Boutique Australian equities manager Plato estimated in a paper that the abolition of dividend imputation and the capital gains tax discount for long-term gains, along with an increase in the tax rate for pension phase superannuation to 15 per cent, would reduce superannuation balances at retirement by 23 per cent and self-funded pension incomes by around 35 per cent.
The paper also estimated the introduction of such changes would reduce the “self sufficient funding phase of an average retiree by approximately 10 years” and therefore increase the burden on the government to pay pensions.
“It’s our belief that the additional burden on the aged pension that would result from these policy changes is likely to exceed the quantum of additional tax collected,” said the investment manager.
Plato also noted that the imputation system provides a structural incentive for superannuation investors to own equity in Australian businesses and encourages those businesses not to avoid paying Australian tax.
“Thus, the combination of dividend imputation together with Australia’s large and growing superannuation pools will provide a reliable source of capital to fund Australia’s growth into the future,” said the paper.
“It’s important to acknowledge that Australian superannuation investors are, themselves, seasoned global investors and the elimination of dividend imputation would remove an important incentive for them to maintain a large allocation invested in Australia’s growth.”
The paper said implementing some of the ideas in the Tax Discussion Paper would result in a substantial increase in the tax on compulsory retirement savings and would not result in greater investment in Australia or an “improved overall fiscal position of the Australian government due to greater dependency on individuals to draw an aged pension, and reduced corporate tax”.