Labor needs to rethink LRBA ban

From

Jonathan Street

The Labor Party has been urged to rethink its policy of banning Limited Recourse Borrowing Arrangements (LRBAs) in the wake of its electoral defeat on 18 May.

Jonathan Street, CEO of the specialist commercial and SME property lender Thinktank, says banning LRBAs was always a “blunt instrument” for cleaning up that small element of the market where this debt instrument may have been an ill-advised investment.

“The facts are that the evidence has never supported the arguments for abolishing LRBAs. Even the recent Council of Financial Regulators (CFR) report, “Leverage and risk in the superannuation system”, which recommended the banning of LRBAs, could not provide any support to suggest they were a systemic threat to the superannuation system.

“The report also acknowledged that such a ban could adversely affect self-managed super fund (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 (BRP).”

Street says Labor has announced that it will revisit its proposal to abolish franking credit refunds, and LRBAs should become part of this 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.

“Instead of focussing 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”.

“As Thinktank has said before, the legislation is already there to crack down on those doing the wrong thing. All that’s required is for the regulators to effectively enforce the law.”

The Federal Government has announced it will ask 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 says.

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