With the Abbottalypse’s “captain’s call” not to reform superannuation well and truly in the rear view mirror, the prospect of achieving genuine reform of Australia’s inequitable and inefficient superannuation system is looking bright.
Last month, Prime Minister Malcolm Turnbull publicly acknowledged that Australia must examine the “very substantial” concessions on superannuation and directed Treasurer Scott Morrison to begin a process of reform.
And today, The Australian reports that “a radical approach to superannuation” has been placed front-and-centre of Malcolm Turnbull’s reform agenda:
The federal government is stepping up work on new rules that offer the same super tax break to all Australians, regardless of their income, while giving those on low incomes a greater incentive to build their nest eggs.
The Prime Minister has discussed the proposal in recent days to make it a favoured option within the government…
[The] proposal is similar to a policy from the Greens, indicating the potential for the Coalition to gain Senate approval even if Labor tried to block the changes.
For years, this blog has called for the 15% flat tax on superannuation contributions to be replaced by a 15% flat deduction, whereby every income earner would receive the same concession, thus maintaining the progressiveness of the system.
The key problem with the current superannuation concession system is that the amount of tax concession received grows as one moves up the income tax scale. For example, a very low income earner earning up to $18,200 effectively pays 15% for their superannuation concession, whereas a high income earner earning $300,000 enjoys a 30% tax benefit (see below table).
This system has led to a situation whereby the lion’s share of concessions flow to high income earners, while the poorest workers are penalised, thereby reducing the progressiveness of the tax system and blowing a big hole in the Budget (see next chart).
Prime Minister Turnbull is understood to have embraced superannuation concession reform after Deloitte financial services two week ago called to replace the 15% flat tax with a concession that is same for everyone. Again, from The Australian:
Mr Turnbull singled out [Deloitte’s] Mr Richardson at last week’s Rebuilding Foundations for Reform Conference sponsored by The Australian and the Melbourne Institute, calling on the Deloitte director for tax reform ideas.
The Australian has learned that the Prime Minister spoke at length with Mr Richardson on the phone last Friday to canvass the super tax breaks. Mr Richardson would not comment on the conversation.
We already know that Deloitte’s proposal has the support of the Greens, which earlier in the year also advocated replacing the current 15% flat tax rate with a progressive system that is closely based on a person’s marginal income tax rate.
This makes super concession reform a fairly easy prospect for the Coalition.
Well done Prime Minister Turnbull on casting aside Tony Abbott’s intransigence and embracing reform to the superannuation concession system, which is a no-brainer on political, equity and Budget sustainability grounds.
