Senate Economics Legislation Committee – Better Targeted Concessions – Peter Burgess CEO Address

I would like to thank the Senate Economics Legislation Committee for inviting the SMSF Association to appear as a witness at today’s public hearing.

The SMSF Association does not support this new tax on superannuation balances above $3 million. This tax is based on a manufactured calculation of superannuation earnings that bears little resemblance to actual taxable earnings.

Treating the increase in the value of an asset as taxable income is, by any measure, a radical departure from existing tax principals and a crude method of addressing super wealth and wealth inequality. It will give rise to many unintended consequences which we do not believe have been properly considered.

Many impacted individuals, including small business operators and primary producers, will encounter liquidity stress compounded by the erratic and unpredictable nature of a tax that is linked to movements in markets, whether investment or agricultural land.

The assertion that a “commercial yield” should always generate sufficient liquidity for the fund to cover a tax that is linked to movements in the underlying asset value, lacks commercial realism, particularly in rural Australia.

SMSFs have historically been a strong source of venture capital. This is very unlikely to continue in an environment where unrealised capital gains are subject to tax.

These are all consequences of a tax that is not based on actual taxable earnings.

This is not a simple tax. Under the proposed manufactured calculation of earnings, complex adjustments will be needed to ensure earnings are not inflated or artificially reduced. A system of carried forward tax losses will apply along with tax debt accounts for defined benefit funds. Some funds with defined benefit interests face additional valuation and pension reporting obligations.

When the Government first began floating the idea and need for this measure, reference was made to the small number of individuals with superannuation balances exceeding $50 million and $100 million. We agree that balances of this size are outside the original policy intent, but they are a consequence of historical policy settings. And, importantly, the existing policy framework is designed to address these balances. As a result, they are being progressively removed from the superannuation system.

Despite the original stated objective of this policy, the proposed threshold has been struck at a considerably lower level. The shift from $100 million to $3 million, and a measure of earnings that captures unrealised capital gains, utterly reframes the policy position from one that targets ultra-high net wealth individuals to one that starts to capture elements of middle Australia, small business owners and farmers. It has very different policy intentions and outcomes.

The lack of indexation of the threshold will, over time, see this measure impact many more average Australians.
We strongly encourage Government to cease the progress of this Bill and instead continue to engage with stakeholders and industry to ensure that the resulting policy and legislation delivers the right outcomes.

Thank you and we are happy to answer any questions.

Written by Peter Burgess, CEO, SMSF Association