On Tuesday 20 October 2015 the Hon Scott Morrison and the Hon Kelly O’Dwyer revealed the Government’s response to the final report of the Financial System Inquiry (FSI). The inquiry was delivered because of the Coalition’s election promise made on 25 October 2010. The promise was to conduct an extensive examination of Australia’s financial systems so that the financial system could be improved to support Australia’s dynamic needs and economic growth.
The Government’s response can be used as an indicator for the financial policies that will be taken by the Liberals to the next election. In the foreword of its response, it says ‘the Government has accepted the overwhelming majority of the Inquiry’s recommendations.’
Inquiry chair David Murray and colleagues acknowledged the importance of self-managed-super fund (SMSFs). ‘There is a large amount of detail in the government’s response with many of the 44 responses impacting directly and indirectly on superannuation,’ said Pauline Vamos, CEO, and Association of Superannuation Funds of Australia.
Here are a couple of the Government responses to FSI recommendations regarding superannuation.
Use of limited recourse borrowing arrangements by SMSFs
The FSI committee recommends a ban on limited recourse borrowing, borrowing from a SMSF to purchase an investment asset like shares or property. This is because the FSI wants to ensure that SMSFs are not used as an investment vehicle but rather as a savings pool. This could prevent built-up risk in the superannuation system.
The Government disagreed with the FSI committee. This means that limited recourse borrowing will still remain; however, it will be reviewed in 3 years’ time. In the FSI report, the Government said ‘the Government will however commission the Council of Financial Regulators and the Australian Taxation Office (ATO) to monitor leverage and risk in the superannuation system and report back to Government after three years.’
Taxation of superannuation
The Government response outlined how high personal income taxes were reducing workforce participation rates. According to the report, targeting tax cuts for lower income earners should help cultivate higher rates of workforce participation.
The head of the government’s financial system inquiry, David Murray, wants taxation of superannuation to change to make the system less harmful to low income earners. David Murray said that ‘in order to deliver value to the Australians in the superannuation system, policymakers will have to come to grips with the fact it doesn’t deliver the value it should, given the vast amount of money people are putting into it via contributions and as a taxpayers… Not only do those people with the lowest balances in the super system get no value from the tax concessions, but as taxpayers they are giving back into that system.’ Perhaps taxation of SMSFs could be a hot topic in next year’s elections.
Click here for full text version of the Government Response document.
For any queries of questions about taxation, please do not hesitate to reach out to the team here at Fortis Accounting Partners. You can get in touch on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com
