Speaking at the Association of Superannuation Funds of Australia conference in Melbourne yesterday, Mr Costello acknowledged superannuation investors enjoy generous tax concessions.
“Superannuation funds are vehicles for long-term savings and as such they enjoy tax advantages. Where an employer pays contributions into a superannuation fund rather than direct to the employee it is taxed at 15 per cent rather than the marginal income tax rate,” Mr Costello said.
“The treasury estimates that the value on this tax concession, that is the difference between 15 per cent contribution rate and the marginal tax rate is around $16 billion.
“In addition, the earnings of a superannuation fund are concessionally taxed: they are not taxed at the marginal income tax rate of the person who earns the money, they are taxed at 15 per cent. The treasury estimates this concession to also be around $16 billion to the industry.”
These concessions are justified on the basis that they are assisting taxpayers in saving for their retirement, with the ultimate aim of taking pressure off the aged pension.
“It is not such a bad deal for the government. Any assessment of the true cost of these concessions must take into account the savings on the aged pension that will be delivered back to the government as a result of private superannuation,” he said.
Mr Costello also played down the benefits of having the superannuation guarantee at 12 per cent.
He noted the Commission of Audit reported that in 2050, even assuming a 12 per cent SG rate, 80 per cent of Australians will still be on full or part pensions.
“The number of people [who] will be taken off the pension altogether, by 12 per cent super contribution, will be very small,” he said.
See today’s Q&A for more on the national tax reform debate.
People easily forget that most retirees or say 55’s plus have spent a working lifetime accumulating their super nest egg on capital they have already paid tax on. Sure some of it may be salary sacrifice but the majority of will be after tax money or SG money which is part of salary anyway.
Therefore they are entitled to have the income in their fund taxed at 15% as an incentive to contribute and hopefully, as Costello says, save the Govt of the day some Age Pension
How short memories are. Superannuation accounts/policies used to be fully tax free, ie contributions/premiums 100%deductible, no contributions tax and fund earnings untaxed. When SGL was introduced or shortly thereafter the tax on contributions and superfund earnings was increased from 0 to 15%. The Gremlins in Treasury could see this enormous savings pool and just could not keep their grubby hands off. Over 30% of all tax revenue goes on welfare of some sort, much of it middle class welfare. Of this enormous impost 1/3 is spent administering the multitude of programs and 2/3 on actual benefits. This means we are just flushing 10% of government revenue down the loo. One simple progressive/negative tax regime is all we need. What ever happened to tax deductions for dependent children instead of Family Benefit payments? Which costs more to administer?