Treasurer Scott Morrison’s suggestion that the government is willing to adjust the taxation of superannuation has reignited debate within the industry about the best policy levers to pull.
Prime Minister Malcolm Turnbull's willingness to put everything 'on the table' when it comes to tax reform has apparently been extended to superannuation, with Mr Morrison expressing interest in a recent Deloitte proposal to make super tax concessions more equitable.
The Deloitte proposal, which closely mirrors the recommendation of Ken Henry's Future Tax System report, recommends that contributions to super be taxed at an individual's top marginal tax rate with a 15 per cent rebate.
Asked about the proposal in a doorstop interview on Tuesday, Mr Morrison said the tax incentives that are applied to superannuation need to be "targeted".
"What we are seeking to do on superannuation is ensure that people are independent in their retirement and that the tax incentives that are applied to superannuation are ones that best put Australians who are at risk of not being independent in retirement in a strong position," Mr Morrison said.
Speaking to InvestorDaily, Deloitte head of superannuation Russell Mason said his firm's proposal would mean a taxpayer in the top marginal bracket would effectively pay 34 per cent tax on their contributions – and a low income earner would pay no tax at all.
"We’re saying: let’s scale it and make it more equitable. Effectively it’s a progressive tax, just like it is for you and me on our income tax," Mr Mason said.
"It still will provide incentives at every level for people to contribute to super, because it’s still less than paying your marginal rate," he said.
But Grattan Institute chief executive John Daley told InvestorDaily that targeting superannuation tax concessions could be "quite messy" when it comes to the administration side of things – particularly for employers.
More importantly, however, the Deloitte proposal fails to refer back to the purpose of superannuation, Mr Daley added.
"It continues to treat superannuation as a generalised tax break without a purpose," he said.
Pointing to the recommendation of David Murray's Financial System Inquiry that the objective of super is "to provide income in retirement to substitute or supplement the age pension", Mr Daley said that the best policy lever to target is the concessional contribution cap (currently $30,000 a year for those under 50 and $35,000 for those older than 50).
"The purpose of superannuation is not so that everybody can be rich in retirement. The purpose of superannuation is to increase retirement incomes to the point that you either supplement or replace the age pension," he said.
"We think that you shouldn’t be able to put in about more than $10,000 to $11,000 in pre-tax income. So if you’ve got someone earning $250,000: why are you giving them a tax break on the amount that they put into super?" he asked.
Mr Daley rejected the argument that the current concessional contribution caps allow older Australians to 'catch up' on their super balances later in life.
"That’s the theory. But the practice is that the vast majority of those putting the money into super are rich old men," he said.
"You end up giving a very large tax concession to rich old men to help a very small number of people in catch up mode," Mr Daley said.
Mr Mason said Deloitte supports a 'lifetime cap' for concessional super contributions.
"The lifetime cap recognises that people’s ability to save is later in their lifetime," Mr Mason said, adding that younger Australians, women out of the workforce and part-time workers are not in a position to voluntarily contribute to their super.
Mr Mason said that older "ordinary working couples" need the current concessional contribution cap levels maintained in order to 'catch up' on their super after years of paying off a mortgage and supporting their children.
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