In a media statement detailing its plans for housing affordability and the tax system, released Friday last week, Shadow Treasurer Chris Bowen said that “action is needed” on superannuation tax subsidies.
Mr Bowen explained that Labor would be making “tough budget choices” to ensure that the budget is delivering on priorities for the future.
“We have announced a number of measures to fund important investments, and contribute to budget repair, including making multinational companies pay their fair share of tax, reducing superannuation tax concessions for millionaires, increasing the changes to tobacco excise, ceasing the Emissions Reduction Fund and not proceeding with the Liberals’ new baby bonus,” Mr Bowen said.
Mr Bowen stated that superannuation earnings concessions are expected to grow by 33 per cent over the next four years, more than twice the rate of growth in the age pension over the same period which is expected to grow by 14 per cent.
“The fact that the top 10 per cent of Australians receive nearly 40 per cent of Australia’s superannuation tax subsidies, whereas the age pension max rate starts tapering down for couples on incomes of $7,488, demonstrates why action is needed,” he said.
“That is why Labor has already acted to reduce the generosity of tax concessions for high-income superannuants — to moderate concessions for Australians with superannuation balances in excess of $1.5 million.”
Labor first announced in April 2014 that it planned to tax superannuation earnings above $75,000 a year at 15 per cent.
At the time, Labor said that the measure would affect approximately 60,000 superannuation account holders with superannuation balances in excess of $1.5 million.
It also clarified that under the proposal, capital gains would be grandfathered.
The policy document, Labor’s Fairer Super Plan explaining the measure, included an example of a 63-year-old retiree, Susie, who holds $1.8 million in super. The document was released in 2015, prior to the introduction of the $1.6 million transfer balance cap and total superannuation balance.
“Susie’s super is in its pension phase where earnings are tax-free. Last year, Susie’s super earned $90,000 at a rate of 5 per cent which she has taken as income. Susie earns too much to be entitled to a part pension,” the document explained.
“Under Labor’s proposed policy, Susie will pay 15 per cent tax on earnings over $75,000. Susie continues to earn $75,000 tax-free, but will face a concessional 15 per cent rate on the remaining $15,000. This equates to $2,250, and after-tax earnings of $87,750.”
This policy announcement was made before the Coalition announced a raft of superannuation measures in the 2016 budget including the $1.6 million transfer balance cap, which has limited the amount that can be transferred into pension phase.
Once the member has exhausted the capital in their cap, any remaining amount above this must be kept in accumulation phase with investment earnings taxed at 15 per cent.
Based on analysis conducted by SMSF software company Class, it estimated that the shift of assets out of pension phase due to the transfer balance cap has resulted in a $1.5 billion jump in taxes on SMSF earnings.
“Even if we assume a modest return of 5 per cent on assets for the 2018 financial year, we would see an uplift in the tax due on SMSF earnings to $3.2 billion — a whopping $1.5 billion jump from 2017,” the report stated.
I agree with Albert and sadly, Grant. Review the whole tax system with super in the mix. I believe a a higher GST with digital pensioner concession card (biometric) will be present in the fairest system … you spend, you pay tax. Abolish limits on super and tax at 10% across the board – earnings in the fund and on withdrawals. No CGT. Remove the raft of minor taxes (luxury car tax for example) and state taxes. Let money flow through the system and tax expenditure. People will save more and government will get a reliable income.
[i]“The fact that the top 10 per cent of Australians receive nearly 40 per cent of Australia’s superannuation tax subsidies”[/i]
Would they be the same 10% of taxpayers who contribute around 60% of all tax collected in this country, and who also do not draw government benefits of any kind…??
The idea of superannuation is to allow individuals, no encourage individuals, to support themselves in retirement so they do not need to rely on the government.
Please please please, will politicians take super out of the budget cycle
We only have these problems in the first place because the system was built backwards. We are one of the few nations that tax superannuation on contribution and not on withdrawal.
We have a tax that effectively taxes someones wealth before we know how wealthy they’ll be. If they get too wealthy all we have now are “band-aid fixes” that try to sort this out at the end.
Why not just tax on withdrawal (the transition would be difficult, granted) but at least then you could effectively tax people on their wealth.
I agree. I am still in shock at the decision to remove the tax on withdrawals. The system prior to 2007 was simple and it worked. Surely this could be reintroduced with a transitional period for existing pensioners.
Super is the big pie that both Labour and Liberal will start taking a slice. I believe the truth is the pie was allowed to get to big and quite few advisors have been feeding of the pie in these good growth times. Sure everyone can throw up examples to say a change is not fair but the underlying problem is people are using super to pass on wealth not to provide a pension as was the original aim. Major changes will happen over time regardless of who is in Government. It is time to review the whole system of Tax rather then pick on little bits here and there. Unfortunately both major parties consider this to hard to do as there will be winners and losers in any major overhaul that is done.
Hey Labor, a Full Age Pension couple who haven’t self funded require government assistance of over $800,000 in today’s dollars to be invested in Lifetime annuities to provide their government guaranteed Lifetime Full Age Pension Income.
That is one hell of a $$$ hand out the Government is providing.
Let’s look at both sides of the government benefits please.
Or all the country will go broke if no one is incentivised to self fund.
The Transfer Balance Cap is in place and remember it acted retrospectively for members who happened to have more in pension phase than $1.6M. Now that it is in, expect it to start dropping the same as the high income earner charge is planned to drop to $200,000 and NCCs to $75,000 under Labor. Is a $1M TBC on the cards?