Naz Randeria, managing director of Reliance Auditing Services, noted that while the government argues its plans to double the tax rate for super earnings above $3 million and introduce a tax on unrealised capital gains are necessary to enhance the federal budget and promote fairness, other viable options could minimise the significant impact on the Australian economy.
“The government expects the changes to bring in an extra $2 billion a year, however, this fails to take into consideration what will happen if people start to change their approach to superannuation,” she said.
“It’s not unrealistic that of the 80,000 people expected to be impacted by these proposed measures, those who can, will shift their superannuation balances to different structures and taxation environments resulting in reduced government revenue in years to come.”
Randeria said it then makes the proposed changes a finite tax and the government will face yet another budget hole in the future.
However, she said two other options would not only allow the government to generate increased revenue that is sustainable over the longer term but also ensure the system is truly equitable.
The first is to increase the tax rate on super by just 1 or 2 per cent, which would still offer a concessional tax environment that is lower than the marginal tax rate and would have no impact on people’s current standard of living.
The second option is to increase the rate or to expand the reach of GST, which has remained unchanged for decades.
“Implementing either of the above changes would allow the government to collect increased revenue well into the future, and importantly, would spread the burden across all Australians, rather than the current argument of pitting the ‘rich’ against the ‘poor’,” Randeria said.
“Such changes would also provide extra flexibility for the government to potentially reduce personal income tax, or use the consistently increased revenue to fund infrastructure, innovation, health, and the like.”
Randeria said these suggestions aren’t “radical” and were recommended by the International Monetary Fund for making better use of indirect taxation.
“I believe that ignoring sound economic advice to push ahead with the proposed changes to superannuation will not only result in lower-than-expected revenues in years to come, but the government will find itself with increased spending on the Age Pension, as people will no longer be encouraged to be self-sufficient in retirement,” she said.
“And should both those predictions come to fruition, we should all be concerned about what changes the Government will consider next.”
Hi Ian
I am writing in response to your question, “Where does the cash come from?”
In a response to a letter that I sent to Treasury, asking the same question, the glib reply given to me was that the cash to pay the tax can come from the super fund.
The issue of course with this is that if the properties have not been sold and cash in the fund is all used up, the owner is forced into a sale of an income producing asset that was meant to fund their retirement. Hats going off to these people who have self-funded their retirement, unlike the public servants. They should be congratulated for being able to care for themselves allowing the government to focus on those that need help.
In correspondence to Treasury, I pointed out that the tax I had calculated would leave us with just $30000 joint income based on my after tax income (which is not small – approx $230k per annum jointly – yes $200k extra tax in super, on a fund that already pays $90K – a massive more than tripling of super tax) if we paid it in our own names hence his glib response.
They obviously wish to inflict the most grief on this section of the community that they can. And these are the very members that likely are the 10% paying 50% of all income tax.
They are not getting one red cent from us if we have anything to do with it. I would rather pull it all out and build a mini Taj Mahal to leave for my children – yes, no death taxes either from me, not if we can help it.
BTW – by taxing the individual, it is even more tax in the super fund the following year under the calculations, as the withdrawal is added back to be additionally taxed on. if it was taxed within the super fund, the tax would not be counted on the withdrawal. I am not sure how many realise this.
Thank you for the article and for all updates!
The ultimate irony is the the morons in Canberra are going to create a system that collects LESS tax. Ppl will draw money out (many potentially as they approach $3m) and significant drop offs in death benefit tax will be received.
Had they done nothing then more total tax would be collected than the current proposal.
Further if you are in the $3m range you already have a lot of money in super in excess of your TBC. As a consequence the taxable component will have compounded for 15-30years!
Remembering death benefits tax is on capital, not income, so the amounts being taxed is way larger.
The lunatics are certainly running the super asylum.
If the government is determined to introduce this additional tax (and it appears they are), they should set the threshold at twice the Transfer Balance Cap, currently $1.9m. True, with the threshold set at $3.8m initially it would mean they raise slightly less revenue but it would be less arbitrary, more consistent and it would eliminate the question of how and when it will be indexed.
The primary, and fundamental, purpose of the tax on higher balances is equity. It has been clear for many years that the tax concessions provided to these high balance accounts are a significant proportion of total concessions with a disproportionate benefit going to a small number of accounts.
This change was not done “on the run”. Dealing with the inequities of these big accounts has been a matter of discussion and debate in the industry for more than five years, and probably closer to ten. The only real question was where the cut off would be with numbers from $1.6m to $5m frequently discussed. It should have come as no surprise to anyone when the $3m threshold was introduced.
Tax on unrealised gains was a surprise and will undoubtedly have some unforeseen consequences.
Increasing the tax on superannuation, even by a few percent, is not a solution. It might raise the same amount of revenue, but it would further erode equity in the system. It would still leave large accounts with disproportionate benefits from the system and increase the number of accounts needing tax support at the small end. It would, in fact, make the system worse than it was.
The extra taxes on balances over $3m will have no impact on the cost of the Age Pension. People with balances of this size receive no Age Pension and are so far above any realistic means test threshold that they never will. Having to pay extra tax for an asset balance over $3m is hardly going to deter people accumulating a $674,000 balance.
Increasing the tax on superannuation, on the other hand, will definitely raise the cost of the Age Pension because it will reduce the balances that average and below average income earners will be able to accumulate prior to retirement. These are the people who drive the cost of the Age Pension – not the wealthy. Their balances will be smaller and the means test will reward them with a higher Age Pension.
Just because the unrealised gains are to be taxed at an extra 15% does not preclude the government increasing the rate or reach of GST and probably increasing the 15% tax on accumulation phase under 3M also at some stage soon if they retain power.
Please refrain from giving the morons more ideas..
Thank you
Politicians have a short-term horizon; they seem unable to look beyond the next election. Moving the discounted tax rate for superannuation funds from 15% to say 17% or even 19%, would retain a substantial tax advantage for saving for retirement through superannuation along with a substantial increase in budget revenue. Further a reduction in the complexity of contribution rules would be most helpful. A simple lifetime indexed contribution cap would be far better.
I agree with Naz.
Additionally, the original plan for GST was to keep it as simple as possible, i.e. 10%, being simple to apply, and on everything, again no decision to be made as to whether it does or does not apply. Then political scoring became involved and goods and services were excluded. The result was less revenue than intended. It was also intended that GST would replace many state-based revenue streams such as stamp duty.
Another alternative to the 15%, ‘personal tax’, on super balances, over $3 million, which unfairly include unrealised gains, is to revert to include the taxable component of the pension payment in the pensioner’s taxable income together with a 15% rebate.
In my opinion, the 15% tax on balances over $3million is yet another example of a policy change on the run with little thought nor understanding of the issues involved. Think of the nightmare created for many of our rural producers and small businesses owners. Their superfund owns the land or property. The market value of the property increases and they are then faced with the problem of finding the cash to pay a personal tax of 15% of that increase in market value. Where does the cash come from?
Further, taxing unrealised gains is a very serious precedent which could be broadened to all assets outside of superannuation balances.