Treasurer questions viability of super tax breaks
The federal treasurer has queried the sustainability of superannuation tax breaks that are on track to cost more than the aged pension by 2050.
Treasurer Jim Chalmers. Photo: AAP/Mick Tsikas.
Jim Chalmers has taken aim at the tax concessions as part of his government’s work to enshrine the definition of superannuation in law.
Chalmers said the tax concessions were at odds with the government’s goal of repairing the budget and a functional super system.
“I’m not convinced that’s a sustainable way to get to our destination – good retirement incomes for more Australians, now and into the future,” he said at a superannuation event.
He said locking down the new objective for super was the priority but reforming super concessions should be on the table.
Tax breaks on super were introduced to encourage more people to save super rather than rely on the pension.
However, critics say the existing rules are being used by wealthy individuals to minimise tax.
Concessions include a lower 15 per cent tax rate on super earnings during the accumulation phase, allowing high-income earners to put money into their super funds and get taxed less than the 45 per cent marginal rate they would otherwise pay.
Retirees also don’t tend to pay tax on the income from their super fund, with some exceptions, and leftover super balances are passed on to children or other beneficiaries tax-free.
The government’s consultation paper released on Monday said superannuation should focus on “delivering income” for retirees rather than “minimising tax on wealth accumulation or enabling retirees to leave tax-effective bequests”.
The paper also outlines the importance of a “sustainable” superannuation system that “should be cost-effective for taxpayers in achieving retirement outcomes”.
“Beyond a certain level of income, additional government support through tax concessions is not necessary or appropriate.”
Assistant Treasurer Stephen Jones first floated the possibility of overhauling tax concessions on super in November.
The government is also looking at ways to block the early release of retirement money.
Australians pulled out about $36 billion from their retirement funds during the pandemic.
Chalmers said the early withdrawal of billions was a “disastrous policy” from the former coalition government.
The coalition policy was intended to give a financial buffer to those impacted by COVID-19 shutdowns.
The Association of Superannuation Funds of Australia welcomed the proposed objective as “the next chapter in the Australian superannuation story”.
ASFA chief executive Martin Fahy said the proposed objective placed preservation, retirement income, equity, sustainability and a dignified retirement at the heart of superannuation policy.
“The government has proposed an objective that can underpin much-needed policy stability and help anchor future policy debates in ensuring our age pension remains affordable, that superannuation savings are preserved to retirement and that the system delivers in an equitable manner for women and low-income earners,” Fahy said.
HESTA chief executive Debby Blakey said the government’s proposal represented a “fork in the road” for the Australian super system.
“The consultation period is an opportunity to come together and shape a stronger super system now, and for generations to come,” she said.