The simple reason Australia needs superannuation changes

FOR those who still need a reason to support a crackdown on super, there’s one glaring perspective you need to consider.

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FOR those who still need a reason to support a crackdown on superannuation tax concessions, it can be expressed in a very simple way.

Australians are essentially rewarding people who will never claim a pension anyway, to continue not claiming a pension.

Confused? Australia Institute senior economist Matt Grudnoff explains.

“We know that the top 20 per cent of retirees are not claiming a pension,” he told news.com.au.

“Giving them a (tax) discount doesn’t help take the pressure off the pension in any way.”

Yet Australia’s top earners continue to benefit from generous tax discounts on money they put into their super accounts, potentially costing the government millions in lost revenue.

There are now reports that the Turnbull Government is planning a crackdown and the measures will be tougher than Labor’s.

At the moment, everyone’s super gets taxed at 15 per cent unless they earn over $300,000. For these higher earners, their contributions are taxed at 30 per cent.

Labor already wants to lower the threshold so that the higher tax rate is applied to people earning $250,000.

But the Coalition wants to cut it further to $180,000, according to Fairfax.

Mr Grudnoff, who co-authored a report into the super system last year, supports the change and said just three per cent of Australians earn over $180,000.

He believes the government should also go further and hike up the super tax rate to 45 per cent, to match the income tax rate they pay when they earn over $180,000.

“Giving them a discount doesn’t help the Budget, if they are earning more than $180,000 they are never going to be on the pension, so giving them a tax concession doesn’t take the pressure off the pension in any way,” he said.

“So they are doing it (putting money in super) not to fund a comfortable retirement, but for estate planning and tax avoidance.”

While the government has not commented on the Budget leak, the report suggests that the change could be introduced at the same time the two per cent Temporary Budget Repair Levy ends. High income earners started paying the levy in 2014 as part of the Abbott Government’s controversial first Budget.

“They are getting rid of the levy so those earning over $180,000 will actually take away more money in this Budget than they lose,” Mr Grudnoff said.

There was also an enormous loophole introduced in 2006 that allowed people to put almost any amount of money into their super.

Combined with the fact they don’t pay tax on income from their super funds once they are retired, the wealthy are benefiting hugely from the system.

“Some people have $100 million in their super, they have to draw out about 5 per cent a year, so this is $5 million, and they don’t pay any tax on this at all,” Mr Grudnoff said.

The rules have since been pulled back, with people aged over 50 years old now restricted to putting $35,000 into super before tax and $180,000 post tax.

But Mr Grudnoff believes this is still too generous.

“It’s a strange system, and almost unique in the world — it helps high income earners much more than low incomes earners so we’d like to see this issue addressed.”

There was also other unfairness Mr Grudnoff would like to see changed, particularly for those on lower incomes.

For those earning less than the tax free threshold of $18,200, they actually pay a higher amount of tax on their super contributions than their income.

“They pay 15 per cent tax on their super contributions and no tax on their actual income.”

“We would like to see the government commit to changing that.”

Originally published as The simple reason Australia needs superannuation changes