Increase GST rather than change tax on super, expert says
Superannuation tax change proposals are aimed at the wealthy. Photo: Getty
Calls by the Grattan Institute to cut superannuation contribution caps and tax all superannuation pension payments have been questioned by experts, who say more comprehensive tax reform would be better.
Grattan’s report says super tax breaks cost the budget up to $45 billion and they could cost more than the age pension by as soon as 2036.
A range of measures put forward by the think tank are claimed to reduce super costs by $11.5 billion to $13.5 billion, to be raised from the top 1 per cent of super balances.
The savings measures include the cutting of annual concessional contributions to $20,000 from $27,500 and cutting non-concessional contributions to $50,000 from $110,000.
Although the proposals would reduce expenditures, a better approach would be to conduct a wider tax reform, said Professor Mark Crosby from Monash University Business School.
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“I think it’s very misleading to talk about the costs of superannuation tax breaks alone,” Professor Crosby said.
Introducing the contribution and payment reductions would be unfair in the current environment.
“People have been contributing money for many years to save for retirement. They have paid a lot of tax because income tax rates have been high,” he said.
For those people to move into retirement with the expectation that they would have current super tax rates and to have them changed would throw into question the reliability of the super system.
“I think that would be quite unfair.”
Professor Crosby said a better way forward would be to restructure the whole tax system with a greater reliance on consumption taxes.
“As the population ages we are going to have to have higher income taxes to pay for the low taxes the government will receive from older people.”
He said Australia has a tax system that relies more on income taxes than most OECD countries and there would be advantages in changing that.
“It’s unfair to have a system that relies very heavily on indirect taxes.”
That is because as the population ages, older people will pay less taxes but continue to spend, pushing more of the tax burden onto younger people.
So rather than focus on increasing superannuation taxes, the better option would be to change the tax make up.
“I know it’s politically difficult, but it makes more sense to raise the GST so you would still be getting income from people in retirement and building a better tax system,” Professor Crosby said.
The cost of superannuation benefits is rising in the budget, but super is gradually reducing the cost of the age pension as more retirees become fully or partly self-funded.