Pre 2015 Budget Submission
I submit the following for pre budget consideration.
The purpose of superannuation tax concessions is to encourage self provision of retirement income and hence savings in Social Security age pension outgo. If the concessions achieve their aim, they are justifiable. It is only when the purpose is thwarted that concessions lose their justification.
Tax freedom of income for pension phase earnings encourages people to keep money in superannuation, which, through the social security means tests, reduces government pension outlay. This tax concession can be tweaked to increase this benefit to the government.
My suggestion is that once superannuation funds are committed to a pension account, the rate at which they are drawn should be limited to 150% of the Account Based Pension minima. If that limit is exceeded in any year, except when paid as a death benefit, investment earnings and capital gains on the investment supporting the pension should be taxed at normal superannuation rates. Perhaps the normal taxation could be extended to the year (or two) following the excess. This would increase the encouragement to keep the funds for their designated purpose and put a lid on age pension outlays.
The tax concessions granted to superannuation contributions have two dimensions, those related to the Superannuation Guarantee Charge contributions and others.
In connection with the SGC element, the concessional tax of the contribution offsets the compulsory locking away of part of an employees’ package.
For the remainder of any contribution, the question for government of lower future pension costs is justification for lower revenue now. Given that the budgetary problems of an aging population are likely to grow, it is of little value to come down hard on these concessions now and then suffer the consequences in a time of greater budgetary stringency. It is better to seek tax savings that do not have long term consequences.
From the employee’s view point is how much incentive is required to compensate for locking funds away. Clearly the 30% tax benefit for high income earners, particularly late in their careers is a generous incentive. However, even with the SGC regime now two decades old, there are many people who rely on topping up their superannuation in their last working years. At the price of increased complexity, these need to be catered for.
Written by Dennis Barton.