In September last year Treasurer Scott Morrison promised: "What we want to make sure of with superannuation is that we need to respect the fact that people have been saving under particular rules over a long period of time, that there is nothing that punishes or penalises them retrospectively on any of these things."
On budget night the government announced more than a dozen changes to superannuation law. Some of them are retrospective.
In the process it threw the financial planning of hundreds of thousands of Australians into turmoil.
While the Treasurer claimed that only four per cent of superannuation holders would be impacted by his changes, in fact a much higher percentage of Australians will be affected in future years as people's retirement savings grow.
Indirectly everyone with superannuation is affected, because the government has made the country's superannuation regime unstable and uncertain.
IT'S UNFAIR
Two changes to superannuation announced in the budget are particularly significant. They are the introduction of a lifetime cap of $500,000 on post-tax contributions, and the introduction of a $1.6 million cap that can be put into a retirement savings account.
Both changes are clearly retrospective. The evil of retrospective law is that it's unfair. People can't go back in time to change the decisions they made.
As John Daley of the Grattan Institute explained after the budget, "'Retrospectivity', a legal concept, applies if government changes the legal consequences of things that happened in the past."
Daley is correct. The retrospectivity of the government's superannuation changes is quite easily demonstrated, taking the $500,000 lifetime post-tax contributions cap as an example.
The government has said that any amount contributed to the cap between July 1, 2007, and budget night will count towards the cap. At the most simple and basic level, a law that imposes a cap and counts contributions made before the law was announced is retrospective, because it affects an action made before the law was announced.
Or put another way, before budget night a post-tax contribution made between July 1, 2007, and last Tuesday did not count towards a lifetime cap. After the budget the cap did count towards a lifetime cap. The tax treatment of the contribution has clearly been changed.
The introduction of a transfer cap on retirement accounts is similarly retrospective.
Those who argue these changes are not retrospective use two main arguments.
The first claim is that in the case of the post-tax contributions cap, any contributions made over the cap will not be subject to a financial penalty imposed by the government and therefore it's not retrospective.
FINANCIAL PENALTY
This argument is beside the point, because regardless of whether a financial penalty is imposed, the character of the contribution has been changed. In any case the superannuation holder has suffered a detriment because where once the contribution did not count towards the lifetime cap, after Tuesday night it did.
If the government had announced on Tuesday night that it was introducing a lifetime cap and that contributions made from that day onwards would count towards the cap then the law would have been a prospective law. But counting contributions made before the announcement makes the law retrospective.
The second argument in support of the claim that the changes are not retrospective is one that John Daley and others have made which can be summarised as "the government makes these sorts of changes all the time".
As Daley wrote — "The objection is that these changes retrospectively affect superannuation investments made in the past. But lots of changes affect investments made in the past, and no-one suggests they are retrospective."
The number of times the government changes a law doesn't determine whether those changes are retrospective.
The government should admit that its superannuation changes are retrospective, and that it's doing it because it needs the money.
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