Hockey palms super reform to second term

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By Leith van Onselen

Being a Budget commentator is never dull. After expending significant effort this morning slamming the Government for failing to include Australia’s egregious superannuation concessions in its “war on entitlements”, Treasurer Joe Hockey has now flagged changes to superannuation and an increase in the preservation age, which will be taken to the next Federal Election. From The AFR:

Treasurer Joe Hockey has flagged changes to superannuation tax concessions and an increase in the preservation age over the medium term…

Mr Hockey said on Thursday that while the government had promised no changes to super in its first term, there could well be changes taken to the next election.

Mr Hockey said that “as we have the proper debate about the aged pension, we need to look at the role of superannuation [and] the preservation age”.

These would be considered by the Murray inquiry into financial services and any recommendations taken to the next election…

I won’t outline the reasons why the current superannuation set-up is an expensive rort benefiting high income earners and the wealthy, since I have explained these many times before (for example, here and here). However, if the Government is genuine about tackling entitlements and restoring the Budget back to health, it must place reform of the superannuation system front-and-centre.

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The following three changes are a good place to start the process of reform:

  • Provide everyone with the same superannuation concession (e.g. 15%), rather than skewing concessions towards the wealthy;
  • Increase the access age to superannuation (from 55 years currently), so that it more closely matches the pension access age; and
  • Reduce the ability to draw superannuation as a lump-sum, to ensure that balances are not exhausted too quickly.

Australia’s ineffective and poorly targeted superannuation system is a major and growing problem, and desperately needs to be reformed. Let’s hope the Government is genuine in its desire to reform this most egregious of tax rorts.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.