Last week in Senate Estimates, Senator McKim asked Finance Minister Katy Gallagher why, when there is a general prohibition on super funds from borrowing to fund investments, that SMSFs are still able to enter into LRBAs.
The use of LRBAs by self-managed super funds was one of the sticking points from the Greens in their conditions for passing the first draft of the super tax legislation.
Last year, the SMSF Association provided the Greens with statistical data to show that LRBAs pose no threat to the housing market and that they do not push up prices. Peter Burgess, CEO of the SMSFA said at the time the data also showed that LRBAs pose no threat to the superannuation industry.
“Australian residential property is valued at just under $12 trillion and LRBAs are valued at $56 billion, so they’re just too small to pose a risk to the sector or the housing market. And the growth of LRBAs is not spiralling out of control, it’s been quite subdued, particularly over the last five years and we explained that,” Burgess said then.
Last week McKim questioned why self-managed super funds are allowed to borrow to fund speculative investment.
Brendan McKenna, assistant secretary, labour market policy branch, responded that the “kind of general philosophy” around the issue is that superannuation is to fund retirements.
“We want stable investments and reliable investments and that’s why, generally borrowing is quite limited,” McKenna said.
Senator McKim said there has been a “strong and consistent rise” in self-managed super funds borrowing money to buy investment properties, and in particular investment housing.
“Is that something you think could be contributing to the hot and frothing housing market at the moment?” he asked.
Diane Brown, deputy secretary, revenue group for Treasury, agreed that there has been a rise in SMSFs and she would need to look at where self-managed super funds are investing.
“There are, like other funds, contributions and caps on super funds so I’d want to check the rest of the question that you’ve asked before I made a statement,” she said.
Senator McKim’s line of questioning followed discussion around the changes made to the original $3 million super tax legislation. He stated that with these changes “one per cent of the wealthiest people in this country are jumping for joy”.
With a reduction in the amount of revenue the new draft of the legislation will raise, Senator McKim questioned how the government will now find savings in other areas.
“So where are you going to find these savings? You’ve foregone a little over $4 billion – that’s pretty close to the $5.6 billion you’re cutting out of the public service,” he said.
Referencing an earlier point raised during the committee hearing on the amount of property held in super funds, Senator McKim asked Treasury whether it separated SMSFs from regulated super funds when the department is analysing its data.
Brown said Treasury does not do that in its data sheet, which only includes funds with six or more members.
Senator McKim continued the line of questioning, asking if Treasury “disaggregates” housing from other real property.
McKenna said the data does not separate real property and said the range includes housing under which would also be farms and business property.
“I guess my proposition is superannuation was designed, actually by a Labor treasurer, Paul Keating, to be a vehicle to provide for a dignified retirement for working Australians and it’s become far more about estate planning and a vehicle for wealth accumulation,” McKim said.
Senator Gallagher responded that the changes made by the present government in terms of high-balance superannuation accounts means superannuation is still concessional.
“We accept that putting money away for your retirement is good, but if you have balances over $3 million or $10 million, then the concessionality will be lower,” she said.
Senator McKim continued that the changes made to the original legislation have “been a change that has benefited super wealthy people who are using their self-managed super funds as a vehicle for estate planning and wealth accumulation”.
In response Senator Gallagher said the objective the government sought was to raise some revenue to assist with budget repair, but also to have a less concessionality for balances over $3 million and it is still being achieved.
“We’ve responded to some feedback we’ve had through the process, including around indexation. We think this approach delivers the outcome that we were seeking, which deals with some of the issues you raised, but still allows for concessionality in the super system,” Gallagher said.
