If labor and greens fail to back governments superannuation reform plans were all in trouble

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A FAILURE by federal Parliament to agree on tightening tax breaks for superannuation would mean there is little hope of any fix for Australia’s debt-laden finances.

Independent think tank Grattan Institute says the major political parties already agree on most super changes and if they cant manage that, we are in major trouble.

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A new Grattan analysis has found that despite loud complaints from some circles, there is public support for tougher new limits on how much money high-income earners can pump into super.

Even after the reforms, super tax breaks will overwhelmingly flow to high-income earners who do not need them, the report states.

It states super tax breaks are forecast to have a lifetime value much greater for high-income earners than the age pension delivers to low-income earners.

For more than a decade, superannuation tax breaks have been absurdly generous to older people on high incomes. They are a major reason why households over age 65 are paying less tax today in real terms than they were 20 years ago but those between 25 and 64 are paying more tax, the report says.

Grattan CEO John Daley said people trying to derail the reforms had claimed that lower and middle income earners would be negatively affected.

But the bottom line is there is just no evidence of it. The vast bulk of additional tax will be paid by the top 4 or 5 per cent of households, he said.

Mr Daley said the Coalition should get support from either Labor or the Greens to get its super changes through parliament.

Theres a grand total of one thing that the ALP disagrees with the government on that costs the Budget money. Theres a whole list of things it agrees on that saves money, he says.

If you cant do a deal with all of that going for you, its hard to see how they will get anything worthwhile done. If we cannot get reform in this situation, then there is little hope for either budget repair or wider economic reform.

We know that this is electorally popular. At the last election the electorates that had more older, wealthier people swung to the ALP less than the rest of the electorates.

Tax accountanting group H & R Block has 750,000 clients mainly from Middle Australia, and its director of tax communications Mark Chapman said there had been little concern among them about the super changes.

There seems to be some inevitability about the changes, but the people who are affected by the proposals are always the ones who shout the loudest, he said.

For the proposal about taxing retirement income (for wealthy retirees), the amount they are suggesting of 15 per cent is still way less than the tax everyone else is paying on their income.

KEY SUPER CHANGES

LOWERING the annual cap on pre-tax super contributions such as salary sacrifice and employer payments to $25,000 (Government and Labor agree)

A 15 per cent tax on super earnings in retirement for balances of more than $1.6 million (Government and Labor agree)

A $500,000 lifetime cap on after-tax super contributions, backdated to 2007 (Labor agrees but opposes backdating)

MAINTAIN tax offset for low income earners (Government and Labor agree)

ALLOW all workers to make personal pre-tax contributions (Labor disagrees)

A 15 per cent earnings tax for transition to retirement pensions (Government and Labor agree)

Source: Grattan Institute

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