The road to reform in superannuation appears once again destined to become mired in a political minefield, despite the Government’s attempt to place superannuation firmly back on the agenda in this month’s budget.
The Government revealed in its budget announcement that it would renew its push to breath life into its much maligned choice of superannuation fund policy, committing almost $30 million to the cause.
The Government also used the budget to re-confirm its commitment to the raft of promises on superannuation it made during last year’s election campaign.
These include proposals to allow superannuation contributions to be split between couples and a reduction in the maximum surcharge rate from 15 to 10.5 per cent over three years.
But no sooner had the Government made its budget announcements, than many of its proposals were looking like they were on shaky ground.
The Labor party has announced, quite predictably, it would maintain its long held opposition to choice-of-fund.
But Labor’s Shadow Minister for Retirement Incomes and Savings Senator Nick Sherry has also revealed Labor will oppose the Government’s plans to cut the surcharge rate and to allow couples to split their superannuation.
“The budget contained what the Treasurer claimed was a plan to boost incentives to investments in superannuation. In truth, it is a plan to benefit the well off, while leaving middle Australia with nothing,” Sherry says.
Labor’s position, particularly its opposition to the cut in the surcharge, brought a strong response from some quarters of the financial services industry, including the Financial Planning Association (FPA).
The FPA’s senior manager of public policy, Con Hristodoulidis, last week described Labor’s policy on the surcharge as disappointing, particularly given the FPA’s preferred position is for the surcharge to be abolished altogether.
However, Labor has also proposed an alternative to a reduction in the surcharge, which Hristodoulidis acknowledges is a positive step.
Labor has proposed either an across the board cut in the tax on superannuation contributions from 15 to 13 per cent, or a cut in the tax to 11.5 per cent for people aged over 40.
Sherry says the Labor proposals would be revenue neutral.
He says Labor would save $1.1 billion over four years through its rejection of the Government’s proposals to cut the surcharge and allow couples to split their superannuation, as well as through changes to some public sector superannuation schemes, in order to pay for the tax cuts.
But preliminary costings prepared by the Treasury suggest the policy could cost upwards of $2 billion over four years.
The Treasurer, Peter Costello, immediately seized on the Treasury figures.
“Labor has been caught with a massive multi-billion dollar shortfall,” Costello says.
The political wrangling between the two main parties will again turn the superannuation spotlight back on to the Australian Democrats and their spokesperson on superannuation, Senator Lyn Allison.
The Democrats, with the balance of power in the Senate, have kept what is arguably the Government’s most high profile superannuation reform, the choice-of-fund proposals, at bay for the best part of five years.
Before the last election, Allison indicated the Government and the Democrats had overcome all their policy differences on choice-of-fund.
But the Democrats rejected the choice proposals in the Senate after the Government refused to grant same sex couples equal access to their partner’s death benefits as other couples.
Allison says the Government, through the Minister for Revenue and Assistant Treasurer Senator Helen Coonan, has since made overtures suggesting that the same-sex issue could be overcome.
But Allison says the Democrats will not accept any solution that does not explicitly state in legislation that same sex couples have equal rights under superannuation laws.
That could be too much of an ask for many in the Government, from the Prime Minister down.
And choice-of-fund is not the only superannuation policy front where the Democrats will frustrate the Government.
The Democrats have already stated they will support Labor’s opposition to the reduction in the surcharge rate, effectively torpedoing the Government’s proposal.
Allison says the problem with the surcharge is that it is an administrative nightmare for superannuation funds, not that it is charged at too high a rate.
The Democrats are also likely to support any move by Labor to have a parliamentary committee examine the Government’s proposal to allow couples to split their superannuation, although there is no indication at this point whether the Democrats will reject or endorse the proposal.
If this policy, along with the choice of fund and surcharge proposals, falls by the wayside, then a significant chunk of the Government’s election promises on superannuation will remain unfulfilled.
“We are a little bit disappointed, given the Coalition announced the policies as part of its election promises and the Australian public had a chance to vote on it,” the FPA’s Hristodoulidis says.
