New research released by the Financial Services Council has shown that if the government adopted some of the proposed reforms to the superannuation tax settings put forward by various industry groups and companies, it would only raise $8.5 billion in government revenue.
This was based on economic modelling undertaken by DeltaPearl Partners.
Given that the government collects $560 billion annually in revenue, the FSC said this shows that making piecemeal increases to superannuation taxes will not deliver a sustainable Federal Budget position.
One of the measures specifically looked at in the modelling was the $5 million limit on total superannuation balances.
If implemented, this measure would require individuals with a total balance above this amount to withdraw from super, reducing their total balance below $5 million.
The modelling found that this particular measure would only raise approximately $1.15 billion per year in government revenue.
It also looked at the impact of reducing the tax concession on pre-tax contributions.
This included reducing the $27,500 annual cap on pre-tax contributions to $15,000 and reducing the $250,000 Division 293 tax threshold to $200,000.
Reducing the contributions cap to $15,000 would only raise approximately $1.94 billion per year and could reduce retirement savings by up to 36 per cent for affected individuals.
Decreasing the $250,000 Division 293 tax threshold to $200,000. Is estimated to raise approximately $620 million and could reduce retirement savings by up to 27 per cent for affected individuals.
The introduction of a flat tax on all earnings in retirement at 15 per cent would raise the most out of the measures, generating $4.82 billion per year.
However, under a depressed growth outlook (3 per cent growth instead of the estimated long-term average of 6 per cent) for asset markets, this measure would only be expected to raise $2.40 billion per year.
FSC chief executive Blake Briggs said these tax changes would have a “negative impact on more than 15 million Australians that are saving for their retirement through superannuation by undermining consumer confidence in the objective of the system”.
The modelling also looked at some of the measures aimed at improving equity in the system.
The inclusion of superannuation contributions within the government paid parental scheme would cost the government $213 million per year.
“An individual could improve their superannuation balance by $20,000 with SG paid on their paid parental leave for one child for five years,” said the FSC.
It also looked at broadening the coverage of the Superannuation Guarantee to platform-based gig workers.
“The modelled outcome is that this measure could cost approximately $318 million per year. A gig worker with five years in the industry could improve their superannuation balance by $48,000,” the FSC said.
It is time the government removed the tax free earnings for superfunds in pension phase. All earnings and contributions should be taxed at 15% and budget deficit will be gone in a few years.
This should have been done in the terrible Hockey budget of 2014. The funds raised won’t reduce the budget deficit but will be used to fund aged care as promised in the election. After all, it is people over 65 years of age who will predominantly be using Aged Care. It’s a no brainer.