AFR: Labor given steer on how to target the truly rich
There is an estimated $187 billion sitting in self-managed super funds with balances of $5 million-plus.
The top 100 funds hold $7.9 billion collectively.
Don Hamson: ”Labor could do what Rice Warner argues, which is allow a maximum amount of money in super of, say, $3.2 million.” Kate Geraghty
To target the truly rich, Labor could force amounts over $3.2 million to be removed from super, elevating tax payable from a light 15 per cent to as much as 49 per cent, according to Mr Hamson, the managing director of Plato Investment Management.
“Labor could do what Rice Warner argues, which is allow a maximum amount of money in super of, say, $3.2 million,” he told AFR Weekend.
“That would target wealthy people while leaving unharmed people like my mother, who was above a pensioner but the impact of the change would be that she would earn less money than a pensioner.”
If it wins the next federal election, Labor will make franking credits non-refundable for everybody except those who qualify for a Centrelink age or disability pension. The exemption applies to SMSFs as long as one member was receiving a payment on March 28, 2018.
Opposition Leader Bill Shorten wants to target the rich but self-funded retirees claim their modest incomes will be hit.
Labor’s position was given a boost on Friday when the Committee for Economic Development of Australia said removing dividend imputation refundability would be good for the budget.
Shadow treasurer Chris Bowen, whose office released figures showing that very large share portfolios are required to generate refunds, seized on the development.
“This is a stinging rebuke to the shrill scare campaigns that have been run by Scott Morrison and Josh Frydenberg in recent weeks,” he said.
“It says a lot about a government that at a time when everything is going up except people’s wages, the government spends all its time protecting concessions for the wealthy.”
Jeremy Cooper, who reviewed the super system for the former Labor government and sits on the SMSF Association’s public policy committee, also supports the removal of refunds.
‘Three times more wealth’
“Retiree with $1.6 million in super can get an excess franking credit refund of about $4000 more than the age pension, but they have nearly three times more wealth than the means test cut-off of $564,000 for a single,” he has tweeted. “Work that one out. Age pension for the wealthy.”
Rice Warner chief executive Michael Rice said about 24 per cent of the $750 billion in SMSFs was in accounts with balances of more than $5 million, which accounted for just 3.3 per cent of all super savers.
An alternative to Labor’s franking policy would be to force those people to transfer “excessive” amounts of money out of super when they reached a certain age, say 65.
“We suggest a threshold of [say)] $3.2 million for all accumulation and pension accounts combined,” Mr Rice said.
“Amounts above this would be transferred tax free out of the low-tax superannuation environment.”
The logic is that $3.2 million is two times the $1.6 million total superannuation balance limit that will restrict the ability to build big balances in the future.
“You could have an accumulation account cap the same as your pension account cap,” Mr Rice said. “It would target the people who [Mr] Bowen is actually saying he is attacking.”
Other options put forward by Rice Warner are taxing all earnings on super, including money in pension accounts that are tax free at present, at 12 per cent, or capping franking credit refunds at $5000 per taxpayer.
Accountants who have crunched the numbers find that retirees would need between $900,000 and $1.2 million of stocks generating average dividend yields sitting in an SMSF’s share portfolio to generate a $20,000 refund.
CEDA chief executive Melinda Cilento said the franking credit refunds eroded revenue by $5 billion a year. “The majority of this $5 billion is going to individuals with substantial investment portfolios. It is appropriate to wind this back in light of broader fiscal challenges ahead,” she said.
Ms Cilento said Labor’s proposal should be carefully introduced to ensure that self-funded retirees relying on more-modest investment balances and incomes were not unduly hurt. “This approach is consistent with the well-targeted approach that Australia seeks to maintain through its tax transfer system,” she said.
“In the absence of more-substantive tax reform, these are modest changes in the right direction that are achievable and will assist with long-term budget discipline.”
Written by Joanna Mather