While the budget measures are an “important step” towards achieving equity and sustainability in the superannuation system, Grattan Institute chief executive John Daley told SMSF Adviser that without additional significant shake-up, the long-term cost of the system will ultimately be unsustainable.
“This is a big stride in the right direction, but I’d be very surprised if it’s the last step on the road,” Mr Daley said.
“To have such a structural hole continuously, as it were, dragging on the income tax base suggests the system is unsustainable in the long run.
“Even with these reforms, super tax breaks will still overwhelmingly flow to high-income earners. And the long-term cost will remain unsustainable. Further changes will be needed in future.”
Mr Daley believes it’s likely the superannuation caps will continue to be tightened.
“This includes the amount you can put in before tax, the amount after tax and the amount that you can pay no tax on the earnings,” he said.
Further, he suggested the significant benefits currently afforded to small business owners may come under the chopping block in the future.
“At some stage I suspect the government is going to have to look at the provisions of small businesses that essentially allow you to tip the entirety of the capital gain that you’ve made out of the small business so that you wind up never paying tax on it,” Mr Daley said.
“It’s an obvious place to go. It’s one of those things where you can understand why it’s there to encourage small business… but do we really need a provision this generous, this large, with that big a cap, to encourage people to open small businesses and maintain numbers?”
Also those over 65 have to meet a work test in order to contribute in the first place.
Not true David. There are situations were deductions are denied based on the 10% rule. It happened to my husband. He is a sole trader. He had made some contributions from his business. Then lost a major contract and took on some work as an employee accounting for more than 10% of his income that year. Therefore no deduction is allowed for the contributions he made earlier and he can’t get that money back. The following year, he got a new contract so left the employer. Again employment income was over 10% of his income. The employer didn’t allow salary sacrifice and given that his income is unpredictable, he wouldn’t have done it anyway. This is a rule that needs to be changed. I don’t understand Labor’s reasoning for not supporting it.
Dear DavidYou misunderstood what I was sayingWhat I was saying was that if the maximum pension benefit was $1,600,000 the maximum contributions should be calculated on the basis of attaining that amount at retirement ageFor example if someone is retiring and has nothing in superannuation they should be able to contribute up to $1,600,000 the day before they retire. Whereas an 18 year old may be able to contribute say $100,000 and nothing further to give they then $1,600,000 at retirement.
It would be a simple matter to prepare an actuarial table that takes into account age to retirement expected fund earning and the current balance to calculate the annual contribution amount.We could then get rid of all these complex contribution rules and simply the system and it would be completely transparent and every one would be treated equally
But, Steven, all individuals are already treated equally in respect of their allowable deductions. Every taxpayer in the country under age 75 is entitled to make concessional contributions up to the cap and get a tax deduction for it.
What could be more equal than that?
The Grattan Institute are silly fellows. If there is inequity, why not tax all superannuation in pension phase at 15% – with a current pension income deduction equal to a tax-free threshold per pensioner?
But to endorse the naked politics of envy and retrospectivity is a public policy disaster which will drive mobile capital out of this country. Limiting contributions further weakens the accumulation of a pool of domestic investment capital to support Australian companies. Why do they think Australian companies were able to rebuild balance sheets quickly during the GFC?
However, all that is no longer my problem. I am no longer a Treasury officer or Prime Ministerial adviser. I am therefore delighted that silly young policymakers think high net worth individuals are social outcasts who should be sent to humble tax lawyers for alternatives. Who am I to complain? It’s an ill wind…
Dr Terry Dwyer
Dwyer Lawyers
http://www.dwyerlawyers.com.au
I dont know why, people even listen to what the Grattan Insitute says. Their previous statements on the cost of negative gearing to the budget were incorrect as they completely ignored the revenue side of the cost equation and now once again they are completely ignoring budget savings inrespect to superannation and only looked at the alledged cost numbers.The sensible way to structure tax deductions for superannuation is to allow every person to fund up to the pension benefit of $1,600,000 or what ever other benefit is finally decided upon. Each year a calculation could be made, taking into account the current balance, the expected earnings on the fund, and the years to retirement, to calculate a maximum deductable amount.All of the present concessions and deducablity rules could then be replaced and the whole process simplified.This way every individual would then be treated equally in respect of their allowable deductions.