While the changes are unlikely to be enacted anytime soon (in fact the plan may never see the light of day), they are the first clear signal from either of the major political parties that superannuation is unlikely to remain unchanged for much longer.
As it currently stands, superannuation is potentially a massive source of untapped revenue for the federal government – a fact that both sides of politics are very aware of.
Currently, the enormous asset base held in superannuation generates income that is only taxed concessionally – as low as zero per cent for those funds paying a pension. This is clearly not a sustainable system in a time when the nation is facing bleak deficits and budget uncertainty.
It is no surprise then that both sides of government would like to get a slice of the income pie. However, until now, both parties have played coy on super changes, hemmed in by past election promises and an underlying fear of voter backlash.
But with last week’s announcement by Labor that it would target high-income earners or those with significant superannuation earnings from 2017 with its ‘Fairer Super Plan’, the door to super change was unlocked. Now only time will tell whether the current government will take the opportunity to match this play or raise the stakes.
Predictably, the focus of Labor’s plan was squarely on the big end of town – high-income earners and those with millions in superannuation savings.
Specifically, the two measures proposed by Labor were taxing retirees 15 per cent on superannuation earnings above $75,000 per year (instead of the current zero tax) and taxing workers earning more than $250,000 a year at 30 per cent on superannuation contributions instead of the current rate of 15 per cent.
The simple fact is that most Australians would never feel the burden of the tax reforms proposed by Labor. The opposition itself estimated the changes would only affect 180,000 Australians.
But accompanying Labor’s announcements was the normal amount of fear-mongering from industry groups cautioning legislators to stay away from people’s hard-earned retirement savings, and warning of a potential shift in behaviour from the general public who would re-think putting their money into super.
While the proposed changes may take some of the gloss off super, it remains the preferred vehicle to hold assets for retirement for the majority of Australians.
If there was to be any potential damage caused by Labor’s announcement, or more specifically, the constant and ongoing speculation about changes to super, it would be in the minds of young people who are still 20-30 years away from retirement.
For this group, continual innuendo and hearsay about changes to superannuation may lead to real doubts about what the retirement vehicle may look like in the future, and for this reason, there is the potential for them to look elsewhere to secure their future.
So it is time to remind ourselves of a few simple truths about superannuation. The first is that superannuation has been an unbelievably good retirement vehicle for a long time – too good some might say.
This leads to the second truth, and one that we all need to accept. At some point in the near future, superannuation will be more heavily taxed. Governments cannot continue to forgo this potential income when the country is facing significant economic uncertainty.
The time has come to draw a line in the sand, introduce changes to super for the future, and leave it that way for an extended period of time.
This is the only way to provide young people with certainty that putting money into super is always going to be more attractive than having money outside superannuation – and that hard earned cash will be secure against the whims of future governments.
By Chris Kennedy, wealth advisory director, William Buck Chartered Accountants and Advisors
Despite all the reasons given, this budget has a key message. To spend, spend & spend, including most of your super [above $450,000]. Its not about the budget deficit or the super wealthy, its simply the message that if you save, you are going to be penalised. Simply unbelievable.
It is sad to see how many people have succumbed to an economic “Stockholm sysndrome”. We DO NOT have a lack of tax problem, we Do Have a spending problem. Govt revenues have consistently risen over last decade. When Peter Costello exited treasury the iron ore price was just $36 a tonne. The mining boom happened almost entirely through the Rudd Gillard period.
We will also see a lot more than 180,000 people get caught by Labor’s proposals over time due to it not being indexed
This idea of some sort of once and for all legislation change is la la land stuff. There will ALWAYS be people on the Left fighting to lift taxes. We have to be prepared to fight them constantly. They will not suddenly for the first time in history call a truce and honour it.
There are many people who would not accept higher taxation of superannuation but would prefer to see the government better means testing age pensions. For example, a $1 for $1 income test and a clawback of pension payments from family homes bequeathed to heirs. Why should superannuitants pay higher taxes to subsidize inheritance of North Shore mansions?
But if governments are foolish enough to muck around with superannuation taxation I note there are investment structures which are pretty much competitive with super in the accumulation phase. I expect people to exit, especially that much-excoriated class of political whipping-boys, high-income earners.
Dr Terry Dwyer
Politicians need to put their own plush super arrangements into the same taxation and preservation legislation foremost before doing any drastic changes to our retirement savings.
A higher GST rate with the increased portion going directly to the fed gov would elevate revenue far higher, and have a better effect than the super changes (as that is the true ‘user pays’ method) except it is seen as politically riskier…
We no longer have statesmen we are stuck with politicians being driven by bureaucrats
Hi Chris
Agree with a lot you say BUT for about the tenth time I am hearing we should make a change & then hold it for a long period. The only way we can provide certainty is to NOT CHANGE IT NOW.
David
Rather than constantly penalising the “rich” why not
a) include all assets in the assets test including the family home;
b) prevent drawing down super lump sums at retirement and require that the majority be converted to a (concessionally taxed) income stream
It will never be time for a politician to draw a line in the sand – fine sentiments though they be. Politics is the art of the possible; politicians by nature are opportunists. They will always tinker with super’ regardless of the solemn promises they give.
That is the nature of the beast.
Australia has the most expensive public service in the world with an average $100K salary, we also have the most expensive politician support network in the world plus the taxpayer’s are blessed with the greatest unfunded commonwealth superannuation yet self funded retirees need to carry the load???