11/02/2009 - 22:00

Tax status GESB block

11/02/2009 - 22:00

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A NEW obstacle to the privatisation of the state government's superannuation fund, GESB, has emerged with the tax status of the $5.47 billion accumulation fund, West State Super, in doubt.

Tax status GESB block

A NEW obstacle to the privatisation of the state government's superannuation fund, GESB, has emerged with the tax status of the $5.47 billion accumulation fund, West State Super, in doubt.

More than seven months after former treasurer, Eric Ripper, stopped the mutualisation of GESB at the 11th hour, the new Liberal government has asked the State Solicitor General whether West State Super's unique status as a tax-free accumulation fund would remain if the fund was handed over to its members and managed by a privatised GESB.

"If mutualisation was to jeopardise this untaxed status, the government's position would need to be reviewed," said current Treasurer Troy Buswell, who supports the privatisation move.

However, the tax status of West State Super is not the only issue confronting Mr Buswell, the Department of Treasury and GESB, who have yet to release a timetable for the privatisation.

Mr Buswell confirmed that the value of the reserves for some of the eight different schemes was also a key issue for the mutualisation process.

In March last year, WA Business News revealed that concerns over the treatment of hundreds of millions of dollars of reserves had created tension between the government and public servants with a keener eye than most on the books.

The problem appears to lie with the $2.35 billion Gold State Super fund, whose 20,000 members will not be joining the mutualisation thrust because it is a defined benefit scheme.

Under this arrangement, members receive superannuation payouts based on final salary rather than market returns. This can be boosted if members make additional contributions during their working life.

While the government is ultimately responsible for paying these funds it does make contributions to Gold State Super on an annual basis and, in the past, market-linked earnings from these funds were accumulated by GESB as part of its management of all the schemes.

Critics argue that some of these surplus funds were likely to be shifted across to the mutualised structure, rather than remaining an asset of the state which is ultimately responsible for meeting Gold State Super's liabilities.

Estimates of the reserve funds in question have ranged as high as $440 million, based on an examination of the 2006-07 GESB accounts.

While the government has never revealed the reserve figure in question, GESB itself said the net surplus in 2006-07 was $227 million. That number fell to zero in the following year's accounts.

At the same time, the reserves allocated to Gold State Super have fallen dramatically in the past financial year fell to $275 million in 2007-08 from $475.6 million the previous corresponding period.

That is reflected in the fall in reserves allocated for all the schemes to $538.5 million from $791.6 million.

The fall in total reserves is much bigger, dropping to $539 million (a figure which closely matches the allocated reserves) from $1.02 billion the previous year, a number which revealed around $229 million in unallocated reserves.

GESB said those reserve funds were used to top up the defined benefit schemes due to increasing liabilities and falling asset values.

 

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