When Australia’s peak superannuation bodies are willing to set aside their differences and issue a joint statement about a new government initiative, you know that either the government is on to something, or is about to do something profoundly silly.
The subject of agony for the Financial Services Council (FSC), the Australian Institute for Superannuation Trustees (AIST), the Association of Superannuation Funds of Australia (ASFA) and the SMSF Professionals’ Association of Australia’s (SPAA) was the speculation around a government initiative that would raise the taxation rate on superannuation contributions for higher income earners.
The idea was that, in an effort to turn the 2012 budget back to surplus, the $16 billion a year in tax concessions could not be overlooked.
Leaving vested interests aside, the idea of asking high income earners to contribute more to a retirement system is not that revolutionary considering Australia already has embraced the concept of a progressive tax system.
But much will depend on who will be classified as high-income earners.
The problem with assessing leaked budget initiatives is that they lack detail – unsurprisingly, but unhelpful nevertheless.
To date, the most detailed proposals have come from The Greens, who would like to see a system where the taxation is determined by a person’s marginal tax rate minus 15 per cent.
This would mean that anyone with a marginal tax rate of higher than 30 per cent would be worse off under the new system.
ASFA has calculated that half of contributions are made from individuals with a tax rate of 30 per cent or less, which inversely means 50 per cent of people would be affected.
The Greens say that over half of the concessions on superannuation contributions go to the wealthiest 20 per cent of income earners, but clearly their proposals would affect significantly more people than the wealthiest 20 per cent.
However, The Greens do not dominate the government and so it remains to be seen what the final policy will be.
Whatever the government proposes in its budget this year, it cannot be denied that its timing is poor.
The superannuation industry is going through one of its greatest overhauls since the implementation of the superannuation guarantee in 1992.
And although nobody really expected that it would be left alone, introducing yet another dramatic change to the system at this point does not help in creating a stable and smooth running system.
Every change made to the system will result in an additional cost for super fund members, and ultimately is likely to result in greater pressures on the social system and government revenues.
Any tinkering should, therefore, be subject to a rigorous cost/benefit analysis and address all aspects of the system, not just the next national profit and loss statement.
Let’s hope that has been the case here.
