The Labor Party should rethink its policy to ban limited recourse borrowing arrangements (LRBA), according to a property lender, who described the policy as a blunt instrument for a small misconduct problem.
Thinktank chief executive Jonathan Street said Labor had announced it would revisit its proposal to abolish franking credit refunds, and LRBAs should be included as part of the discussion.
“If Labor wants to reach out to the small business community, in particular, taking the abolition of well-managed, well-regulated LRBAs off the policy table would be an important step in that direction,” Street said.
He pointed to a recent Council of Financial Regulators (CFR) report that found the arrangements did not pose any systemic risk to the superannuation system.
“The report also acknowledged that such a ban could adversely affect SMSF trustees who use LRBAs as part of their wealth management or retirement strategy, limiting their capacity to invest in a particular property such as their own business real property,” he said.
Thinktank has previously stated the legislation was already there to crack down on those doing the wrong thing and regulators just had to effectively enforce the law.
“Instead of focusing on the errant behaviour of a minority who haven’t acted in their clients’ best interest, Labor should appreciate how LRBAs play an important role in the self-funded retirement plans of so many self-employed families, the vast majority of whom couldn’t be further removed from the top end of town,” Street said.
Following the CFR review of LRBAs, the federal government asked the regulators to review LRBAs over the next three years.
“It’s to be hoped that this review will look at all the evidence in context and not be swayed by SMSF critics who conflate the actions of a small minority to call for the outlawing of LRBAs,” Street said.