A radical super idea - back to the future!

The Tax Institute's Senior Tax Counsel Bob Deutsch, CTA spoke to members in our TaxVine eNewsletter last week. He had this to say:

This week I return to one of my favourite topics – superannuation. 

As many of you know by now, I am a very firm believer in superannuation and that superannuation should be used exclusively for the benefit of members in retirement. I am not enamoured by the idea of allowing access to super for residential housing purposes, or indeed for allowing gearing of superannuation funds. From where I sit, the former defeats the very purpose for which superannuation was created, namely, to keep oldies off the age pension (and thereby allow more of the Budget revenue to be used to assist younger people to get into housing). Further, in my view, gearing is positively dangerous in any market rout which can happen at any time.  

However, there is an opportunity to enable at least some small part of superannuation to be used for the benefit of the overall community through investment in infrastructure while still preserving the purpose of securing retirement benefits for members. The total invested in superannuation appears now to be in the order of $2.3 trillion, which is by any measure a staggering amount. That amount is set to grow substantially in the years ahead as a result of organic growth but also the likely increase in the contribution level beyond 9.5%. 

John Kirkwood, a long-time friend and member of The Tax Institute recently reminded me of a tax rule that was around just as I began my career - it required superannuation funds to invest in government securities or lose their then exempt status. The holding had to be a total of 30% in government securities, of which two thirds had to be federal government securities (the so-called 30/20 rule). 

There is no reason to suggest that such a mechanism could not be looked at again. 30% would be way too high, but 10% would be realistic and would make a huge difference. This would require all superannuation funds to invest 10% of the available funds directly in infrastructure. The quid pro quo would be a moderate interest based return accompanied by a dual guarantee from the federal government – a guarantee as to the return of capital, and a guarantee of a minimum percentage return on an annual basis. With such a guarantee, the rate of return could be quite modest since the risk would be minimal. 

Such a measure would effectively take the government out of the infrastructure space (apart from the guarantee obligations) as that funding requirement would be taken up through this Superannuation Infrastructure Investment. Members interests would be protected as a guaranteed return on invested funds is provided thereby adding to their retirement funds. 
No doubt there will be those who scream “the federal government should not be mandating particular types of investment to superannuation funds”, but I think this could be answered by reference to the modest amount of investment required (i.e. 10%) and the guaranteed minimum return. 
I think it is an idea worthy of further consideration!

Members, we welcome your thoughts via the Vine Feedback inbox.  


Popular posts from this blog

Div 7A: Issues when dealing with loans and unpaid present entitlements

The biggest changes in estate planning in a generation

July's tax developments - in depth