(03) 9020 2905PORTFOLIO POINT: Prime Minister Kevin Rudd has made a rare stumble into the super debate and lets out a few party secrets.
When a prime minister weighs into a debate, over the top of his ministers, very quickly you get a far clearer view of the bigger picture. And where certain objectives fit in the scheme of a government’s priorities.
The picture for superannuation became clearer when PM Kevin Rudd was jumped on Melbourne radio last week by a 60-year-old listener about concessional contribution rates to super.
Rudd’s response revealed more than his ministers have about the timing of any major changes to superannuation. And arguably about the quantum of the changes that look likely to be proposed.
Here are a few of Mr Rudd’s comments from his radio chat.
“As far as any wholesale changes to the superannuation scheme are concerned, we have nothing particular in mind, but I just don’t want to set the horses running here, either.
“We are working our way through this (Henry Report) systematically.
“If we make any changes – if – they’ll be subject to what people said at the next election. They wouldn’t come in before then.”
We’ll come back to a few of his other comments further down.
On a marginally positive note, it looks like we can rule a line through any “substantial changes” (sadly, we don’t know what Rudd considers to be substantial, but I’ll come back to this) being announced in May’s Federal Budget.
In fact, he’s explicitly stated that any changes won’t occur until after the next Federal election, which is due probably later this year. So not this financial year (before June 30) and probably not this calendar year. Essentially, any changes will be part of the platform for a second-term Labor Government, so Australians will get to vote on them.
However, some of his comments confirmed that Eureka Report readers have much to fear about the potential future changes to super. I wrote a column (Nov 18, 2009) discussing comments from Superannuation Minister Chris Bowen and his increasing rhetoric about the government wanting to leave its mark on super.
One of Rudd’s comments only reinforced this opinion: “One of the reasons why we have commissioned and received the (Henry) independent review of tax is to deal with the whole future of the super system, which has become too complex for people and not enough incentives are there for people to save through the super system or beyond it.”
Either Mr Rudd doesn’t believe that Peter Costello’s Simpler Super was a drastic simplification of super (which was recent and a remarkable simplification of previous rules), or he has his own definition of what’s simple when it comes to super. Of course, it’s the latter.
*****
The second concerning element of Mr Rudd’s comments were the ones in direct response to the caller’s query.
The caller, Richard (and if you’re a Eureka Report reader, Richard, I’d like to hear from you), made the following statement to the PM. (I’ve made minor edits.)
Richard: “I’m 60. I’ve got rid of the kids and the mortgage and I’d like to salary sacrifice for my superannuation. Under the current laws that were introduced in parliament, I can only do a maximum of $50,000, which includes my employer’s contribution, so therefore, basically, I can only (salary sacrifice) 41 (thousand dollars a year) at tops. I would like to be able to do a lot more just to try and make my life a lot easier. I’ll be smashed with tax when I get to $50,000. Not going to bother. Where do I go to from here? I’m trying hard to help this country but at the moment, I almost don’t care. I’ve paid my taxes forever and a day and I’m sick of it and that’s it for super for me. You’ve lost me.”
Richard’s last comment, about him being lost to super, is something that I don’t believe Labor really understands in its politicking on the issue, and the real damage that is likely to be caused when/if it makes substantial changes to the current super rules.
Richard appears to earn about $100,000 a year. He’s finally got his major financial commitments (kids and mortgage) off his hands and he wants to start contributing to super. He sounds like he’s in a position to put in $41,000 as a salary sacrifice, and in fact would like to put in more of his salary. Just as he wants to do that, the Government chops him off at the knees.
Prior to those changes made in the middle of last year, the over 50s could have Superannuation Guarantee and salary sacrifice arrangements of up to $100,000 a year. Just two years prior to that, the over-50s could have up to approximately $105,000 a year PER JOB put into super. So, people who only three years ago could put in perhaps $210,000 (or arguably $315,000) a year, can now only put in $50,000. And from July 1, 2012, that will fall to just $25,000.
Rudd’s response to Richard’s statement is a concern on its own. He confirmed that he had promised, prior to the 2007 election, that Labor would “keep existing superannuation arrangements”. He then said that the changes to the super concessional contribution limits were not “substantive”.
When asked what substantive meant, he responded: “Well, substantive goes to the entire system, as opposed to, let’s call it, fine-tuning at the edges. These things affect people fundamentally.”
Those changes to the super contribution limits have affected people fundamentally. As a result of last year’s changes, Richard’s super balance is going to be tens, perhaps hundreds, of thousands of dollars lighter than it would otherwise have been when he retired. He’s not alone. That decision to cut has had a huge, but largely unseen, impact across Australia.
Australians might well relish the opportunity to vote on superannuation at the next election.
“Can I just say that if there are any substantive changes … you’ve got to be absolutely straight up and down with people about what you’re going to do, and then take it to the Australian people if you’re going to make any substantive changes.”
Yes, Prime Minister.
Bruce Brammall is director of Castellan Financial Consulting and author of Debt Man Walking.