Superannuation, the ultimate government cash cow?

[JohnDe]

Soon after coming to office in 1996, the Howard Government introduced a superannuation surcharge for contributions from higher income earners. It's reintroduction is currently off the agenda (according to The Australian), but Labor is currently considering the following measures (below, again from The Australian).

Linking the contributions tax to a worker's marginal income tax rate would, in effect, be the same as the Coalition's surcharge, but Labor may go further, hitting income from super as well

Big governments and their bureaucrats always find new ways to tax, they are addicted to spending and need to find more income.

Senators discover middle Australia set to be hit hard by super bill

The infamous superannuation bill which taxes unrealised capital gains for the first time in the western world was expected to be passed through the House of Representatives last week. But strangely it was postponed.

Speculation about a looming deal in the Senate was naturally widely canvassed. That may be right, especially as last week passing the bill became just a little harder.

Until last week the government and the Greens could muster 37 Senate votes so needed only two Senate crossbenchers to pass a bill. Last week Fatima Payman left ALP ranks and became an independent Senator. That means the government now needs three crossbencher votes.

It is highly unlikely that the superannuation legislation has been on Senator Payman’s agenda. It is not seen as a Muslim issue. But like other parts of middle Australia, Senator Payman will discover that many Muslim Australians are set to be hit hard.

Many are shopkeepers, may own their business premises via their superannuation fund and will find themselves paying tax on unrealised capital gains.

The same applies to farmers, including struggling Tasmanian farmers where Jacqui Lambie has a special concern.

When the government first announced the superannuation tax rate would rise from 15 per cent to 30 per cent on income from superannuation savings above $3m, the government’s proposal naturally had its opponents but was widely accepted.

In its original form, plus indexation of the $3m trigger, it would have passed the Senate without a great deal of problem.

I have pointed out previously that the industry funds have antiquated bookkeeping systems and it was discovered that they could not provide the information necessary to levy the proposed tax.

The government didn’t want to back down so used the figure that the industry funds could provide – there would be a tax on gains in the total market value of superannuation funds above $3m including unrealised capital gains. The $3m trigger would not be indexed so quickly it will capture middle income Australia.

It was an outrageous proposition particularly as it will hit farmers, shopkeepers and other families that have their business premises in their superannuation fund.

It was a thinly disguised attack on small and medium sized enterprises – not an area that is high in the government agenda.

Around Canberra last week among the crossbenchers there was discussion about ending indexation, but that was a basic claim.

Many crossbenchers actually want to return to proposals that as far as possible match the government’s initial aim.

Accordingly, one plan was that those who had superannuation funds with modern accounting systems and could provide real earnings for their funds would be taxed at 30 per cent on realised income earned over $3m.

‘No other pension system in the world taxes unrealised capital gains, and it’s not the way the Australian tax system works either.’​

For members in funds that could identify and report actual taxable earnings, the proposed amendments completely removed unrealised capital gains from the tax calculation.

This is also the suggestion made by my readers.

Those that could not provide that data would have their funds above $3m taxed on the basis of a deemed earning rate related to the 90-day bank bill rate.

Those who were in funds that had antiquated accounting systems would not have to pay tax on unrealised gains but would have a deemed earning rate.

But of course, industry and retail funds currently unable to provide the data would almost certainly set up a separate fund that used modern accounting systems and members would then have the same investment choices as are currently available. Relatively few people would be linked to a deemed rate of return.

As I understand it, a number of crossbenchers are looking at a proposal along these lines. Whether they are strong enough to stand up to the government is yet to be seen.

But it will be fascinating to see if the new crossbencher Fatima Payman stands up for middle Australia, including a great many Muslims who aim to be in the middle Australia bracket and don’t want to be smashed.

On the government side my guess is that they will throw in indexation but Treasury see taxing unrealised gains as a huge long term money spinner which will be extended to many asset classes.

In the words of the Self Managed Superannuation Fund Association: “No other pension system in the world taxes unrealised capital gains, and it’s not the way the Australian tax system works either.”

“As soon as you depart from actual taxable earnings as the basis for the calculation, there will be plenty of unintended consequences and unfair outcomes, and that’s exactly how this proposed new tax will play out.”

“The only way to remove unrealised capital gains is to use actual taxable earnings.”

 

[investor13]

Norway population 5,474,360 sovereign wealth fund US$1.62 trillion

Australia population 26,649,231 sovereign wealth fund = 0

Australian debt heading towards $1 trillion

Pick the difference.

old Pauline tried to introduce a wealth fund earlier this year but it was knocked on the head rather quickly by the major parties and greens stupidly

 

[rolly1]

I still don't understand why they just don't fix the fairest tax of them all the GST. A user pays tax is I think the solution to alot of their problems. But no gov is gonna do it, that cause they can't sell it to Joe six pack lol.

 

[farmerge]

I still don't understand why they just don't fix the fairest tax of them all the GST. A user pays tax is I think the solution to alot of their problems. But no gov is gonna do it, that cause they can't sell it to Joe six pack lol.

@rolly1 When we get a government with the country's best interests at heart and not their well-polished leather lounge chairs and their next stint in the halls of power, then we just might get that tax problem changed.
But as we know all governments of all persuasions have a healthy disrespect on removing existing burdening taxes.
So much easier to just keep increasing them.

 

[farmerge]

Good evening divs traveeling well I trust.

 

[farmerge]

Unfortunately, time to hit the Slumber King, seeding programme to finish off, about 3 days work.

 

[divs4ever]

battling with the internet and update cleanup , but have been worse

thanks

 

[Bellcose]

Qantas Super is to merge, subject to all that legal stuff, with Australian Retirement Trust. So another $9b in the kitty.

 

[qldfrog]

Bloomberg - Are you a robot?

1.1 billion in smoke
We have one super with AustralianSuper.
The good thing is i have only 1.5% of the total with AS with the conservative balance , which could/may have exposure to that disaster, all remaining funds are cash, TD or managed directly with their member direct option
But seeing the amounts lost, i do expect another round of legislation changes.
WTF were they thinking, putting super funds in start-ups

 

[divs4ever]

Bloomberg - Are you a robot?

1.1 billion in smoke
We have one super with AustralianSuper.
The good thing is i have only 1.5% of the total with AS with the conservative balance , which could/may have exposure to that disaster, all remaining funds are cash, TD or managed directly with their member direct option
But seeing the amounts lost, i do expect another round of legislation changes.
WTF were they thinking, putting super funds in start-ups

and most didn't see it coming

i was on red alert , when several super fund managers traveled overseas in a group 'to explore overseas investments ' which to me removed the last redeeming feature of compulsory super ( the part about 'investing in Australia's future ' narrative )

legislation changes ?

just another excuse to fiddle and meddle ( and blame someone else )

i liquidated my super in 2010 ,

am i am far from an investing expect , but i know EXACTLY who to ask and i don't charge myself fees

 

[Bellcose]

WTF were they thinking, putting super funds in start-ups

They more important issue is what, if any, exit strategy was in place in the event the investment went sour? I'd have no problems with the fund investing in startups as they can generate high returns albeit with higher risk. However, the level of exposure to just one company is questionable.

 

[mullokintyre]

They more important issue is what, if any, exit strategy was in place in the event the investment went sour? I'd have no problems with the fund investing in startups as they can generate high returns albeit with higher risk. However, the level of exposure to just one company is questionable.

The money Quote


You can bet money (preferably someone else's money ) that Mark Hargreaves won't lose his job over it.
Mick

 

[Dona Ferentes]

The money Quote

View attachment 183281
You can bet money (preferably someone else's money ) that Mark Hargreaves won't lose his job over it.
Mick

Mark Hargreaves would be a financial planner looking after clients, not the AS 'strategist' blowing up the money

 

[mullokintyre]

Mark Hargreaves would be a financial planner looking after clients, not the AS 'strategist' blowing up the money

According to This Article from where I took the quote, he is a bit more than a financial planner.

AustralianSuper head of international equities and private equity Mark Hargraves,

Mick

 

[Dona Ferentes]

According to This Article from where I took the quote, he is a bit more than a financial planner.



Mick

yep . you're right. misread it.

(watching the tennis .. de Minaur )

 

[qldfrog]

They more important issue is what, if any, exit strategy was in place in the event the investment went sour? I'd have no problems with the fund investing in startups as they can generate high returns albeit with higher risk. However, the level of exposure to just one company is questionable.

Exactly 1.1 billion!!!you coud decently funds hundreds of startup with that

 

[Bellcose]

Exactly 1.1 billion!!!you coud decently funds hundreds of startup with that

I wonder what it is as a proportion of total funds of AS? Probably not high but nevertheless some contrition on behalf of AS members would be nice but it seems that is not the done thing in these modern times.

If a Trustee of a SMSF rode an investment into the ground and lost $5k rather than getting out at $2.5k a quisical eye would be cast upon them but not so with these big buggers. That's my view for what it's worth which isn't much.

 

[Dona Ferentes]

I think we need a specific thread on the role of Private Equity , because its very relevant to manufactured returns that big super seem so proud of (and called a cancer by many).

wrt this AustSuper mess. from AFR :

"AustralianSuper making those sorts of bets; that’s what’s required to try to make 10 per cent a year for members, the number every chief investment officer has to endeavour to beat every year. However, it is about balance and realising the risks.

""AustralianSuper’s private equity boss Mark Hargraves said the asset class was the fund’s top-performing in the past decade, making 12 per cent a year for members. He blamed Pluralsight’s demise on “the combination of deteriorating sales revenue from US corporates due to cost-cutting and the increase in debt service costs due to higher interest rates led to a sharp deterioration in the company’s trading performance triggering a restructure”.

... and here we are. PE doesn't price daily, and to me it's fake returns. All those unlisted assets look great , until they're not. And all those brag adverts, just based on hot air.

 

[Dona Ferentes]

I wonder what it is as a proportion of total funds of AS? Probably not high but nevertheless some contrition on behalf of AS members would be nice but it seems that is not the done thing in these modern times.

from their website: Australia’s largest super fund and manage over $341 billion of retirement savings on behalf of over 3.4 million members.

 

[Bellcose]

from their website: Australia’s largest super fund and manage over $341 billion of retirement savings on behalf of over 3.4 million members.

So 0.3% loss. Not good but not a disaster. Of course that's based on present value not the value when the investment was made. Me nitpicking as usual.