I’m not actually sure that all this speculation about additional tax imposts on superannuation is taken from any political playbook. What tends to happen is:
- People’s fears run ahead of anything being contemplated.
- The actual revenue gain for the government is likely to be quite small in relation to the political harm done in the meantime.
The closest parallel seems to be Latham’s hit-list of rich – fabulously rich, indeed – schools whose government grants were to be cut in toto.
There seems to be a profound misunderstanding on the part of politicians and in the liberal press of how the taxation of superannuation is actually effected and scant acknowledgment of restrictions on the use of superannuation by higher income earners.
To be sure, it is like the man heading towards Dublin, we are not starting from a good place.
The preferable tax arrangements would be zero tax on contributions and earnings and normal taxation on retirement incomes. This is in fact the system employed mainly overseas, including in all those social democratic countries. But given our current mish-mash, it is hard to see how we could shift to this nirvana fairly and in any reasonable time frame.
So here’s the deal:
- Contributions are taxed at 15 per cent, except now for those on very high incomes ($300K per year), contributions will taxed at 30 per cent.
- This flat rate of tax was introduced deliberately and carries very low transaction costs. Superannuation funds do not know, and do not need to know, how their members’ taxable income levels.
- Earnings are taxed at 15 per cent, but there is the complication of franked dividends. However, all domestic investors enjoy this benefit.
- There is some discount of CGT within funds.
If you can hang out to age 60, there is no tax payable on superannuation if paid from a taxed source. (CSS is not taxed as a counterexample and CSS pensioners receive an income tax rebate instead.)
Now on the face of it, that flat rate of tax on contributions and earnings looks quite generous to high income earners. But and it is a big but … everyone is only permitted to contribute $25,000 per annum in pre-tax income.
Moreover, the figure includes the compulsory CSG. So anyone earning above $278,000 is actually paying excess contributions tax even though they will not be paying a single cent in salary sacrifice to superannuation – GO FIGURE the logic to that one.
Higher income earning employees are already being additionally binged, through the new 30 per cent on contributions and the payment of excess contributions tax on the SGC which must legally be made on their behalf.
So if the government wants to rein in lots of additional revenue, it will need to go after many people on lower incomes and possibly contemplate a form of Cypriot theft by imposing a tax on accumulated balances. Will the liberal press cop it? Probably, but seriously.
There are also some very significant issues about how these new rules can apply to those on defined benefit schemes, including the politicians on the older scheme (including fabulously rich Craig Emerson). The politicians have declared that all these new rules apply to them, but because there are no actual contributions, it remains to be seen how the new taxes will be levied. (I won’t be taking their word for it.)
In any case, the defined promise remains and so it is not clear how they can be equivalently affected relative to those on accumulation schemes. Just rank hyprocrisy, I say.
All politicians should be made to transfer their current entitlements as a cash amounts into accumulation funds and live like everyone else.