The big news in super right now is the proposal by Opposition Leader Bill Shorten to hit thousands of self funded retirees with a new tax on super – the implications of which have obviously never occurred to anybody in the Labor Party.
Unfortunately, dreaming up impractical ideas to hit superannuants is not just the prerogative of Labor. Who could forget August 1996, when incoming Prime Minister Howard introduced a surcharge of 15% on superannuation contributions? There was no consultation with industry, and the cost of administering it was almost as much as it raised.
It was called a ‘surcharge’ because the Coalition had promised “no new taxes”, but voters weren’t fooled by the terminology. It was one of the most unpopular imposts ever put upon the Australian people, was watered down in 2001, and abolished altogether in June 2005. The irony is that it is still causing work at the tax office due to defined benefit liabilities, and the amendment of old returns.
When introducing legislation to abolish the surcharge, Finance Minister Nick Minchin said, “We made clear in 1996 that the surcharge was not good policy per se, but was a necessary measure to help get the budget back in good shape … we can now remove what was only ever seen as temporary medicine for Labor’s fiscal follies”.
The Gillard Labor government announced a reintroduction of the surcharge at its original rate of 15% in the May 2012 Budget. It was not passed by parliament until June 2013, but was then backdated to take effect from July 2012.
But an extra tax on contributions is not enough for Labor. They now wish to tax members in pension phase as well.
Shorten has announced that, if elected, Labor would “re-introduce” a tax on the earnings of super funds, and reverse the abolition of such a tax by the Howard government in the May 2006 Budget. He can’t even get his facts right. There has never been a tax on the earnings of a super fund in pension phase – what the Howard government actually did was make withdrawals from super tax free once a member reached the age of 60.
Labor proposes a tax of 15% to apply to the earnings of superannuation funds in excess of $75,000 a year per member. On the face of it, that’s simple, but as ex-Tax Office Deputy Commissioner Stuart Forsyth points out, it would be a nightmare to administer in practice.
He believes Labor is suggesting “a new calculation of a notional share of the taxable income of the fund that could apply to a member’s account as if it were not in pension phase. This would then be adjusted for capital gains, and then aggregated by the ATO. Any liability would somehow be advised to multiple funds, with the potential to be amended on multiple occasions.”
As Forsyth points out, this would create a new and strange compliance burden, while the cost to implement it would be prohibitive both at the government level and the industry level.
Whenever I make a speech, I ask the audience what they think about super. There are those who love it, and those who hate it – but on one aspect there is a common belief. Everybody is sick of the continual changes. When the Rudd–Gillard government was in office, they made history by being the only government in Australia’s history to alter the superannuation settings in every Budget from the time they gained office in 2007 until their resounding defeat at the polls in 2013.
There is an overwhelming demand for superannuation to be left alone. It’s time all political parties listened.