Now more than ever, it's time to consider a more equitable approach to taxing our retirement savings system
From my discussions inside and outside Canberra, there’s a strong sense of pessimism about the prospects of securing meaningful change from the Tax White Paper process. The reality of partisan politics appears to be too high a hurdle when it comes to modernising our tax system.
The six-week extension to the submission deadline for the tax discussion paper, the result of an agreement to give special consideration to retirement incomes and super, is the latest piece of the reform puzzle to have people questioning the government’s reform bona fides.
The Re:think paper already includes extensive discussion of retirement incomes issues – there are some 87 references to superannuation accompanied by a multitude of graphs and charts, and whole sections devoted to both savings and super.
By any objective assessment, the issue of retirement incomes is comprehensively addressed in the discussion paper. What’s more, the major players in superannuation all lodged on time, and didn’t see fit to say they needed more time.
For our part, CPA Australia’s submission extensively canvasses issues of retirement savings reform, as one element of broader tax reform. Consistent with the findings of the Government’s own Financial System Inquiry, we submitted that a long-term vision and objectives need to be established for our retirement savings system.
However, developing an effective retirement savings policy is more than just developing objectives for superannuation - it must also encompass the age pension, non-superannuation investments and the family home, employment and aged care.
We also submitted 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 at least concessionally taxed), and benefits would be taxed. What is known as the EET model (exempt, exempt, taxed) is the most common taxation model used in the majority of OECD countries. Australia is pretty much on its own in taxing retirement savings at all three points.
We proposed that Re:think consider what it would mean to shift to an EET system, and model the economic, social and revenue impact of a transition to such a system, including the age pension implications.
The point here is that CPA Australia, along with other key groups and individuals, have already lodged submissions which deal with retirements savings reforms. The extension to the deadline is not justified.
The initial tax discussion paper was supposed to be released at the end of last year, finally coming out on March 29 this year. And now the submission deadline has been pushed out by nearly two months.
Better to stay longer with broad generalities and delay moving to firmer green paper proposals which would probably meet the same fate as the school reform ideas.
All in all, we’re about six months behind the eight-ball, half a year delayed in building “jobs, growth and opportunity” that the paper directly links to tax reform.
The issues are generally well known and we’ve had years of contemplation. For example, the final report of the Henry Review was released in 2010. We had A New Tax System (ANTS) in 1998, the Reform of the Australian Tax System (RATS) in 1985 and before that, in 1975, the Asprey Review.
Rather than embark on yet another protracted process, the national interest would be better served by actually bringing forward a few deadlines.
We know that comprehensive tax reform can be difficult, but we also know it has the potential to be transformative.
While there is no perfect model, the process must be underpinned by a commitment to building the case and ensuring the community has an understanding of the key reasons for reform.
Only a consistent narrative that establishes that ‘no change’ is not an option will provide the necessary momentum.
We have all seen the recent aggressive tax reforms in the UK, including moves to reduce the corporate tax rate to 18 per cent by 2020. The Chancellor of the Exchequer is right when he said that countries “cannot afford to stand still while others rush ahead”.
In an ultra-competitive world it’s up to all of us in business and the community to redouble our efforts to ensure tax reform is not allowed to slip down our government’s reform priority list.
Alex Malley, chief executive, CPA Australia
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