The talking points for Turnbull government’s superannuation changes, announced in the Budget earlier this month, are clear.
The $1.6 million cap on super before retirees have to pay more tax means “96% of people are either better off or not affected by the changes”. Superannuation “is not a tax minimisation vehicle, it is not an estate planning vehicle”.
Foreign minister Julie Bishop had the government’s line down pat when she appeared on 3AW in Melbourne with Neil Mitchell this morning.
But what she didn’t plan for was to be questioned about the Transition to Retirement (TTR) scheme. When the radio host claimed the government’s changes to super were hitting people on $70,000 a year, Bishop’s inability to demonstrate an understanding of the issue beyond the talking points shows the huge problem treasurer Scott Morrison and the prime minister have in selling the changes.
Mitchell asked Bishop to explain TTR. When she couldn’t, the radio host, who’d done a similar thing to former assistant treasurer Josh Frydenberg a few weeks earlier, zeroed in for the kill.
“This is the hole in your whole logic. You’re saying it’s only 4% of taxpayers. You, Josh Frydenberg, neither of you understand Transition to Retirement, that’s clear, and this is where you’re hitting average people, not the fat cats,” Mitchell said.
“I don’t accept that’s the case,” Bishop retorted, having already tried to repel the attack by saying “Well, Neil, this is obviously a ‘gotcha’ moment… It’s not my portfolio.”
Bishop tried to soldier on, saying she’d had a briefing on the issue, but Mitchell would not be deterred.
“I suggest you have a closer look at the briefing, because that is clearly wrong minister,” he said.
Mitchell claimed that under the changes, between “80 and 500,000” people using TTR are now being hit with an additional 15% in tax.
“People on 70 grand are ringing me. It’s hitting them. They’re not fat cats are they?” Mitchell said.
“I would suggest to you that the government doesn’t know what it’s doing here.”
Right now, people as young as 56 – provided you were born in 1960 – are using TTR to minimise tax by tipping additional money from their salary into superannuation via salary sacrifice, then taking some of the money back as retirement income from the super fund.
Because super is taxed at a concessional rate, it means they pay less income tax. The idea underpinning TTR is that you can top up your super balance by putting in additional funds, without having to reduce your existing income. But for anyone born after 1 July 1964, you’ll need to be 60 before you can start using the TTR scheme.
It appears the scheme has been caught up in changes capping how much you can top up your super by to $500,000.
Bishop was also left floundering when Mitchell asked her about what will happen as the value of your super fund goes up and down and how often the $1.6 million threshold can be assessed.
“I’m not going to give people financial advice,” Bishop said.
“It’s not financial advice, that’s policy advice. This is your policy,” Mitchell retorted.
“What happens if I have $1.6 million and I lose money on the stock exchange and it goes down to $1 million…. What happens then? Can I top it up?” he continued.
“My point is this, we have a generous superannuation scheme…” said an increasingly flustered Bishop.
“Well is it possible that the transition to retirement changes are catching people on lower incomes and that’s an unintended consequence?” Mitchell asked.
“Well I’m not aware of that,” Bishop conceded.
The encounter with one of Melbourne’s most influential radio presenters shows superannuation changes continue to be a festering sore point for the government and a core constituency with just over four weeks left to the election. How Turnbull and his ministers handle and explain it on the campaign trail is vital to their re-election chances.
And if you’re talking to Neil Mitchell, you’d better be prepared.
Watch the Julie Bishop interview below:
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