Powerful lobbyists' efforts seldom directed at helping the battlers

In the lead-up to the May budget, the federal government and news outlets are flooded by wish-lists. This week, a spate of proposals came from the Institute of Chartered Accountants for changes to superannuation arrangements. 

These proposals simply add to a long list of changes, very few of which are likely to see the light of day, not least because of the now Abbott government's election promise not to make adverse changes to super in its first term. This would not rule out improvements, but these are unlikely when the government is seeking reduced outlays. 

For decades now, lobbyists have pushed their special interests, ignoring political and economic constraints. Inevitably, few proposals are acted on, despite being put forward year after year. Of particular interest this year is the criticism by the super industry (and the accountants' institute) of the government's decision not to proceed with Labor's proposal to refund the 15 percent contributions tax paid by people earning less than $37,000 a year. 

Why did they not recommend similar action every year since 1988, when Paul Keating first introduced the 15 percent flat tax on super contributions? The arrangement has always been unfair to lower-income taxpayers. The previous government recommended a change last year, 25 years after the measure was introduced. 

Certainly there is a need to improve the equity of our superannuation tax arrangements but there are alternatives that could provide greater benefits to lower-income taxpayers at lower cost. Many of them are struggling to live on their incomes and compelling them to invest money in superannuation that is untouchable until at least age 60 can only add to these pressures. This inequity could be addressed by allowing taxpayers earning less than $37,000 a year to withdraw their annual compulsory super contributions with the approval of the Tax Office. They would then be subject to income tax at 20.5 percent or less and have much more after-tax money to live on. 

The lobbyists' proposal is an excellent example of a very powerful industry wanting to continue to force low-income people to put money into super when, for most of them, it is not in their best interest. The case for compulsory super is to reduce the demand for age pensions by higher-income earners. Making life even more difficult for lower-income taxpayers does nothing to help contain future outlays. 

Similarly, our superannuation industry shows little compassion for people struggling financially due to events such as accident, illness, unemployment and marriage breakdown. The maximum permitted withdrawal on compassionate grounds is limited to $10,000, a minute amount compared with what is needed in many instances. The pity is that the efforts of the multitude of lobbyists are seldom directed towards reforms that could improve the situations of so many people.

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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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