Hands Off!

Well, didn’t that blow up in their faces!

The Prime Minister and Treasurer thought they could break an election promise that would impact less than 1% of superannuants and everything would be sweet.

And then BOOM!

Talk about misreading the room.

Malcolm Turnbull and Scott Morrison made the same mistake in 2016. They promised no changes to super and then three months later it was almost unrecognizable.

The fallout was huge, especially for Turnbull.

At least Bill Shorten had the bottle to be upfront with the electorate before the 2019 election warning voters there would be changes to franking credits and negative gearing.

At least this government (eventually) agreed to take the proposed super changes to an election, but why has there been such a strong reaction?

Firstly, no one likes their security being threatened; financial, personal, cyber, or otherwise. It’s our most basic primal need, more than food and water.

The fact that an elite group of very wealthy people are going to be taxed at 30% for super balances above $3,000,000 is not the issue.

It’s the ripple effect that has scared people. Superannuants immediately began thinking, “Am I next?”

That said, the opposition haven’t done anything to ameliorate the situation either.

Secondly, the hypocrisy and double standards surrounding these changes are breathtaking.

i. Whilst politicians cap our super balances which are not indexed to inflation, they walk away (retire) with massive taxpayer funded pensions larger than most of us will ever see in retirement which are indexed to inflation.

For example, the PM will retire on a pension in excess of $400,000 pa tax free which would require a super balance of approximately $5,000,000 to fund it, yet ours are capped at $3m.

ii. The new tax on earnings will include unrealized capital gains for balances above $3m. i.e. superannuants will have to pay tax on capital gains before an asset is sold. The same rules do not apply to public servants on taxpayer pensions.

So what’s the solution?

In principle, I agree with a superannuation cap as long as it’s fair and equitable.

It’s very easy to prosecute an argument based on a small group of extremely wealthy people who’ve taken a risk with their money that’s paid off handsomely. And good luck to them!

However, there’s a massive group of public servants on extremely generous pension arrangements worth way more than the $3m cap being mooted. And good luck to them too!

In my opinion, a superannuation cap should be in line with the highest paid public servant’s pension (E.g. prime minister) and indexed to inflation.

So if that pension is equivalent to $5,000,000 in super, that should be the benchmark.

But if the PM and Treasurer believe these changes to super will help plug the budget deficit, they might be in for a surprise.

These changes are synonymous with the ‘resource super profits tax’ they introduced during the mining boom that was supposed to last another one hundred years.

Remember the two-speed economy?

And then commodity prices tanked and the mining boom went with it. Consequently, the government didn’t earn a cracker from their new tax.

I see a similar situation brewing now.

This week, investment bank Morgan Stanley warned their clients the stock market is now in the ‘death zone’ and to expect a correction of at least 25-30% from current levels.

If that occurred, most super balances would take a big hit and the government would rake in a fraction of tax revenue from these changes.

I agree with a superannuation cap that’s fair and equitable, not one that’s layered in hypocrisy.

And I reckon by the time the smoke clears from this weeks bomb site in Canberra, they’ll be mulling something similar.

Have a great weekend!

Adam

Back paddock – when approaching a pedestrian crossing, don’t be polite, be predictable. Local police constable.