The Government's decision to reduce the superannuation tax concession for high income earners will end up hurting members with lower account balances, according to Association of Superannuation Funds of Australia chief executive Pauline Vamos.
It was announced last night as part of the Federal Budget that the contributions tax for those earning over $300,000 will effectively be increased from 15 per cent to 30 per cent.
The inevitable result of the Government's move – which is designed to save almost $1 billion over three years over the forward estimates – is that people earning very high incomes will look for other avenues to invest their money, such as negative gearing strategies, Vamos said.
An exodus of high account balances from superannuation funds would see the benefits of scale enjoyed by members with smaller account balances disappear, she said.
"There is a real benefit of scale, particularly in the admin side. And that scale is only generated by large account balances. It's not generated by lots of small account balances," Vamos said.
While Vamos accepted that the current contributions tax regime (ie, a flat 15 per cent contributions tax for all Australians) "appeared inequitable", she said it was important to look at the issue with a "broader perspective".
"Lower income earners and a lot of middle income earners are more likely than not to be on a full or part pension. People earning more are priced out of the pension. They must fund themselves," Vamos said.
Secondly, the contributions caps are relatively low at $25,000 – so the ability of a person on very high earnings to "put a lot into super is long gone", she added.
Finally, she pointed out that high income earners are obliged to pay for their own aged care, since superannuation assets are included in the means testing.
"The same thing will happen with healthcare. We're starting to see that convergence of retirement incomes policy, healthcare and aged care. And people on higher wages and higher account balances will be expected to pay and fully fund themselves in all aspects of their retirement," Vamos said.
