Interview with David Thornton, Talking Finance Podcast

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DAVID THORNTON:

Kelly O’Dwyer, Federal Minister for Revenue and Financial Services joins me to discuss superannuation and company tax rates. Minister, superannuation is a bit of a hot topic at the moment. The debate revolves around the extent to which people should be able to tap into their super to pay for other things such as medical expenses and property. These obviously need to be addressed in isolation, and we will, but what’s the government’s view generally on allowing super to be redirected to pay for other life expenses? Is this a slippery slope towards super becoming an everyday savings account?

KELLY O’DWYER:

Well, superannuation is very unique and it’s obviously a very important part of Australia’s retirement framework. We actually compel people to save for their retirement by forcing that saving, by in effect garnishing 9.5 per cent of their wages today to provide for their retirement income in the future. But, we have to never forget that it’s not the government’s money and it’s certainly not the industry’s money, it is the money of ordinary Australians who are deferring the use of that money today for their future. Now, we give superannuation very generous tax concessions as a result and we want it to grow over time and we have to very carefully, obviously, weigh up the benefits of early access versus the impact on someone’s retirement savings. For 20 years there has been a mechanism for early release of superannuation but that hasn’t been substantially looked at or changed for those 20 years. Under the current existing system if you are suffering severe financial hardship or serious health conditions there are rules governing early release. But, we in the government think that you need to look at whether they are fit for purpose today, whether they are effective and whether they do strike the right balance.

DAVID THORNTON:

A lot of people have been using super to pay for medical expenses, which of course speaks to the issue of healthcare affordability. Does Australia have a healthcare affordability problem and if so does that warrant separate healthcare sector reform as opposed to simply allowing the redirection of super which might be more of a bandaid fix that doesn’t address the core problem such as waiting lists and out of pocket expenses?

KELLY O’DWYER:

Well, obviously Australia’s healthcare system is the envy of pretty much the world, we have one of the best healthcare systems in the world. You’re right to say that we have seen an increase in the funds that have been released on compassionate grounds in relation to health matters and other matters from around $42 million in 2000 and 2001 to around $290 million in 2016/17. That’s why the government does think it is the right time to have a look at the framework even though it is a very small percentage of the overall amount of people’s superannuation savings because there’s around about $2.7 trillion now of superannuation savings in the system. We do think we need to make sure it does strike the right sort of balance and I released a paper at the end of last year that asked questions about, you know, in what circumstances should people get access to their superannuation early? What really is severe financial hardship, what do we mean by serious health conditions, are there any other circumstances in which we would actually grant early access and separate to that I’m looking at a separate question where we have seen people commit very serious crimes and then put a lot of their money into superannuation in order to deny that money to the victims of crime. I’m looking separately at that particular question as to whether we should provide access to those victims of crime to the superannuation of the perpetrator who might be trying to defeat those victims in ordinary circumstances where they otherwise would have had access to the money.

DAVID THORNTON:

I’d like to talk now about the first home super saver scheme announced last year. Why has the government chosen to use super to tackle the housing affordability problem? Does conflating housing policy and super send mixed messages? Because you’re kind of saying we’ve got this scheme to fund the later stages of life and that’s its purpose, but hang on it can also help fund the home you want to buy now. Then in aggregate you might have a situation where you have less super during retirement and perhaps young people relax their savings habits knowing that they can dip into super to pay for the deposit. Wouldn’t something like a tax rebate be better?

KELLY O’DWYER:

Well, I think it perhaps is a slight misunderstanding of what in fact the government has done on the housing affordability package and the changes that passed through the parliament very recently. We believe there’s no one silver bullet to impact and help those people who are looking to purchase a home, if there were it would have been done by now, right. We believe you need to tackle this issue in a number of ways and it needs to be very carefully calibrated because obviously there is no one housing market. The Labor Party like to sort of suggest the housing market is Sydney, certainly that’s an important housing market and there are different markets within Sydney itself but the idea that you would, for instance, change taxation policy which would impact the whole of the nation where there are, of course, very different things going on in Perth and then Northern Queensland because of what might be happening in parts of Sydney seems to us the wrong response. This is why we have said we want to help people, particularly first homebuyers, to be able to save for their deposit and one of the setup institutions and structures that exist right now where tax concessions are provided is the superannuation system. So, for those first homebuyers who are wanting to contribute additional amounts into their superannuation – this is not that 9.5 per cent but it’s over and above that but within contribution limits – if they want to contribute up to $30,000 into superannuation they will get the benefit of the very substantial tax concessions that do apply and they will then, particularly if they’re in a couple for instance, have access to about $60,000 in savings that can provide the deposit which will then mean they can get the loan that they need to purchase a property. Now, that works for some people. We know for instance as well that superannuation can be one of those mechanisms where we can incentivise people to downsize from the family home. Because there are a lot of people who complain that they can’t get into a family home because it’s all locked up. We have provided in the most recent budget incentives for older Australians to downsize from their family home by saying you can put up to $300,000 from the proceeds of the sale of that property into your superannuation over and above the contribution limits if you sell that property. Again, this will mean that the property is freed up for other people to be able to purchase. These are just some of the mechanisms. Obviously, land release is very important and we’ve been working with the state governments in relation to that. We also believe it’s important as well to ensure that for those people who might be renting that they have affordable housing as well. It’s not just those people who are looking to purchase a property but also making sure we have affordable housing for those people who are renting properties as well.

DAVID THORNTON:

Finally, Minister, the OECD just released a report that found that company tax cuts do not unfairly favour the rich which must be music to the government’s ears. Now, obviously, the idea is that company tax cuts boost investment and therefore drive economic growth but what companies actually do with these cuts is not a monitored process. Wouldn’t it be better cutting the tax of lower income earners who you know have a higher propensity of spend?

KELLY O’DWYER:

Well I think the OECD report, as you have highlighted, is very clear that it’s totally rubbish, Labor’s claim, that cutting company tax would increase inequality. It’s highlighted that in fact it does bring benefits to people of all income levels and it also follows on from IMF reports and from Treasury analysis and particularly modelling that says it is critical that Australia is competitive in what has been a landscape in the global tax environment that has been shifting very, very radically where we have seen huge reductions in the corporate tax rate in the UK, France and obviously most recently in the US. We need to be competitive because of course we need to attract investment and if you attract investment you can grow your economy. When you grow your economy you are looking to increase jobs. All of those people who get a job, they pay tax. That’s actually a really good thing for our economy, they also spend and again that’s a really good thing for our economy. So, we are clearly on the right path here, we’ve obviously called on the Labor Party to support the government in these measures and again the government has also said that we believe in reducing taxes where we can, so it’s not an either/or, you know, reducing company taxes or reducing personal income taxes. We believe you could and should do both, that’s what we’re focussed on. Meanwhile Labor, of course, have been focussed on increasing taxes to the tune of $164 billion on our economy and on the Australian people.