In a blog post on the Tria Investments Partners website, managing director Andrew Baker said super is an “underperformer from a revenue perspective” given it only accounts for 2.2 per cent or $8.5 billion of the Commonwealth’s total revenue.
The superannuation consultant said an $8.5 billion revenue on average system assets of $1.6 trillion is a taxation yield of 53 basis points.
Before the financial crisis, the budget estimate for revenue from super was $8.3 billion; however, system assets were $1.5 trillion at this point generating a taxation yield of 72 basis points.
“In other words, super now produces nearly 30 per cent less tax revenue per dollar of assets than it did six years ago,” said Mr Baker.
While the usual demand on the government is to “reduce the tax advantages that high income earners enjoy on concessional contributions” the minimum tax advantage currently enjoyed by a high income earner is only $9,540, he explained.
“Different contribution tax rates for different members will be an implementation challenge for super funds, taking the system back to the much criticised days of the Howard-era super surcharge,” said Mr Baker.
Instead, Mr Baker believes it would be more appropriate for the government to bring “currently tax-exempt divisions into line with the accumulation divisions at 15 per cent”.
He said the super fund earnings tax rate, currently zero in the pension division, can sometimes be a negative tax rate due to reduced capital gains taxes on long-term gains and refunds of franking credits on Australian company dividends.
Bringing the pension division tax rate up to 15 per cent, in line with the accumulation division, could generate $5 billion in additional tax revenue each year, especially as around one third of assets are already exempt from tax, Mr Baker said.
If the government wanted to adopt more radical changes, Mr Baker said it could also look at implementing a super fund earnings tax rate of 20 per cent across the board or deny super funds access to franking credits.
“If that seems hard to imagine, think again - UK pension funds also used to enjoy the benefits of dividend imputation, but it was withdrawn without notice in their 1997 budget,” Mr Baker said.
