Superannuation: Claytons tax review

The Rudd Government must move carefully on superannuation in circumstances where the Henry Tax Review has offered little of substance, writes Mike Taylor.

Australians, with good reason, have every right to be suspicious of politicians when it comes to their superannuation.

Why? Because, beyond viewing superannuation as a revenue milch cow, successive Governments have also proved unable to resist the temptation to tinker.

The combined effect of these two bad political habits has been the creation of uncertainty and reluctance on the part of some Australians to trust that superannuation represents a reliable investment destination.

To be fair to the Rudd Labor Government, the pressures created by the global financial crisis and the overly generous nature of the reforms put in place by the former Howard Government meant superannuation was always going to be part of the measures seen as necessary to contain a burgeoning Budget deficit.

And let us be entirely pragmatic about this — the Howard Government’s so-called ‘better super’ package was very generous and there were many in the financial services community, not to mention the former Prime Minister and Treasurer, Paul Keating, who always believed that it would need to be pared back by future Governments facing tougher times.

Those tougher times arrived much more quickly than anyone imagined and the Government’s response in terms of the changes it announced in the Budget can probably be regarded as reasonably measured, particularly those elements the Treasurer suggested would be temporary.

However, measured or not; temporary or not; the overwhelming impression left with superannuation fund members is that another government has tinkered and Australia’s superannuation regime is now less certain than it was 12 months’ ago.

Further, a well-informed superannuation fund member would also be aware that more changes are likely as a result of the Government’s ultimate response to the Henry Review of Taxation, including a change to the superannuation preservation age.

The Minster for Superannuation and Corporate Law, Senator Nick Sherry, has sought to reassure super fund members and the media that no changes will occur before the end of the year, but that is hardly reassuring if you are a baby boomer contemplating retirement anytime within the next two to 10 years.

Putting aside the Budget imperatives driven by the realities of the global financial crisis, the Rudd Labor Government now has some serious work to do re-establishing certainty with respect to superannuation as an investment destination.

The problem for the Government is that, at first blush, the recommendations of the Henry Review of Taxation do not seriously advance the debate with respect to superannuation and retirement incomes adequacy in Australia. Indeed, the elements discussed in the context of the Federal Budget represented a restatement of the obvious and an unwillingness to set the bar higher.

The essential recommendations were:

• maintaining the superannuation guarantee at 9 per cent, not extending it to the self employed and retaining the $450 per month threshold;
• gradually increasing the age pension age to 67 years;
• gradually aligning the age at which people can access their superannuation savings (the preservation age) with the increased age pension age;
• improving the fairness and coherence of the pension means tests, possibly through a single test, and improving incentives to work beyond retirement age;
• reducing the complexities resulting from the interactions between the tax-transfer system and the aged care sector;
• maintaining tax assistance to superannuation but improving the fairness of concessions for contributions, including broadening access to them, and considering whether the current cap on concessions is appropriate;
• improving the ability of people to use their superannuation to manage longevity risk; and
• improving the awareness and engagement of individuals with the retirement income system.

Each and all of these issues has been dealt with previously, including in the broader context of the two inter-generational reports tabled by the former Liberal Treasurer, Peter Costello. \Further, as a framework around which progressive future superannuation legislation might be built, the Henry Review recommendations are scanty indeed.

Nowhere in the Henry Review does it come to grips with the realities made clear in the inter-generational reports that Australia has a rapidly ageing population, which will require that people more fully take on the role of self-funded retirees.

Instead, the review holds fast to the notion that those who do not provide adequately for their retirement will be picked up by the age pension — hardly the forward-thinking examination that had been promised by Prime Minister Kevin Rudd.

When former Prime Minister Bob Hawke and Keating, introduced the superannuation guarantee, it represented a visionary and forward-looking policy initiative.

The policy direction indicated in the Henry Review lacks vision and is hardly reflective of 12 months of policy analysis. Rather, it might just as easily have been developed over a cup of tea and a packet of public service Tim Tams.