The slippery slope has begun

Ever since the Albanese government announced its policy direction to introduce a 30 per cent tax on the superannuation balances of individuals over $3 million, it has dominated discussion in this sector. It originally sparked many concerns, but stakeholders were prepared to wait for the details of the measure to be presented.

Well we’ve got some of the detail now by way of Treasury’s fact sheet on the subject and it doesn’t seem to have quelled any of the angst.

Before even looking at the proposed tax from a more granular perspective, let’s recognise this measure for what it is – an attack on SMSFs. At the moment it is estimated only 80,000 Australians will be affected and SMSF Association chief executive Peter Burgess has noted the majority of this cohort will be SMSF members.

Unfortunately the direction follows a pattern we’ve seen before from Labor governments past, that is, not being able to hide its policy bias in favour of the industry funds and against SMSFs. And before I get accused of being a conspiracy theorist, let me join a few dots we already have.

The proposed solution to the non-arm’slength expenditure rules for general expenses applies to SMSFs but includes a carve-out for industry funds. Similarly the fiddling with franking credits has begun in earnest and we know where those roads lead. But these are items for a different conversation.

You’d have to think a policy has to be pretty bad when the only positive feedback I heard about it is how it will be administered –considered a win because it will not create a bigger administrative burden on super fund trustees. But that’s where the optimism ends.

On the negative side of the equation the proposed policy represents an approach to taxation that is diametrically opposite to the way the system has worked up to now.

The calculation of the new tax is fundamentally based upon the difference in an individual’s total super balance at the start and end of a particular financial year. As has been highlighted on many occasions already, that means taxing unrealised capital gains. This has never been a tenet of the system in this country before.

Worse still, if a person gets slugged by this tax in one year, but in subsequent years sees their total super balance fall below the magical $3 million mark without having it ever return above the threshold, the charge they paid on unrealised capital gains cannot be clawed back.

I could go on and on about this but would require many more pages in this publication to cover everything egregious about the measure.

One criticism stands out though. One of the dangers that has been flagged about this move is the ability it will have to further erode confidence in the retirement savings system and we are already seeing evidence of this.

In recent weeks a partner from PWC admitted reticence among clients to follow through with asset acquisitions and SMSF strategies had already begun to surface around a week after the policy announcement was made.

So the slippery slope has well and truly started. However, I failed to mention one other positive element and that is the measure is undergoing a consultation process and has to be passed by both houses of parliament. Fingers crossed amendments will be made and the final draft of the policy will be more reasonable. But I wouldn’t count on it.