The little-known superannuation tax lurk that has pushed $20 billion into the property market in just under five years is under attack, with Labor promising to ban private superannuation funds from borrowing and the Coalition foreshadowing new restrictions.
As The New Daily recently reported, self-managed superannuation fund borrowing arrangements have grown almost tenfold, from $2.5 billion in June 2012 to $24.3 billion last December. The lion’s share of that is going into commercial and, increasingly, residential property.
That has been a concern for regulators, with the Murray inquiry into the financial system in 2014 recommending SMSF borrowing be banned, warning “further growth in superannuation funds’ direct borrowing would, over time, increase risk in the financial system”. The Reserve Bank concurred.
Opposition Leader Bill Shorten on Friday announced he would ban SMSF borrowing if Labor comes to power as part of a bid to “cool an overheated housing market partly driven by wealthy self-managed super funds. Allowing this [SMSF borrowing] to continue would increase risk in the superannuation system and crowd out more first home owners”.
Stephen Anthony, chief economist at Industry Super Australia, said a ban would be “an obvious structural reform that would have benefits through the economy and to the budget”.
The Coalition has been silent on the issue in recent times, but Financial Services Minister Kelly O’Dwyer responded on Friday to questions from The New Daily foreshadowing moves to make the process less attractive.
“The Government will be progressing a package of minor and technical amendments including a proposed limited recourse borrowing arrangement (LRBA) integrity measure to address a potential concern that has been raised during the implementation of the superannuation taxation reform package.”
While the meaning of that is not altogether clear to the uninitiated, tax expert and principal with Arnold Bloch Leibler, Mark Leibler, told The New Daily it foreshadows action to prevent SMSF owners using borrowings to circumvent a $1.6 million cap on tax-free super retirement pensions due to start on July 1.
“It sounds to me like what they’re going to do is prevent people using borrowings to get around the $1.6 million cap,” Mr Leibler said.
Using an example of an SMSF owning a $2 million property with borrowings of $400,000, Mr Leibler said that if borrowings were not factored into the cap, owners would effectively get the benefit of a $2 million investment while staying within the $1.6 million cap.
Stephen Anthony described the Coalition move as “interesting. But if their intention is to reduce the incentive to borrow in SMSFs you’d have to ask why they don’t just rule it out entirely.”
While the foreshadowed move might reduce SMSF borrowing, it still leaves plenty of space for funds under the cap limit to borrow, Mr Anthony said.
Peter Strong, CEO of the Council of Small Business Australia, said Labor’s SMSF plans could negatively affect small businesspeople trying to buy their business premises.
“It’s good business for businesses to invest in their business. For most businesspeople their business is their super plan, so there could be unintended consequences in this. They need to be looked at,” Mr Strong said.
It also appears that Treasurer Scott Morrison has lost the cabinet battle to allow first homebuyers to dip into super to fund a housing deposit.
On Friday, Finance Minister Mathias Cormann, who is part of the government’s budget “razor gang”, told Sky News: “That’s not something we think would address the problem.”
Prime Minister Malcolm Turnbull has also come down against the move, saying, “The purpose for superannuation is to provide for retirement, that’s the objective.” The Treasurer had previously supported the idea.