Cutting super would result in massive tax hike, report finds

Font Size:

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?

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

RELATED LINKS

Call to tax retirees' super income

ACOSS seeks a tax on retirees' superannuation earnings to fund aged care.

The superannuation mistake that could cost you $170,000

Choosing the wrong super product could reduce retirement savings by up to $170,000.

Written by Ben



SPONSORED LINKS

Sign-up to the YourLifeChoices Enewsletter

continue reading

Age Pension

Centrelink Q&A: Is it possible to get two pensions?

Doug wonders if it is legal to claim two pensions while living overseas. Q. DougIs it possible to get two...

Property

Older Australians resist downsizing, preferring home to a move

The housing boom is slowing the rate at which Australians are downsizing, with many older homeowners preferring to stay in...

Brain health

Loss of pleasure and happiness linked to dementia

Those living with a type of dementia that affects younger people can't feel as happy as they did before developing the...

Health

Can coffee cure a headache? Or is it the culprit?

If you do enough research on coffee, specifically caffeine, you could start to believe it’s a wonder drug. Health professionals...

Dinner

Pumpkin, Leek and Spinach Quiche

Looking for a no-fuss quiche recipe? Today’s Pumpkin, Leek and Spinach Quiche can be made with no pastry, which makes...

Lifestyle

Pondering love letter etiquette

The French have a lovely name for a love letter - a billet doux. The translation literally means sweet letter...

Lifestyle

Long-lasting beauty treatments to do at home

If this past year has shown us anything, it's that home pampering should not be overlooked. Going to a salon...

Brain health

Medical focus must extend to pre-clinical dementia

Ivan Koychev, University of Oxford 'One more question', is now a regular parting shot from the son or daughter of...

LOADING MORE ARTICLE...