THE DISTILLERY: Super sleuths

Jotters delve into Labor's super changes to argue they undermine faith in the system, with some highlighting a potential administrative nightmare.

Labor's proposed changes to Australia’s superannuation benefits are hardly as draconian as many believed they would be and probably won’t happen anyway. Perhaps the only thing to take away from all of this is not the severity of the proposals or the fact that Labor will likely lose the next election, rendering the super changes something for trivia night. It’s that the system paying for the retirement of our aging population is being routinely screwed with.

Fairfax’s Malcolm Maiden hit all these points in his piece over the weekend.

“The key tax rise is opposed by the Coalition, and unlikely to be legislated before the election that the Coalition is favoured to win: and while Treasury estimates that it would combine with an already announced cut in the super contribution tax concession for people earning $300,000 or more to save $10 billion over a decade, that would depend on two things – how effective a tax collector the Australian Tax Office is (the tax could be an administrative nightmare), and to what extent wealthy super investors respond by moving assets and income out of super into other places, including negatively geared property. The changes continue a pattern of tampering with the super rules that undermines confidence in them, and the Council of Superannuation Custodians the government proposes is unlikely to put an end to that.”

The same can be said for Business Spectator’s Stephen Bartholomeusz.

“While the changes are nowhere as radical and controversial as some of the options mooted over the past few weeks as the government tested the likely response to a revenue raid on the funds of high net worth superannuants, new taxes that Swan expects to raise $10 billion over the next decade are hardly insignificant. More to the point they do represent another tinkering with the system, within which the savings of individuals have been compulsorily trapped, weeks ahead of the budget of a cash-strapped government under the severest of political pressures.”

Let’s drill down a little deeper into the policy for argument's sake because superannuation is a crucial policy area for our future prosperity and this latest episode does constitute a contribution – albeit an awkward one – to the debate.

The Australian Financial Review’s superannuation writer Sally Patten delivers a great piece that really sums up all the angles The Distillery thinks can be found on this issue. This is just a snippet of it.

“It is hard to argue that anyone earning $100,000 in retirement should receive that income tax free. Even if the government’s statement that the new impost would be limited to savers with more than $2 million in super is disingenuous, a 15 per cent tax is not enormous. The bigger problem is probably going to be administering the threshold.”

The Australian’s Glenda Korporaal explains, like many of the commentators do, just how isolated the people who are to be impacted by these changes are.

“In the end, the only people really affected by the proposals to impose a 15 per cent tax rate on investments of more than $100,000 from superannuation payments, will be those with super balances of more than $2 million. Treasury estimates that there are only 16,000 people who would be affected by this change in 2014-15, only about 0.4 per cent of the nation's projected 4.1 million retirees in that year, and would only raise almost $1 billion in extra revenue over the four years of the forward estimates. But people who watch their superannuation, particularly those who have been putting in voluntary contributions into the system in addition to the superannuation guarantee levy, are the kind of financially literate people who will be wary that their more modest balances could be next.”

However there was one salient point missed by pretty much everybody about how superannuation would actually look as an investment for those few that have been affected. Business Spectator’s Rob Burgess picked up on it while referencing a story in The Australian about semi-retired financial planner John Crouch and his wife, and rather bluntly asked what Swan has against them. Nothing, as it turns out.

“In fact, the changes confirm that if caucus was divided on whether or not to 'raid' super tax concessions, the dissenters had been silenced. Cabinet approved a 'reform' that not only has nothing against the SMSFs that Crouch and his wife are relying on, but also has nothing against 99.6 per cent of retirement savers. One point seems to have been missed by many commentators. For the remaining 0.4 per cent of savers affected by the new rules (around 16,000 to 20,000 people), voluntary contributions to super are still the best tax efficiency measure they have available. It has been suggested that if that wealthy 0.4 per cent of savers will be taxed at 15 per cent for earnings above $100,000 (keeping in mind that's on earnings within their fund, not on withdrawals) that they will not want to put so much money into super.”

This is a point made by The Australian’s Andrew Main, which you can basically wheel around to any argument about an increase in taxation. The wealthy individuals, or wealthy companies, will simply look for the loopholes.

“What's most likely to happen, as ever, is that the people who've squirrelled away that much will be calling their financial advisers and accountants and they'll restructure their affairs as much as possible so they pay the least tax. At a guess, they'll load up on property, no doubt negatively geared, to enjoy the long held and near sacrosanct tax concessions there.”

Main is right to point out that negative gearing needs to be addressed, but the argument of leaving super alone because tax avoiders will find another avenue is pretty unconvincing, at the very least unsatisfying. If at first you don’t succeed, stuff it.

Some other stuff did happen by the way. The Australian’s Robin Bromby looks at the potential for increases to iron ore supply outside the markets that we’re used to hearing about in Australia, Brazil and to a lesser extent Africa. Signals are emerging from smaller, unexpected operators in India, Peru and even China.

Speaking of unexpected markets, The Australian’s Richard Gluyas looks at the emerging consensus of disappointment that the BRIC nations (Brazil, Russia, India and China), with the exception of China, have booked growth rates below expectations. The new focus is the MINT nations – Mexico, Indonesia, Nigeria and Turkey.

Meanwhile, The Australian Financial Review’s national affairs columnist Jennifer Hewett was clearly impressed by the passion that Fortescue Metals Group chairman Andrew Forrest expressed at the Boao forum in China about the problems faced by both Australian and Chinese companies when investing in each other’s backyard.

The Australian Financial Review’s Chanticleer columnist Tony Boyd looks at the capital raising efforts of yellow diamond company Rothery. The story is worth reading if for no other reason than the amusing name of its Russian-born chairman Alex Alexander.

In other company news, Fairfax’s Michael West investigates the reasons of why Rand Mining and Tribune Mining are valued so poorly by the market compared to some other ASX-listed gold players.

Fairfax’s Elizabeth Knight charts the spectacular decline of Billabong International, where the company once valued at $5 billion will now be lucky to secure a takeover offer of just $300 million.

And finally, The Australian Financial Review’s Andrew Cornell rips into shadow treasurer Joe Hockey for his complaints that Treasurer Wayne Swan didn’t consult him on a series of recent appointments to major financial institutions. And so he should, the complaints were ridiculous.