Government made right call in not banning SMSF borrowing: SMSF Association

The SMSF Association says the Government made the right call in not banning SMSF borrowing, and remains supportive of LRBAs.

The ALP has announced a policy of returning to a ban on SMSFs borrowing through Limited Recourse Borrowing Arrangements (LRBAs), as part of its housing affordability package.

SMSF Association CEO Andrea Slattery said the Government made the right decision when it didn’t adopt the recommendation of the Financial System Inquiry to ban most forms of SMSF borrowing.

“The fact remains there’s little or no convincing evidence that the use of LRBAs by SMSFs is playing a significant role in affecting housing affordability,” said Slattery.

“The most recent Australian Tax Office statistics show that SMSFs hold $24.3 billion in LRBAs, with these financial instruments being predominantly used to invest in residential and non-residential property in an almost 50-50 split.”

“That estimated $12 billion where SMSFs have used LRBAs to invest in residential housing has to be put in the context of a $6.43 trillion housing market. In other words, LRBAs comprise only 0.18% of the market. On these figures, it’s hard to argue LRBAs are a ‘market mover’.”

“SMSFs investing in residential property, whether through borrowing arrangements or not, should not be singled out from other investors when looking at policy solutions to improve housing affordability.”

The Financial System Inquiry report did not mention concerns around housing affordability in making the recommendation, but instead the “build-up of risk in the superannuation system and the financial system more broadly”.

However Slattery said that there is “scant evidence to support the notion that the use of LRBAs by SMSFs pose a systemic risk to superannuation or the broader financial sector.”

“Consistent with our view submitted to the FSI, we still believe that the clear majority of SMSFs are using LRBAs appropriately to build their retirement savings and therefore should remain an investment option.”

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