Prediction: the government’s retrospective superannuation tax change to cap after-tax contributions at $500,000 from 2007 will never happen, at least not in anything like its current form.
The measure, announced in last week’s budget, has drawn a furious reaction from the Liberal Party base and is being strongly opposed by Labor, which is hammering the retrospectivity of the measure. So far, the government’s only response has been to insist the measure isn’t retrospective and (via Deputy Liberal Leader Julie Bishop) that it will consult on implementation to ensure there are no “unintended consequences”. Since the intended consequence is to close off one of the most lucrative tax lurks available to high-income earners, it’s unclear exactly how much worse any “unintended” consequences might be.
This morning in Penrith, Prime Minister Malcolm Turnbull insisted in response to questioning there would be no changes to the policy despite Bishop flagging that there would be consultation, prompting the question of what exactly the point of any consultation would be.
The Institute of Public Affairs has vowed to campaign against the change; those stout tribunes of the elderly far-right fringe, Andrew Bolt and Alan Jones, have criticised it; former Howard-era deputy prime minister Mark Vaile today emerged to condemn it; Peta Credlin has warned the Coalition to listen to community concerns (aka concerns of the very wealthy) about it.
Make no mistake, this is good policy. Avoiding retrospectivity might be appropriate in a perfect world, but Australia’s retirement incomes system has been systematically abused by high-income earners, particularly after Peter Costello’s 2006 changes allowing wealthy Australians to pour other income into super to take advantage of its lower tax treatment.
There’s no economic benefit to this rorting. Super tax concessions have cost taxpayers easily over $100 billion over the last decade, a sum vastly in excess of what is required to provide an incentive for appropriate retirement incomes saving. And the benefits have flowed disproportionately to the wealthy. The government, which has only belatedly (and because of Labor’s leadership) moved on the issue, deserves credit for adopting a measure that so demonstrably targets its own base.
It is, however, selling it dreadfully, by trying to tell people backdating a change to 2007 is not retrospective. The calendars in Liberal HQ, presumably, haven’t been changed since the 2004 election, for nothing else can explain the insistence of the likes of Mathias Cormann and Julie Bishop that 2007 isn’t in the past; perhaps the visage of prime minister John Howard still beams down from the walls, the Liberals marvel at their good luck in facing Mark Latham, and social media is just some nerd’s fever dream.
Having been spooked by Labor into moving on super tax concessions — something Tony Abbott saw as an electoral opportunity, rather than a campaign to be worried about — the government has allowed itself to be spooked by the word “retrospective”. There’s nothing sacred about non-retrospectivity; it’s a guide for policymaking, not an unbreakable rule, and like any guide to policymaking it should be ignored if there are more important issues to consider — which, given Australia’s budget deficit and the extraordinary rorting that has been going on in this space, there most certainly are.
Labor has its own political reasons for attacking retrospectivity. It isn’t hoping to lure disgruntled high-income earners into its camp — many of the affected people wouldn’t vote Labor at gunpoint, and live in safe Liberal seats anyway — but it is making the lack of retrospectivity in its negative gearing policy a key defence against the government’s attacks, so it would hardly do to back retrospective changes in one area of tax while making a virtue of not backing it elsewhere.
But given the strength of the internal revolt against the changes, the government’s current position of consulting before implementation is unlikely to hold in the heat of an election campaign. And it may well be all for nought anyway. Post-election, assuming a Turnbull win, the government will have to negotiate the passage of the legislation through the Senate with Labor opposed.
While the Greens complained that the super tax changes in the budget don’t go far enough, rather than too far, they’ll still want to negotiate. Having twice been played for suckers by the government on passing legislation in recent months, the Greens might be more difficult negotiating partners post-election.
The government might end up putting itself through a lot of pain for no gain, and in a tight election. Don’t bank on that lifetime cap surviving too much longer.
As far as I can tell there are 3 aspects proposed:
– limiting the amount of funds in the pension phase (0% tax)
– unlimited amounts in super not funding a pension (15% tax)
– limit to post-tax contribution of $500k.
It is this last that is the only significant constraint, and it primarily impacts those on lower salaries since the high salary types have large concessional contributions.
Who would have thought?
I find the accusation that the Greens have been played for suckers to be bizarre. The pieces of legislation they have passed have been things they have wanted in the first place, such as abolition of group voting tickets. I’m not sure what else you are even referring to. What exactly is this comment supposed to mean?
Avoiding retrospectivity might be appropriate in a perfect world, but Australia’s retirement incomes system has been systematically abused by high-income earners.
Rubbish. It was the LAW. So fix the law. But not in retrospect; that is never acceptable.
“Lock step with Labor on Gonski;
No cuts to the ABC and SBS and
‘Of course I’ll still respect you in the morning'”.
@Stuart Johnson, I was wondering the same thing. It’s rather odd to portray the Greens as having been “suckered” into voting for a piece of legislation that had been their policy for a decade.