Lost in the thorny headlines bristling around the recent superannuation fracas was the announcement that a new, independent body will be formed to oversee the long term direction of superannuation policy. It’s a laudable attempt to de-politicise super. The question is, will it work?
An election year, coupled with an imminent budget, makes for a potent mix of speculation and rumour. Less than a month ago newspapers were rife with stories predicting a ‘raid’ on superannuation savings. Suddenly, superannuation – a topic that much of the general public puts in the ‘too hard’ or ‘too far off’ basket – was top of mind.
It was quite clear from leaky senior government sources that changes were indeed being contemplated, but with a vacuum of concrete information, it was easy for fear and uncertainty to set in. Cue the screaming headlines.
As we all know, the government moved swiftly on a Friday morning to halt the speculation and announce changes “to make the superannuation system fairer”. The changes themselves were, on the whole, supported by the industry. But most importantly, like many things related to superannuation, they were too complex to harness the short attention span of the general public.
With phrases like “Cap the tax exemption for earnings on superannuation assets supporting income streams at $100,000, with a concessional tax rate of 15 per cent applying thereafter” and the assurance from the government that the change would only affect 16,000 taxpayers at the higher end of the wealth spectrum, you could almost hear the general public snoring. The government’s goal of allaying the concern of a big bad new tax on everyone’s superannuation was achieved.
It all sounds too easy. Have we been lulled into a false sense of security?
There may not have been a sweeping reform announced, but the Government committed to establishing the ‘Council of Superannuation Custodians’, a body to ensure that future changes to the superannuation law would be consistent with an agreed ‘Charter of Superannuation Adequacy and Sustainability’. The council will consist of eminent representatives drawn from the community, industry and regulators – basically, a non-statutory body charged with an advisory role to the Parliament. To the average voter in a marginal seat, it sounds like yet another benign government department. However, to anyone with a keen interest in superannuation policy, it’s a sign that the reform journey doesn’t end here. In my opinion, that’s a good thing.
We can’t escape the fact that the current system doesn’t do any favours to long term budget outcomes. Following the sweeping changes made by the Coalition in 2007, tax is only levied on contributions and earnings, not benefits. But as pointed out by tax academics and actuarial gurus, the ideal system would be to not tax (or minimally tax) contributions and earnings, and instead tax the withdrawals.
Moving to such a system is politically painful, as it relies less on collecting tax now and shifting it to times beyond the current electoral cycle. When cuts to services are unpopular and there is mounting pressure for a return to surplus, you can see why the government may be staving off what may be a sound policy in exchange for cold hard revenue. As ASFA said in its 2013-14 pre-budget submission “Superannuation is not about short-term collections of tax, it’s about addressing a long-term demographic time bomb”.
Nevertheless, creating an ‘independent’ body to oversee proper reform is laudable. Industry generally welcomed the move to de-politicise the superannuation debate, and rightly so. The sustainability of the retirement savings system requires long term thinking and planning, and shouldn’t be used to garner flashy headlines in the papers.
I sincerely hope the Council does not end up in the same position as the Henry Tax Review – a fine piece of policy architecture that could have been used to achieve long term structural tax reform that was instead mangled into publicity-rich fight with the mining industry. It’s in everyone’s interests – workers, retirees, superannuation funds and service providers – to ensure we have a stable, sustainable and efficient system. With careful foresight and rich policy debate, we may actually get there.
