Malcolm Turnbull should defend self-funded retirees
Labor backflips on dividend imputations
Labor's latest plan to scrap cash rebates for excess franking credits has united the Coalition and the opposition on one aspect of the policy – the need to do more to protect pensioners. But there's one group of retirees where there's been far less outrage expressed by both sides during the past two weeks – self-funded retirees in
self-managed super funds who don't qualify for a pension.
In Labor's case, of course, such people are dismissed as the very wealthy who should look after themselves. In the government's case, the rhetoric has been far more sympathetic but the primary focus has been on pensioners hurt by Labor's "pensioners' cash grab".
According to the Coalition, Labor's new deadline of this Wednesday for exempting existing self-managed super funds with at least one part-pensioner means Labor still can't claim to be protecting all pensioners.
The government has also condemned the chaos of Labor's supposed
"pensioner guarantee" put together two weeks after the initial policy was announced.
"It's another example of a shambolic policy on the run," the Prime Minister declared in Parliament, describing it as a combination of "avarice, malevolence and incompetence".
Malcolm Turnbull did cite Labor's attacks on all retirees on "low incomes" and the counterproductive impact of forcing SMSFs out of investing in Australian fully franked shares in favour of foreign shares or property. But so far at least, there's been an apparent reluctance to go into much detail over the numbers and incomes of self-funded retirees in SMSFs badly affected by Labor's policy.
Presumably, it was considered to play less well politically than the plight of pensioners – even if this calculation wasn't borne out by the last Newspoll.
That approach looks as if it will (and should) change, particularly given Labor has belatedly excised the most potent lines of attack. But even on Tuesday, by far Turnbull's most frequent references were still to pensioners.
Super-rich myth
Yet the SMSF Association points out that the number of retirees who receive income from SMSFs already adds up to more than 350,000 people, with many hundreds of thousands more expecting to do so in future years. And rather than being the super rich depicted by Chris Bowen and Bill Shorten, the great majority withdraw relatively modest annual incomes from their SMSFs, in many cases only marginally above the full pension.
For all Chris Bowen's complaints about all of those super-rich retirees getting millions of dollars in cash rebates, for example, the latest Australian Taxation Office figures show that only 0.5 per cent of the 600,000 self-managed super funds have assets over $10 million. Another 2.5 per cent have assets between $5 million and $10 million and 11.5 per cent between $2million and $5 million. Good luck to them.
But the Association says, for example, that the average balance in the funds is $1.1 million. Remember that SMSFs typically are composed of two members – husband and wife. That leads to an average income of $50,000 – or $25,000 per retiree – with the changes reducing that amount by about $5000.
For those SMSFs heavily weighted to Australian shares, which is also typical, the reduction in income would be even more severe – leading to annual incomes for two people in this era of reduced returns of under $40,000 for many.
This compares with a full pension for a couple of just over $35,000 – and with few of the concessions and benefits available to those who qualify for the pension. The obvious question for middle-income and even relatively high-income earners is – why bother to save as much as possible for retirement?
This is in part due to Morrison's own measures, introduced when he was social security minister, to cut the thresholds for eligibility for even a part-pension. For a couple, that threshold has gone from having no more than $1.175 million in assets apart from the family home to $830,000 today.
Fiendish complexity
This policy led to a big backlash against the Coalition from many older Liberal voters and party members at the last election – as yet another example of a (Coalition!) government changing the rules on superannuation while targeting those attempting to look after themselves.
Morrison also announced a new limit of $1.6 million for a tax-free pension super account, with any more transferred to an accumulation account taxed at 15 per cent. That naturally also reduces – though does not eliminate – the value of cash rebates for excess franking credits in those accumulation accounts.
Now it is possible to argue against or alter the system of dividend imputation in general – but that is not what Labor is proposing. It is also possible to argue for a cap on the amount of cash rebate that can be claimed on excess franking credits.
Even if this system would make an already fiendishly complicated system more complex, it would eliminate the prospect of the small percentage of wealthy retirees getting huge cash refunds. But that is also not what Labor is proposing.
It's also possible to argue that Australia's tax-free superannuation in pension mode is not sustainable. But this ignores the fact that Australia (unusually) taxes contributions and earnings in super rather than the more typical approach of taxing superannuation income only in the pension phase. No change proposed there.
Instead, Chris Bowen is arguing Labor's latest changes mean 94 per cent of the projected revenue of $59 billion over a decade is maintained even though Labor is now exempting 25 per cent of the people affected.
Leaving aside the rubbery predictions of revenue projections over a decade, this happily ignores the inevitable behavioural changes in response to yet more changes to super rules. Here we go again …