With the Turnbull Government reportedly abandoning making superannuation concessions more progressive, the Grattan Institute has modeled that a $20,000 annual annual cap on superannuation contributions – reportedly being considered by the Turnbull Government – could raise $1.5 billion in Budget revenue by targeting the top 10% of income earners. From The AFR:
The Grattan Institute figures show the taxpayer group that would face the biggest tax increase with a $20,000 cap would be those in the top 10 per cent of income earners.
They would pay an average of $570 extra in tax if the limit was imposed in 2016-17. There are more than 300,000 men in this category and more than 80,000 women.
A smaller number of people on lower incomes would also pay a price under the policy, which is reportedly being considered by the Turnbull government.
On average, those on the lowest incomes would pay just $4 extra in 2016-17, rising to $20 or $30 for those on mid-range incomes, according to the Grattan figures.
By contrast, those aged between 60 and 64 in the top 10 per cent of income earners would pay an average of $1129 more in tax. Grattan Institute chief executive John Daley said this group would probably invest in other areas instead.
In its excellent November 2015 report entitled Super tax targeting, Grattan recommended more drastic reforms, namely:
- limiting contributions from pre-tax income to $11,000 a year, arguing that 80% of contributions above this level come from people likely to retire with enough assets to be ineligible for an Age Pension even without such big super tax breaks;
- limiting lifetime contributions from post-tax income to $250,000, so that super is not used for tax planning purposes; and
- reinstating the 15% earnings tax in retirement, which was abolished by former Treasurer Peter Costello, and has led to the wealthiest 10% of retirees paying no tax on their average super earnings of $85,000 a year.
Grattan believes these three reforms would better align tax breaks with the goals of superannuation. They could also save the Budget $6.6 billion a year and would reduce the transfers between today’s younger taxpayers and older retirees.
While we are likely to get super reform of some type, regardless of who forms the next government, it is unlikely to go anywhere near far enough.
