In its pre-budget submission, BDO stated that presently, Australians who have only been able to build up wealth in later life are being penalised by being treated the same way as those who have access to wealth from a young age, such as via family wealth.
“A more equitable system may be achieved through a combination of increasing contribution caps in tandem with a lifetime cap for individuals with superannuation balances below certain levels,” it said.
“The Objective of Superannuation was legislated as being ‘to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way’. To do this, it is necessary for individuals to have the opportunity to make adequate contributions to superannuation and to earn sufficient returns on the funds invested in their superannuation over their working lifetime.”
The submission continued that the existing superannuation contributions caps restrict many individuals from the opportunity of making adequate superannuation contributions to deliver income for a dignified retirement, particularly where the individuals are not capable of making superannuation contributions up to the contributions limits until later in their working lives.
“The current system is a one-size-fits-all approach, penalising those without access to sufficient funds early in life to make contributions up to the contribution limits. BDO recommends that superannuation contributions caps be adjusted such that individuals with lower superannuation balances should be able to make higher contributions to increase their superannuation balance,” the submission said.
Specifically, BDO recommended that one or all of the following be considered:
- An unlimited non-concessional contributions cap for taxpayers with superannuation balances below $1 million.
- Replacing annual contribution caps with lifetime superannuation contributions caps for both concessional and non-concessional contributions.
- Increasing the unused concessional contributions cap carry forward period to 10 years.
“The above measures should provide taxpayers more flexibility to make superannuation contributions as funds become available and life circumstances allow, making the superannuation system more equitable, noting that it is not uncommon for individuals to look to boost their superannuation contributions later in life,” it said.
The accounting firm said it has been calling for a holistic review of the Australian tax system for many years and said the major view that underpins the need for holistic tax reform is to produce an unambiguous tax system that also provides a fair and efficient means of revenue for the Australian federal and state governments.
“BDO recommends there should be an ongoing consideration of tax reform by the establishment of an independent Tax Reform Commission to ensure that tax reform remains an ongoing process,” it said.
“This commission could incorporate the Board of Tax’s role but having a wider remit covering both federal and state taxes. There should also be a statutory requirement on federal and state governments to document and publicly publish, within a reasonable time frame, their consideration of the commission’s recommendations and reasons for accepting or rejecting the recommendations.
“Until a holistic review of the Australian tax system is undertaken, there are numerous issues with the existing Australian tax system that require consideration. The continuous maintenance and development of the taxation system is of the utmost importance and should be accounted for accordingly.”
Meanwhile, the Tax Institute has also called on the government to review its public consultation process, stating that “public consultation should be undertaken for all significant changes to the law”.
Julie Abdalla, head of tax and legal at The Tax Institute, said poor tax law design and a lack of consultation often lead to poor or unintended outcomes for everyone involved.
“Any amendments to the law must be considered holistically and be based on sound and considered policy,” she said.
She highlighted that a recent example of the implications of a failure to consult was on 8 November 2023, when Greens Senator Barbara Pocock proposed amendments to the Treasury Laws Amendment (2023 Measures No. 1) Bill 2023 to insert a series of new breach reporting rules for registered tax practitioners (the bill was enacted on 27 November 2023), among other changes.
“The measures were not released in exposure draft form for public consultation. Moreover, the amendments were tabled and passed without an accompanying explanatory memorandum, and the usual process of public consultation was foregone,” Abdalla said.
“This measure has caused enormous angst for tax professionals, the majority of whom seek to uphold the highest ethical standards. Unintended implications have resulted from the lack of engagement with affected stakeholders that could have been addressed through consultation.”
Tax reform commission for state and federal. My understanding this would not be within the constitution unless the states opted in. Given they live on payroll and property taxes, two very inefficient forms of taxation, I can’t see them opting in.
I would suggest that say 10% cut to all income taxes at the federal level, pay this to the states directly and reduce/eliminate the state govt grant system.
Probably need an uplift in GST to cater for total tax take and compensate bottom 20% for the gst hike.