Big four firm calls for all-encompassing super reforms
The government should introduce a flat super concession of 15 per cent for all Australians in the interest of equity and to save the government billions, according to one big four firm.
In a recent report, Mythbusting Tax Reform, Deloitte said while the costs of tax concessions within superannuation aren’t as high as the critics paint them, the benefits are modest.
“Super does add to savings and hence future prosperity, but not by much, and the cost of that is high,” Deloitte said in its report.
“And at the same time the fairness scorecard is similarly skimpy.”
Deloitte argued that if a key aim of the super system is to make Australia fairer, then Australia should start by providing bigger marginal benefits to middle and high income earners.
“The link between super and pensions is weaker than most Australians realise. Because most concessions go to higher income earners, Treasury’s Intergenerational Report found the share of older Australians getting pensions in 2055 will be much the same as today,” the report said.
“In turn that says taxpayers can and should get a better deal from Australia’s superannuation system.”
Deloitte said implementing an updated and simplified version of the contributions tax changes proposed in the Henry Review would reduce or eliminate reliance on the age pension.
The report said this would result in everyone receiving the same tax advantage for every dollar saved in super at the flat rate of 15 cents in the dollar.
As the current incentives are weighted towards the better off, Deloitte said there is a tax saving from making super better – a reform dividend of around $6 billion in 2016-17 alone.
“Because the incentives are simpler and fairer, the current caps on concessional (before-tax) contributions can also be simpler and fairer too. They could be abolished completely for everyone under 50, and the cap could be raised for everyone else (subject only to a safety net of a lifetime cap),” the report said.
Deloitte said while it understands there are those that argue Australia can’t change the rules now because the system needs a period of stability, it is inevitable there will be change to a superannuation system that is “very expensive relative to the runs it is putting on the board”.
“Australia’s superannuation system is expensive for what it is achieving, and is riddled with holes. So let’s not dabble. It’s important to get the policy settings right now, so we avoid the need for further Band-Aid solutions,” said the report.
The SMSF Owners’ Alliance (SMFOA) agreed with the proposal in the report of introducing a flat 15 per cent concessional rate.
“This change can be made without risking government revenue and would make superannuation more effective,” said SMSFOA.
“More people would be able to save adequately for their retirement as the major growth factor in superannuation is the accumulated earnings on fund assets over time.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.