Casual observers might be confused why what appears to be a technical legal debate – what counts as retrospectivity for the purposes of superannuation policy – has been so emotive within Liberal circles over the last fortnight.
The answer is historical and philosophical.
For the last two years Labor has been beating the Coalition up on “fairness”, arguing that its economic policy favours the rich. The superannuation changes are intended to counter this attack, hitting the Coalition’s own supporters in their retirement accounts.
But with the retrospectivity debate the Government just dropped itself into another fairness debacle.
Retrospective law changes the legal status of actions that were performed before the law was passed. The issue here is that the new lifetime cap of $500,000 on after-tax concessional superannuation contributions is backdated to 2007.
That means there are Australians who have been planning their retirements on the basis of the law of the day and who have suddenly been informed that the law was, in retrospect, different, and that they were working towards a contributions cap that they never knew existed.
That retrospectivity feels unfair, in the sense that it is unjust to rewrite the past in a way that negatively affects the future.
(Retrospectivity is not inherently unfair or unjust. No one could object to posthumous pardons of men convicted of homosexual offenses in the 20th century. And no one should object to the post-war convictions of Nazi war criminals, even though, given they had not violated German law, their offenses had been retrospectively created and applied. But people planning for retirement are neither of those.)
As much as Bill Shorten has tried to suggest otherwise, fairness is not just a question of how heavily the rich are taxed. It encompasses the feeling that a citizenry acting in good faith will be reciprocated with good faith actions by the state.
Particularly since the Howard government, Australians have been told to put superannuation at the centre of their future planning – to contribute as much and as often as they can. Making superannuation the central pillar of retirement income has been a deliberate policy and political position of government after government.
It is hard to exaggerate how much pushback the Coalition is getting from its own supporters on the unfairness of retrospectivity.
There are a lot of people – and many Liberal Party supporters – who are quietly sceptical about the whole idea of compulsory superannuation.
In part this is because retrospective law has a particularly sensitive history in the Liberal Party. The Fraser government’s 1982 legislative volley against the bottom-of-the-harbour tax minimisation schemes (where companies stripped all their assets just before their tax was liable) included a provision that required these companies to pay all the tax that would have been due between the years 1972 and 1980, when the bottom-of-the-harbour schemes were believed to be legally sound.
This created a firestorm among the business community. The issue wasn’t so much that the loophole was being closed. It was that people who had made decisions under the law as it was were suddenly being told that they had actually been acting unlawfully. It was, fundamentally, a fairness battle fought against the government’s supporters.
In his autobiography, John Howard spends a big chunk of his account of his time as Malcolm Fraser’s treasurer detailing the political havoc that the legislation created. Fourteen Coalition members crossed the floor against the bill. Howard told a radio interview in 2006 that he still carried a few scars from the debate. As prime minister he regularly made hostility to retrospective law a basic liberal value.
Twenty-four years after it was introduced, compulsory superannuation is still a policy experiment vulnerable to tax grabs and policy change. While this has been obvious from a theoretical perspective for a long time, the 2016 budget confirms the uncomfortable fact: superannuation is an unreliable store of our retirement money.
Retirement savings are unique in that they constitute fixed investments made with a time horizon of 40 or 50 years. The Coalition Government seems determined to demonstrate that they can fiddle apparently unhindered and consequence-free with the tax treatment of this long-term asset.
Are we supposed to believe that this will be the last change to superannuation? Under the Turnbull Government’s new policy, the accumulation accounts that are supposed to hold super balances above the $1.6 million lifetime cap will be taxed at 15 per cent. It is virtually certain that here will be a government soon that decides that 15 per cent is too low. That it ought to be equivalent to the company tax rate (30 per cent) or the top marginal income rate (45 per cent). Or decides that the money should be taxed when withdrawn at the equivalent marginal income rate.
If it was any other investment, of course, we would be free to move out of this now provably unreliable asset and put our money elsewhere. But that is against the rules.
There are a lot of people – and many Liberal Party supporters – who are quietly sceptical about the whole idea of compulsory superannuation for this reason. It is fundamentally unfair to prevent people by law from accessing until retirement money they have legitimately earned.
And as Labor knows, once people have it in their mind that a policy is unfair, that impression is hard to budge.