Superannuation and Australia’s system for enabling workers to self-fund retirement was a major step forward for the nation when it was introduced by the Hawke/Keating government.
But when it introduced compulsory super the government at the time, it “chose to do something quite strange” said Professor Ron Bird from the UTS Business School.
It sought “to provide people with a tax subsidy to encourage them to do something over which the individual had no choice,” he said.
That set up a regressive system of “tax inducements” which favoured wealthier Australians. These measures were then made more generous by subsequent governments Professor Bird said.
So treasurer Scott Morrison’s move to wind back some of the measures favouring higher income earners and superannuants in the budget is “a baby step to reverse the inequities associated with the tax inducements related to superannuation”, Bird wrote this evening.
Even though Morrison is “imposing a 30% tax on contributions for those earning more than $250,000, allowing only a maximum balance of $1.6 million to effectively be tax-free, limiting the contributions each year that can benefit from the lower tax rates to $25,000 per year and so on”, Bird said it will only impact the top few per cent of income earners.
That means the “humungous” benefits for high-income earners had only been “slightly reduced to huge”, Bird said.
But the Institute of Actuaries Australia, the professional body which represents Australia’s actuaries, who are charged with assessing risks through long-term analyses, modelling and scenario planning, says the Budget injects “fairness into retirement incomes system”.
The Institute says that the budget in introducing the “the largest changes to the superannuation sector since the Costello Budget of 2007” has “further simplified the system while reinstating equity”.
Lindsay Smartt, Actuaries Institute President, said “the Institute believes these changes will help to meet the Government’s objective of superannuation, which was adopted from the Financial System Inquiry – to provide income in retirement to substitute or supplement the Age Pension”.
That’s also what most Australians would probably agree is the overwhelming goal of Australia’s superannuation system.
The “changes improve the system, making it fairer while also increasing revenue to assist the economy in these financially constrained times,” Smartt said.
That’s a theme the Australian Insitute of Company Directors (AICD) echoes in an email to members.
“The use of superannuation as a tax minimisation or estate planning vehicle will be minimised” by the changes announced the AICD said.
Further it said “superannuation will be made more equitable by introducing a low income tax superannuation tax offset of up to $500 for people earning less than $37,000 to avoid situations in which low income earners pay more tax on superannuation contributions than on their wages” the AICD said.