Accountants’ association says ‘piecemeal’ super tax changes won’t fix economy

IPA general manager technical policy, Tony Greco, said the Intergenerational Report is a strong reminder of the need to address long-term policy problems with long-term policy solutions.

The 2023 Intergenerational Report released by The Treasury this week predicts that in 40 years 50 per cent of Australian government expenditures will be allocated to the National Disability Insurance Scheme, aged care, health, defence, and interest payments on debt.

These sectors currently cover one-third of expenditures, and spending is expected to increase by 5.6 per cent of GDP to $140 billion by 2062–2063. Poor economic conditions, high inflation, increasing interest rates, climate change, and an aging population will present fiscal challenges for these expenditures.

“The report projects future budgetary scenarios to assess the prolonged viability of existing government policies and analyse how an ever-changing society will affect the future economy. The report doesn’t address the tax of an aging population, but the process doesn’t have to be painful,” Mr Greco said.

“The IPA has for many years been advocating for holistic and bold tax reform, starting with the tax mix, as part of the solution to our crumbling tax base and lagging productivity growth.

“Clearly, our tax settings are not fit for purpose, and the situation will get worse as demographic changes cause long-term pressures to build up over time.

“To ignore tax reform is like putting your head in the sand while allowing debt to climb as deficits are locked in for at least the next ten years in order to fund essential services.”

Mr Greco said the OECD has warned Australia that the outlook for future living standards will be downgraded if reforms to increase productivity growth, and decrease expenditures from an ageing population, are not introduced.

“The best insurance we have is to undertake fundamental tax reform to address the deficit and improve lagging productivity growth,” said Greco.

He added that even if the stage three personal income tax cuts take effect in 2024–2025, it still represents a significant burden on future taxpayers unless corrective action is taken to broaden the tax base.

“Arguably, the Australian Government’s tax system has moved away from these principles. The current system relies on high levels of compliance, but this can change over the next 40 years if Australians don’t believe the system is fair,” he said.

Meanwhile, SMSF Association CEO Peter Burgess told SMSF Adviser the government should engage and seek ideas from the industry about removing regulatory barriers that make it difficult for the industry to optimise retirement solutions.

“Fewer changes to the super tax settings, and legislating the purpose of super, would build more confidence in the system and encourage more spending in retirement,” he said in response to the announcement from the Treasurer, Jim Chalmers, last week that he would be opening a discussion on how to encourage retirees to spend more of the super savings.

“Many retirees are concerned about running out of money before they die. Inflation and the rising cost of living are adding to these longevity concerns.

“Many want a safety net in case of unforeseen costs such as home and car repairs, and in case of out-of-pocket expenses such as increased medical costs and increased cost of health insurance.

“They also want to ensure they have enough to fund aged care in a facility of their choice and with a level of care they need. Uncertainty about future super tax changes and how these may impact their income in retirement, is also another reason [retirees are not drawing down on their savings]. Constant changes to the rules erodes confidence and discourages spending in retirement.”