(03) 9020 2905PORTFOLIO POINT: Wayne Swan is bunkered down in Canberra writing his third Budget. Here’s what Eureka Report wants from the Treasurer next month.
This time last year, few would have argued that Wayne Swan held the toughest job in the country. The 2009 Budget was going to be one of the most difficult ever to write.
The previous year was Swan’s first Budget, and by comparison was a walk in the palk. The 2008 federal estimates were framed less than half way through the crumbling equity markets and a long time before panic had set in – Lehman didn’t collapse until September 2008. At that time, the only obvious economic drama was falling equities, and the coffers were pretty full from the Howard years.
Heck, for most Australians, even remembering the “vibe” of April 2009 might be a little hard. Here’s a reminder: We were, it seemed at the time, facing economic oblivion, following our western world colleagues into a downward spiral of rising unemployment, property price decline and an investment black hole.
The Budget was expected to be brutal. But, amid the government spending program of pink batts and school infrastructure, Swan was criticised for possibly not being tough enough on the spending cuts.
With regard to superannuation, there were two bits of bad news. The first was the halving of the concessional contribution limits. The second was the cut to the government co-contribution, which has yet to cut in.
If the first was aimed at stopping the wealthy from getting super tax breaks, then the second was going to impact on almost everyone else (see last week’s column).
But 2010 is going to be a whole new ball game. Stimulus packages are being wound back (or, in the case of insulation, abandoned due to disastrous implementation) and the jam jar is refilling with bounty. Australia is in close to the best shape of any nation in the developed world.
So, there’s no need to play grinch on Australians’ superannuation any longer. Wayne, here’s a list of what could be done to undo the damage of last year and improve the lot of everyone with a superannuation account.
Keep super tax free
There is a growing concern that the changes introduced by Costello to make super tax free for the over-60s is going to get the thumbs down from Ken Henry, which might be all the justification Labor would need to slap taxes back on the income stream side.
People have worked hard during their lives. They have struggled and saved to put away for their super. For most, super will be only a portion of their retirement nest egg. You’ll get to tax the other bits. Leave super tax free.
Repair the concessional contributions limits
The recovery in the economy means that there is no longer any acceptable budgetary reason for the concessional contributions to be kept at half their previous limits of $100,000 for the over 50s and $50,000 for the young’uns.
If they are to stay at $50,000 and $25,000 beyond this Budget, then the government must admit it’s a political/dogmatic decision rather than a financial one.
They’ve got little support for it, even within their own party. The “father” of Australia’s super system, former Prime Minister Paul Keating, reckons the changes have said to the man on the street that they should stop worrying about super and depend on the age pension. “(The Rudd government) should reverse it, quickly. You know, shocking decision in my opinion. Short-sighted. Bad,” Keating said.
Erase the co-contributions cuts
Similarly, it’s actually not too late for the Government to effectively reverse the cut they introduced last Budget in respect of the government co-contributions. In last year’s budget, it was cut from a maximum of $1500 to a maximum of $1000. It was to stay low for a few years and gradually be increased back to $1500 for the 2014-15 financial year.
However, this reduction was only due to cut in for the current financial year. The economy has turned the corner. They could simply reverse that decision and increase it to $1500 for the current and future financial years. It certainly wouldn’t harm anyone. It would be a nice incentive for those earning less than the $61,920 to put into their super this year. And there would still be time to do it.
Widen the co-contribution net
One of the major criticisms of the co-contribution system is that the really low paid don’t get any. If you don’t pay tax, you don’t have access to the payment.
This has always seemed to be an anachronism. The system is designed to help the less well off save for their retirement. But the current rules suggest that if you earn too little, then the government couldn’t care about you either.
End uncertainty
Superannuation Minister Chris Bowen has talked of creating “stable policy” for superannuation, as a result of anything the government cobbles together from the three inquiries (Ripoll, Cooper and Henry), to bring in change that will not need major tinkering for 10-15 years.
We’ve heard it all before. The only way that Australians are going to get consistency from super – so that they can plan their contributions and investment strategies into the futurre – is for all superannuation policy from here to have support from both sides of politics.
There’s about as much chance of that happening as me becoming the next Superannuation Minister. It certainly doesn’t help when Bowen’s boss, Prime Minister Kevin Rudd, has promised that there will be no major change to super before Australians get to vote on it (see my column on February 10), which confirms that major change is being planned.
Australians of all financial persuasion would like to see stable policy on super. But Chris Bowen has a snowflakes chance in hell of achieving that. Unless the Opposition is called in, which isn’t going to happen if Rudd is going to make it an election issue.
Encourage a CHESS-like system for non-listed assets
The Clearing House Electronic Subregister System (CHESS) was a revolutionary tool that has helped super and non-super investors. But it only deals in ASX-listed assets.
Jeremy Cooper’s Stage 2 interim report raised the prospect of creating a CHESS-like system for non-listed assets, such as managed funds and less liquid investments. It would make tracking investments, particularly for SMSFs, a great deal easier, but it would need the government to throw some money at it to get the process moving.
Retain incentive in super for everyone
Don’t make super a political football. If super is going to be a valid way of people saving for their future so that they’re not a burden on the public purse, then retain equity in the system to encourage all Australians to put away for their future.
The rumblings from the as-yet-unreleased Henry Tax Review, plus the Labor Government’s early moves on super, suggest that in a few year’s time, super could become something that is only designed to be a second safety net for those earning below the average wage.
The noises being made suggest that those earning anything higher than average can go jump – and look after themselves through non-super savings. Making superannuation essentially a backup for the age pension would essentially be, as Paul Keating said, telling Australians not to bother with super and hope you can get some age pension instead.
Bruce Brammall is director of Castellan Financial Consulting and author of Debt Man Walking.