What is the government hoping to achieve by its radical plans to alter superannuation taxation and rules? It’s not really about the money (close to $3 billion net over four years, an estimate that will not be met). It’s all about crass and populist politics.
My guess is that the super changes could end up like the mining tax – in tears and seriously damage the government.
And the government has come up with a really dopey definition of the objective of superannuation:
To provide income in retirement to substitute or supplement the Age Pension.
This doesn’t get us anywhere. There could be a $1 supplementation of the Age Pension and it would meet the objective.
Should we really be asking people on low income to forego current consumption for decades (and if the industry has its way, the SGC will go to 12 per cent at a minimum) in order to provide some meagre supplement to the full Age Pension? This is paternalism at its worse, but of course generates fees and charges for the industry (the real objective of superannuation is to promote the superannuation industry – everyone knows that).
If the system of superannuation cannot promote rapidly rising proportions of completely self-sufficient retirees, it is not doing its job.
Why would the government go for all those radical changes to superannuation? It has nothing to do with good policy but because it can cry out it’s fair, fair, fair – that will be the mantra. It’s of course a broken promise (see Morrison’s commitment not to increase taxes on superannuation) but again this lot doesn’t care.
Let’s face it, we know the answer to the wider issue: the taxation of savings must be different from the taxation of current income. We should have a much more even treatment of the taxation of savings across all forms – the Henry Tax Review recommended discounting the returns by 40 per cent – although there is a case for more concessional treatment of superannuation because the monies are locked up until preservation age.
So what does the Coalition do?
- It lowers the concessional contributions cap;
- It changes the non-concessional contributions cap retrospectively and sets a lifetime limit;
- It retrospectively imposes a lifetime limit on the size of tax-free retirement accounts;
- It imposes a 15 per cent tax on the income from any residual account, mirroring Labor’s policy;
- It reintroduces Labor’s low income superannuation contribution (why, oh why? – politics);
- It matches Labor’s policy on Division 293, imposing a 30 per cent contributions tax on those with income (defined for this division) of $250,000 per year or over;
- It pretends to introduce commensurate measures for defined benefit superannuation members, which are just homeopathic and the government knows it (note that members of DB untaxed schemes pay no contributions or earnings tax, apart from the high income earners now and then only 15 per cent);
- Lots of other bits and pieces such as rollover of unused concessional caps, shifting balances to spouse accounts (sounds a bit 19th century, but there you go), elimination of anti-detriment rule, changes to the transition to retirement rules, allowing contributions past 65 years and other minor changes.
This is seriously over-engineered stuff, dreamt up by bureaucratic dummies who wouldn’t have a clue about the world of superannuation and the excessive compliance costs of these changes.
It outLabors Labor.
You don’t need all these caps; it is just ridiculous.
The relevant section of the Tax Office will have to be expanded enormously.
I love this bit of the budget papers:
The superannuation changes will improve the integrity of the superannuation system by reducing the extent to which it is used for tax minimisation and estate planning purposes.
So it’s fine for negative gearing to be used for tax minimisation and estate planning purposes but not superannuation. You know it makes sense.