Super tacks fail common sense

Although Peter Costello’s 2007 superannuation taxation changes are seen as overly generous for a small number of higher income taxpayers, the burgeoning number of proposals to collect more taxation revenue from funded superannuation assets ignores basic principles of equity and political common sense.
 
One proposal is for the concessions to be reduced when account balances exceed $2.5 million or some arbitrary figure. Such a change would be fiendishly difficult to administer fairly even if it made sense from a policy perspective.
 
Would such arrangements allow the automatic equalisation of account balances between partners? If so, is it fair to assume that single people need only 50 per cent of the combined income of a two-person household when the Age Pension system gives them 66 per cent of the combined income of a married couple?
 
Further, what should be done not to advantage recipients of non-commutable superannuation pensions generating much higher and more certain income than allocated pensions? When capping superannuation benefits, are the pensions being received by former politicians, senior bureaucrats and other fortunate pension recipients to be allowed to double dip and also build up a funded superannuation benefit up to the specified amount with full tax concessions?
 
Since 2007, the ATO doesn’t record the amounts that retirees and people over 60 have withdrawn tax-free from their superannuation. As long as people retain the option of withdrawing part or all of their super tax-free, what’s to stop super fund members ensuring that they only retain a balance that gives access to the available tax concessions?
 
The problem of large superannuation account balances will, moreover, be reduced substantially over time as lower investment returns and reductions in the annual concessional contributions caps bite. Just as important for calculating the additional revenue to be gained from milking the superannuation cow is the unrealistic assumption made by Treasury and other critics. They assume the fund members meekly accept the additional tax burden and don’t change their strategies.
 
This may be the case for wage earners forced to take part of their remuneration as compulsory super and fund members unable to withdraw existing balances. But retirees, the self-employed and wage earners making voluntary super contributions can all change their investments quickly. They can switch to paying off a house mortgage, buy a holiday or upgrade their own home or increase their negative gearing.
 
Without accompanying changes to capital gains tax and negative-gearing provisions, reducing the super tax concessions will not be the cash cow claimed. Similarly, changes to
pension fund taxation arrangements will encourage over-investment in owner-occupied properties and/or asset classes yielding tax-deferred capital gains.
 
The critics of the small number of superannuation fund members with large account balances also conveniently ignore the much larger number of wealthy Australians owning very valuable real estate not subject to capital gains tax and exempt from all welfare income and assets tests. Why, for example, do the critics of someone with, say, $10m or more in super not also propose tax changes to collect capital gains or imputed income tax on other taxpayers with family homes worth the same?
 
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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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