Labor tax change deal angers super funds, business
The government’s deal with the Greens over the treatment of self-managed super funds has angered the financial sector as Labor seeks to counter the rise of One Nation.
The deal, which closes a so-called loophole in the federal budget’s changes to the capital gains tax credit, will ban funds from borrowing to buy homes, meaning they cannot avoid changes to the capital gains tax credit.
The Greens will vote on the full budget bill and it is likely to pass the upper house before the winter recess starts next week.
But for the government, passing the controversial bill within two weeks may not be enough to stop One Nation’s rise in the opinion polls.
Finance Minister Jim Chalmers cited advice made by former Commonwealth Bank of Australia chief executive David Murray to then-Liberal treasurer Joe Hockey in 2014 to justify sparking a deal with the Greens at a time when One Nation was trailing Labor in the polls.
The legal practice of allowing self-managed super funds to take out loans to purchase assets in certain circumstances, known as limited recourse borrowing arrangements (LRBAs), will become completely obsolete as a result.
Fund managers were disappointed the government “accepted the Greens’ demand”.
“The review was conducted following the finding that LRBAs did not pose a significant risk to the superannuation system,” said Peter Burgess, chief executive of the Self-Managed Superfund Association.
“The problem is not the debt structure itself, but the behavior of those who aggressively market inappropriate real estate investments and make unrealistic claims about returns and retirement outcomes.”
Others are disappointed at the prospect of the bill being passed in its entirety.
Australian Chamber of Commerce and Industry chief executive Andrew McKellar said capital gains tax would harm business investment.
The changes have been heavily modified since they were first announced to give some exemptions to small businesses, but Mr McKellar said they would not be enough.
“The concessions made on the changes last week were an attempt by the government to ameliorate some of the damage done to business, but significant unresolved issues remain,” he said.
Pauline Hanson’s popularity has soared in the polls and the One Nation leader used her maiden speech at the National Press Club last week to highlight her party’s stance on intergenerational equality and the cost of living.
On Tuesday, he told the Senate that controversial tax changes prove the policy is “fundamentally flawed.”
“Capital gains, tax cuts and negative gearing deliver the housing millions of Australians desperately need,” he said, in direct opposition to the Greens’ demands that Labor accepted.
Latest data from the Australian Taxation Office showed self-managed super funds had around $75 billion in assets under LRBAs, backed by $28.9 billion in debt.
Australian Financial Industry Association president Diane Tate said the regulations were being used by Australians who wanted to “sensibly diversify their assets” and did not see the need for further government oversight.
The Greens were also successful in delaying the passage of comprehensive NDIS reforms by two months; Disability advocates say this would give them welcome time to push for fewer cuts.
The report of an investigation, now stalled, was due to be published on Tuesday.
The government also did not yield to the Greens’ third demand to relax tax provisions exempting existing properties from negative gearing.
“The changes we have introduced mean there will be fewer wealthy property investors attending auctions and renters looking to buy their first home will be bidding higher,” Greens treasury spokesman Nick McKim said on Tuesday.
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