24 November 2016
Transcript - #2016073, 2016

Interview with Peter Van Onselen, PVO Newsday

SUBJECTS: superannuation; professional standards

PETER VAN ONSELEN:

Kelly O’Dwyer, I guess my first question is why weren’t you in the Parliament supporting your Prime Minister? Is this a silent protest against the state?

KELLY O’DWYER:

I ran really, really fast, Peter. I’m a really fast runner.

PETER VAN ONSELEN:

I’m sure that’s a wonderful way for us to guarantee we get you back on the program, we appreciate you being there and making the time to talk to us. Let’s get straight into the superannuation changes. Now, there are a lot of critics on the right about these changes that you’ve orchestrated as the minister responsible. How do you respond to them? It seems to me to be largely, frankly, a lot of baby boomers that aren’t very happy that they’re going to have to pay as much tax as those of us that weren’t lucky enough to be in their position in previous decades.

KELLY O’DWYER:

Well certainly there’s been a lot of commentary on the superannuation reform package that has now gone through both houses of Parliament. But we are very excited about this package of changes and I’ll tell you why – because it makes our system fairer, more flexible, and more sustainable over the long term and it actually helps very many Australians to be able to save for their retirement. Particularly because we’re allowing, for the very first time, people who might not have been able to take full advantage of their concessional contributions, we’re allowing them to be able to catch up on those in years where they might have a higher income or slightly changed circumstances.

PETER VAN ONSELEN:

So can I get you to put that into practical terms for us, so what do you mean by that?

KELLY O’DWYER:

Let me explain. So what it means is that if you’re a woman who’s taken time out of the workforce because you’ve had a child or you’ve got caring responsibilities, it means that instead of losing out on the $25,000 that you would be able to concessionally contribute to your superannuation, in the following year, if you return to work or even subsequent years, it will be added on to the amount that you can concessionally contribute to your superannuation on a rolling five year basis. So the following year it would be $50,000 for instance, and it would keep rolling like that until the point at which you dropped off that five year period. And the reason that’s significant is that for those people who have got balances of less than $500,000, and it’s up to around about 14 million people in this country who have got superannuation balances of less than $500,000, they’ll be able to take advantage of this when they are in a position to do so. And we think that that is actually a really good thing. We also think it’s really important, oh sorry –

PETER VAN ONSELEN:

Well I just wanted to say, well what do you say though, having said all of that, one of your triumvirate of ideas, one was fairer, the other was flexible, the other was more sustainable. I get more sustainable, right, because obviously you’re able to generate more taxation out of these where people are currently free from taxation in their super, but what do you say to those people in their retirement who argue we’ve already paid tax throughout our working lives and we retired on the understanding that our super nest egg was tax free.

KELLY O’DWYER:

Well the truth is most people who have been contributing to superannuation over a long period of time were contributing on the basis that they would, in fact, be paying tax in retirement. There was a change of course in 2007, which meant that once you retired and reach the preservation age, you didn’t have to pay any tax on those earnings in superannuation. But they were very different fiscal times and we’re in a position now where it needs to be said that those people who are earning significant amounts of income need to be able to contribute a certain amount back to the Australian people through reasonably low and modest taxation rates. We’re talking about a 15 percent tax on earnings for those people who have more than $1.6 million in their superannuation, and let me just put that into context –

PETER VAN ONSELEN:

Yeah that’s what I want to do as well, so hang on, $1.6 million, do you pay tax on that first, the earnings out of that first $1.6 million?

KELLY O’DWYER:

No, no you don’t. You don’t pay any tax on the capital, the full amount, so the $1.6 million, nor any of the earnings on that, and let’s say you’re really good, you make fantastic investment decisions, you might have quite significant earnings, all of that is completely and utterly tax free. In fact, that $1.6 million might in fact grow, and if it does grow, that is all absolutely quarantined from earnings tax.

PETER VAN ONSELEN:

Hang on, hang on, let’s step through this. The $1.6 million, if it grows over time, let’s say you’ve got it invested in, I don’t know, mining stocks for example, which have gone up a lot lately, that $1.6 million turns into $3 million, for example, no tax on the earnings out of that?

KELLY O’DWYER:

Well if that happens I think it would be quite a miracle, but theoretically that’s correct.

PETER VAN ONSELEN:

OK and if that $1.6 million, again this would be miracle stuff at the moment, but if that $1.6 million gives you a earning of 10 percent, so you get $160,000 out of that for that particular given year, you would pay no tax on that $160,000?

KELLY O’DWYER:

That’s correct.

PETER VAN ONSELEN:

And then, my next question, sorry but I want to step through this. If you have millions more than that $1.6 million, under your changes, now instead of paying no tax you pay 15 cents in the dollar tax, is that right? On the earnings.

KELLY O’DWYER:

On the earnings. So, let’s say you have $2 million, right, so you’ve got an extra $400,000 –

PETER VAN ONSELEN:

On top of your $1.6 million?

KELLY O’DWYER:

Well OK, if you want it on top of your $1.6 million, say you have $2 million on top of your $1.6 million. I was just going to say you have $2 million all up, so you have $400,000.

PETER VAN ONSELEN:

No, it strikes me that a lot of the people complaining about this probably have a fair bit more than that. So let’s assume they’ve got $3.6 million. $2 million on top of the tax free earnings one. Of that $2 million, if they are lucky enough to have a 10 percent return and earn $200,000 they pay $30,000 tax.

KELLY O’DWYER:

Well they pay, well they pay a 15 percent tax on the earnings, 15 percent tax on the earnings. So not on the $2 million, but on the earnings from that $2 million.

PETER VAN ONSELEN:

Sure, but, if that $2 million, earns $200,000, and I realise that it probably unlikely because it’s more likely to earn half that, But let’s say it earns $200,000 because we might see an uptick to what it was used to be like, they pay $30,000 tax. 15 cents.

KELLY O’DWYER:

No, no, no, yeah 15 cents, it’s 15 cents. It is 15 percent.

PETER VAN ONSELEN:

Yeah they pay 15 percent only. How is that fair to the rest of us, who are paying a lot more than that? I mean I know they are bitching and moaning about having to pay that. But I asked the question, how is that fair?

KELLY O’DWYER:

Well previously they didn’t pay any tax on that and I suppose that is the context that I suppose I want to put it into. And that is for a person who is on an average income, who might be younger, who’s saving to purchase their very first home and trying to scrape together enough savings to put into a deposit. Any money that they put into their bank account, if they are on an average income of, let’s say around $80,000, any earnings on that amount in their bank account they are paying 32.5 cents in the dollar. Now previously, under the existing regime, if someone had $2 million in their superannuation account and they have retired, they have reached preservation age, they basically had to pay absolutely no tax, whatsoever, and I suppose the question is, was that fair? And we said no, no we don’t think that is fair, because increasingly the taxation burden would fall to those younger generations to pay even higher rates of tax as our population ages and the number of people who are of working age steadily decreases, for every person aged 65 and above, which was been revealed by the intergenerational report.

PETER VAN ONSELEN:

I am completely flummoxed here, because I’ve read it, I have seen people complaining about these superannuation changes, including, I have to say, Labor’s version, because I know there are some important differences as far as you are concerned. But –

KELLY O’DWYER:

Well they are going to tax even more, that’s for sure.

PETER VAN ONSELEN:

Sure, sure, but in both cases, you know, there’s a change here. I’ve seen all these criticisms suggesting, you know, that the world is going to end because baby boomers in retirement are suddenly going to be asked to pay some tax. I’m still struggling to see how this is fair for the rest of us, I mean don’t get me wrong I hope I live forever, get to retirement age and only have to pay 15% tax on anything above $1.6 million in my account and nothing –

KELLY O’DWYER:

If it’s in your super account that is correct –

PETER VAN ONSELEN:

Yeah, OK –

KELLY O’DWYER:

But we’re also targeting, superannuation tax concessions as well, so our catch-up contributions are very much targeted for those people who have got lower superannuation balances. We’ve also got a number of other flexibility measures which will actually make it easier for people to be able to save, particularly those people who might in fact be working for small businesses, those small businesses today might not offer salary sacrifice arrangements. We say you shouldn’t be penalised by your employment circumstances, it should be a level playing field for absolutely everyone and so the government has reinvested $1 billion back into the superannuation system so that we can level the playing field to give every Australian an equal opportunity to be able to save for their retirement future –

PETER VAN ONSELEN:

Minister, one last question because I know you’ve got to go, you’ve got meetings to get to, but there’s also been some changes around financial advice. Once upon a time, under the previous rules, correct me if I’m wrong, with four days of training you could then offer financial, complex financial advice to people. I think McDonalds make you do five days of training before you are serving without the training badge. A bit tough isn’t it, on the financial sector that you’re expecting them to upskill beyond four days of training before offering complex financial advice?

KELLY O’DWYER:

Well it is fair to say that there are some people who are obviously far more qualified than that within the sector –

PETER VAN ONSELEN:

Yeah that is true.

KELLY O’DWYER:

But it is true to say that the minimum standard within the sector is in fact four days’ worth of training before you hang up your shingle –

PETER VAN ONSELEN:

What is it now though?

KELLY O’DWYER:

Currently it’s four days, currently that is actually the requirement but we are changing it, we’re changing it with the legislation that we’ve introduced, we say you either need to have a degree or be degree equivalent, you need to have continuing education requirements, you need to make sure that you pass an exam that applies to absolutely everyone in the industry so we can get rid of those people in the industry who, for what of a better description, could be described as cowboys and not the right person that you should be talking to to get expert financial advice. And we’re introducing an ethics component as well, so that every single financial adviser needs to be providing advice in the best interest of the consumer rather than in their own financial interest.

PETER VAN ONSELEN:

Minister, I know you’ve got to dash but just very quickly the one thing that would concern some people, I mean understandably I mock it obviously yes, you want people to be well qualified and there are people in the sector who are already well qualified but the one legitimate question that I have to ask on behalf of those in the sector though, what are the pathways you’re offering so that, you know, people who have been doing this for years if you like, feel like they can get degree equivalent without suddenly the changes impacting adversely on them?

KELLY O’DWYER:

Yes, so there are transitional arrangements that will apply that will give people the opportunity to be able to get those educational qualifications and we think that that is very important for those people who are in the industry and who are providing advice right now. But, we also think that for those people who are new and coming into the industry, high standards must apply to them and so that will start from 1 January 2019. The reason there is a slight period of time before it actually applies is because we are setting up a brand new professional standards body which is being instituted by the Commonwealth so that they can get all of those educational components right. It’s going to be setting the exam, it’s going to be making sure that people are up to the ethical framework standards as well and that does take a period of time and we’ve looked at international best practice in order to deliver it as quickly as we can.

PETER VAN ONSELEN:

Kelly O’Dwyer I appreciate you finding the time to talk to us, thanks for your company.

KELLY O’DWYER:

Great pleasure.