The Labor Party has once again attacked the Coalition’s $1.6 million superannuation cap today, wrongly claiming that it comprises a “retrospective” change. From The AFR:
Shadow treasurer Chris Bowen will use his speech today to the National Press Club to ramp up Labor’s attacks on the retrospectivity of the Coalition’s superannuation changes in the budget…
“When a budget measure introduced in the 2016 budget mentions that it applies from 2007, it’s clearly retrospective. And it would be better if Scott Morrison simply said so,” he will say.
“You don’t expect a Liberal Government to believe in very much but you expect it to stand against retrospective tax changes.
“Standing against retrospectivity used to be a core tenet of the Liberals: until they elected a leader free of core tenets.”
There are two key problems with retrospective changes to superannuation.
Mr Bowen will say that retrospective super changes are not only a breach of faith, but they “undermine confidence in superannuation and scare people away from investing in superannuation in the future”.
What rot. As explained in detail by the Grattan Institute’s John Daley:
“Retrospectivity”, a legal concept, applies if government changes the legal consequences of things that happened in the past…
But lots of changes affect investments made in the past, and no-one suggests they are retrospective. If I bought shares in a company yesterday, I expect that the future earnings on these assets will be subject to my marginal income tax rate. But if my income tax rates change, I would not expect that the old tax rate to be grandfathered to apply to all my future earnings.
This is the appropriate analogy for proposed changes to the earnings of superannuation accounts in excess of $1.6 million. The mere fact that no tax was paid on earnings in the past does not imply that earnings in the future are entitled to be tax free.
The ABC’s Michael Janda has also explained why Labor’s “retrospective” claim is ridiculous:
Genuine retrospectivity would be going to taxpayers and saying, ‘You know how Uncle Peter [Costello] gave you tax-free super back in 2006, well we’re going to charge you 15 per cent back-tax on all your earnings over the past decade because we’ve now realised that it was a really dumb idea..
Prospectively bringing in a new tax, raising existing levies, or putting a cap on the amount of a tax benefit that can be claimed, is not retrospective.
If it was otherwise there’d never be any changes to tax policy – increases or cuts. After all, we’d all have based our investment, career, business and other life decisions on the previous policy.
Moreover, if the Coalition’s plan is “retrospective” then so is Labor’s. Under it’s proposed superannuation reforms, annual earnings in retirement of more than $75,000 would be taxed at 15%. Assuming a 5% return, this equates to a super balance of $1.5 million – even less than the Coalition’s $1.6 million cap.
There’s a lot to like about Labor’s election platform. Misleading arguments about “retrospectivity” is not one of them.
