Turnbull hangs tough on super reforms

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By Leith van Onselen

Prime Minister Malcolm Turnbull continues to hold the line against ongoing party white-anting against the Coalition’s announced changes to superannuation.

As reported by David Crowe today, the backbench revolt over the so-called “retrospective” caps on lifetime superannuation contributions from post-tax earnings has hit fever pitch:

Angry MPs are determined to press for changes at a partyroom meeting on Monday… there is a concerted push to adjust the most controversial measure — a $500,000 “lifetime cap” on super contributions made after tax — by dropping the idea of backdating it to July 2007 and starting it from budget night ­instead.

Moreover, Labor continues to inflame the situation with opposition financial services spokesman, Jim Chalmers, requesting that the cap be made “prospective rather than retrospective”. From The AFR:

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“I think that $500,000 cap, which is back-dated to 2007, is the very definition of retrospectivity,’ he said.

“I think it’s pretty hard to cop a view that says that something that is back-dated and calculated from 2007 but not announced until 2016 is anything other than retrospective.”

For his part, Turnbull has launched a series of phone briefings with colleagues to defend the Coalition’s super package and insist on legislating the changes as soon as possible.

The Budget is expected to lose some $550 million of savings over four years if the cap takes effect from Budget night, rather than 1 July 2007, making it an important ingredient for Budget repair.

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For mine, there is little sense in backing down now on any elements of the Coalition’s super reform package. It has just won a tight fought election. To back down now would be like John Howard retreating from GST reform after its near death experience in the 1998 Federal Election. Why go to all the effort of announcing a vital policy, which has the support of The Greens (making passage through the Senate easy), only to then back down after forming Government?

Besides, concerns over so-called “retrospectivity” of the $500,000 cap do not hold water. Here’s how ABC’s Fact Check evaluated this claim:

It is the case that the lifetime cap is calculated from July 1, 2007. But those who have already exceeded it through past contributions will not suffer any direct adverse consequences, irrespective of the size of the excess.

They simply will not be able to make any additional contributions in the future.

In fact, these people are in a better position than those who have not yet exceeded the $500,000 cap or do not yet have a super account. The latter group will never be able to exceed the cap.

This measure could only be retrospective if the chosen definition is so broad that it encompasses every policy change that applies to existing superannuation accounts.

Potentially, some super account holders who assumed the law would never change may have their arrangements disrupted. But this alone does not make a change retrospective…

Only on the broadest possible meaning could the lifetime cap on non-concessional contributions be described as retrospective.

Those who have already exceeded the cap will not have to transfer any money out: they are, in fact, advantaged over those who have not yet reached the cap.

Ultimately, using the “retrospective” label is a convenient way for those affected to criticise the changes when the underlying objection is based on the increased tax they will have to pay.

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In short, Turnbull must continue to hold the line on superannuation. And Labor should support the reforms.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.