Scott Morrison is missing the point of superannuation reforms

Treasurer Scott Morrison during a press conference in Perth last month. The Treasurer needs to set up a superannuation plan that lowers the need for the aged pension. (AAP Image/Richard Wainwright)

The superannuation debate should not just be about a grab bag of measures to cut current costs but a debate about how we fund the retirement of our ageing population and how we can avoid creating a crippling government pension bill.

It’s time Scott Morrison got some new advisers on superannuation. His current mob of advisers have too many people who have seen their nest gold plated with future pensions worth between $5 million and $10m. The cost of those defined benefit pensions is rising by $6 billion a year and there is a $400bn to $600bn shortfall. That’s where the big problem is.

The latest set of statements by the Treasurer confirms that somehow his gold-plated advisers — we will call them the $10m club — have restricted his understanding of the broader issues covering the government pension to the wider community and the gold plating occurring in relation to older public servants (Morrison needs to do more on reining in public service pension rorts, August 25).

This is a case where we need to help both the Coalition backbench and the crossbench senators sort out their thinking. I think Bill Shorten and his shadow Treasurer Chris Bowen have worked out their positions but, as is perfectly legitimate for Opposition leaders, they are letting Scott Morrison wallow in his own mistakes and the bad advice from the $10m club.

First of all, in the taxing of superannuation income there is actually broad agreement between the Coalition and the ALP — income in superannuation funds in pension mode should be taxed at 15 per cent over a certain level.

The ALP says the level of tax free income should be $75,000. The Coalition says that pension mode funds should be allowed to have $1.6m of assets on which income can be drawn on a tax-free basis, with the rest taxed at 15 per cent.

If Bill Shorten indexed his $75,000 cut-off point I would prefer the Shorten plan because it’s simpler but I know many readers prefer the Coalition system. In reality, there is not much difference because there is agreement on the principle and I agree with the thrust of the reforms.

What Morrison and the $10m club have not understood is that when the Treasurer announced the $1.6m tax-free asset amount, the rest of his measures made it impossible for future workers to reach that figure.

Morrison argues that most Australians are not at the $1.6m level, so, if you stop people getting $1.6m into superannuation, you are only affecting a few people.

The members of the $10m club are too isolated, enjoying as they do the superannuation joys of older public servants in Canberra, to understand what is actually happening in the rest of the country.

A vast number of Australians are now in a position to get $1.6m into their fund because when they approach retirement they can downsize their house and make a non tax-deductible contribution.

Morrison and the $10m club want to stop this happening by limiting non tax-deductible contributions to $500,000. And to make sure adequate funds for retirement are not put into superannuation they also want to cap the amount of tax-deductible contributions to $25,000 a year.

So, the average Australian must now either save via negative gearing in housing or go for as big as possible family home and use it as a tax shelter. That means that in retirement they will rely on the government pension while topping up that pension by accessing cash from the large family dwelling.

Downsizing the family home is a financial disaster under the Morrison-$10m club plan because the cash released lowers the government pension.

Remember that any money raised by cutting benefits to ordinary Australians, including public servants who joined the service in recent years, is being immediately used up by the rising cost of the defined benefit to older public servants. The big bills are at the top of the public service — the $10m club and their friends.

We need to set up a superannuation plan that lowers the need for the aged pension. The Morrison $10m club plan lowers superannuation costs in the next few years but substantially increases costs in future years as more people are forced onto the government pension.

Shadow Treasurer Chris Bowen does not have the mind numbing liability of advice from the $10m club, so, if I were Morrison I would sit down and have a chat to see if there is a way forward that means that superannuation’s main aim to reduce future community reliance on the government pension is not destroyed.

That means that, either through tax deductible or non-tax-deductible contributions, sufficient money can be invested in superannuation to make it worth having. I am not sure that $1.6m is the right figure but at least it gives us a start.

And these lunatic ideas that certain moneys coming into superannuation in different ways are allowed in simply means that incredible financial engineering is required, which benefits a select group.

Superannuation is a long-term business so we need bipartisan support and the rules should be easy to understand and implement.

To get bipartisan support means negative gearing goes into the mix but that’s surely better and less harsh than what Morrison and the $10m club are proposing.

And we need a Parliamentary inquiry into the $6bn yearly cost increase in the defined benefit scheme for public servants. That increase in costs is conveniently buried and not included in budget figures but it’s a real cost.

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