Speaking to SMSF Adviser, Reece Agland, superannuation products and services manager at Taxpayers Australia, said the “excessively generous” deductions in superannuation available to the wealthy are unsustainable and need to be considered in any genuine tax reform process.
“The government’s promised review of the tax system is the most likely conduit for any changes,” Mr Agland said.
“Although in order to maintain its pre-election promises (to not make adverse changes to superannuation in its first term) the government will most likely put off implementation of any changes until after the next election.”
Mr Agland said Taxpayers Australia believes the super system should encourage all Australians to be self-funded in retirement, not just the wealthy.
“While most of us will need superannuation to provide for our retirement, the wealthy do not. Without it they would still be able to make adequate preparations for their retirement years,” Mr Agland said.
“The question then becomes do they need, and should the system continue to provide them, generous tax concessions. With some studies concluding that 40 per cent of the available tax concessions go to the top 5 per cent of Australians, this is a fair argument.”
The word “concession” CAN mean a totally justifiable adjustment needed for the circumstances of the case. But there is no concession in permitting earnings from personal exertion to be smoothed over a lifetime – and enough left over to support the replacement of the income earner. It is merely putting income from personal exertion on the same tax level as income from land rents or depreciable capital. If a capital owner can claim depreciation on his machinery on the basis that it needs to be replaced, why deny the man who earns his income from labour, whether mental or physical, the right to deduct a portion of his earnings for the continuance and replacement of his labour power? Adam Smith understood that – which is he he opposed the taxation of necessities (aka GST) on the basis that a economic system should leave enough free for labour to live and replace itself.
Dr Terry Dwyer
Dwyer Lawyers
http://www.dwyerlawyers.com.au
Hi Reece
Have you done any modeling on your proposal of “Taxpayers is proposing that concessional concessions be capped at lifetime limit of $600,000 and lifetime non-concessional caps $1.8M”.
I did some modeling for a couple who are aged 45 now and they will have to contribute concessional deductions of $1,290,000 for their fund (earning a gross income of 10% and not adjusted for TTR complications)to be worth in today’s dollars $1,654.000. In future dollars that’s $3,042,000 but obviously will be worth around $1.64 mill after 3% inflation takes its bite.
I do not regard $1.6 mill an excessive super accumulation.
Another thing, who can afford to contribute $1.8 mill in non contribution caps? Certainly not me and I am in the top 1% of earners. I might agree with you if your figures were more realistic but they are miles away from reality. I think you should put your figures in a spreadsheet and use a proper view of future retirement requirements.
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Interesting that the comments seem to think I am saying the wealthy should be taxed more. That is not the argument. The argument is that there is a point at which some individuals don’t need government assistance to save for their retirement. Taxpayers is proposing that concessional concessions be capped at lifetime limit of $600,000 and lifetime non-concessional caps $1.8M. This will allow people to accumulate a decent amount in super while ensuring those that can meet their own retirement needs don’t get tax concessions they don’t need.
@ Tony “One of the biggest investors in Australian small business is the superannuation industry”
Where does that claim come from? I would have thought the opposite to be true due to the restrictions on super running a business and lending money to related entities.
Envy is a sin and it is not a fair argument. The point of superannuation is to allow lifetime income averaging for all incomes from personal exertion, large or small. Taxpayers Australia should go and read John Stuart Mill on the taxation of permanent versus terminable incomes.
Any attack on superannuation will simply drive people to other alternatives and we, as lawyers, are happy to assist them. There are already alternatives with comparable after-tax rates of return to non-concessional super contributions but they are often not in Australia.
If envy leads to capital leaving Australia, is that a good social and economic outcome?
One of the biggest investors in Australian small business is the superannuation industry. If we increase the cost of investing in super we will take away the initiative for people to invest and reduce the available funds to Australian business. The so called ‘wealthy’ also are the ones who provide jobs. The tax system needs attention I agree BUT it has just had quite a large correction in relation to the tax free threshold being increased by 200%. When are we going to stop seeing the ‘Wealthy’ as cash cows and start to utilise the wealth they create to provide for long term stability and savings. When you look at the so called ‘Wealthy’ they pay 47% of high earnings already, higher medicare, and recently the tax on super contributions for $300K+ earners was increased 100%!! Stop demonising the ‘wealthy’ as this proves no point. More to my point consider what the super industry already does for us before we start ripping into it again. IMHO anyway.
Recent statistics have given us some interesting information. Approximately half of the working population pay no net tax due to our transfer (of wealth) systems. The Australian recently published the following.
ALMOST 13 million Australians file a tax return each year, but only the top fifth of households really contribute to Australia’s vast and complex social-security apparatus.
Australian Tax Office statistics show taxpayers with taxable incomes above $264,000 – the top 1 per cent of taxpayers in the financial year ended 2010 – pay about 17 per cent of all income tax – the government’s biggest single revenue source – weighing in at about $160 billion this financial year. The top 10 per cent of taxpayers pay more than 45 per cent of all income tax.
I am not sure which barrow Mr Agland is pushing, but wouldnt it be preferable for Australia to encourage more people becoming wealthy rather than increasing our transfer of wealth systems?
Mr Agland is certainly correct in his observation; 40% of “tax benefits” to “top 5%” of Austarlian’s .
But his conclusion from this is basically flawed in that it is obvious that tax “benefits” which I think are better described as “relief” can ONLY be granted to Australians who pay tax, hence cutting out a material percentage of the population.
The sheer volume of tax paid is also obviously biased towards that same 5% so , due to our “progressive ” tax system.
So let’s reframe this argument as ” is it fair that the one in 20 of earners get at least enough tax relief to self fund their retirement?”
I think it might be, but more to my point , such reframing isn’t as divisive and class based as Mr Agland’s spin on the issue.