From the AFR this morning:
…former Labor superannuation minister Nick Sherry has listed the generous compulsory contributions for federal public servants as one of three areas of superannuation he says are no longer sustainable.
Mr Sherry, who stepped down as minister in December 2011 and is now a consultant and corporate adviser on retirement incomes, listed superannuation splitting, capital gains tax treatment of property purchased for self-managed super funds, and the transition-to-retirement arrangements as ripe for curtailing. It is understood the government, which is yet to make a final policy decision, is considering the latter two measures. It is also considering increasing the taxes on earnings of those on high incomes.
Mr Sherry said the three areas he nominated would not be acceptable in any other country and were “beyond what is reasonable’’.
…Mr Sherry said transfer-to-retirement provisions – which enable people from age 55 onwards to start drawing from their super while simultaneously contributing to it – were a “revolving door for tax minimisation”.
The tax-free treatment of properties bought using self-managed funds and then transferred to the trustee upon retirement should no longer be tolerated, Mr Sherry said.
My own view was influenced yesterday by Peter Martin’s take:
Superannuation is designed backwards. It gives the biggest subsidies to those who need them least. For Australians on truly enormous incomes those subsidies are obscene.
The notion the super-rich wouldn’t save for their old age is laughable. The idea that without government support they would fall back on the pension and be a ”drain on the public purse” is not only wrong but, in the context of what’s handed to them, almost sick.
Think about an executive on $1 million a year. Not quite one of Joel Fitzgibbon’s ”battlers”, but someone several rungs above.
His or her firm pays a legislated maximum of $17,190 per year into a super fund of his or her choice, perhaps a self-managed one. Instead of being taxed at his or her marginal rate (45 per cent plus the 1.5 per cent Medicare levy) the payment has until now been taxed at just 15 per cent. So instead of paying $7993 the executive pays just $2578. The gift from the tax system is $5415.
In the last budget the government promised to boost the tax rate for very high earners to 30 per cent, cutting the size of the gift to a still substantial $2836. That it took Labor so long to at least recognise the need to more properly tax millionaires is an outrage. That it didn’t go further is a disgrace.
Here’s a tip, from someone who can only begin to imagine the spending and saving habits of millionaires: They don’t need incentive payments in order to save, they’ll do it anyway.
But if you’re harbouring doubts, remember that millionaires are compelled to save. As for all of us, super contributions are compulsory. The government is handing millionaires a gift of $2836 a year in return for something they’ll do anyway.
A middle earner on the average male wage gets $1293. Low earners get nothing, even after the new Low Income Super Contribution that the Coalition has implausibly threatened to revoke re-imposing a tax penalty for low-income contributions.
Imagine the outcry if instead of tax dollars, the government openly paid cash into the accounts of high earners to help them with their savings. Imagine if the government suggested paying more into the accounts of high earners than low earners.
…Knowing that this budget will be his last, Swan will attempt to fix Labor’s greatest creation next month. If he doesn’t, it might collapse under its own weight. The cost of the concessions is set to climb 9 per cent next year, then 14 per cent, then 13 per cent. It’s why the Coalition will back him, at least to the extent of not removing the measures he puts in place. No government can afford such a massive and growing leakage of funds to Australia’s highest earners.
The Henry tax review wanted Swan to limit the tax gift to super contributions of $25,000. High earners would pay full tax on the rest. Swan might move closer to that by taxing the contributions of all Australians on the top marginal rate at 30 per cent. The top rate cuts in at $180,000.
He’ll need to attack the flat 15 per cent tax on super-fund earnings. So generous is it to high earners that they make extra contributions right up to the concessional maximum and then beyond to get it.
The funds say they can’t easily charge one rate of tax on the earnings of millionaires and another on the earnings of others. But already they manage to charge one rate on the earnings of retirees (zero) and another on the earnings of everyone else. They could probably find a way.
Corrected: The original version of this article said $90,000 of the million-dollar earner’s salary could be paid in super. The maximum super contribution base means the maxium an employer can contribute is $17,190 a year. The calculations have been adjusted to reflect this.
I admit that on the run changes to superannuation are a bad idea vis certainty. But that appears to be the only argument against the changes and could be addressed through limiting retrospectivity.
The argument being put by the opposition and its MSM backers, that these changes are a brand of “class warfare”, is pretty ironic. The existing provisions are already class warfare: on the less fortunate who really do need the extra saving incentives, and the young who have the right to expect to be able to buy a reasonably priced home.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.