Tax breaks for superannuation contributions need to be revised to more accurately target their policy purpose, says the Grattan Institute.
In a report titled Super tax targeting, the Grattan Institute argued that the current system of tax breaks is not only inequitable but its costs are increasingly unsustainable.
“Decisive reforms are needed to narrow the wide gap between the goals of the system and what it delivers,” said the report.
“Tax concessions cost the budget more than $25 billion a year in foregone revenue, and most of the benefit goes to those who don’t need them.”
According to the Grattan Institute, more than half the benefit of current superannuation tax breaks is directed towards the wealthiest 20 per cent.
“In tight budgetary times, these costs are unsustainable and must be reined in.”
The report found that better targeting of superannuation contributions tax breaks could save the budget $3.9 billion per year. Further, a 15 per cent tax on the super earnings of retirees could raise an additional $2.7 billion each year.
The report argued that contributions from pre-tax income should be limited to $11,000 a year. The report also suggested that lifetime contributions from post-tax income should be limited to $250,000. Moreover, earnings in retirement – currently untaxed – should be taxed at 15 per cent.
In a recent update – Capping contributions – Rice Warner argued against the proposals from the Grattan Institute. The research house also questioned whether the super system is so fiscally inefficient that it needs such changes.
Rice Warner said it is difficult to set fair limits on contributions because individual retirement circumstances vary considerably. In addition, limiting the total lifetime contributions seems “more work than is sensible”.
“Perhaps, before complicating the system with new complex caps on balances or lifetime contributions, we should be focusing the discussion on whether the current contributions caps are adequate and reducing the much more lucrative earnings tax concessions,” Rice Warner said.
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