After a long drought, some showers of blessings have finally rained down on the savings industry. The shower was in the form of a press release on the taxation of collective investments by Treasurer Peter Costello, simultaneously released with the Ralph options paper on business tax reform.
The past few years have not been good ones for savings. First there was the superannuation surcharge, then the dismantling of the only just introduced savings rebate and finally the decision to tax savings vehicles in public unit trusts and life insurance companies as companies at the going company tax rate. It seems that the Ralph Review of Business Taxation has been swayed by the considerable evidence against moving in this direction and, in an unusual move, the Treasurer has made an announcement, the only policy announced along with the second discussion paper.
Cash Management Trusts have been immediately carved out of the business entity tax regime and other public offer unit trusts have been given an in-principle carve out with Ralph to work on the detail to achieve this outcome.
The past four months have been difficult ones for IFSA members and their customers as they assess the impact of the decision to tax public trusts as companies. Fortunately for IFSA and savers alike, the Government has decided that these vehicles should be able to continue the well-established and worldwide practice of passing income through to unit holders and have them declare their income as part of their annual tax return. This is entirely consistent with the principle of taxing income on savings later rather than penalising a savings activity during the accumulation phase.
IFSA was not alone in its opposition to the proposal to tax public trusts as companies. There was a unanimous chorus of opposition to the proposal that included the retiree and investor leaders, the Property Council of Australia, the Business Coalition on Tax Reform, the Trustees Corporation of Australia, the Australian Consumers Association, the Financial Planning Association, and the Australian Pensioners and Superannuant’s Federation. These groups voiced their concern in written submissions to Ralph and/or in oral evidence to the Senate GST inquiries. In fact, not a single group could be moved to come out and support this policy which the Coalition and Labor took to the 1998 polls.
On the basis of this scenario an innocent bystander could conclude that the two major parties appear to be out of touch with voter sentiments when it comes to developing good policy to encourage Australians to take control of their savings and make a contribution to long term capital accumulation.
What this sorry state of affairs does indicate is that the savings industry and the major political groupings will need to lift their game when it comes to developing good public policy. Advanced discussions, on-going consultation and a mutual trust to put the ruler over draft policy will be needed next time proposals of this sort are envisaged.
IFSA is now engaged in its own policy development phase to produce a strategy for retirement incomes and long term savings. At the heart of the process will be strategies to win non-partisan support for a new deal for savings. Hopefully, this will result in proactive and soundly based initiatives that will see proposals fully embraced by retiree associations, the savings lobby and the community generally.
In the meantime, IFSA will continue to work with the Ralph Review to advance several other unresolved issues, starting with the details in regard to the application of the “pass-through”.
The proposals to hit Pooled Superannuation Trusts with a 36 per cent rate of tax when 15 per cent is the benchmark still needs a reversal, as does the proposal to tax super in life companies at 36 per cent as opposed to 15 per cent.
Completely overhauling the tax arrangements for life companies by 1 July 2000 also needs to be recognised by Government as physically impossible. There is precedent for phasing in these sorts of massive tax changes and IFSA will be pushing for this outcome.
Richard Gilbert is the deputy chief executive officer, Investment and Financial Services Association
