The Australian government must make radical changes to superannuation to deal with future budget shortfalls in defence, aged care, and the National Disability Insurance Scheme, a think tank has said. This is despite Prime Minister Anthony Albanese’s refusal to commit to anything of this nature.
He said the system had become a “tax-funded inheritance scheme,” with one-third of all superannuation withdrawals not being for bequests.
“I think the super system itself is functioning relatively well with the tax concessions that are excessively generous compared to any plausible purpose for the system, whether its Labor’s proposal to have a dignified retirement or the Coalition’s past proposal that super should be about supplementing or substituting for the age pension,” Coates told ABC Radio National.
“What we have right now goes well beyond those, in fact, it looks a lot like a taxpayer-funded inheritance scheme.”
Coates argued that the tax breaks are not well-targeted, with two-thirds of their value benefitting the top 20 percent of income earners already saving enough for their retirement.
Reforms Estimated To Generate $11 Billion a Year
The Institute is calling on the federal government to make several reforms that they estimate will save $11.5 billion annually (US$7.6 billion).They include raising the division 293 tax which curbs tax breaks to high-income earners on their super contributions, from 30 percent to 35 percent, and lowering the income threshold at which the tax applies from $250,000 to $220,000 a year.
“This would save the budget about $1.1 billion a year and stop many high-income earners benefitting from larger tax breaks per dollar contributed to their super, than low- and middle-income earners,” the report argues.
The Institute also wants to see a cap on pre-tax super contributions, from $27,500 to $20,000 a year, which they estimate could save about $1.6 billion a year, mostly by reducing voluntary contributions made by older, wealthier Australians to minimise their income tax bills.
Additionally, the report suggests a saving of 1.1 billion could be made by abolishing carry-forward provisions and government co-contributions to superannuation, which were intended to encourage catch-up contributions.
Further, it argues the federal government should tax all superannuation earnings in retirement at 15 percent, which is the same rate that applies to super earnings before retirement, providing a potential $5.3 billion a year towards the budget.
Finally, the report says the government needs to tax earnings on super accounts larger than $2 million at 30 percent, which would save an estimated $3 billion.
“The warning signs are everywhere: Australia’s current superannuation system is unfair and unsustainable,” said Coates. “The reforms we recommend would make the system fairer and the budget stronger.”
The recommendations stand in contrast to comments by former Senator Eric Abetz who says “no nation has ever taxed itself into wealth.”
PM Ignores Recommendation, Says Labor Needs to Be Responsible
In response, Prime Minister Albanese would go no further on changing superannuation tax breaks.“We will continue to do what we have done in our first 11 months, which is to be a government focused on delivering on our commitments.”
Albanese said Labor would continue to work on the issues facing Australia in a methodical way and look to provide cost of living relief rather than a “cash splash” in its second budget, to be delivered on May 9.
“If you just have a cash splash, which is what happened in the Coalition’s last budget, that actually added to some of the inflationary pressure that was there in the economy,” he told ABC Radio.
The budget will include $1.5 billion of energy price relief that passed Parliament in December as well as investments in cheaper childcare and medicines that Albanese said would not fuel inflation.
