ACTU calls for “equalisation” of super tax rates, but tax experts wary of further tinkering

Australia’s leading union is calling for wholesale changes to Australia’s superannuation system, arguing the current 15% flat tax rate is disproportionately benefitting high-income earners, but tax experts warn that further tinkering with super would undermine confidence and leave governments fitting large pension bills.

The Australian Council of Trade Unions says lifting the tax on super contributions to marginal personal income tax rates would make super more equal.

“The Government is increasingly strapped for revenue,” ACTU president Jeff Lawrence told The Australian newspaper.

“I think the areas of inequity and really tax minimisation that takes place throughout the system, and this is one of them, need to be looked at. We will continue to argue for that.”

Lawrence is speaking as a Senate committee looks at the mineral resource rent tax, which passed the lower house late last year. The proceeds of the tax will help fund an increase in the super contributions level from 9% to 12% by 2020.

The Treasury Tax Expenditures Statement 2010 has estimated that Australia spends almost $27 billion on super tax concessions, rising to $38 billion in 2013-14.

But CPA Australia business and investment policy head Paul Drum says any government that chooses to take on such a measure risks the long-term sustainability of super.

“The system was designed to enable those who can afford to make contributions to ensure they won’t be a burden on the public purse,” Drum says.

“The question is whether changing the tax rates would go against the policy intent of getting people to save for retirement?”

Drum says it’s a line-ball call whether increasing the super tax rate would prove a serious disincentive for people to put extra cash into super.

“To look to tax on the way in, I think people would need very little disincentive to stop making contributions, which would create greater problems for the Government,” he says.

“The super system is in a fragile state in this regard.”

“We’ve been an exemplar of fiddling with super over the past 20 years, and it really has to stop.”

“The other point is the tax-free pension from 60 is unaffordable.”

The Henry Review into the tax system said the tax on superannuation contributions should be abolished.

“Employer superannuation contributions should be treated as income in the hands of the individual, taxed at marginal personal income tax rates and receive a flat-rate refundable tax offset,” the report said.

It also recommended:

• The Government increase the regularity of superannuation guarantee contributions.
• The Government provide people with a single point of contact for government agencies.
• The development of a super portal where people can get information on retirement incomes and eventually manage their super through that channel.
• That superannuation guarantee contributions should be paid at the same time as wages.
• A method for linking superannuation records, such as client identifiers like the tax file number, to make it easier for people to manage their superannuation.

Other changes introduced by the Government include removing the requirement of people earnings less than $37,000 from paying tax on their compulsory super, and doubling the contribution cap to $50,000 for people aged over 50 with super assets of less than half a million from July this year.