Nothing super about broken promises

The federal government’s method of changing superannuation rules invites examination of how politicians can break a contract with the public with no legal ramifications, writes Morry Bailes.

Mar 09, 2023, updated Mar 09, 2023
Photo: AAP/Mick Tsikas

Photo: AAP/Mick Tsikas

Over the past fortnight we have witnessed a spectacular broken election promise by the federal Labor government relating to our superannuation system. Most people have concentrated on the new proposed limit to superannuation of $3m (unindexed) after which tax applies at 30% not 15% and shrugged their shoulders, assuming the new rules won’t apply to them.

However, another proposed change – the taxing of unrealised profit in a super fund – may cause many more to blanche. That change is at odds with all of our existing taxation principles.

The Government proffer two reasons why the seeming broken promise is actually not broken after all. First the changes aren’t really big changes. Second, although they will be legislated this parliamentary term they won’t take effect until 2025, which falls into the next parliamentary term.

What did the Prime Minister actually say that has raised so much ire? It was during the last election campaign and his words were, ‘We’ve said we have no intention of making any super changes’. That seems like a pretty unambiguous statement. Yet here we are, being told a change that isn’t a ‘big change’ is not a breach of the undertaking to effect no change to super at all.

As to whether the proposed changes are ‘big’, they certainly are for some people. There also seems to be a general ignorance around what taxing unrealised profits earned within a super fund actually means. Many of the ‘shoulder shruggers’ once they absorb the ramifications may suddenly realise this is ‘big’ after all.

The evidently forgiving approach to this proposed change, as reflected in a recent Newspoll, means that maybe the PM and Treasurer are winning the PR campaign. After all, if it doesn’t effect you, why care?

Another view is that the electorate hasn’t properly caught up the full ramifications of the reform, and once they have, the prevailing view might change. That at present most of what the Government is talking about is confined to the $3m cap, not the issue of the taxation of unrealised profits and other complications like taxing the ‘balance’ of a super fund. Once realisation dawns, Australians may wonder whether the current federal government went to the election nine months ago with the express intention of making these changes.

That view is far from implausible. In the Bill Shorten campaign the election before, the Labor Party put up a significant reform agenda that likely cost Labor the election. Voters rejected the abolition of negative gearing and the taxing of franked credits amongst other suggested reform. But at least Mr Shorten was upfront and honest, and we were given a choice.

Labor under the current PM wasn’t going to make the same mistake twice. Indeed, at the election of the Albanese Government it was pretty hard to tell what its policies would be, such was the small target approach adopted by the now PM. However one thing for certain, we voted with an express undertaking by the Prime Minster that the Government would not tamper with superannuation.

Moreover, this plan wasn’t hatched yesterday. The idea that after the ‘national conversation’ which lasted all of eight days, the proposal just came out of thin air is ludicrous. It seems fair to conclude it was planned all along, more so because, if the rumours are true, Cabinet decided to act early to announce the changes rather than have the ongoing damage of the Treasurer scaring the wits out of many Australians as a result of the ‘conversation’.

This is not the first ‘conversation’ the Treasurer has suggested occur with Australian citizenry. I can only speak for myself, but I haven’t had a chance to confer with him as yet, more’s the pity. A ‘conversation’ is a weasel word to disguise a government minister talking at us about a reform proposal that has already been decided. ‘Consultation’ is the other popular term used by government that generally means that you get to talk to government whilst simultaneously being ignored.

Now to the law. Must we all sit by, knowing in spite of the doublespeak, that we have in fact been betrayed? Are we not able to do something about it? What remedies might exist in law?

This question raises a very interesting element of our parliamentary democracy that has unsurprisingly occupied the minds of legal academics  long before now. The answer lies in the doctrine of the separation of powers. The problem put simply is this: the only forum to challenge a Government if it has either broken an election promise, or worse as in this case, been elected on undertaking to not do something and then does it, are the courts of law. There is however a problem in the judiciary interpreting the lawfulness of a campaign promise made by a government owing to the potential erosion of the separation of powers as between Parliament and the courts. Put in an elementary way, the courts can’t mess with the independence of the Parliament.

British jurist and constitutional law expert A V Dicey KC wrote about what underpins Westminster parliamentary sovereignty during the late 19th century. What was encapsulated in his treatise on the subject has become known as Dicey’s principles. In his Study of the Law of the Constitution, Dicey has it that parliamentary sovereignty is absolute. In its sovereignty, Parliament has ‘the right to make or unmake any law’, and further, that ‘no person or body is recognised by the law of England as having a right to override or set aside the legislation of Parliament’.

The outcome and effect of Dicey’s principles mean that whether the government of the day lied or fibbed to get there, once it has control of the Parliament it can do whatever it wishes, irrespective of what it may have said or agreed to in the past. It is impossible, given the sovereignty of Parliament, for the courts to interfere.

In Australia, because our Commonwealth Parliament is a creation of the Constitution, we regard Parliament as supreme rather than sovereign. Some go further to argue that the concepts of sovereignty and supremacy don’t strictly apply to our federal Parliament, because of the clear conferral of power to the Parliament by the Australian Constitution. Be that as it may, within the powers of what, at Federation, were given by the States to the Commonwealth, our federal Parliament may make and unmake laws. The only hoop to jump through is that the Government of the day, must act in accordance with the Constitution, and that its legislation be constitutional.

The inevitable conclusion is that there is no such thing as a legally enforceable promise or undertaking made by a parliamentarian, in the context of representations made to the public. It is a clear warning that when a political party is running a small target campaign and you really have no idea what it will deliver, anything may be coming your way. Worse still, undertakings given to not do a thing are worthless. All one is left with is the knowledge that the undertaking was given deceptively or that there was a change of mind. Small comfort when, in this case, you voted for the Government, and will pay for the naivety with cold hard cash.

Wait you may think, isn’t there a contract with the people? Don’t politicians so oft speak of a contract with the Australian public? We voted for a government promising no changes to superannuation yet now they are to occur. Is that not a breach of what might be said to be a condition of the contract that we entered into by electing the Government?

InDaily in your inbox. The best local news every workday at lunch time.
By signing up, you agree to our User Agreement andPrivacy Policy & Cookie Statement. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Unfortunately that argument doesn’t work for a number of reasons. The election of governments does not work on the basis of an individual contract with a voter, more’s the pity. In any event, a vote will not be regarded as consideration to contractually bind a government. Further as a matter of public policy the courts will not hear every application by an aggrieved voter bringing an action to judicially challenge the government of the day. It just wouldn’t work.

In this column I have previously written about ministerial responsibility. The point when that piece was written was to highlight the changing notion of ministerial responsibility. Rarely these days it seems, does a minister resign if something goes awry in her or his portfolio. Typically ministers resign owing to a personal scandal. Maybe one way to keep ministers honest then, is to include in the ministerial code of conduct a provision for them to resign from their portfolio if they are found out to misled voters? Again, whilst this would be ideal, it’s unlikely in this day and age, to happen. Politicians are utterly brazen in their lies and mis-truths. This is a prime example. According to the federal Government it hasn’t misled the public because the changes are not ‘big’ changes, and even though they’ll happen, the ‘happening’ won’t be for a few years.

The political class in Australia has lost a great deal of credence. Reputationally, is doesn’t fare well. Whilst misleading and deceptive conduct by a corporation is actionable before a court of law, politicians are not captured by such legislation. As a direct result, governments may spin a yarn whenever they wish, and often do, and there is no ability to call them to account in a way that a corporation would be prosecuted by a regulatory authority, or sued by an individual who has suffered a loss as a result of being misled or deceived.

Is there another way for the PM and Treasurer to redeem themselves and the Government? A way to share the pain? In this case why not say what is good for the goose is good for the gander? That might engender some respect. It is estimated we must hold some half a billion dollars to fund federal parliamentary pensions. To fund the current PM’s pension alone experts say requires a lump sum of $10m. Is there any suggestion in the greater good that there be mutual sacrifice?

Not a solitary word has been voiced that makes that seem like the remotest of possibilities. Those in parliament, so determined to redistribute money from the perceived rich to the perceived poor, only do so as long as they are safely quarantined. Little wonder we hold them in such low esteem.

For the long-suffering Australian public we are now anxiously checking what Bill Shorten promised by way of reform in 2019. When you’ve breached faith with the Australian voter once, we should expect it to happen again. There are after all, years of this government to come. What of the abolition of negative gearing? What of taxing already franked dividends? What of taxing capital gains without discount, or on the family home? All those ideas were on the table in 2019. And the Treasurer prevaricated on ruling out a capital gains tax on the family home only last week. The Government has described this type of discussion as scaremongering. That is very unfair when people are only concerned about planning for their future.

If you are cynical, you may suggest that the broken promise not to change our superannuation and tax unrealised profits within a super fund, overwhelmingly disadvantages self-managed super funds, rather than Labor’s mates in the industrial funds. And although by no means exclusively, self-managed super funds are used by self-employed people who receive no compulsory superannuation at all, or, if they do, only through their own companies, from their own potential profit. Private wealth adviser Cameron Harrison said of the measure: “This is highly discriminatory, favouring the industry super funds.”

It fits with the theme of the Treasurer telling us how our super should be invested, in infrastructure and affordable housing. It fits with the federal Government telling us how much profit it is socially acceptable to generate from commerce, as if making money was a crime and something to be ashamed of. It fits with the Treasurer’s notion of ‘humanising’ capitalism. A new type of capitalism writes the Treasurer. Sounds like a new type of socialism to me. From free market, to command and control.

So what to do? The law cannot help, and Dicey’s principles and the approach of our courts means it never will.

There is only one way to get rid of Governments that breach faith, and that is to vote them out. It is concerning that less than a year into government, and when we all thought Mr Albanese seems like a likeable and trusting fellow, we’ve seemingly been dudded when it comes to superannuation.

In the meantime what we actually need in this country is a national conversation about federal Governments not spending like drunken sailors and letting people who have spent their entire lives earning and saving to hang onto their money. Government after government has meddled relentlessly with our super system, so add to the wish list unambiguously clear rules to stick to and not change, so that we may all invest in superannuation with confidence.

As it stands, and using the words of Tony Negline of Chartered Accountants ANZ, investing in superannuation is ‘like trying to shoot a moving target flying in circles’.

Morry Bailes is Senior Lawyer and Business Advisor to Tindall Gask Bentley Lawyers, past president of the Law Council of Australia, a past president of the Law Society of South Australia and a past office-holder in the Liberal Party.

Local News Matters
Copyright © 2024 InDaily.
All rights reserved.