Cutting super would result in massive tax hike, report finds

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The potential scrapping of the legislated superannuation guarantee rise from 9.5 per cent to 12 per cent by 2025 would come at a significant cost to taxpayers, according to new modelling.

Actuarial firm Rice Warner has run the numbers on what the effects of not proceeding with the planned superannuation increases would mean, and the impact on taxpayers would be huge, with Age Pension costs predicted to balloon by $33 billion over coming decades.

According to the modelling, each year that people retire without the benefit of the legislated superannuation boost, pension costs will climb by billions.

Australia’s ageing population means there are fewer taxpayers for every pensioner, making it likely future government would need to raise taxes to meet this bulging pension burden, according to Industry Super Australia chief executive Matthew Linden.

He explained that despite the increased pension costs, workers would still be worse off.

Mr Linden said that figures from the government’s Retirement Income Review reveal that ditching the increase would leave all income groups with lower lifetime disposable incomes.

“Dumping the legislated increase in the SG [superannuation guarantee] will unequivocally leave Australians with less private savings at retirement and more reliant on the publicly funded age pension,” Mr Linden said.   

“There is no free lunch; for every dollar taken out of super early the taxpayer has to pay back even more in higher pension costs – that’s why if the government opts out of super it opts in to higher taxes.

This short-sighted policy will leave workers tens of thousands worse off and a huge pension bill that we will have to pay through higher taxes.”  

In other superannuation news, the Association of Superannuation Funds of Australia (ASFA) has called for changes to increase fairness in the system in its pre-budget submission to the government.

ASFA chief executive Dr Martin Fahy said the system needed reform to protect lower income earners, including lowering the superannuation taxes for people earning between $37,000 and $45,000, and higher super taxes for higher income earners.

“Superannuation is about ensuring people have adequate income in retirement, it is not about facilitating excessive wealth transfers,” Dr Fahy explained.

According to the association, recent changes in tax rates have created an unintended distortion where low-income earners between $37,000 and $45,000 pay a similar tax rate on superannuation contributions to the marginal tax they pay on wages. 

Dr Fahy believes that the low-income superannuation tax offset should apply to individuals with taxable income of up to $45,000.

As that change would have an impact on government revenue, Dr Fahy believes that the shortfall should be made up through a modest reduction in the Division 293 threshold from $250,000, that is the level at which super contributions are taxed at 30 per cent rather than 15 per cent.

It also suggests removing indexation of the transfer balance cap and removing balances above $5 million from the concessionally taxed superannuation system.

Do you support the legislated increase to the superannuation guarantee? Do you think the government will axe the increase in coming months?

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Written by Ben


Total Comments: 18
  1. 1

    The idea that the current superannuation scheme should change makes me furious! Anyone with a grain of sense would see that reduced savings for retirement is counter-productive. I’m not an economist, but these people have access to the best economists. Are they not listening? If people retire on less, how are they going to live? It’s difficult enough as it is. With the Government saying that the age pension might not be around any more, or not to the same extent, poverty will be rife.

    • 1

      Employers aren’t awarding pay increases now. What’s to lose?
      Only way workers are going to get any increase at all, is through a super increase.
      The increase has been planned for years. The economy should be at a stage where it can afford it. Do it now, or be bollions of dollars worse off later.

    • 0

      Yes, On the Ball, but Morrison and his cronies won’t be around in years to come so why should they care? They’ll be safe with their parliamentary pensions and bugger everyone else.

  2. 1

    If the super % is increased then employers will find it hard to award pay increases. If young people then find it hard to save a deposit for a house, and prices are already rising with wages staying stagnant theirs chances in investing in a house for their retirement is reduced. I note that the Industry Super Australia chief executive Matthew Linden has a lot to say and he hasn’t a vested interest has he ?

    • 0

      This is the usual right wing mantra, which in reality is wrong.
      Every time there is a wage rise or increase in superannuation the business sector complains they can’t afford it and yet businesses still exist.

  3. 1

    The super increases are a cash in hand pay trade-off. They are both worker remuneration. It’s not a matter of getting both. So ultimately it’s a worker choice.

  4. 1

    The 15% contributions tax has always been a flat tax on contributions, and any flat disproportionately benefiting the wealthy. The co-contribution contribution by the government if you were a low wage earner helped offset this. Can you update re this measure? Does it end at 70? Can workers still working still contribute? Is there a cut off point?

  5. 5

    The median income in Australia is $48,360 before tax. so an increase of 0.5% in super will be $241.80 per annum or $4.65 per week per employee. doesn’t sound much & it isn’t in real terms. The small business council claim it will send many small businesses to wall. If they have 4 employees on the median income (most would be well under that as junior & or part time workers) & an extra $18.60/week in SG expenses sends them to the wall then they shouldn’t really be in business on that sort of margin
    SG should be NOW 15.4%, why? Because that is what Federal MP’s & Senators are getting. The same people that are saying Australia can’t afford to increase the SG to 12% by 2025 or increase it from the current 9.5%. Hippocrates. If Australia can’t afford 12% SG by 2025 then their SG is unsustainable as well & should be brought back to 9.5% as it is today.

    • 3

      If a pay rise of 2% was awarded were by 1.5% the wages & 0.5% to SG, based on the median income of $48,360 then the employee would gain @ 1.5% a wage increase of $13.95 gross per week or $9.14 after tax & Medicare levy but will gain $4.65/week into the SG which after the 15% tax would be $3.95 so therefore receiving an extra $0.91 into their super fund

      For those pundits that say increasing the SG by 0.5% & resulting in a pay increase of 0.5% less because of the SG would prevent young Australians from saving & possibly being able to afford to get into the property market really need to look at the maths. With the example above they would lose $3.04/week in after tax pay increase. One can’t even buy a coffee for $3.04.

  6. 0

    Typical government, listening to advice from unskilled advisors is one thing, they always say if things are going good we need to pay more tax to cover some shortfalls, if things are going bad we need to pay more tax to cover shortfalls.
    Lets just give these Ba####ds our bank details and passwords and be done with it.

  7. 1

    “Cutting super would result in massive tax hike, report finds”
    Well? Wasn’t the intention of compulsory superannuation to save excessive taxation in the long term?
    How bleedding obvious do they need?

  8. 0

    If the rates etc stay the same (subject to inflation) people will wise up, take early retirement, and target entering Govt Age Pensions qualification age at the lower sweetspot amount in order to maximise their rather generous entitlement to Age Pension rather than living on own money while others live more lavishly on the taxes they have paid – as is the present set-up.

    Surely the majority of people in this country are not so stupid that while dreaming of retirement they will continue to work and save, effectively for nothing, while others sit back.

    The present set-up is hardly worth defending, least of all from a Labor activist point of view.

    It was of course set up by Paul Keating, who didn’t really have a Labor bone in his body – he just used the party for personal advancement.

  9. 0

    Our P.M. must know this every body else does.

  10. 1

    All our Pollies will only be happy when us peasants are all living in tents having to hunt for our tucker! Sick of all the attacks on the battlers of this country!

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