At last, super common sense

Treasurer Scott Morrison and Minister for Revenue and Financial Services Kelly O’Dwyer take questions from the media about the changes to superannuation reform package at Parliament House. (Picture Gary Ramage)

Hallelujah. Basic common sense is now starting to appear in the Turnbull camp. I hope that among many others, I played a role in bringing the government to its senses. (For more see Morrison is missing the point on super, September 7.)

The budget decision to have a lifetime non-concessional cap of $500,000 was one of the worst measures ever proposed by the so-called $10 million club of highly paid public servants, plus the Treasurer.

While there were clearly immediate budget cost savings, the impact meant that super could never be used as a major source of retirement income because you could not invest enough in it. The proposal was merely a cost transfer from future years into the current year.

As I have explained to readers before, it meant that middle-income retirees would need to save via the family home and they would be prevented from downsizing. It was a really stupid decision.

Bill Shorten understood the superannuation movement better than Scott Morrison and the $10 million club and he would never proceed down the original budget path.

When federal politicians took the proposal to their constituents they were told very clearly how stupid Morrison and the $10 million club had been. Many stopped donating to the Liberal Party and the superannuation mistakes went close to costing Malcolm Turnbull the election. Only the Victorian CFA mess saved Turnbull.

The new plan is very different (you can find all the details in the government’s press release announcing the measures). Reducing the amount of tax-paid money you can contribute per year from $180,000 to $100,000 is a manageable cost saving. It would seem that once a fund reaches $1.6 million there can be no more tax-paid contributions.

For the vast number of small enterprises around Australia, if they’re sold or wound back, the cash released can be put into superannuation to provide for retirement. It means that middle-income earners, when they’ve paid their mortgages down, can use the cash in superannuation to fund retirement without relying on the government pension and/or increasing investment in the family home.

The government’s other change to super — to increase the tax on super income in pension mode from nil to 15 per cent for super funds above $1.6 million — was not a controversial proposal.

The rival ALP/Shorten proposal taxed income above $75,000 in super funds in pension mode at 15 per cent and raised a similar amount of money.

I’ve always thought Shorten’s proposal was better but many disagree. Still, I have no objection to the Coalition’s proposal. Both plans raise similar amounts of money.

Of course, the government’s original plan meant that it was almost impossible for younger people to ever put $1.6m into super. That multiplied the nonsense in the original budget proposal. It will now be possible to reach that level.

Hopefully we will get support from both the ALP and the Coalition for these proposals. If that happens it will provide a degree of certainty in super we haven’t had for the past five years.

And remember, in terms of long-term costs, by far the biggest cost is the $6bn a year it’s costing to fund public service defined benefit super funds. The costs of those funds, although closed, have been boosted by rorts that should never have been allowed. That rorting should be the focus now for the Treasurer and Opposition. They will need to get advice outside the public service.

Hear from Alan Kohler, Robert Gottliebsen, Stephen Bartholomeusz & John Durie at a special member Q&A. Find out more or book tickets here.