Tax concessions aimed at encouraging Australians to save for retirement could be on the chopping block as the government looks to increase government revenue.
It was billed as a way to encourage older Australians to save and to decrease reliance on the Age Pension.
But critics say generous tax concessions on super accounts in the accumulation phase have led to superannuation being used as a low-tax way to build wealth, rather than a method of saving for retirement.
Under the concession, those working and earning less than $250,000 per year can make extra contributions to their super account that would be taxed at a flat rate of 15 per cent, rather than the higher income tax rates this money would normally attract.
In a speech to the Australian Financial Review (AFR) Wealth and Super Summit, financial services minister Stephen Jones said the tax concession on super was costing the budget around $45 billion each year.
“If the objective of super is to provide a tax-preferred means for estate planning, you could say it is doing its job,” Mr Jones said.
“I celebrate success, but the concessional taxation of funds like these has a real cost to the budget that needs to be considered.”
To put this amount into perspective, the total amount spent on the Age Pension each year is around $53 billion.
Mr Jones says there are 32 self-managed super funds containing more than $100 million in assets, with the biggest now sitting at more than $400 million.
He says Australia needs to have “one of the most important conversations” we’ve ever had around reforming superannuation by either removing the tax concessions, or capping super balances.
The super industry itself seems open to the idea of capping super balances at $5 million so the society-wide effects of the concessions are lessened.
The Association of Super Funds of Australia (ASFA) says this amount is well in excess of the $545,000 it recommends for a ‘comfortable retirement’.
AFSA’s figures show there are just 11,000 super accounts with balances higher than that and the cap would add around $1 billion to the Federal Budget.
But the federal Opposition has been quick to point out that Labor didn’t campaign on super reform, with Opposition finance spokesperson Stuart Robert labelling the proposal as the “ultimate definition of the politics of envy”.
“Unfortunately, Labor went to the election saying no changes to superannuation,” Mr Roberts said.
“The Treasurer said the super wars were done but here we find mere months later the Assistant Treasurer looking at every opportunity to whack anyone that’s done well.”
Would you support a cap on super balances? Or even a change to the tax rate? Let us know in the comments section below.