In a short research paper, Parametric head of research Raewyn Williams and analyst Josh McKenzie stated that investment tax inside super may be a “political soft target” because it won’t be felt directly in most voters’ hip pockets.
They suggested in the paper that the two most likely tax measures would be increasing the headline tax rate of 15 per cent or reducing the capital gains tax concession from one-third.
A third option, which is limiting the claiming of franking credits for Australian share dividends, the paper argues, would be too politically risky.
“Changing the franking credit rules is directly felt by many members in the way that other super investment taxes aren’t — something the Australian Labor Party, in proposing to limit franking credit refunds, learnt in last year’s federal election,” the paper said.
Out of the other two options, Ms Williams and Mr McKenzie stated that reducing the CGT discount concession would be the preferable option, as it would have a much more subdued impact on a member’s retirement balance.
“This is primarily because, unlike increasing the 15 per cent headline tax, a CGT change would only impact some assets inside super and would not erode members’ initial (taxed) contributions into super,” the paper explained.
“A very small reduction (3 per cent) in the CGT discount concession to 30 per cent would shave a negligible $1,545 of the member’s retirement balance of $682,146. Even using our most aggressive assumption (the CGT discount more than halving to 15 per cent), the expected loss to retirement savings is a modest $8,446.”
Ms Williams and Mr McKenzie also suggested that the government may consider less significant changes to the CGT rules for superannuation such as extending the current one-year holding period rule (for CGT discount eligibility) to three years, capping carry-forward capital losses or limiting the types of assets eligible for CGT discounting.
“Faced with a raft of possible tax changes, the industry should favour changes to the CGT rules over a blanket increase in the super fund tax rate,” the paper recommended.
Bees to the honey pot
Tinkering with superannuation taxes won’t service Federal debt and deficits as much as death and/or inheritance taxes, backstopped by gift taxes to prevent avoidance. These are an inevitable consequence of the pandemic. It’s just a matter of when, not if and fine tuning of the thresholds to ensure the extreme wealth is extracted on death from voters whose families can’t swing elections. It’s incumbent on Government to ensure the coming inter-generational wealth transfer from high net worth Boomers to Millennials does not unduly perpetuate unearned wealth inequality.
I suspect that the reason “the industry should favour changes to the CGT rules over a blanket increase in the super fund tax rate” is more to do with the impact on retail super funds fees (directly reduced by any tax on super contributions) compared with the impact on fees of a change in the CGT rate within super. Same reason the “industry” is opposed to delaying or reducing increases in the SGL.
@ Anon – they already reinstated the 15% tax on super benefits to some extent when the put in the TBC – so those with more then $1.6m in super have to leave it in accumulation phase (taxed at 15%) rather than shifting it into pension phase (0% tax). At some point trying to milk more tax from super is going to reduce its attractiveness and make more people wind up relying on the Age Pension – the exact opposite of what Super was introduced to avoid. Then again, it would reduce current budget deficits at the expense of greater unfunded expenses on Age Pension decades down the track – always an attractive option for pollies with an election-cycle view of what is “long term” thinking.
How about tax super benefits for those over 60
If they do that my money is leaving the place because it wont end there.