There is huge debate at the moment about the federal ALP’s proposal to alter franking credit laws in the Australian taxation system. Proponents argue that if a retiree has not paid tax why ought they to receive a tax refund? Opponents say that the tax has been paid by a company distributing the dividend in the first place and that there are different rules that apply to different superannuation structures which is unfair.
But at the heart of the protest, and what the ALP needs to overcome, is a perception that the rules are being changed mid-stride. People’s primary grievance is that they have relied upon the law, only to have that law potentially changed: it’s like shifting sand beneath your feet. I have great sympathy for that argument more broadly. I’m all for reasonable law reform but when you’ve planned your life on one basis but have to execute the plan on another one altogether, there is an inherent unfairness. Reliance on something is a relevant legal concept, and often influences a court’s decision about what a legal remedy ought to be. But when you’ve placed reliance on governments and things change, there is nowhere to go.
Heading into the last federal election the same group of people now worried about Labor’s policy were concerned by superannuation changes later introduced by the current government. These included a cap on self-managed superannuation funds at $1.6m, and alterations to other SMSF rules. The same outrage was expressed. How could it be fair for a person to plan and save on one basis to discover that the ultimate reality is far different? The rationale used then was that $1.6 million was all an average person needed to fund retirement: tell that to the person who worked and saved to fund an above-average retirement.
We need to be able to trust our law to have a degree of constancy. Lurching from one place to another leaves citizens feeling disenchanted, confused and disregarded.
Superannuation is a classic area where no government can be trusted to maintain the law as it is. There has been regular and systematic tinkering with SMSF fund rules over a long period, to the point where I view superannuation, as a savings vehicle, with suspicion. It is not a great accolade for our federal lawmakers to be viewed as the betrayers, rather than the maintainers, of trust. Little wonder the public often accuse politicians of being out-of-touch, particularly when parliamentarians themselves seem ring-walled from much of the negative effects of their own legislative dabbling. A career politician, after all, will rely on their pension, not superannuation, to fund their retirement.
That leads to another maligned Australian sector, one that keeps our economy afloat – small and medium enterprise. SMEs are served ‘the raw prawn’ of constant legislative alterations and it is to their considerable detriment. Sure, federal law can carve out SMEs from legislative change but not enough to enable SMEs to keep their corporate heads above the flooding waters of reform. Big business is equipped to handle constantly changing law; SMEs are not.
I vividly recall the years of confusion transitioning into WorkChoices, the industrial relations program of the then Howard government, followed by the utter chaos as SMEs transitioned into the Rudd Government’s Fair Work system. Leaving aside any philosophical commentary, for successive federal governments to just up-end one industrial system and introduce another wreaks havoc on SMEs. It’s grist for legal advisers and advisory services more broadly, but that’s money that SMEs can little afford and none of it goes into increasing productivity. This advice merely enables SMEs to understand how not to break the rules. Mercifully, the Abbott Government chose consistency over change in this area, but with the looming prospect of a new government, I have no doubt we can expect it all over again.
This commentary is not about the rightness of law – it is about the evils of frequent change. We need to be able to trust our law to have a degree of constancy. Lurching from one place to another leaves citizens feeling disenchanted, confused and disregarded. We are not all going to like all laws, but what we need, business included, is an understandable and predictable legislative framework.
Which gets me back to the starting point. Self-funded retirees are obviously, as a group, not a traditional ALP voter base, so I assume this policy has been road-tested by the party to not cost it votes. But it will cost the quality of life of people who have had the wherewithal to save their pennies, invest and believe in the immutability of the rules. There is something inherently unfair about this.
If this issue was before a court of equity, there would be disquiet. I think there ought to be disquiet in the broader Australian community about why it’s okay to have laws that are valid one day but invalid the next. At least give us more than an election cycle to adjust our planning in business, and our decisions about investments and the law more broadly.
When the rules are changed every three years, it’s little wonder we have lost our political faith.
Morry Bailes is managing partner of Tindall Gask Bentley Lawyers and immediate past president of the Law Council of Australia.
Disclosure: Morry Bailes is a member of the Liberal Party.
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