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Unravelled: Post-election policy recap

9 August 2016

Written by Managing Associate Simun Soljo

As the dust settles following the recent federal election, it is a good time to reflect on what we can expect from the re-elected Coalition Government for the financial services sector.

There are two main groups of policy proposals that are going to need to get through Parliament. The first is the fairly significant superannuation changes announced in the 2016/17 Budget in May. The second is the series of changes the Government announced in its response to the Financial System Inquiry. This brief article provides a refresher on each of them.

Chances of success

It is worth first noting that the election outcome will not make it easy for the Government to get its legislation through Parliament.

While it holds a slim majority of one seat in the lower house, it will need to get the support of cross-bench Senators to pass legislation through the upper house. There is a lot of speculation about which of the changes will get enough support to pass.

However, given a lot of the Budget proposals are going to hurt high income earners most, the Government may get support from the Greens (if not Labor) and may not need to rely on the votes of other cross-bench and minor party Senators. But we will see.

Budget

The proposed changes announced in the May Budget came as a bit of a surprise to some – mainly because they largely target high income earners, not a traditional loser when it comes to Coalition superannuation policy. The Labor opposition even opposed some of the measures to capitalise on their unpopularity with Coalition voters. But to no avail (or not enough avail). It seems the Government will press on.

A recap of the key proposed changes:

  • Introducing a cap of $1.6 million on the total amount of superannuation that an individual can transfer into retirement accounts (such as account based pensions).
  • Imposing a 30% tax on concessional contributions on those with combined incomes and superannuation contributions over $250,000 (up from 15 per cent). The 30 per cent rate currently applies only to those with combined income and superannuation contributions over $300,000.
  • Lowering the superannuation concessional contributions cap to $25,000 per year.
  • Imposing a lifetime cap of $500,000 for non-concessional contributions.
  • Introducing a Low Income Superannuation Tax Offset to replace the Low Income Superannuation Contribution when it expires on 30 June 2017. It will apply to individuals with an adjusted taxable income of $37,000 or less, with the contribution up to $500.
  • From 1 July 2017, allow individuals under the age of 75 to claim tax deductions for personal superannuation contributions to eligible superannuation funds, regardless of their employment circumstances.
  • Extending the spouse tax offset by increasing the income threshold for the receiving spouse (whether married or de facto) from $10,800 to $37,000.
  • Allowing unused concessional contribution caps to be carried forward on a rolling basis for up to five years for those with account balances of $500,000 or less (referred to as 'catch-up' concessional contributions).
  • From 1 July 2017, removing existing contribution restrictions to apply the same contribution acceptance rules for all individuals aged up to 75.
  • From 1 July 2017, the tax exemption on earnings in the retirement phase will be extended to products such as deferred lifetime annuities and group self-annuitisation products.
  • Removing the tax exempt status of earnings supporting transition to retirement income streams and removing the ability to treat certain superannuation income stream payments as lump sums.
  • From 1 July 2017, removing the anti-detriment provision tax deduction by superannuation funds.

Apart from the politics, many of these changes are going to be hard to draft and expensive to administer – for those who remember, the surcharge was repealed largely because it was too hard to administer. Reducing the concessional contributions cap will also mean that more employees will have excess contributions tax liabilities merely because of their employer superannuation guarantee contributions. And of course, ongoing changes to superannuation have been roundly criticised by pretty much everyone because it reduces confidence in the system.

Financial System Inquiry response

The Government agreed to almost all of the recommendations in the FSI final report and indicated last year when it would bring the various proposals for consultation and legislation. My colleague, Michael Mathieson, last year produced a very helpful table summarising the proposed changes and when they are expected to happen. (For the record, Michael, I too like a good table and yours is a fine one.) You can find it here.

The tasks the Government set itself to do by mid-2016 are largely complete. But there are a few things taking longer than it expected (in the form of a list):

  • The legislation on governance in superannuation (the Superannuation Legislation Amendment (Trustee Governance) Bill 2015) stalled in the Senate, and it is not clear whether the Government will have the support to get it through the new Parliament.
  • The Government has not yet consulted on how to facilitate crowd-sourced debt financing.
  • It has also not yet consulted (again) on giving financial regulators additional tools to manage future financial crises.
  • It has not yet developed legislation to reduce disclosure requirements for issuers of 'simple' corporate bonds.
  • And it has not yet consulted on development of 'accountabilities' for issuers and distributors of financial products and ASIC product intervention powers, or updated the Statement of Expectations for APRA, ASIC and the Payments System Board.

There is a long list of other changes which the Government will be pursuing for the rest of this year and into 2017. This will include some significant changes like the introduction of legislation to facilitate trustees of superannuation funds providing pre-selected comprehensive income products for retirement, and strengthening ASIC's enforcement tools. Anyone hoping for a quiet period on the regulatory reform front will be waiting a long time.

Other articles in this edition of Unravelled

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The High Court has its say on penalties
In case you haven't heard, last week the High Court handed down its decision in Paciocco v Australia and New Zealand Banking Group Limited. In what was perhaps the most highly anticipated High Court decision of the year, the majority found that credit card late payment fees charged by ANZ were not penalties. Here we look at what the High Court had to say about the penalties rule and what this means for business and for class actions in the financial services space. Read more>>

Conflicts of interest and the duty to manage them
The Corporations Act 2001 (Cth) was amended in 2004 to include an additional obligation for Australian financial services licensees to have in place adequate arrangements for the management of conflicts of interest that may arise in relation to the activities undertaken by the licensees in the provision of financial services. Conflicts were an afterthought, coming a couple of years after the Financial Services Reform Act (Cth) in 2001. At the time, it didn't seem to be a particularly onerous obligation, and so it has proved. The regulators and various enquiries and committees have criticised financial services providers for letting conflicts of interest get in the way of their customers' interests, but the Corporations Act obligation to have adequate arrangements for managing conflicts is a poor basis for requiring licensees to put their customers' interests first. Read more>>

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