Budget surprises don’t win hearts and minds for good policy


While a number of the superannuation reforms are contentious and should be reconsidered or modified, many of the changes announced by Treasurer Scott Morrison in the May budget are positive and well overdue.

However, problems have arisen because the proposed measures arrived fully formed on budget night and took everyone by surprise. It is a quintessential case of good policy being undone by poor process.

“Confidential consultations prior to announcement would have shown the government the path to least resistance on these changes.”

While it is traditional for budgets to contain ‘elements of surprise’ the lack of consultation associated with the introduction of the superannuation reform measures created surprise and misunderstanding, even within the government.

Many of the measures announced on May 3 are sensible and the government deserves credit for seeking to address flaws within the superannuation system.

The effective re-introduction of the Low Income Superannuation Tax Offset, which the Abbott government was seeking to remove, will address the issue of people on low incomes, up to $37,000 a year, paying more tax on their superannuation contributions than they do on their other income. Instead, the tax paid on the contributions will be rebated back.

Allowing ‘catch-up’ concessional contributions for people with superannuation balances of less than $500,000 will provide more flexibility for people with irregular work patterns, whether they be people who have time out for family reasons or perhaps they are self-employed. Similarly lifting the spouse tax offset threshold from $10,800 to $37,000 is a positive measure that also acknowledges the reality of interrupted work patterns.

Removing the aged based contributions rules for people over 65 to make contributions to their own or their spouse’s superannuation will simplify the system, encourage greater workforce participation and provide an incentive for those over 65 to contribute more to their retirement savings.

Implementing a cap on overall tax concessions and minimising tax-free intergenerational wealth transfer are valid measures, but the $1.6 million transfer balance cap proposed is too low and should be revised. In the current low return, low interest rate environment, the income generated from $1.6 million would equate to approximately $55,000 a year. In a situation where a couple is funding its retirement largely through the superannuation of one partner, this is inadequate.

If there had been some level of consultation prior to the budget, I suspect we would have had a better package of reforms and there would have been more credit given for the measures proposed, rather than attracting flak from all sides, including from the coalition heartland.

The retrospective nature of the $500,000 life-time non-concessional contribution cap is an issue many in the coalition constituency continue to struggle with. This is a retrospective measure and for the Government to continue to argue that it is not retrospective shows a disturbing level of dogmatism.

Somewhat ironically, in the lead up to the budget there was a consultation process underway around the purpose of superannuation. This was part of the government’s response to the Financial System Inquiry.

On budget night, the government announced that it would enshrine the purpose of superannuation as being “to provide income in retirement to substitute or supplement the Age Pension.”

Its purpose is not to be a national piggy bank to be raided in times of economic strife. Where overly generous concessions exist that encourage unintended behaviours they should be wound back and the government is proposing some good measures in this regard. However, a basic level of consultation, even confidential consultations prior to announcement, would have shown the government the path to least resistance on these changes.

It is easy to criticise governments at times for being slow to act, yet taking the time to implement a proper process and consult on these major changes would have resulted in the government’s reform package being one that its own constituents would be more likely to accept, leaving it free to sell the benefits of bringing in these improvements and fairness measures to the rest of the country.

About the author
Premium

The essential resource for effective public sector leaders

Special offer on now: Subscribe for a year to Mandarin Premium, get two outstanding books free.

Get Premium Today