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Editorial: Farewell to RBL
Federal Treasurer Peter Costello is to be commended for using his 11th Budget to deliver further reform to the superannuation industry with the promised removal of the so-called withdrawals tax.
In fact, the Budget represented a clever piece of political strategy on the part of the Treasurer. The superannuation industry, and, indeed, his Cabinet colleague, Finance Minister Nick Minchin, had been calling for the abolition of the 15 per cent contributions tax.
The cleverness of Costello’s strategy is plain to see when you weigh up the relative Budget impact of removing either the contributions tax or the withdrawals tax.
Removal of the contributions tax has the effect of immediately slashing several billion dollars from the Government’s coffers, while removal of the withdrawals tax not only results in a smaller loss in revenue, but also ensures it occurs over a prolonged period of time.
One suspects that somewhere in Treasury someone is chuckling about the manner in which the Budget announcement took the superannuation industry by surprise. That person is probably also chuckling with the knowledge that the change effectively ended the capacity for people to argue that superannuation is taxed three times.
One of the initial reactions generated by the Government’s announcement, and, indeed, suggested by the Treasurer himself, is that the superannuation changes would make it less crucial for people to consult financial planners before moving to retirement.
Such pre-retirement consultation was seen as a necessary part of ensuring that people maximised their retirement and superannuation benefits at the same time as remaining compliant with a range of tax laws and, of course, the reasonable benefits limit (RBL).
While Super Review welcomes the Government’s decision to remove the withdrawals tax, it particularly welcomes the decision to remove the RBL.
The RBL was a policy borne of the suspicion that people would seek to use superannuation as a means of minimising tax. The RBL effectively limited the amount of superannuation you could accumulate, and at the same time attracted beneficial tax treatment.
The RBL was a policy that had its genesis in the 1980s and had clearly outlived its usefulness in terms of current policy priorities, particularly the need to encourage greater retirement income self-sufficiency.
At a time when the Government has been encouraging people to continue working well past 60, and when it has introduced legislation enabling such people to draw down on their superannuation while they continue to work, the RBL regime had become an anachronism.
Beyond the immediate benefits of the tax cuts, the extension of the co-contributions regime to the self-employed and the removal of the RBL, the policy changes outlined in the Budget represent a clear underpinning of Costello’s earlier policy initiatives, particularly last year’s transition to retirement arrangements and Australia’s broad approach to handling a rapidly ageing population.
The nature of the Budget announcement means that a good deal of work needs to be done in terms of the final implementation of the new arrangements, and there will clearly be implications for those people who have already retired and begun drawing down on their superannuation.
It is to be hoped that the changes will be implemented with a minimum of administrative complexity.
AUTHOR
Mike Taylor
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