Coalition supporters have ramped-up their campaign against the Turnbull Government’s so-called “retrospective” changes to superannuation. From The AFR:
Before this year’s budget there seemed to be widespread acceptance that Australia’s superannuation system was generously disposed towards the nation’s wealthiest savers…
All of a sudden Coalition MPs are apparently threatening to withhold donations, refuse to work on electorate campaigns or not vote for the government because of a series of proposed super changes announced in the budget…
The retrospective nature of the Coalition’s policies have sparked enormous outrage…
[But] as The Australian Financial Review pointed out at the weekend, even if the government’s proposals are adopted, with a bit of planning wealthy retirees will still be able to keep their tax bills to a minimum. By exploiting the tax-free pension cap and the senior Australian and pensioner tax offset, a couple with $7 million of savings will pay $18,600 in tax, $500 less than a person on an average salary of $80,000, according to analysis by actuarial firm Rice Warner.
Never get between an older rich person and their untaxed earnings.
It’s funny how Coalition supporters so frequently complain about the Budget deficit and preach fiscal rectitude, but as soon as a revenue measure is implemented that adversely affects them – even if it unwinds what is clearly a rort – they scream blue murder. To them, budget prudence is something that only applies when it affects someone else, most notably the poor.
To highlight how utterly ridiculous the bleating over the Coalition’s superannuation changes are, consider the following hypothetical example.
- Sam and Jenny, a retired Melbourne couple, fully own a $1.5 million home in Melbourne’s East.
- They have $2.6 million in superannuation, which delivers on average $130,000 in income (5% return) per year, which is currently untaxed.
Under the Turnbull Government’s policy, Sam and Jenny would have to move $1 million of their superannuation savings out of their tax free retirement account into an accumulation account, which would be subject to a 15% earnings tax (the same as applies to under-60s).
Still assuming a 5% return, Sam and Jenny would now be required to pay Just $7,500 tax ($1 million x 5% x 15%) on $130,000 in income, or only 6% total tax. And this assumes no clever tax planning to avoid paying tax, such as super-splitting.
By way of comparison, somebody earning $130,000 via wages would be required to pay $36,000 plus the Medicare Levy.
In light of the above, it is hard to feel to sorry about the extra tax impost imposed by the Coalition’s policy, which represent ‘pocket change’ to the rich.
As noted by The Australian’s Adam Creighton on Friday:
Super remains a very good deal for everyone — including the few people who would be affected by the proposals.
The government’s plans are a timid, belated recognition that the current arrangements — which in effect exempt the richest and fastest-growing part of the population from income tax — aren’t sustainable.
…naturally, scope to shift superannuation to one’s spouse’s super account, combined with the Seniors and Pensioners Tax Offset (which in practice gives older Australians a tax-free threshold of around $30,000) means the proposed cap might not really take effect until a couple’s combined assets reach $3.8m.
Asking people over 60 with almost $4m in savings — on top of the value of their home — to pay at least some income tax in their final years doesn’t seem unreasonable.
Too right.
