Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
Date: Wednesday, 4 May 2016
PETER VAN ONSELEN: Welcome back to the program, well as already flagged for more on the Budget fall out, I spoke to the Finance Minister, Senator Mathias Cormann a short time ago.
Mathias Cormann, thanks very much for your company.
MATHIAS CORMANN: Good to be here.
PETER VAN ONSELEN: You would have seen, I assume in The Australian, I have been broadly supportive of this Budget. I like a lot of your measures. I like the company tax change and I equally like the jobs initiatives in there as well. One thing though, that economists seem to be pretty united on is this concern that your nominal growth figures, particularly in the out years assume a return to normal in this global economic environment. That puts the return to surplus at some risk, doesn’t it ?
MATHIAS CORMANN: We base our forecasts on expert advice. We are implementing with our Budget a national economic plan for jobs and growth to secure our successful transition from resource investment driven growth to a more diversified, stronger economy. That is reflected in our Budget forecasts. For example, our 10 year enterprise tax plan, our reduction in the corporate tax rate will add permanently about 1 per cent to the size of the economy. All of these things are designed to strengthen economic growth, to create more jobs and in particular, having a more competitive company tax rate will help us attract more investment, improve productivity, increase the level of job creation but also increase over time real wages. All of that will help us drive stronger revenue for Government on the right basis, not like Labor is proposing to do through higher taxes overall, but through a more growth friendly tax system.
PETER VAN ONSELEN: What about in the super space? You have got a different version of how to handle super on the other side to Labor, but with some similar effect. The industry is suggesting to me that $1.6 million as the cap that you can have in your account to get earnings off, they are saying to me that the Government is far too bullish claiming that you can get $100,000 out of that, which would therefore be tax free. They are saying it is more likely to be half of that, what is your reaction?
MATHIAS CORMANN: What we have decided is that $1.6 million is the right line in the sand when it comes to transferring retirement savings into a retirement income account, where the earnings from that asset base do not attract any tax. You have to remember that if people decide to leave any amount above $1.6 million in their superannuation accumulation account, the earnings in that account continue to be taxed at a lower rate than income taken as take home pay, because the tax rate there is 15 per cent. 1 per cent of people with superannuation are impacted by this measure. In fact, if you look at all of our superannuation changes, 96 per cent of people with superannuation are either not impacted at all or are better off. So what we have done here, very much, is to better target the tax concessions in the superannuation space, making sure that they are fit for purpose, always remembering that the whole purpose of superannuation is to provide an income in retirement that replaces or supplements the age pension, not to provide a tax advantageous intergenerational wealth transfer vehicle.
PETER VAN ONSELEN: What I am getting at with my question, is that if the Government is assuming, as it is, that that $1.6 million can garner an income of around about $100,000 annually, that’s the basis on which you say it only affects a few percent of people with super. When the industry says hang on, it’s more likely to only be able to raise about $50,000 annually to live off if you have $1.6million in super, given the current economic climate. That is going to dramatically adjust those numbers isn’t it, a lot more than just a couple of per cent of people are going to be impacted on that if it kicks in with the 15 per cent tax at $50,000 as the industry says it will, rather than the $100,000?
MATHIAS CORMANN: Again so, this is transferring $1.6 million in assets, which only a very small number of Australians actually have in their superannuation account, $1.6 million per individual, so for a couple, that is $3.2 million to transfer that into a retirement income account in the retirement phase, where earnings from that particular asset base of $1.6 million do not attract any tax whatsoever. Now any investment, any assets that are kept in the accumulation fund will continue to be taxed advantageously at the lower concessional rate of 15 per cent. So that is still a very advantageous tax rate. People will have a variety of views on these things. We believe we got the balance right in better targeting the available tax concessions in the superannuation space. We have thought about this very carefully and people will make their own judgements.
PETER VAN ONSELEN: Let me be very clear on this, I like what the Government is doing. I think it is unsustainable in an ageing population to have so little tax on super. Quite frankly even what the Government is offering now as well as what the Labor Party’s alternative is, I wouldn’t have a problem with Government going a little further because of the age in the population and so forth. But the sector, what I am really keen to get your answer to, is the sector, the super sector is saying that the Government claiming $100,000 is what you can garner out of $1.6 million is just not right. They say it is half that. If they’re right and you are wrong, you have actually got a tougher taxing policy on Super than the Labor Party model where it only kicks in at 15 per cent for earnings above $75,000 in a year.
MATHIAS CORMANN: That is actually not right, because of the way the Labor Party has structured it, if you have one off income events in any one year because you have made a capital gain on the sale of a property or whatever, that hits you with a significantly higher tax even though you might have a comparatively lower balance in your superannuation account. Whereas what we are saying is that we are letting people transfer $1.6 million worth of capital, which generates earnings into a tax free income environment. Prospectively into the future we are changing the tax rate for any earnings from capital that is outside that retirement income fund to the generally applicable tax rate of 15 per cent, which is still below the marginal tax rate of that sort of level of income taken as take-home pay. People will make their own judgements. The important point is this threshold will be indexed by CPI and people will be able to keep these earnings accumulating in their retirement income account. We are very confident that we got the balance right. We are confident that the advice that we have received from relevant experts is sound and we obviously commend these changes to the Australian people.
PETER VAN ONSELEN: Mathias Cormann I know you have got to get to Scott Morrison’s National Press Club Address, we appreciate you joining us on Newsday. Thank you very much.