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Keep your hands off our super

Posted By Peter Switzer On In Economy,Technical | No Comments

I often make suggestions to PMs and Treasurers, but I seldom give advice, but this time is different; I’m advising our top two leaders – keep your hands off super or else you will be decimated at the next election.

The dumbest thing Treasurer Wayne Swan can contemplate is slugging the trustees of self-managed super funds.

The problem

Currently the so-called ‘world’s greatest finance minister’, Wayne Swan, has a number of problems. First, he made a promise to create a budget surplus by June 30 next year to show he is a great financial manager ahead of the next election expected in October.

His second issue is that the Australian economy is slowing down. In the March quarter, the economy was up by 4.4% from a year earlier, but this fell to 3.7% by the June quarter. You might be saying that these yearly changes are above the trend growth rate of 3.25%, but if you annualise the quarterly numbers, you’ll get a better picture of what’s going on.

The economy grew by 1.4% in the March quarter compared with the previous quarter, and when you multiply this number by four to get a picture of what that sort of growth would look like over the course of a year, you get 5.6%. Not bad. However, June brought quarterly growth of 0.6%, which is about 2.4% when annualised, showing growth more than halved in three months!

The big issue is that the Treasurer needs annual growth of 3.25% to make a surplus happen and so the Reserve Bank of Australia’s (RBA) rate cut last week would have been a plus for Mr Swan’s dreams, but it also underlines how the economy has slowed.

And this is why Treasury is looking for money and it’s why SMSF trustees should be worried.

Why SMSFs?

These numbers show you why Labor is looking at SMSFs:

There are 10,000 SMSFs with $5 million or more in their fund. That means as a minimum, there would be $50 billion in those SMSFs. Meanwhile, there are 45,000 SMSFs with more than $2 million, but less than $5 million, and so let’s say there’s $90 billion there.

Adding it up, there’s $140 billion – and remember, that’s a minimum – that Treasury could be running its calculations on.

The big problem for the Government is that if it tries a ‘super steal’ to fix its budget hole, the Coalition will argue that the Government is targeting SMSFs with $2 million-plus now, but that those with $1 million and later, $500,000, will be next.

Of course, they would need a Mini-Budget to get their hands on the money before June 30 and maybe they wouldn’t get the support of the independents on this one, especially with an election looming and a lot of economists, including me, saying a budget surplus is no longer necessary.

Big pressures

One other consideration needs to be highlighted to explain why the Government could be looking at penalising SMSFs; industry funds (which have a been a great success story) are still driven by ex-union heavies and they are worried that their best clients with big balances are leaving to start SMSFs.

Do you think the PM and Treasurer as well as the Super Minister, ex-union boss Bill Shorten, could be interested in this issue?

The bottom line

Historically, I try to maintain balance in my political commentary, but if Labor starts going after SMSFs, then I will be taking off the gloves and will give them the biggest stoush I’ve ever had with a government.

The SMSF trustees shouldn’t have to pick up the tab for the stupid and unfunded policy decisions of a government trying to win friends and influence voters from their heartland, who in recent years have deserted them because of those dumb policy options.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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