Changes to superannuation tax concession will happen but what are they likely to be?
In the second of a series of articles focusing on possible changes to retirement income policy in the Federal Budget 2016/17, this week we consider ‘the big one’ – likely changes to concessional tax on superannuation.
This proposed change has been ‘on the table’ and ‘off the table’ more times than my mum set the table when I was growing up. But Treasurer Scott Morrison has confirmed the Government is indeed planning on changing the way the concessional rate is calculated.
The current rule
There is currently a concessional tax of 15 per cent on super contributions, which applies to all workers, except those earning $300,000 or more, who pay 30 per cent tax. This arrangement favours those who earn between $180,000 and $300,000. The cost of these tax concessions (to the annual federal budget) is set to overtake the cost of the Age Pension (currently $39 billion per annum) within 12 months.
Changes suggested by many different interest groups include the following measures:
1.Change from a concessional tax of 15 per cent to a 15 per cent rebate on an individual’s marginal tax rate (Deloitte). Low income earners will pay six per cent and those in the $180,000- $300,000 bracket will pay 34 per cent
2. As above but with a 20c rebate (Henry Review 2010)
3. Lower the upper limit from $300,000 to $250,000 (Labor Party policy)
4. Allow only $11,000 per year contributions with a $250,000 lifetime cap (Grattan Institute)
In the interest of greater fairness in our superannuation system, we believe a hybrid of the Labor Party policy of reducing the upper limit from $300,000 to $250,000 makes sense. But the fairest change would be to also move from the 15 per cent flat rate to a rebate on marginal tax. Such changes would mean a far more equitable system, unlike the current situation where the more you have or earn, the better your retirement wealth, while the less you have/earn, the worse it will be. Either of the above policies or both would need bi-partisan support so that these rules can be supported for at least a 10-year period. Previous governments have continually fiddled with superannuation leading to uncertainty for those planning and entering retirement. In 2012, the Gillard government Treasurer Wayne Swan did introduce a five-year moratorium on ‘major’ changes to superannuation tax policy, but this was reversed by the incoming Abbott government in 2013. Regardless of which party introduces such changes, indeed any changes to super, they really do need to be in place for a minimum of five years to allow workers to best plan their retirement income.
What do you think? Should the current tax concessions on contributions to superannuation remain as they are, or is it time to make them fairer to those with less?