Perhaps the most surprising aspect of Malcolm Turnbull’s budget was the bravery and good sense of its changes to superannuation for the very rich.
What was even more surprising, against charges of unfairness, was that it was Tony Abbott who offered the most cogent rebuttal to the central criticism of these changes: that the reforms were retrospective.
“There’s no doubt that people made decisions in the past based on expectations of what would happen in the future,” the former prime minister told the Mosman Daily this week.
“And by changing what is possible in the future, they in a sense reach back into the past.
“That said, decisions that people have in terms of how much money they will put into superannuation are not going to be unmade by this.
“So while I can understand people being anxious about it, strictly speaking, this is not retrospective legislation.”
The tax system is based on the capacity to make assessments. Reform will necessarily change these assessments, but that does not make the reform retrospective. The system assesses what is there – the only change is to how it is regarded.
The Institute of Public Affairs is running a specious campaign against Turnbull’s reforms. Its executive director, John Roskam, said the changes had created an “absolute firestorm” among Coalition supporters. “At every level, this is diabolical,” he said. “We are going to go as hard on this as we went on the Labor Party and media regulation, or Tony Abbott and 18C or climate change.”
In this, Labor has shamefully sided with nonsense. There is much to criticise in last week’s budget, not least its faith in the fiction of trickle-down economics, but not a reform that closes tax loopholes exploited by the top few earners at the expense of all others. In the face of good policy, the Labor party has chosen politics.
Turnbull’s changes address the use of superannuation as a place for the very wealthy to hide earnings. They are not unreasonable.
In the first instance, the changes will reduce the non-concessional contributions that can be made to superannuation accounts. Since 2007, these contributions have been limited to $180,000 a year – an extraordinary amount, after tax, to be able to slide under the mattress. Turnbull’s reforms will limit non-concessional contributions to $500,000 over a person’s lifetime. There is nothing retrospective about this. It is a sensible tightening, and one that affects less than 1 per cent of people.
The other change limits to $1.6 million the amount of super that can be held in a tax-free “retirement account”. Again, this is not retrospective. If people hold more than $1.6 million in a retirement account, they can shift it to an accumulation account and have it taxed at a fair 15 per cent. No longer will these accounts be a place to hide wealth. Again, very few people will be affected by this imposed fairness. At the age of 60, most Australians have only $285,000 in superannuation savings.
Turnbull, of course, is not as forthright as he might be in defending these changes. But they are sensible and overdue and he is to be applauded for making them. Labor, on the other hand, should wear the shame of the company it keeps in pretending they are something they are not.
This article was first published in the print edition of The Saturday Paper on May 14, 2016 as "Super tamp". Subscribe here.