CPA Australia proposed shifting some of the tax “burden” from the contributions phase to the benefits phase.
The accounting body argued that the most equitable retirement savings system would tax income in the hands of the individual when it is actually received.
“That is, contributions would be tax exempt, fund earnings would be tax exempt or concessionally taxed, and benefits would be taxed,” said the submission.
CPA proposed that Australia should shift its superannuation system to an EET (exempt, exempt, taxed) model.
“The EET model is the most common taxation model used in the majority of OECD countries – Australia is unique in taxing retirement savings at all three points,” the submission stated.
Constant changes to the rules and revenue grabs by governments, such as the repeal of the low-income superannuation contribution and delaying the increase of the superannuation guarantee to 12 per cent, “undermine public confidence in the system which may have negative impacts on Australia’s long term savings”, CPA said.
“It is therefore more important than ever that the policy levers, including taxation, are set appropriately to help ensure superannuation provides adequate retirement savings,” said the submission.
The submission argued that the taxation of superannuation should not be considered in isolation; rather, “there must be a long-term vision and objectives for our retirement savings system”, it said.
It argued that developing an effective retirement savings policy is more than just about developing objectives for the superannuation system and enshrining them in legislation.
“It must also encompass the age pension, non-superannuation investments and the family home, employment and aged care,” it said.
Dr Terry
I agree fully with your comments.
But
Sadly,the continuing deterioration of the australian economy and the massive reduction of the “middle class” is going to see so many pressures on the budget, that the govt will be taxing everything it can.
Forgoing revenue now for the benefit of getting more revenue in the future wont happen.
It certainly makes sense to me that the 15% tax would be better off in the fund earning income and capital growth for up to 40 years and increasing the balance of the fund significantly with the compounded earnings. I’m still slightly in shock over the government’s decision to do the complete opposite.
Finally somebody has recommended we simplify the system and take the same approach on tax that works in Canada and the US.
Need to put a lot of work into implementation plan to ensure these who’ve paid the 15% for the past 20+ years aren’t disadvantaged but the above should be the goal.
The 1980s Inter-Departmental Committee on Retirement Incomes of which I acted as secretary came to a similar view – unlimited deductibility against income from personal exertion, no taxation of contributions or earnings in funds, no mandatory preservation but benefits to be paid as an annuity or pension based on life expectancy at time of drawing. All social security benefits to be income tested dollar for dollar against super income.
Super could then have become a lifetime income averaging device and we could have largely replaced dependence by middle class taxpayers on welfare.
But Treasury was greedy and smashed it all by going for the 15% upfront tax – and should take much of the blame for the mess they created.
Anyone will soon be able to dig out the minutes under the Archives Act. Meanwhile FOI is there. It might save re-inventing the wheel.
An interesting concept which makes some sense in that it will encourage $ into Super and make people think twice about how they then spend it. However, this defers the tax revenue indefinitely and given our preoccupation with balancing the Budget, I cant see a Government deferring the tax revenue and you cant now tax the pension or lump sum payments that have been subject to tax on contributions and earnings.