Fairfax’s Nassim Khadem posted an article over the weekend arguing that 120,000 highest income earners – i.e. those earning above $300,000 – were “slugged” with extra tax bills of $380 million under changes to superannuation rules implemented by the former Labor Government:
In its dying days, the Labor Gillard government introduced the extra 15 per cent tax on people earning more than $300,000, which the Coalition government retained.
ATO data shows it issued $378.9 million in assessments and collected $325.8 million of this in 2014-15. This is up from $294 million in assessments the year before, and $217.4 million tax collected.
The tax, known as Division 293, applies to an individual’s income and pre-tax superannuation contributions. If these amounts total more than $300,000, the individual is liable to pay the extra 15 per cent tax. (This is on top of the 15 per cent tax on super contributions – resulting in a 30 per cent tax on their super contributions)…
For once I would like to see an article highlighting that Australia’s lowest paid are in fact “slugged” the hardest on their superannuation contributions.
Under Australia’s perverse 15% flat tax, those earning below the tax free threshold of $18,200 are effectively penalised 15% on their superannuation contributions, whereas those earning between $18,200 and $37,000 receive a superannuation concession of just 4.0%. In both cases, they receive fewer concessions on their superannuation contributions than someone earning above $300,000, even after accounting for Labor’s Division 293 reform (see next chart).
What is clear from the above table is that the superannuation concession system is badly lacking in progressiveness, with those at the lower end of the income spectrum treated poorly while those earning between $180,000 and $300,000 make out like bandits.
As argued by Deloitte last month (and literally dozens of time on this site), the logical policy response is to replace the 15% flat tax on contributions/earnings with a flat-rate refundable tax offset (e.g. 15%). This way, everyone that contributes to superannuation would receive the same concession, the system would be made progressive, lower income earners would receive a better deal (reducing their burden on the Aged Pension), and there would be less pressures on the Budget.
With the ATO collecting an extra $380 million from just 120,000 high income earners under Division 293, imagine how much the Budget could save if superannuation concessions on contributions and earnings were set at 15% for all workers?