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Much to be done on super tax concessions, says Coates
Grattan’s Brendan Coates believes there’s still much to be done to curb superannuation tax concessions that lack a plausible purpose.
On a podcast this week, the housing and economic security program director at Grattan Institute said, given the objective of super is to help people have a dignified retirement, too many concessions are going to those that are already saving more than enough for that goal.
“We think there’s about three to 4 billion a year of money that could be taken out of the system,” Coates said.
“That would boost the budget bottom line or be able to be used to reduce other more economically harmful taxes by curbing those contributions, tax concessions that exist today.”
While Coates supports the government’s plan to double the tax rate on earnings for those with a super balance over $3 million, he also believes that threshold should be lowered to $2 million, and that a higher tax rate should apply on contributions for those earning more than $250,000 a year.
“When we’re thinking about specific changes to contributions, tax breaks, the first is uh, Division 293 tax, which currently kicks in at for those earning above $250,000 a year, their contributions are taxed at 30 per cent rather than 15 per cent for those below that level. We would like to see that threshold drop to $220,000, and we would like to see the rate raised to 35 per cent rather than 30 per cent,” Coates said.
“That would save $1.1 billion a year and only affect the top 10 per cent of taxpayers. And it would just mean they have a lower, less, uh, of a concession per dollar they contribute to super than lower income earners.”
Grattan would also like to see the pre-tax cap on contributions - the amount Australians are allowed to put into super on a pre-tax basis - lowered from $30,000 to $20,000.
“That would save upwards of $1.6 billion a year,” he said. “Most of that would come from the top 20% of taxpayers because it reflects the fact that most of those contributions each year above $20,000 you know, a lot of that looks like tax planning rather than genuine retirement saving.”
After that, he said, there’s a series of “rats and mice” such as co-contributions, where the government does a matching contribution - but cutting the post-tax contribution cap to $50,000 could raise $1.1 billion.
“Together you’re talking about budget savings of close to $4 billion a year from super, mainly affecting the top 10 per cent of income earners and things that the government could probably do without an enormous amount of political blowback,” he said.
Coates conceded that there’s always going to be “a lot of blowback” on super tax changes – whether it is a $1 billion a year or a $4 billion a year policy.
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