According to the Super Tax Targeting report released yesterday by the Grattan Institute, improved targeting of superannuation contribution tax breaks and the introduction of a 15 per cent tax on super earnings could save the Government almost $7 billion per year.
The think tank has proposed three reforms that could see the $2 trillion superannuation system come more into line with its original purpose – to assist retirees in saving to supplement or replace the Age Pension.
The report states that better targeting of super tax breaks could save the budget $3.9 billion each year and, by introducing a 15 per cent tax on super earnings, the Government could raise a further $2.7 billion a year.
The Grattan Institute feels that the current superannuation system is “expensive and unfair”, as super tax concessions cost the Government $25 billion each year in lost revenue – with most of these tax breaks going to the wealthiest 20 per cent of households who, in theory, already have enough money to fund their own retirement.
The institute has proposed three reforms which it believes will assist the budget and result in a fairer superannuation system for all Australians. They are:
- ‘concessional contributions’ made from pre-tax income should be limited to $11,000 per year, rather than $30,000
- lifetime contributions from post-tax income should be limited to $250,000
- retirement income, which is currently untaxed, should be taxed at 15 per cent, the same as superannuation earnings before retirement.
The proposed reforms, by winding back tax breaks for the wealthy, would see low-income earners pay less tax, with retirees paying some tax on their super savings, but still less than wage earners on similar incomes.
According to the report, “The proposed reforms are fair. Younger and low-income people would not have to pay so much in other taxes if super tax breaks for rich old men were wound back.”
The changes would not be retrospective and will only apply to future earnings on existing assets.
“Previous repeated changes to superannuation have been too timid. A wide gap remains between the purpose of the system and what it actually delivers. Decisive reform must target superannuation tax breaks at those who need them most,” the report says.
The Grattan Institute believes these reforms will go a long way to bridging the gap between the current superannuation system and its original policy purpose.
“The problem is because we only tinker with the system and we never fix the underlying problem,” said Grattan Institute CEO John Daley. “Until we do something fairly substantial … we are going to keep tinkering with it.”
Read the Grattan Institute media release
Read the Super Tax Targeting report
What do you think of these three proposed reforms? Do they go far enough to make our superannuation system sustainable? Do you think the current superannuation system is unfair? What suggestions do you have to make it fairer and more sustainable?