Bringing superannuation into the tax reform debate

I think reform is necessary and it’s been necessary for quite a few years. But I think it needs to be done on the basis of looking at the whole of the system, rather than simply focusing on one particular area that might be politically expedient to look at.

I notice there’s been a lot of focus on GST, whether it needs to be broadened, whether we need to increase the rate and so on. That’s fine, the question needs to be addressed, but we also need to look at the whole system. [For example], the superannuation system to determine whether that’s potentially too generous; we need to look at capital gains tax, which is very complex and offers all sorts of tax breaks around negative gearing. Any reform really needs to look at the entire system rather than just focusing on one particular area.

Are there any inequities or inconsistencies that you’d like to see addressed?

I think there probably does need to be a change in the GST, I think that we are currently probably paying far too low a rate in relation to GST. [In] most jurisdictions, the equivalent of GST tends to be around 20 per cent, and we only pay 10 per cent. But equally, the people who would potentially be hit by that the most are those at the lower end of the income spectrum, so I think we also need to look at superannuation tax breaks to determine whether they are currently too generous for those on higher incomes.

We need to look at negative gearing to determine whether the tax reliefs there are too generous. We probably need to look at things like the indexing of taxation, the tax-free threshold basically stays the same year in year out… all those sorts of questions that I think need to be addressed as part of an overall look at the tax system.

What in particular do you think is inequitable about superannuation tax concessions?

I think the thing is that for taxpayers who are earning the highest level, there’s very generous tax breaks, whereby they’re saving the highest rates of income tax and basically being taxed at 15 per cent on the super that’s going into their super funds.

Now I can understand why that happens from the perspective of encouraging people to use super as a way of saving for their retirement, but the problem is that the cost of that to [government] revenue is just becoming increasingly unwieldy.

It’s also becoming increasingly, I think, perceived to be unfair. If you look at the other end of the spectrum, people who very low income earners are basically being penalised if they pay money into a superannuation fund, and that’s even with the existence of the low-income superannuation contribution.

So, there’s an element of inequity there as well. I think the two facets are the inequity plus the cost to the revenue [which] really highlight there probably needs to be and probably will be some changes there.

In relation to superannuation, what kind of changes specifically would you like to be considered?

It may be that for people who are earning at higher levels, the amount of tax that they pay on their superannuation in contributions into their fund increases to a higher rate than 15 per cent. It might be that the 15 per cent rate is capped at a certain level and after that everything you pay is actually your marginal rate. There’s various different ways that it could be done, but I think something along those lines is quite likely, subject to whether it falls into line with the government’s overall ideological bias, if you like.

Would there be a risk if you water down the tax incentives for the more high-net worth superannuation investors that they’ll be discouraged from investing in their super?

Absolutely. Nobody is suggesting this is an ideal solution. When you do something, there are benefits for certain aspects of the system, but then a negative impact in terms of the extent to which people are prepared to invest into superannuation.

So it’s not a perfect situation, but I think what we’ve seen time and time again from various studies is that just the cost of maintaining this current, very generous regime is just too high, and I still think we as a nation [can't] afford it. If there has to be an impact on the amount that people are saving, well that might just be a price that we have to pay.

When is it likely that we’re going to see any action? Are there any signs out of the government that some kind of change might be happening?

I don’t think there’ll be any action this side of an election. The government made commitments before the last election that it wouldn’t introduce any changes to the superannuation system in its first term; it’s probably arguably already broken that promise, but I don’t think they’ll want to do anything drastic prior to an election.

What we’ve got is a white paper regarding tax reform which is supposed to come out by the end of next year. The proposals in that, which might well cover the superannuation reforms plus all the other tax reforms that we’ve talked about, will probably be in that white paper, and will then be taken to an election as proposals for implementation in the second term.

So I don’t think we’ll see any action until at least mid-2016/2016, it’s not something that’s going to happen straight away. I think we’re going to start to expect to see ideas being floated as part of this white paper process in 2015.

Mark Chapman is taxation products and services manager at Taxpayers Australia.