NEIL MITCHELL:
Kelly O’Dwyer good morning.
KELLY O’DWYER:
Good morning Neil.
NEIL MITCHELL:
Let’s get it out of the way, it was an error.
KELLY O’DWYER:
Well what we’ve said is that we’ve got an even better package now, we’ve made some refinements, to improve the measures that we took in the Budget and I’m very happy to take your listeners through what those changes are.
NEIL MITCHELL:
But we do accept it was an error?
KELLY O’DWYER:
Well what we’ve done is we’ve made it better Neil.
NEIL MITCHELL:
You’ve made it better and you’ve cost yourselves revenue in the process.
KELLY O’DWYER:
We have, but we have been able to maintain our fiscal discipline so that the Budget does add up. Let me just take you through what the changes are, because this will make Australia’s super system fairer, it will make it more flexible, and it will make it more sustainable over the long term. And it will allow people to be able to continue to contribute annually, non-concessional or after-tax contributions. We are no longer proceeding with the $500,000 non-concessional lifetime cap.
NEIL MITCHELL:
That was the backdated one to 2007 right?
KELLY O’DWYER:
That was the one that commenced from 1 July 2007.
NEIL MITCHELL:
Do you accept now it was retrospective?
KELLY O’DWYER:
We don’t accept it was retrospective, but what I would say to you is that the new measures will apply from 1 July 2017. And what we’re saying to people is that the previous annual cap used to be $180,000, we’re saying to people you’ll be able to put in $100,000 every year with a three year bring forward of $300,000.
NEIL MITCHELL:
Sorry, three year bring forward you mean?
KELLY O’DWYER:
That means that you can bring forward for three years, your annual contributions and put it in as a lump sum.
NEIL MITCHELL:
These are non-concessional aren’t they?
KELLY O’DWYER:
These are after-tax contributions and they will be for people who have less than $1.6 million in their retirement account. And the reason for this is because we understand that there are a lot of people out there who aspire to get to $1.6. We don’t want to provide a handbrake on those people who want to be able to make contributions to be able to prepare for their retirement. We think it’s important that they be given every opportunity to do that and that is why we have made these refinements.
NEIL MITCHELL:
So they can put in $100,000 a year, non-concessional, or bring in together three years, $300,000, until they reach $1.6, then they can’t put anything in?
KELLY O’DWYER:
They can’t put in after-tax contributions, but they will continue to be able to put in concessional contributions. So if they’re on a wage or salary, or even if they’re a small business, they’ve got the ability to put in $25,000 each and every year, which is concessionally taxed. And what that then means, is we built in even more flexibility measures for those people who don’t get to take advantage of their full concessional contributions by saying that they, if they can’t make it up all in one year, they can make it up in the following year if they’ve got a low balance or a balance of less than $500,000.
NEIL MITCHELL:
But they can put an extra $10,000 in if they wish, non-concessional, until it gets to $1.6 million.
KELLY O’DWYER:
Until they get to $1.6 million they can put in $100,000 every year up until the point they get to $1.6, or they can do it on a three yearly basis if they prefer to do it that way, and they can continue to, even if they get beyond $1.6, they can continue to put money into their superannuation account, concessionally, and the limit from 1 July next year will be $25,000.
NEIL MITCHELL:
But up to $100,000, it doesn’t necessarily have to be $100,000, it’s up to $100,000 each year non-concessional?
KELLY O’DWYER:
Correct. That’s exactly correct.
NEIL MITCHELL:
Now when you exceed $1.6, the tax rate changes though right?
KELLY O’DWYER:
So when you decide that you’re retiring, you can transfer into your retirement phase account $1.6 million and all of the earnings on that will be entirely tax free. Above that, if you’ve got more than that, if you’re one of the lucky people, and hardworking people who have managed to accumulate more than $1.6, let’s say you’ve got $2 million in your superannuation account, the extra $400,000 can remain in superannuation in an accumulation account and the earnings on the $400,000 will be taxed at 15% from 1 July 2017.
NEIL MITCHELL:
That’s a new tax?
KELLY O’DWYER:
That is a new tax and that’s what we announced in the Budget.
NEIL MITCHELL:
So you’re sticking with that tax over $1.6?
KELLY O’DWYER:
That’s correct, but let me explain why Neil, because I think there is a very important fairness element to this. There are a number of people in this country who have accumulated, in some cases, $300 million that they’ve got in their superannuation account and they’ve hit 60, and they are paying no tax on any of the earnings, the amount that they had in super. And yet we expect the person on an average income who might be a young couple, who are saving for their home, who are providing their children’s education, we expect them to save for their home and on their savings, we expect them to pay their marginal tax rate, which might be 32.5 cents in the dollar. How can we say that that’s fair?
NEIL MITCHELL:
And how many people have got $300 million in their super?
KELLY O’DWYER:
Not too many, but there are only 50,000 people who have got more than $1.6 million in their super under the most generous arrangements at the moment.
NEIL MITCHELL:
I’ve always been a bit worried about the figures Treasury produces and that, but I can’t challenge that at the moment, though we did challenge them last time and we proved to be right. So you’ve changed that, well I say retrospectivity, you’ve changed that system and you still get up to $1.6 million so that would be an improvement I would think. It’s costing $400 million, so in fact the $400 million you were taking from us you’re now not.
KELLY O’DWYER:
Let me tell you how we’re paying for it, we’re basically –
NEIL MITCHELL:
No that point’s right, you were going to tax us that $400 million, you’re now not.
KELLY O’DWYER:
What we’re doing, let me explain what we’re doing so that you understand –
NEIL MITCHELL:
I’m trying, but you were going to tax us $400 million, you’re now not.
KELLY O’DWYER:
Let me answer you Neil. We’re not proceeding with a measure that was going to allow people who are aged between 65 and 75 to continue to contribute to their superannuation without a work test, we’re going to keep the existing status quo arrangements. That does save us $180 million over the forward estimates. So we’re not taxing more, we’re not set in with that measure –
NEIL MITCHELL:
So how many people is that going to affect?
KELLY O’DWYER:
That will affect around about, let me just check, it would affect around about 40,000 older Australians.
NEIL MITCHELL:
And how does that affect them? That means they pay more tax.
KELLY O’DWYER:
No, we’re simply not proceeding with a measure that was actually going to change the arrangements, we’re keeping the status quo. That’s it, that’s all I’m saying there.
NEIL MITCHELL:
So what’s the status quo?
KELLY O’DWYER:
The status quo is that if you want to contribute to your superannuation between 65 and 75, you have to meet the work test. Now the work test is 40 hours in a 30 day period over 12 months, which is not particular onerous, but it is a work test which says that you need to be able to work in order to contribute to your superannuation. But the second way we are paying for this, is we are deferring one of our flexibility measures. We’re deferring the catch up concessional contributions by 12 months, which raises $400 million over the forward estimates, which gives us, over the medium term, also $950 million, which means we are ahead over the forward estimates by $180 million and over the medium term, up to 2026-27, $670 million.
NEIL MITCHELL:
So why didn’t you do this from the start?
KELLY O’DWYER:
Well, like I said, we have improved it through the extensive consultation that we have taken –
NEIL MITCHELL:
But you took this to the election, I can’t believe that you came up, well not you personally, but the government came up with such a half-baked idea going into an election campaign, and now you sit down, have a scratch, maybe we’re wrong?
KELLY O’DWYER:
Well Neil, you’ll be very happy with our announcement then.
NEIL MITCHELL:
But do you accept that it was wrong, that you took the wrong thing to the election?
KELLY O’DWYER:
We accept that this is an improvement.
NEIL MITCHELL:
Well I guess by definition that means the other one was wrong.
KELLY O’DWYER:
I’ll let you do the commentary, that’s what you do.
NEIL MITCHELL:
It’s about the credibility of Government. I had you and the Prime Minister, and Julie Bishop even tried to defend it, and Scott Morrison all saying this is terrific, we’re right, you’re wrong. Now suddenly, we were all right, all these critics. Now fair go, you can’t have it both ways.
KELLY O’DWYER:
Well I think if you’re doing fair go Neil, I’d say the vast bulk of the package remains unchanged and is very strongly supported and we have made some refinements as any good Government would do Neil, because you do need to listen to the people and we’ve done that –
NEIL MITCHELL:
Listen to the people! You mocked us.
KELLY O’DWYER:
No, I don’t think that’s a fair assessment Neil –
NEIL MITCHELL:
You didn’t hear Julie Bishop then.
KELLY O’DWYER:
I’m not going to cast comment on my colleague who I very much respect. But let me say this – I think that this is a sign of a Government that listens –
NEIL MITCHELL:
Transition to retirement, another area of great concern to me, what are you doing there?
KELLY O’DWYER:
We’re not changing it.
NEIL MITCHELL:
Ever?
KELLY O’DWYER:
No no no, sorry, as in we’re not changing the package that we took to the Budget. We are continuing on with the existing package and I know, Neil, that you have queried the figures on this. But let me say to you that there are around about 110,000 people who are affected by our measures on 1 July next year who will pay more tax but they’ll pay the sort of tax they would otherwise pay, which is 15% on the earnings of the amount in their account.
NEIL MITCHELL:
And how many of them are fat cats?
KELLY O’DWYER:
What I would say to you is that most people who are using transition to retirement are people who have got the ability to draw down on their superannuation and put money back into their superannuation account. And generally speaking, unless you’ve received very, very poor financial advice, they’re not people on lower incomes. They’re people who are receiving a significant tax benefit from conducting one of these arrangements.
NEIL MITCHELL:
Once again, the industry, the real people in the industry say what you’re saying there is totally wrong. I know the Prime Minister says the same, I know it’s the line from Government, I think it is wrong. However, have you this time talked to the industry about it?
KELLY O’DWYER:
We have been consulting very extensively –
NEIL MITCHELL:
I know you’ve been consulting your backbench because they’ve been jumping and down about it, but have you consulted the industry?
KELLY O’DWYER:
We have, we have been consulting with industry, as you would expect us to do, Neil, in bringing forward a reform package of this magnitude.
NEIL MITCHELL:
Was this a result of pressure from your own backbench?
KELLY O’DWYER:
Well we’ve definitely consulted with our colleagues on this because they’re very much in tune with their communities, so of course.
NEIL MITCHELL:
Was this a result of pressure from your own backbench?
KELLY O’DWYER:
What I’m saying to you Neil is we of course we listen to our backbench, and we listen to the communities that they represent.
NEIL MITCHELL:
Thank you for your time.
KELLY O’DWYER:
Terrific, thanks Neil.
NEIL MITCHELL:
Sorry, the other question, we just had a call, will these changes all apply to politicians?
KELLY O’DWYER:
Yes, these changes definitely apply to politicians and those who are in defined benefit arrangements have commensurate treatment applied to them.
NEIL MITCHELL:
And what’s the contribution from Government to the politicians in the new scheme?
KELLY O’DWYER:
New politicians, politicians who have come into the Parliament, the vast bulk of politicians in the Parliament now, are on normal superannuation arrangements, so they don’t get a pension, it’s not part of a defined benefit arrangement. It’s like the normal arrangement of any salary worker.
NEIL MITCHELL:
No it’s not, it’s not normal.
KELLY O’DWYER:
Well, in the sense that you receive a particular amount that goes into your superannuation.
NEIL MITCHELL:
And how much is that? What percentage goes into the superannuation?
KELLY O’DWYER:
I think it’s around about 15%.
NEIL MITCHELL:
That’s why it’s not normal, the rest of us get nine.
KELLY O’DWYER:
Well there are a lot of people actually on arrangements that do get 15%, but –
NEIL MITCHELL:
A lot of people?
KELLY O’DWYER:
Well there are quite a number of people who’ve got –
NEIL MITCHELL:
You’re on a good deal, it’s not as good as it was, but it’s still a good deal. Public servants and politicians get 15%. Most of the real world get nine.
KELLY O’DWYER:
Well, we’ll also be paying higher taxes, because those people who earn over $250,000, and you’ll probably say that’s a terrible thing too, but they’ll be paying higher taxes as a result of that, and that will include parliamentarians.
NEIL MITCHELL:
As a result of what?
KELLY O’DWYER:
As a result of the changes that were made in the Budget.
NEIL MITCHELL:
I see what you mean. In terms of the super?
KELLY O’DWYER:
Correct.
NEIL MITCHELL:
OK, thank you very much.
KELLY O’DWYER:
Terrific Neil, bye.