Assistant superannuation minister Jane Hume said the government had no plans to increase taxation on Australia’s $3 trillion retirement pool to help pay for its giant stimulus package aimed at preventing the country from sliding into a deep recession. Retirement experts don’t believe her.
“The federal government made it very clear going into the last election that there would be no new or higher taxes on superannuation,” Hume said in an emailed statement to Investment Magazine. “It has no plans to make changes to the taxation of superannuation.”
Hume’s statement was in response to comments made by leading retirement experts who expect Canberra to slap a tax on superannuation to help repay the $320 billion stimulus package. Rice Warner executive director Michael Rice at the time said that the need to raise taxes over the next ten years to pay for all the new debt would point Canberra towards the areas of super that are still “heavily benevolently taxed.”
The Grattan Institute’s John Daley said higher taxes were “a certainty” and that he doesn’t buy the minister’s remark.
“Any politician will deny that they are looking at raising taxes on super until the day that they do it,” he said. Further, he anticipates a tax hike to be announced at the 2021 May budget on the basis that half of the tax concessions flow to the wealthiest 20 per cent income earners.
Mercer’s David Knox also reiterated his view that the government will reconsider the current tax arrangements in a post-COVID-19 environment. “However, given that we have not yet reached the final point, it is likely that the Government has not yet turned its mind to the possibilities,” he said.
Stephen Jones, the shadow minister for financial services, said the federal government would have a huge fight on its hands if it tapped into super to repay the stimulus package.
“If we start using super as a rainy-day money, we just destroy the entire retirement income system which is built around long-term investment and sustainable inputs to provide for retirement income,” he said.
The member for Whitlam also slammed the government’s early release provision as well as the media criticism of Hostplus and Rest for failing to anticipate the havoc wreaked by the coronavirus crisis.
“The government didn’t foresee it, the banks didn’t foresee it, the central bank didn’t foresee it so why is it unreasonable that the super funds didn’t foresee it,” he said. “Are we suddenly demanding a high standard of (insight) from super funds?”
Hume said superannuation trustees were expected to manage their legal obligations responsibly to ensure that they have appropriate liquidity to deal with market volatility and other demands on the fund driven by membership changes or payments.
“Superannuation funds should be holding diversified portfolios and trustees are required to constantly assess investment risk and opportunities while ensuring adequate liquidity,” she said, before adding that the early release of super was nothing new.
The minister said funds should have been prepared for an economic environment that combines a bear market, members switching, as well as a spike in unemployment that could result in reduced contributions and financial hardship claims.
“When we look back maybe switching to cash by members will have been a much bigger factor than the early release of super,” she said. “Claims that the expanded criteria for early release of super will lead to large changes in investment strategies don’t stand up to scrutiny. Rather, they suggest some funds have long been running fairweather-only investment strategies.”
Meanwhile, Jones called the abruptly-introduced early release policy as “incredibly ill-conceived”.
“I would be quite confident when we review early release in a few years down the track it will be seen as a mistake,” he said. “We are going to lean that we have robbed thousands of Australian of millions of dollars in retirement savings when it wasn’t necessary to do so.”