Super changes = the mining tax

What is the government hoping to achieve by its radical plans to alter superannuation taxation and rules?  It’s not really about the money (close to $3 billion net over four years, an estimate that will not be met).  It’s all about crass and populist politics.

My guess is that the super changes could end up like the mining tax – in tears and seriously damage the government.

And the government has come up with a really dopey definition of the objective of superannuation:

To provide income in retirement to substitute or supplement the Age Pension.

This doesn’t get us anywhere.  There could be a $1 supplementation of the Age Pension and it would meet the objective.

Should we really be asking people on low income to forego current consumption for decades (and if the industry has its way, the SGC will go to 12 per cent at a minimum) in order to provide some meagre supplement to the full Age Pension?  This is paternalism at its worse, but of course generates fees and charges for the industry (the real objective of superannuation is to promote the superannuation industry – everyone knows that).

If the system of superannuation cannot promote rapidly rising proportions of completely self-sufficient retirees, it is not doing its job.

Why would the government go for all those radical changes to superannuation?  It has nothing to do with good policy but because it can cry out it’s fair, fair, fair – that will be the mantra.  It’s of course a broken promise (see Morrison’s commitment not to increase taxes on superannuation) but again this lot doesn’t care.

Let’s face it, we know the answer  to the wider issue: the taxation of savings must be different from the taxation of current income. We should have a much more even treatment of the taxation of savings across all forms – the Henry Tax Review recommended discounting the returns by 40 per cent – although there is a case for more concessional treatment of superannuation because the monies are locked up until preservation age.

So what does the Coalition do?

  • It lowers the concessional contributions cap;
  • It changes the non-concessional contributions cap retrospectively and sets a lifetime limit;
  • It retrospectively imposes a lifetime limit on the size of tax-free retirement accounts;
  • It imposes a 15 per cent tax on the income from any residual account, mirroring Labor’s policy;
  • It reintroduces Labor’s low income superannuation contribution (why, oh why? – politics);
  • It matches Labor’s policy on Division 293, imposing a 30 per cent contributions tax on those with income (defined for this division) of $250,000 per year or over;
  • It pretends to introduce commensurate measures for defined benefit superannuation members, which are just homeopathic and the government knows it (note that members of DB untaxed schemes pay no contributions or earnings tax, apart from the high income earners now and then only 15 per cent);
  • Lots of other bits and pieces such as rollover of unused concessional caps, shifting balances to spouse accounts (sounds a bit 19th century, but there you go), elimination of anti-detriment rule, changes to the transition to retirement rules, allowing contributions past 65 years and other minor changes.

This is seriously over-engineered stuff, dreamt up by bureaucratic dummies who wouldn’t have a clue about the world of superannuation and the excessive compliance costs of these changes.

It outLabors Labor.

You don’t need all these caps; it is just ridiculous.

The relevant section of the Tax Office will have to be expanded enormously. 

I love this bit of the budget papers:

The superannuation changes will improve the integrity of the superannuation system by reducing the extent to which it is used for tax minimisation and estate planning purposes.

So it’s fine for negative gearing to be used for tax minimisation and estate planning purposes but not superannuation.  You know it makes sense.

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56 Responses to Super changes = the mining tax

  1. memoryvault

    The relevant section of the Tax Office will have to be expanded enormously.

    And you’re asking why is it happening?
    Silly girl.

  2. Phil

    I run an smsf. By the time the auditors sort all this shit out there won’t be a cent left.

  3. meher baba

    To the extent that I can understand how this is going to work, I think you are absolutely right about the ATO needing a lot more people to administer. A key problem is surely going to be keeping tabs on the individual lifetime cap on non-concessional contributions, particularly for people who move from super fund to super fund. Yes, a lot of non-concessional contributions are in big lumps, so they’ll be easy to spot. But there are also many small contributions from people whose employer contributions and/or their salary sacrifice contributions have passed the concessional cap in a given year.

    What these changes will do is to cause a lot more people to find themselves inadvertently breaching the rules, which is not going to lead to a lot of happiness out there in voter land.

    The lifetime cap on non-concessional contributions is one aspect of the policy that I really don’t understand at all. If the upper limit for total contributions+earnings is going to be $1.6 million, then that should be available to everyone, regardless of how they get there.

    What we now seem to have is a “right way” of saving $1.6 million over a lifetime (ie, a middle income earner who can save $1.1 million or more through concessional contributions and fund earnings) and a “wrong way” (eg,being a lifelong low income earner who approaches retirement age with a balance of $800k and then inherits $800k and wants to put it all into his or her superannuation). The person who gets to $1.6m the “wrong way” is going to be taxed more harshly than the person who gets there the “right way”, but I’m buggered if I can see what sort of sensible policy objective is thereby achieved.

  4. meher baba

    BTW, re the lifetime cap of $1.6 m. Professor Sloan, I did like the point you made a day or so ago that it is possible to assess the value of a pension from a defined benefit fund and that perhaps a cap could be put on these as well.

    I think I’m right in saying that, in relation to the super schemes that most retired or still serving baby boomer pollies and senior public servants belong to, an actuary would value an indexed pension of around $100k at around $1.6m. These days, most pollies and senior public servants retire on indexed pensions worth more than $100k.

    This policy change can reasonably portrayed as a conspiracy by baby boomers against Gens X and Y.

  5. Gab

    Thank the stars turnbull has already said he’ll be putting on an additional 1000 ATO employees.

    How nice, he’s created jobs for them.

  6. sabena

    My local member(Paul Fletcher) has 5 strikes to his name:-
    1.He voted for Turnbull.
    2.He announced green subsidies for councils from the Clean Energy Finance Corporation.
    3.He announced the extension of benefits for Norfolk Island residents which will turn them into mendicants like many Tasmanians.
    4.He announced restrictions on the flight paths for Sydney West airport.
    5.As part of the government,he agreed to the changes to superannuation.
    So he won’t be getting my vote.

  7. Robbo

    People contribute to superannuation schemes to avoid the Age Pension if they possibly can. This bullshit from Turnbull and his lot about super supplementing the Age Pension is the sort of rubbish that we expect from the Labor Party. Now we have the Liberal Party joining Labor as political forces seeking to control us all from cradle to grave. Whatever happened to the Party that Menzies founded that had at its core the principles of smaller government and looking after yourself coupled with a government that kept its nose out of things as much as possible. Well the answer to that is that the Party MPs elected a socialist as its leader and he has started the process of swinging it to the Left as fast as he can. This incompetent untrustworthy control freak will kill the Liberal Party if he is allowed to continue driving it along its present path. How can anyone who actually despises socialism possibly vote for a Turnbull led Liberal Party?

  8. Sirocco

    an actuary would value an indexed pension of around $100k at around $1.6m.

    Does that not imply a ROI of 6.3%. Where can I get that today?

  9. Driftforge

    And this is why places like the Cook Islands do just fine.

  10. TC

    But it is far less complicated than paying seven dollars to see a doctor.

  11. John Comnenus

    The stupidest decision in superannuation policy is the tax arrangements.

    If the purpose of the policy is to get people off the pension by creating income for the individual. This can only be created by contributing to a super fund.

    The reason this policy is important is because there will be far fewer tax payers to support retirees in the future.

    So an optimum scheme would have:

    1. Had a totally tax free input regime. Every cent put in does not incur tax.
    2. Every cent taken out is taxed at the marginal rate as per every other form of income.

    This would:
    1. encourage more savings;
    2. create more capital to invest;
    3. decrease the cost of super to employers; and
    4. ensure tax income in the future when there will be far fewer tax payers – which was the whole reason for the policy in the first place.

    Instead we have a complex regime driven by tax concessions consumed now and a decrease in taxable income in the future. Once large amounts of money are paid out in Superannuation in 20-30 years time, the Government will start taxing until there is no tax advantage for retirees.

  12. Fleeced

    How can anyone who actually despises socialism possibly vote for a Turnbull led Liberal Party?

    Because they deem ALP worse?

    If I worked a normal job, I’d probably be inclined to boot him out, but for reasons I won’t go into, I’m presently living off investments which I think would suffer more under ALP. My short-term interests dictate that Libs are still preferable.

    That said, I live in a Labor seat anyway, so it won’t make a difference, and in the senate I have no intention of voting for either of the major parties.

  13. memoryvault

    1. Had a totally tax free input regime. Every cent put in does not incur tax.
    2. Every cent taken out is taxed at the marginal rate as per every other form of income.

    John will you please refrain from spouting common sense here?
    This thread is about a political decision affecting millions of Australians.
    Common sense is not an option.

  14. Empire

    Whatever happened to the Party that Menzies founded that had at its core the principles of smaller government and looking after yourself coupled with a government that kept its nose out of things as much as possible.

    It was captured by the doctors’ wives before they won their first federal poll and has been on the slide ever since.

  15. Super’s as safe as a bank. A Cypriot bank.

  16. Ellen of Tasmania

    It’s all about crass and populist politics.

    All the time, now. The age of reason is dead. Idiots vote. Look at Greece – they are beyond broke, they voted for their leftist darlings and now they’re marching in the streets again because their welfare cheques are going to be cut anyway.

    Running out of other people’s money. The ‘eat the rich’ rhetoric coming from the Lib-Labs (same song sheet) is depressing because we know people will buy it.

  17. The Pugilist

    Thank the stars turnbull has already said he’ll be putting on an additional 1000 ATO employees.

    How nice, he’s created jobs for them.

    Turnbull and ScoMo keep saying the budget is about jobs and growth. Technically they’re not lying. ATO jobs and growth in the bureaucracy and compliance costs.

  18. outsider

    Vote them out, you won’t be Robinson Crusoe.

  19. Just interested

    Time to be a ‘delcon’, anyone?

  20. HRT

    The Pugilist
    #2024589, posted on May 9, 2016 at 5:19 pm
    Thank the stars turnbull has already said he’ll be putting on an additional 1000 ATO employees.

    How nice, he’s created jobs for them.

    Not to forget the jobs in the soon to exist tobacco flying squad.

  21. daggers

    While this happens politicians fix a very generous indexed linked retirement scheme for themselves. It really is breathtaking that there is no discussion of this.

  22. JohnA

    I love this bit of the budget papers:

    The superannuation changes will improve the integrity of the superannuation system by reducing the extent to which it is used for tax minimisation and estate planning purposes.

    So it’s fine for negative gearing to be used for tax minimisation and estate planning purposes but not superannuation. You know it makes sense.

    That statement displays the underlying assumption that “tax minimisation” and”estate planning” are considered equivalent by the APS policymakers who crafted this crazy idea for the government.

    AND that by making it more expensive to engage in said minimisation, that “da ebil wealthy” will be dissuaded from denying the holy government its rightful share of the proceeds of their foresight and thrift.

  23. memoryvault

    Time to be a ‘delcon’, anyone?

    No “delcons” here – it is a derogatory term.
    We are DefCons.
    And we are at Defcon 1.
    The Nuclear Option is no longer merely “on the table”.
    It is activated and in play.

  24. tbh

    I took the time to read Bruce Brammall’s analysis on the Super changes from the budget and frankly it made my eyes bleed. No slight on Bruce, it’s so complicated and riddled with land mines now. I like to think I’m a pretty financially literate bloke and that Mrs TBH are well on the way to being completely debt free independent in retirement, but the new rules utterly confuse me. I’ve now decided that I can’t trust the system any more and more to the point, I can’t trust that it won’t undergo more radical change in the future. On that basis I won’t be contributing another cent to my super fund from this point onwards.

    I’m now self employed and can opt not to “pay myself” any super and that’s exactly what I’m going to do. I’d rather forgo the alleged tax benefits of contributing to my fund and use my post tax income to invest in Mrs TBH’s name and use that vehicle to manage the how and when of our tax planning. It’s ridiculous that I’m reduced to this quite frankly.

    You can’t ask Australians to quarantine a substantial amount of their wealth in a scheme to reduce the pension burden on the country then turn around and a, complain that it’s working too well and needs to be taxed b, retrospectively punish people for using it and c, change the bloody rules every election cycle. Wealthy people will of course find a way around it and middle income earners like myself will be left tip-toeing through the minefield hoping not to get my leg blown off by the ATO.

  25. H B Bear

    You can thank Howard and Costello for removing the RBL limits, allowing $1m one-off transfers and making all withdrawals in the pension phase tax free for these proposed changes. This opened the door for small numbers of people to make excessively aggressive use of superannuation as a wealth planning (not retirement income) purposes. It also made the whole superannuation system open to attacks based on fairness that Labor were always going to make.

    Neither the assets test nor income test for the aged pension is tight enough – allowing people to double dip or structure their way to both super and the pension.

    It is now over 20 years since Keating introduced compulsory superannuation and it looks worse with every year that passes.

  26. OldOzzie

    Turnbull and Morrison risk losing the federal election if they proceed with changes to superannuation

    May 9, 2016 9:14am
    Rowan DeanThe Courier-Mail

    PRIME Minister Malcolm Turnbull and Treasurer Scott Morrison have 54 days to scrap their superannuation changes or risk losing the election.

    It’s an ominous figure – it’s the same number of Liberal MPs who overthrew Tony Abbott to install a man who treats the Coalition’s most loyal supporters with contempt.

    It also happens to be the age of many Liberal voters who may well vote Labor on July 2 unless the Coalition’s disgraceful superannuation caps are ditched.

    In fact, anyone a decade either side of 54 who has worked all their life to save for their own and their family’s future will think twice about voting Liberal if the super rules, sprung like a booby-trap on Budget night, are still there on election eve.

    The Australia we love, that the world envies and that has blessed us with health and prosperity, was built on the back of those mums and dads who struggled to build their businesses, work their way up the ladder and create a great home for their kids.

    It is the post-war and migrant generations and their offspring who worked so hard to contribute to a generous, equitable, aspirational, multiracial modern society that rewards individual effort at the same time as protecting those in need.

    This is the social compact that made Australia so successful.

    The beauty of our post-war work/welfare system, which was completed in the ‘90s with compulsory super, is that hard work and sacrifice will always be rewarded.

    Paul Keating introduced compulsory super in 1992. The deal was: in exchange for a guaranteed low tax rate, you put aside as much money as you can – with a minimum of 9.5 per cent of your earnings – to live on in your retirement. That way you won’t need the aged pension.

    This was revolutionary long-term thinking. Most people pay lip service to the idea of “saving for a rainy day” but the reality is that without the compulsory component, we’d find reasons to spend that 9.5 per cent (12 per cent from 2025).

    The reason for the lower tax breaks was obvious – a dollar in 1992 would have far greater purchasing power than 40 years later. But – and here’s the important bit – what about the other 90.5 per cent of those earnings? Well, of course, that was all taxed at whatever normal rate these uncomplaining Aussies were on – the higher the earnings, the greater the amount.

    This is the hard cash that has paid for the hospitals, education, roads, military and other services we rely on as well, of course, as paying for all those people who can’t or won’t work.

    But thanks to years of expanding public services and bloated welfare entitlements, less than half the population now pays to support the rest. This, apparently, is “fair”.

    Only it isn’t. It is grotesque. Yet most hard-working Australians don’t complain, because they have faith in the “system”.

    Peter Costello recently pointed out that super relies, above all else, on “consistency”.

    People spend their lifetimes working, paying taxes, and supporting others – but every day are planning their own future.

    Now, the Coalition has thrown out the rule book and put a Bolshevik-style limit on how much you can save, and – disgracefully – backdated it a decade.

    It’s bad enough that in this Budget Morrison and Turnbull did absolutely nothing to rein in their out-of-control government spending and to stop the ever-increasing army of welfare recipients.

    Now they are robbing hard-working Aussies of their greatest asset: their dreams.

    They have the gall to tell the very people who have financed the welfare state that the maximum they can have in retirement (on current interest rates) is barely better than the aged pension itself. Why would they bother?

    Such betrayal from a so-called “Liberal” government is beyond belief.

  27. Tel

    It’s not really about the money (close to $3 billion net over four years, an estimate that will not be met). It’s all about crass and populist politics.

    It’s about getting one hand in the cookie jar, the money may not look like much on day one, but once that slurper gets in there… ***SHPSHLPSHSHP*** said jar will be drained.

    Hat tip to MV who was first to point this out quite some time ago IIRC.

  28. Habib

    Being a one-party state saves all that tiresome thinking and evaluating policy, when the choice is purely cosmetic, go for the cutest, or flip a coin. Seeing how leafnose-bat-ugly most of these drooling imbeciles are, I’d opt for the coin. Or don’t waste any time and go straight to the pub, you might as well blow what you’ve got before they work how to swipe it.

  29. Entropy

    And the government has come up with a really dopey definition of the objective of superannuation:

    To provide income in retirement to substitute or supplement the Age Pension

    .

    This is the bit I am struggling to comprehend. In these pissants’ mind, the bit you provide yourself is a nothing but a supplement to what the government will give you. In a rational world, the pension is a supplement or substitute for your savings. That is the actual opposite of how the government sees things.

  30. tbh

    OldOzzie, that’s a great article and sums up my views pretty well. This is a massive break down in trust of the institutions we have in this country. I’m especially aggrieved by the retrospective nature of the changes. That’s completely unjust. In what universe is it acceptable to have people compliant with the rules, change them and then tell them that they’re now in breach of laws that didn’t exist when their original investment decisions were made? This is something we expect from the left as a general rule, but not the parties that are supposed be conservative. If I wanted that kind of carry on I would have voted for the ALP.

  31. hisashi

    I think I’m right in saying that, in relation to the super schemes that most retired or still serving baby boomer pollies and senior public servants belong to, an actuary would value an indexed pension of around $100k at around $1.6m. These days, most pollies and senior public servants retire on indexed pensions worth more than $100k.

    No way – go to an online annuity calculator. I arrive at $50,320 for 1.6 mil invested at 65 years old with “inflation protection” presumably some type of indexing.

  32. hisashi

    Singapore doesn’t even HAVE an aged pension.

  33. Ian W

    I am unconvinced that the threat to make “commensurate changes” to members of public service defined benefit schemes is just hot air. To my mind it amounts to a threat of sovereign default, and Turnbull should sack the Treasurer who made it. I certainly will not vote for any party which has it as a policy. The offending sentence in the budget speech/press releases is the height of folly. I had not thought that any politician after Robespierre would be stupid enough to issue a general threat which many people would feel applied to them, and then expect to win their support.

  34. phil

    This opened the door for small numbers of people to make excessively aggressive use of superannuation as a wealth planning (not retirement income) purposes.

    Would you like to expand on that? Because blow me down if I didn’t think the purpose of being wealthy was to have…retirement income? If I have a good income at work why else would I save anything, ever?

    My beef is that I’m working to put away my own money including money already taxed in a retirement fund, and I’m accused of ‘wealth planning’ because compared to some unemployed, uneducated gambling addict with no hope of living without the pension, I have more money. WTF difference does it make to anyone else? The money being “extremely aggressively” used has already been taxed to death!! It’s post-tax income!

  35. memoryvault

    Singapore doesn’t even HAVE an aged pension.

    Singapore doesn’t tax the bejesus out of its citizens all their working lives.
    Or bury their entrepreneurial efforts in red and green tape.

  36. tbh

    Singapore is quite frankly the economic example that we should all aspire to emulate. It’s consistently scored high on economic freedom and ranked as one of the best places in the world to do business. I have issues with their one party system and their authoritarian government, but as a pure economic story it’s a bloody miracle.

  37. Notafan

    Tax free in and taxed when withdrawn at marginal rates whether income or lump sum (which might disincentize lump sum blowers then pension pleasers) is my preferred option.

    How that would transition I do not know.

    Morrison has a bee in his bonnet about people refusing to spend their super capital.

    Maybe he should have gone for death duties instead.

  38. Tekweni

    A few months ago I decided that I would not use my transition to retirement draw downs to add to my super. Instead the wife and I have just returned from 2 weeks on a tropical island, paid out of the transition to retirement. Stuff the government. Why be self funded and lose all the benefits of a state pension? At my age I am still active and why wait until 70 to enjoy life? Who the hell knows what changes will happen at the next election?

  39. Rossini

    The super changes are meant to make super a retirement income stream as well as depleting the capital base.
    Presumably not an inheritance scheme!

  40. Phil

    Which is another problem, I haven’t simulated an amortisation but grandma is 100 years old! I want to retire at 60. I need to plan my own drawdown schedule.

  41. Snoopy

    Exactly Nota, all existing accumulation funds should have been closed to contributions and new ‘zero tax in, income tax out’ accumulation funds automatically created.

    There would be a short to medium term hit to the budget, but who cares about the deficit? Longer term the need for the aged pension would be greatly reduced.

    Beneficiaries of estates would either be liable for a 20% tax on super or be able to transfer to their own super fund tax free.

  42. Fred of Greenslopes

    The KISS principle should be applied to Superannuation. Immediately, all income from retiree superannuation payouts to be taxed at the going rate. The increased tax revenue be used to phase out tax on superannuation input until it reaches zero. This will be revenue neutral over this period. End result, 38% more payout for retiree who started work at zero tax point. All voluntary superannuation contributions to be from after tax income. Most retirees do not have enough earnings to be seriously affected by tax on income and the minority better off enjoyed substantial tax breaks on super. It is not fair to all initially, but retiree and ATO will benefit in the long term. We have to bite the bullet. But I won’t hold my breath.

  43. Siltstone

    Retirement financial planning would be easy if one knew the date of ones death.
    Snoopy’s “new ‘zero tax in, income tax out’ accumulation funds automatically created” is fair. No need for any caps.

  44. Snoopy

    Fred, people receiving payments from super pension funds have already paid tax on contributions. Are you proposing they be taxed twice?

  45. Sirocco, no it does not imply 6.3%pa return. We actuaries also allow for mortality profit to boost the investment return to survivors. I would add, when it comes to mortality profit, I’d much prefer Labor/Greens types to die first, leaving the Cats to enjoy the spoils.

  46. Notafan

    You could give them a 15% rebate 🙂

  47. tbh

    Snoopy, your plan is the most sensible I’ve read yet. It’s simple and easy to understand for most punters and also fairly easy to administer for the account holder and the ATO. The big thing is that I don’t want complicated rules that mean I get taxed twice, inadvertently fall foul of the law, run out of money or any combination thereof.

    This stuff shouldn’t be as hard as it is now. A lot of people are going to get hurt financially as a result.

  48. 1234

    Catallaxy owns Scomo, lock stock and barrel. No point complaining. You are only highlighting your earlier poor judgement.

  49. AP

    Can someone please explain: If I am only legally required to keep records for seven years, how can they implement a 9 years respective law?

  50. AP

    My local member(Paul Fletcher) has 5 strikes to his name:-
    1.He voted for Turnbull.

    Paul Fletcher is a cockhead. I could have told you this years ago. He loves writing condescending arrogant replies to letters from constituents.

    A prissy private school wanker. An absolute A-grade LINO.

  51. Crossie

    I’m too lazy to search which famous bank robber said it when asked why he robbed banks: “That’s where the money is”. The same applies to taxing superannuation, that’s where the money is. What’s more, it’s completely at the mercy of any puffed up group of parliamentarians, you cannot simply take it and go somewhere else, self managed funds are just as much under the politicians’ thumb as the rest.

    People with serious money stash it in Switzerland, Panama or the Caymens. The middle gets fleeced every time.

  52. Boambee John

    To borrow some words, the compulsory super scheme “has been here too long for any good it is doing. We say to it, ‘in the name of God, go and let us be done with you'”.

    Rabz doctrine, now. Burn it down, salt the earth, sell the staff into slavery.

  53. Notafan

    Well I for one gave Abbott kudos for putting Morrison in the immigration job , rather than anointing Morrison as a future king.

    On this subject I believe Sinc is supportive of untaxed untaxed then taxed on withdrawal super.

    I’m inclined to the Snoopy model as the most reasonable option.

  54. Phil

    People with serious money stash it in Switzerland

    How would that help? The Swiss won’t keep it secret from the ATO and it is taxable.

  55. Atoms for Peace

    I had a client in the other day, and he mentioned that he had just become a taxpayer again due to the changes,
    Whether true or not, he was pissed to say the least. When are the cretins who work in the sheltered workshop called Canberra realise that changing significant goal posts will end in tears; for them.

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