Gotti the rent-seeker wails at modest super reforms

Advertisement

By Leith van Onselen

After lobbying incessantly against the Turnbull Government’s modest reforms to superannuation announced in last year’s Budget, Robert Gottliebsen (aka “Gotti) has gone on another rant today against possible further changes affecting self-managed superannuation funds (SMSFs). From The Australian:

Let’s hope that Treasurer Scott Morrison stays well away from superannuation changes in next week’s budget. Last year’s changes were a complete botch because the people around him on superannuation matters do not understand the industry.

Now in the weeks leading up to the budget, it is clear that the same people are still steering the government’s superannuation ship because another example of superannuation incompetence has emerged.

Separate from the 2017 Budget, Parliament is set to consider a bill that drastically changes the rules for those who have borrowed in their superannuation fund to buy property.

And, surprise, surprise, once again it looks like a botched job so Scott and his people are trying to sneak it through the parliament with very little debate and examination…

The 2016 budget superannuation changes were retrospective but the government said they were not. They were not telling the truth and the backbenchers worked this out and forced change. Here we go again with what looks very like retrospective legislation wrapped in a very complex bill. Our retirees deserve better.

And what is it that Gotti is whinging about this time? Well, he’s angry because under the Turnbull Government’s draft legislation, any debts in a SMSF will be added to its asset base for the purposes determining the new $1.6 billion limit on super pensions that come into effect on 1 July. The new rules are designed to stop people sidestepping the $1.6 million cap by using borrowings to reduce their asset values. Hardly seems unreasonable, does it?

As noted by my cousin Peter van Onselen over the weekend, baby boomer rent-seekers like Gotti have become the masters of the superannuation scare campaign, howling outrage at even the most modest reform proposals:

Advertisement

We need to be clear when outlining just how insignificant the changes to super have been for most Australians. Ignorance is driving much of the fear in this ­debate.

While baby boomers are, as already mentioned, retiring en masse, most will continue to pay absolutely no tax on earnings in their superannuation accounts. That is the political reality. When I say most, we are talking about upward of nine of out 10 retirees living off their superannuation savings, and that’s before considering all those other over-60s living off the pension.

A small number of retirees will be required to pay a very small share of tax, courtesy of the ­reforms the government ushered through soon after the election last year.

The changes have left a rhetorically loud (if numerically small) grouping of elites very ­unhappy. They believe… [they] have earned them the right to pay no taxes whatsoever in retirement — notwithstanding the costs an ageing society im­poses on the rest of us in policy areas such as health.

Let’s put what they are collectively moaning about into context. How dare [Kelly] O’Dwyer support ­reforms that would see a 15 per cent tax on superannuation invest­ment earnings beyond the earnings on the first $3.2 million invested by couples (half that for individuals). That, according to O’Dwyer’s critics, is an unacceptable reform. I say it continues to be an unbelievably low rate of tax.

Assuming low investment ­returns of 5 per cent a year, $3.2m invested would return at least $160,000 each year. No tax is paid on that by retirees, not before the changes the government made and not after them. All that happens now (which did not happen before) is that 15 per cent tax is paid on any additional earnings. The principal ($3.2m or greater) is not taxed, which is important to be aware of.

So if you have super earnings of $200,000 each year, you now pay the whopping tax total of $6000.

Compare that with every generation X, Y or Z person paying marginal tax rates on their ­income earnings… It doesn’t seem very fair, does it, when the baby boomer earning $200,000 on their super every year is paying only $6000?…

This is how broken our political debate has become, and it’s also a sign of how powerful the baby boomer generation is politically.

The below Grattan Institute chart also shows that the top 10% of income earners perversely receive far more generous taxpayer assistance than the other 90% of income earners under the current superannuation arrangements (see left pane):

ScreenHunter_14758 Sep. 05 08.35
Advertisement

Whereas under the Coalition’s upcoming superannuation changes, the highest income earners would continue to receive the lion’s share of taxpayer assistance (right pane above). As noted by Grattan:

Before the changes, someone in the top 1 per cent of income earners could expect to receive two and a half times as much in tax breaks from super over their lifetime as a retiree with no assets receives in pension. This is also two and a half times as much as the average income earner receives in pension and super tax breaks combined. The Budget changes merely trim the worst of these excesses: the top one per cent now receives just twice as much as low or average income earners.

Hardly unreasonable, is it?

Advertisement

Of course, the hidden objective of Gotti’s incessant ranting over super is not to achieve genuine and equitable Budget reform, which spreads the burden across the community (and across generations). But rather to derail superannuation reform and protect the tax-free status of his own (and his reader’s) retirement savings.

[email protected]

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.