Long-term super changes need to be made on rational basis

Speculation about the possibility and severity of superannuation changes in the budget is generating widespread concern. The government has attempted to defuse this by saying that any changes will be confined to higher income earners earning about $300,000 or more.

This campaign has focused on the Treasury estimates of the cost of assistance provided to superannuation and associated unsubstantiated claims about the long-term unsustainability of the superannuation tax concessions. These claims have been disputed by industry and other experts.

Commentators have questioned the accuracy of the costings of the tax concessions on several grounds. These include the fact they take no account of savings from reduced age pension outlays and the benefits to the economy of the accumulation of a large pool, currently $1.5 trillion, of assets.

Importantly, the Treasury costings assume money not put into super will not be invested in other tax shelters including negative gearing and the family home. The discussion on savings has to date only focused on superannuation.

Obviously, the politicians consider that attacking the tax concessions for negative gearing and the family home as too sensitive to raise publicly. This is despite the fact that restricting the annual negative gearing tax deduction to the same $25,000 limit as super would generate large savings.

There can be no denying the funding problems resulting from our ageing population and other new commitments including for education and national disability arrangements. But taxpayers have every reason to expect that any long-term changes are made on a rational basis.

If sustainability of the retirement system is the key concern, the findings of actuarial calculations commissioned in 1982 by the Social Welfare Policy Secretariat about the long-run financial viability of our unfunded age pension system is important. The funding problems since that review are even greater because of large discretionary increases in pension entitlements during the GFC and to compensate for the carbon tax.

Even in the 1980s, it was evident the value of the age pension entitlement for average income earners exceeded their working-life personal income tax payments. That was not a problem when the aged were a small proportion of the population. If the government proceeds with further super cutbacks to solve its funding problem, it increases the risk of being forced later to reduce age pension entitlements or increase taxes.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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