New research released by the Financial Services Council (FSC) demonstrates that proposed piecemeal increases to superannuation taxes will not deliver a sustainable Federal Budget position.
With government debt approaching a trillion dollars by 2022-23, and revenue under pressure due to an uncertain global economic outlook, new economic modelling by DeltaPearl Partners shows that a package of commonly proposed taxes on superannuation would add just 1.4 per cent to total budget revenue.
CEO of the FSC Blake Briggs said: “Over the medium-term Government payments are expected to level out at 26.4 per cent of GDP, significantly higher than the 24.8 per cent of GDP prior to the pandemic, requiring a focus on structural reform and economic growth to achieve Budget sustainability.
“Piecemeal superannuation taxes would raise only $8.5 billion in the context of a Government that collects over $560 billion annually in revenue.”
The FSC commissioned modelling to examine commonly proposed reforms to superannuation tax settings to estimate their impacts on the budget. Specifically:
- Measure 1: Introduction of a $5 million limit on total superannuation balances. Individuals with a total balance (across all super accounts) above this amount will be required to withdraw from super to bring their total balance below $5 million.
- Measure 2: Reducing the tax concession on pre-tax contributions. By reducing the $27,500 annual cap on pre-tax contributions to $15,000 and reducing the $250,000 Division 293 tax threshold to $200,000.
- Measure 3: Introduction of a flat tax on all earnings in retirement at 15 per cent. Currently only income on balances exceeding the transfer balance cap are taxed at a 15 per cent rate.
“These tax changes would have a negative impact on more than 15 million Australians that are saving for their retirement through superannuation by undermining consumer confidence in the objective of the system,” Mr Briggs added.
“Government should not lose focus on improving equity in the system, such as paying superannuation contributions on the Government paid parental leave and broadening the coverage of the Superannuation Guarantee to gig workers.”
The FSC modelling also examined three measures that resulted in gains in equity within the system. Specifically:
- Measure 4: Progressive tax settings on superannuation contributions. Replace the flat tax rate paid on superannuation contributions with a progressive tax rate linked to income. Employer superannuation contributions would be treated as individual income that is taxed at marginal personal income tax rates less a flat-rate refundable 20 per cent tax offset.
- Measure 5: Inclusion of superannuation contributions within the government paid parental leave (PPL) scheme
- Measure 6: Broaden the coverage of the Superannuation Guarantee to platform-based gig workers.
The report can be accessed on the FSC website.
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About the Financial Services Council The Financial Services Council (FSC) has over 100 members representing Australia's retail and wholesale funds management businesses, superannuation funds, life insurers, financial advisory networks and licensed trustee companies. The industry is responsible for investing almost $3 trillion on behalf of more than 15.6 million Australians. The pool of funds under management is larger than Australia’s GDP and the capitalisation of the Australian Securities Exchange and is the fourth largest pool of managed funds in the world.