The Turnbull prime ministership is a very different beast to that which existed under Tony Abbott. Happy to take the electorate on a journey with him, Malcolm Turnbull and his ministers are opening a wide variety of discussions with the public.
Front and centre of those debates are how the tax and superannuation systems should look to better serve Australia as it ages and by necessity the harvesting of tax and spending changes.
Today we see a couple of government kites in the air addressing the focus of the current debate: equity in tax and super and the current superannuation concessions that are available to Australia’s high income earners.
The Australian reports this morning that treasury has specifically been tasked with injecting fairness into the superannuation tax system and the paper says workers on higher incomes “would lose tax breaks on future payments to their super funds under the options being canvassed.”
It’s a theme picked up in Financial Review this morning as well. The AFR says Treasury is considering increasing the tax paid by higher income earners from the current contribution tax of 15% to a new system which deducts 20 percentage points from the taxpayer’s marginal tax rate.
That means that present system where high income earners on the top marginal tax rate below $300,000 (where the superannuation tax doubles to 30%) may soon have the super contribution tax lifted to 27%. That is the marginal tax rate of 47% minus the 20 percentage point deduction.
Fairness is central to the debate on tax as the government seeks to navigate what could become a political minefield of tax and superannuation reform.
But it’s not just the tax break on contributions that is set for a shake up. Yesterday opposition leader Bill Shorten asked why wealthy Australians should be able to access their superannuation and take income from it tax-free.
“There’s been no case been made that once you already have millions of dollars in your superannuation, why you should get the income stream from it, the interest, tax free. When other people going to work have to pay taxes on their income at a much lower level,” he said.
That is as much about generational equity as it is about wealth but Shorten makes an excellent point and treasurer Morrison is likely to be pleased he has opened this line of attack for the government.
If all options are on the table and equity and fairness are paramount then the ability to draw income out of superannuation tax-free while sons, daughters, grandsons, granddaughters, neighbours and friends still in the workforce have to pay tax on their earnings needs to closely examined.
The Australian says that Treasury is also looking at encouraging wealthier Australians to save enough for retirement but not use superannuation as a tax minimisation strategy by piling too many assets into their funds as the tax system effectively does now.
That means the question of what is enough for retirement is critical. Once a level is determined then tax benefits would be removed. The Association of Superannuation Funds of Australia (ASFA) says the cap should be $2.5 million but the Grattan Institute’s told the Oz that this cap is too high.
He gets plenty of support from the ASFA’s own data. The Australian says, “In a sign of the scale of some personal super funds, ASFA research shows about 24,000 of the richest account holders, each with more than $2m in their accounts, receive about $5.2bn in tax-free income every year.”
That in itself is enough to suggest the overhaul is necessary.
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