In her address to the roundtable, Aruna Sathanapally, chief executive of the Grattan Institute, was preaching to the choir, advocating that the government tax those with high superannuation balances to make the system more equitable.
Sathanapally said the Australian tax system treats households with the same income “vastly” differently and that the major driver of this inequality was the treatment of income in retirement.
She explained that, as superannuation earnings and withdrawals are not taxed over the age of 60, a retiree household earning $100,000 per annum can pay less than half of the tax of a working household with the identical income, purely based on age.
“As it currently stands, wages and salaries from work are what we lean on most heavily in our tax system … and alongside it, we have created very generous concessions for making your income almost any other way,” she said in her address.
“But it isn’t just in the retirement phase: this inequity in tax treatment extends to incomes in working life as well, through the way we treat investment in housing, and the use of trusts and private companies.”
Sathanapally continued that analysis using tax data shows that while 95 per cent of people pay similar tax rates for similar incomes, for the top 5 per cent, the amount of tax paid varies hugely.
“Indeed, people on very high incomes can end up paying less than those on far lower incomes.”
“We know how to fix it. The solutions are legislative, and the power sits with the federal government. The problem has always been a political one: the noise that attends any suggestion that tax breaks be withdrawn. As a result, the dysfunction of this system has only worsened with time.”
She continued that this disparity can be “fixed in pieces”, firstly by reducing superannuation concessions so the system meets the policy objective of saving for a decent retirement, rather than being a tax shelter.
The next step would be introducing at least a low tax rate on earnings and withdrawals in retirement and reforms to family trusts, and reducing the capital gains discount.
“If we do nothing, our default fiscal repair strategy is to increasingly rely on taxes on employment, and in fact worse: to rely on inequitable taxes on employment, given the opportunities for wealthier Australians to minimise their taxes,” Sathanapally said.
“Addressing the treatment of income from wealth gives us far better options for the future: income tax in total can keep pace with our underlying needs and expectations without increasing the burden on a smaller, working-age population.”
Cassandra Goldie, chief executive of the Australian Council of Social Services, also said changes to super tax concessions need to be made.
Goldie told the roundtable that the superannuation system was driving “egregious wealth inequality”.
“We’re spending $50 billion in tax concessions associated with the super system. And I think people who are not getting the benefits of those tax breaks really see how unfair that system has become.”
Any mention of Government spending and waste!!
“We’re spending $50 billion in tax concessions associated with the super system”
This is what those complaining about Division 296 don’t, or refuse to understand.
Super tax concessions come at a cost to the rest of us as taxpayers. You seem to view yourself in isolation, and that not paying tax does not affect anyone else.
You can retire on $2M invested tax free on its earnings, and no tax on drawings. That’s $4M for a married couple. That’s good enough for you and you don’t need further tax breaks that cost the rest of us.
Reduce your bloated super to a reasonable balance. By all means if eligible, take out lump sums to get that balance down to $3M to avoid Div 296.
Then invest the proceeds at personal marginal tax rates and pay tax. That will be well spent on roads bridges and hospitals for the rest of us!
Cool story Bruno.
You take away the incentive to save, the cost of the Age Pension will blow out many times over. The only way we can sustain our welfare system is by more people having the wealth to self-fund their retirement. You keep taking away incentives to do so, people will just stop investing.
We continue to overlook that we actually want to be a wealthy country. The standard of living in Australia is very high, and thats because we have a high level of wealth per capita.
If anyone would like to continue on the trend towards socialism, as the Grattan institute has been promoting for years, why wait?? Just book a one way ticket to Venezuela and enjoy the socialist paradice now.
The framing is incorrect, the government isn’t spending anything – just taking less. If the super wasn’t there in the first place there would be no tax to be payed at all. Only private people/entities create wealth. Governments take it.
I setup my SMSF in good faith years ago to fund my own retirement. The rules were clear. the only difference now is that the national savings pool has morphed into a honey pot too big to ignore for governments addicted to spending. Left wing socialist think tanks like the Grattan institute never talk about governments spending less. Here is an idea – get rid of the NDIS there is 50Bn in savings of the bat.
Personally I will be moving my SMSF assets into other entities, but we all know as night follows day, they will come after these next. Wackamole game will continue until all the wealthy people have moved things off shore and out of reach.
Bruno
The $2 million referenced in your diatribe has already been taxed and is the residual after-tax balance. Any individual with such a balance is as a consequence not drawing an age pension, a factor which seems to be lost in the scramble for more money for government to spend. The only concession is that the income on the saving is not subject to income tax in the hands of the recipient who is paying his/her own way without any old age pension support.
Finally the appalling waste of resources in the NDIS is an issue the government should be addressing.
Hey Bruno
and who pays for the majority of taxes? Dr Shane Oliver said yesterday that 10% of taxpayers pay almost 50% of tax. So it makes absolute sense to me that these same people get the most benefit of the super concessions as they are the ones that:
1. paid most of the taxes in superannuation in the first place
2. paid most of the taxes outside of super
3. have been able to be most independent of financial help from the government to leave tax revenue for those that can’t help themselves.
4. had their savings locked-up for up to 40 years on the promise of being able to live as independently as possible (not everyone wants to live on the public purse) – note also now that over a certain threshold, aged care needs to be self-funded, probably appropriately
5. could not leverage their forced savings but accepted the trade off.
Plus, plus, plus.
This has been hanging over our heads now for 2.5 years next week. Now we have more issues hanging over our heads. This is starting to look like elder abuse. Just keep hitting us over the head with more threats and uncertainly and paint us as the villians here.
We are older now and less able to make changes to our financial situation and we certainly do not need this stress, insecurity and uncertainty.
If the government could live within its means and less people took advantage of the actual tax payers and rorting the umpteen immeasurable handouts and rebates and schemes, then we would not be in this position in the first place. But its just easier to hit the older folk over the head for more.
I will add to this that even in our old age, the vast majority of this 10% co-hort will be paying vast amounts of taxes already until the day that they die.
You can also add that something like 60% of households pay no net tax thanks to government handouts……yet they are the ones always screaming for ever more tax from the 10% you mention.
Blindingly hypocritical!
Agreed
Just to add to the comments:
･ I have not heard any serious complaints about extra tax on super earnings – the argument is all about the Div 296 tax on unrealised capital gains, which sets a dangerous precedent. What’s next – other types of investments, the family home?
･ If you conflate a tax concession with tax paid by others, does that mean that I am able to claim as ‘tax paid’ the amount of the age pension and the value of the seniors health card that I cannot claim?
･ You need to remember that in order to accumulate over $3M in super would require significant tax paid contributions. When I was able to do that, the tax plus Medicare levy was 51% of the amount contributed.
･ In addition, as a high income earner in the final years of my career, I had to pay the additional super surcharge levy – so I was paying 30% contributions tax, not 15%.
･ Remember too that we are not suffering from a dearth of tax collections but an excess of govt expenditure. It used to be called cutting your cloth to suit your means…
So yes, let’s have a sensible discussion about some additional tax on earnings, but do not accuse of not having paid my fair share of tax over the years.
“We’re spending $50 billion in tax concessions associated with the super system. And I think people who are not getting the benefits of those tax breaks really see how unfair that system has become.”
Since when are we spending $50B in tax concessions? The tax concessions are not ever given away as handouts. They are never “given back”. They are a part of the legislation that was designed to encourage people to save for their own retirement. Unfortunately, you always will get people that live for ‘today’ as tomorrow is never promised. So for those that saved and had the advantage of this as part of the social contract with the government are now going to be punished. Its the Liebor way. We have been swindled if this sees the light of day.
For those that didn’t take advantage of it and lived for the day, they will get rewarded with a pension for life.
And for those still young and working, we were there once too and we wanted to look after our parents and we wanted to provide for our children as they became independent but we also wanted to be independent of them so that they did not have to worry about us. Now we are being scapegoated. Its called elder abuse, being led by the Liebor party and Chalmers himself.
Which prompts a few thoughts and observations;
The top 10% of taxpayers already pay 50% of all net tax.
How much are we spending on tax concessions by not taxing everyone’s income equally at the top marginal tax rate of 45% + MCL??
And on the expenditure side the wasteful Government expenditure is egregious. Any reasonable business executive could find $100Bn in savings in 5 minutes.
Does the Gratton Institute pay income tax and are their employees eligible for the generous FBT incentives of $17k and 30K tax free- grossed up?
Apparently a registered charity……..no GST, no Income Tax, no FBT.
Tax concessions anyone.
Ah the politics of socialist envy! I have decent superannuation policy balance because I chose to save significantly during my working life to fund a decent retirement income. Furthermore during my working life I paid income tax at some stages at the highest rate of $0.65 on the dollar. Please just go away and leave us alone!