was a genuine attempt at fair treatment. My friends in the retirement community gave me a terrible time when I said that the basic underlying Shorten proposal was fair. (At one stage I was good-naturedly booed!)
Then came along good old Arthur Sinodinos, who was told by his mates in the Sydney banking and big institutional community that the Shorten plan was too complex for their systems (it was simple for self-managed funds), and so Joe Hockey and Arthur Sinodinos abolished it. I cheered because I benefited -- I have a fund in pension mode. But I knew the issue would eventually return and because Treasury does not deal in facts in this area; a gullible future minister (on either side) might be tricked into something far worse.
We need to keep reminding the current government of its election promise and ensure politicians make clear policy statements on superannuation during election campaigns. However, that still does not provide certainty when false statements abound.