Ban negative gearing in superannuation

Published in the Geelong Advertiser - June 2014 by Dale Gillham

Is it right to continue to allow Self-Managed Super Funds (SMSFs) to borrow to invest? 

Just because the banks want us to borrow and the Australian economy is relying on a buoyant property market doesn’t make it right. 

If something goes wrong it will be the people who can least afford to lose that bear the brunt of the blow.

Last month, the SMSF Adviser, a publication for accountants and financial planners working within the SMSF space, published the results of a poll where 53.5 per cent voted in favour of banning negative gearing in superannuation. 

Although the number polled was just over one hundred people surveyed, it may well reflect much wider views.

The issue I have with the current legislation is not in allowing borrowing within a SMSF, it is the degree of borrowing that is permitted. You may be surprised to learn that SMSFs can borrow up to 80 per cent of the value of the asset being purchased. I believe this is way too high to be safe and ought to be closer to fifty per cent.

The biggest issue with super though is that the average super savings for women nearing retirement is around $112,000 and $200,000 for men, which is well short of what is needed for a comfortable retirement. 

So already we have a situation where there is not enough money for people to retire on and we are allowing them to speculate with it. If something goes wrong over the next couple of years what then?

So what do we expect in the market?

This week the market has again come back to test 5450 points and fell through it on Wednesday to test support from prior price action close by. 

As at the close on Thursday, and measured from last week’s close, this decline represents just over 1.0 per cent for the week, which is on the low side of what is typical of the weekly trading range on the Australian share market. 

Looking at the history of the market, it is rare for the market not to pull back for a few weeks at this time of year as it tests support for the next rise. 

I believe this shows the resilience of our market and indicates that a further rise is likely in the second half of 2014, however, for prices to rise they may have to come back first, and in the absence of positive company news in this period a softening of prices is more likely in the short term. 

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