In desperate times desperate types can come up with desperate decisions but if Julia Gillard has an ability to learn from her mistakes, today’s Herald/Nielsen poll should make her back down on her proposed super changes that are expected to hit SMSF trustees the hardest.

All hell breaks loose

A fortnight ago Labor sent a proposal up the flagpole to tax retirees when they withdrew their super if their balance was over $1 million. There was very little saluting but a hell of a lot complaining. Then the PM came out and said there was never any intention to tax super on the way out. Given her unpopularity I am still trying to work out why she waited a week and a half to tell us this! I think you can work it out.

In simple terms, Wayne Swan is hoping to create a budget surplus but it is a forlorn task. So now he is trying to limit the deficit while trying to find money for the Gonski education reforms and the National Disability Insurance promise.

The Government will now be looking at concessions and trying to change them for non-Labor voters but there is no point changing super and copping the backlash unless Labor bags a big pot of money. This will then be used to buy votes at the eventual election.

What could be on the cards?

Let me run through the possible slugs to super they would be considering and my view:

• Some 15% of the $470 billion in the SMSF sector is in property, so they could change capital gains tax rules and try to stop lump sum withdrawals of property in the tax-free zone (Possible.)
• Eligible small business owners are exempt from capital gains and can contribute up to $500,000 from the proceeds of a sale (Unlikely as very small businesses are being targeted by Labor.)
• Also if your business has a turnover of less than $2 million or the assets are less than $6 million and you’ve owned them for more than 15 years they can be sold tax-free. Furthermore $1.255 million can be put into super without affecting other annual contribution limits (Once again unlikely as they would want to limit the effect on smaller businesses and targeting the bigger small businesses will bring only a small amount of money)
• Making it harder to say sell shares or property where there is capital gain but then making a concessional contribution to offset the capital gains tax. (Unlikely as it would affect many potential voters, not just the rich!)
• Increase the earnings tax from 15% to 20% for super funds in accumulation mode. (Good for raising much needed money but there would be a big voter backlash as all under-55’s of working age would be slugged.)
• Stop those on Transition to Retirement Pensions (TTRP) transferring their money into pension mode to escape tax on earnings. They could also raise the age for the TTRP to stop this leakage. (Possible but those currently in a TTRP would in all likelihood be exempt unless they had a big balance in their super fund.)

I have ruled out any increase on the contributions tax as those on $300,000 or more are already paying 30% on their contributions. If this was pushed into a lower income bracket then the voter reaction would be huge and negative.

Lies, lies and damn statistics

I think there are super funding issues to be addressed but there are some exaggerations as well. For instance, by 2040 only 30% of Aussies will access a pension while now it is 50%. Also, Treasury officials, when they calculate the cost of tax concessions (now $32 billion going to $45 billion by 2015-16), assume if we couldn’t get a 15% tax concession from salary sacrifice contributions, we would then cop the top tax rate!

They don’t presume we would use negative gearing and an investment property to reduce our tax bills, which is crazy thinking on their part.

Before winding up, there are some out there who think the government might do away with the 50% discount on capital gains if you hold an asset for 12 months or more. This would hit all investors and bring in a lot of dough but, given the polls, this has zero chance of being sent up the pole. Of course, if Labor was mad enough to try it, I think Aussies would burn the pole and the MPs associated with it. It makes perfect sense for me to advise the PM to leave super alone.

One final observation — I am really glad these guys don’t have a majority in the House of Representatives and the Senate. If they did it would be super trustee hunting time!

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.