With the government’s surprise superannuation reform announcement last week drawing hesitant early support, many commentators are now suggesting the figures are flawed and the announcement has done nothing to ease uncertainty in the country’s retirement system.
After some industry bodies initially welcomed the increased certainty the announcement should provide, emerging analysis suggests the announcement will provide anything but this.
Notwithstanding that the reforms still need to pass parliament, with the Coalition already vocally criticising the action, the move to tax any super earnings around $100,000 at 15 per cent could effectively amount to a retrospective tax – a move never likely to engender confidence.
Several industry commentators have blasted the perceived vagueness and complexity of the changes.
Tria Investment Partners managing partner Andrew Baker said although the content of the changes could have been far worse, they are a “dismal failure” on their stated intention to improve equity.
Furthermore, some of the details – such as the taxation of capital gains on pension divisions – are “close to incomprehensible”. Other details such as the $100,000 tax-free limit on earnings and the progressive taxation of capital gains are “absurdly complicated”, Mr Baker said.
Mercer released a report outlining flaws in Treasury’s taxation modelling, which said using Treasury’s tax expenditure figures to shape superannuation policy, without taking into consideration the age pension savings, is flawed and misleading.
Mercer senior partner and author of the report, Tax & Superannuation: The shortcomings of the superannuation taxation expenditures, Dr David Knox, said such a move is “short sighted and defective”.
The potential revenue gain for government is much lower than the quoted value of the superannuation tax expenditure due to several shortcomings with Treasury’s approach, he said.
“Firstly, it ignores future age pension costs, which will inevitably increase if super benefits were reduced due to higher tax on contributions, earnings or benefits. Secondly, it ignores any redirection of contributions to other tax-effective investments that would occur if the super rules became less favourable,” he said.
The Association of Superannuation Funds of Australia (ASFA) also moved to clear up some of the confusion, saying that reports that the 15 per cent tax on super earnings over $100,000 would affect a large number of members were incorrect.
This is because growth in share values within portfolios would not be caught up, as the measure only applies to interest, dividend and rental earnings, ASFA stated.
