In a joint press conference with Assistant Treasurer Arthur Sinodinos yesterday, Treasurer Joe Hockey also announced the government would not be going ahead with the $2,000 cap on deductible self-education expenses as well as the changes to the fringe benefits tax rules on motor vehicles.
As part of the announcement, the treasurer also confirmed the new government will not be proceeding with Labor's plans to establish a council of superannuation guardians (the so-called 'Super Council' and 'Super Charter').
Mr Hockey said the superannuation earnings tax, which adds $313 million to the federal Budget bottom line, is “undeliverable”.
“The fact is it was nigh impossible for the private sector to be able to properly identify who was responsible for that liability and how it would be assessed,” said Mr Hockey.
Mr Sinodinos said the tax would have been “very complex to administer” and would “result in large compliance costs”.
“The super funds would have to change the way they calculate and pay tax. It would involve upfront costs in terms of system changes, redesign of accounting and IT systems,” he said.
Financial Services Council chief executive John Brogden said the proposed tax was “rushed, complex and frankly, unworkable”.
He pointed out that the expected revenue from the measure would never have been realised due to the “flexibility” of self-managed superannuation funds to manage their earnings.
Association of Superannuation Funds of Australia chief executive Pauline Vamos also welcomed the announcement, but acknowledged there is “still a conversation to be had” about the tax treatment for retirees with very high account balances.
“The average Australian may think it unfair that all income in accounts with very high balances be tax-free throughout retirement,” Ms Vamos said.
She argued for further discussion around the tax treatment of low income earners, given the government's stated intention to remove the low income super contribution.
Industry Super Australia accepted the difficulty of implementing the measure, but added that it would “sit uncomfortably with the 3.6 million Australians who are facing higher tax on their super contributions than on their take home pay”.
Financial Planning Association (FPA) chief executive Mark Rantall said the tax on superannuation pensions would have been costly, difficult to administer and would discourage contributions to superannuation.
“The FPA has campaigned against these changes and the Coalition’s decision is a common-sense decision which will deliver much needed confidence in the super system,” said Mr Rantall.
Association of Financial Advisers (AFA) chief executive Brad Fox also welcomed the announcement.
“It was obvious that the tax on superannuation earnings over $100,000 would likely cost more to administer than it would earn in revenue,” he said.
Both the FPA and the AFA welcomed the scrapping of the cap on self-education expenses.
