A growing number of older Australians are looking to break-up, often after long marriages, with women leading the charge. It’s a hard decision to make as it typically comes with financial difficulties and emotional trauma.
Energy and consumer cyclical sectors are the investment standouts, but finding fair value in the banking and utility sectors is much more problematic, an investment conference is told.
Fierce opposition mounting to $3m super balance tax proposal
With a crushing election win under its belt and, with the Greens’ support, control of the Senate, the Albanese Labor Government must have thought implementing its proposal to tax the earnings of super balances above $3 million would be a walk in the park.
The Greens had signed up to the legislative package during the last Parliament – indeed, they wanted to lower the threshold to $2 million – so, there would be no need to negotiate with a fractious Senate crossbench that put a spanner in the works last time the legislation came before the Upper House.
But since the election, the realisation that it could become law has galvanised an opposition that includes self-managed super funds (APRA funds are excluded from the tax), their advisers – planners and accountants – farmers, small business owners, fund managers, venture capitalists and the array of industries that rely on start-up capital.
More surprisingly, it’s been reported that two large industry funds have expressed reservations about the decision not to index the tax, while former Labor Prime Minister Paul Keating, no friend of the SMSF sector, has lambasted the legislation.
In essence, their criticisms centre on two issues – the proposal to tax unrealised capital gains and the Government’s refusal to index the $3 million threshold.
On the latter point, the peak accounting body, CPA Australia, argues that this tax proposal will impact a greater number of Australians than is being acknowledged. [The Government is insisting only 80,000 will be affected.]
“The principal device to manage bracket creep is indexation. However, the government’s proposal to not index the $3 million cap has thrown the arbitrary application of indexation into stark relief,” says CPA Australia’s superannuation lead, Richard Webb.
“The government cannot underestimate the impact of inflation on superannuation. The cumulative effect of inflation means that a dollar today has the same purchasing power as about 34 cents in 1985. This reduction highlights the necessity of preserving the spending power of superannuation savings over one’s working life.
Bracket creep
“Bracket creep is already having a silent eroding effect on personal finances. Allowing this further erosion of superannuation savings is contrary to the fundamental principles of our tax system.”
Webb adds that it’s wrong for the issue to be portrayed as older Australians protecting their wealth.
“A $3 million balance will not represent anywhere near the spending power it has today. As awareness of this issue grows, there is a growing realisation that this will not be a fair system for future generations.
“Even an average earner will go on to have more than $3 million in superannuation by the time they retire. It’s simply inconceivable to think that a young Australian today will see a proportion of their retirement savings taxed at a rate of 30 per cent.
“Policy changes of this nature should be consistent with the legislated objective of superannuation. This measure appears to be driven primarily by budget repair, rather than a comprehensive approach to retirement savings policy.”
Webb also took aim at the proposal to tax unrealised capital gains in super funds, arguing this is a “fundamental breach” of Australian tax principles.
“Taxing unrealised capital gains would mean taxing people on the paper profits they haven’t yet accessed, which is not only inequitable but also administratively burdensome. CPA Australia believes this approach is inconsistent with good tax design and could have significant unintended consequences for investment and confidence,” he says.
The SMSF Association, the peak body for this $1 trillion super sector, concurs, with chief executive officer Peter Burgess saying it penalises SMSF members for paper profits that may never materialise.
“No one disputes Treasury’s desire for a fair and equitable superannuation system, but to claim this tax only affects a minority and serves the national interest is shortsighted. It ignores the broader ripple effects.
“The Government’s narrow focus is blind to the vital connections between superannuants, small business owners, primary producers and angel investors,” he says, “an oversight that’s already destabilising the sector and threatens to disrupt the delicate balance of our economic ecosystem.”
He also pointed to the findings of the Productivity Commission’s 2018 inquiry report, Superannuation: Assessing Efficiency and Competitiveness, which emphasised the need for greater competition in the sector to drive better outcomes for members and the important role played by the SMSF sector.
“The Government is actively undermining competition by hitting SMSFs – one of the few genuinely competitive parts of the superannuation market – with a tax designed to accommodate large superannuation funds.”
