The priority for the Government should be improving superannuation, not creating further uncertainty by canvassing further taxes and changes.
Memo to Federal Treasurer, Wayne Swan: Before you go further tinkering with the tax rates applying to superannuation, thoroughly read the latest research report released by the Association of Superannuation Funds of Australia (ASFA).
In particular, consider the following finding: “Nearly 90 per cent of the tax concessions for superannuation flow to individuals on less than the top marginal tax rate”.
Mr Swan, you might also want to check the latest data from Treasury and the Australian Prudential Regulation Authority (APRA), which will confirm that significantly fewer Australians are contributing more to their super than the basic superannuation guarantee (SG).
Further, you might like to consider that all the available evidence points to this fall-off in non-SG superannuation contributions being attributable to two things – the uncertainty created by the global financial crisis and the uncertainty created by successive changes to super policy and tax settings.
At the time of writing, there continues to be speculation that the Government is considering further superannuation tax changes aimed at trying to deliver on its political promise of a Budget surplus.
As well as reading the research undertaken by ASFA and the data collected by the Treasury and APRA, the Treasurer might also like to consider the continuing flow of evidence that a significant number of Australians remain significantly under-superannuated and will be reliant on the age pension once they retire.
So rather than tinkering with the tax regime applying to superannuation, a better objective for the Government would seem to be following the advice of ASFA and focusing on the gaps in the Australian superannuation system.
Those gaps have been identified as being:
- the self-employed;
- individuals on paid parental leave;
- those under the $450 a month threshold for receiving the Superannuation Guarantee (SG);
- indigenous Australians; and
- recently divorced men and women.
As the ASFA research makes clear, while this nation’s compulsory superannuation regime has proved very effective in lifting coverage rates and average superannuation balances, the period since the Australian Labor Party came to office and you have been Treasurer has proved somewhat problematic.
The Government may have moved for the gradual lifting of the superannuation guarantee to 12 per cent but, as the ASFA research asserts, contribution caps and other changes to superannuation are limiting the amount of salary sacrifice contributions, including by individuals seeking to catch up on contributions late in their career.
Indeed the ASFA research references longitudinal data which indicate that a significant proportion of the population has higher incomes (with associated capacity to make higher contributions) for a relatively limited portion of their working career.
A higher contribution cap generally, or at least for those aged 50 and over, would assist those who need to catch up and have a capacity to do so.
The research says that while the superannuation co-contribution has been effective in lifting personal contributions of low-income individuals, the design parameters of the co-contribution and recent changes (cutbacks) to them have made the co-contribution less effective than it could be.
ASFA argues there is a case for both a higher maximum co-contribution and a lower matching rate in order to encourage greater additional contributions.
So why, with so much evidence pointing to the need for Australians to contribute more to super, is the Government allowing the canvassing of tax changes which would act as an impediment to them doing so?
The Prime Minister not so long ago described superannuation as being Australia’s sovereign wealth fund. If that is the case, it should not be wantonly plundered to achieve short-term political goals.
