Originally published in the Daily Telegraph, 23 December 2016
It’s been a super year, with controversial changes to the superannuation system one of the hottest political topics of 2016.
Unveiled on Budget night back in May, the government’s initial plan included a suite of new caps, thresholds and limits as well as backdating some aspects to 2007. This retrospectivity rankled with the community and the backlash during the election campaign forced a backdown on backdating and the lifetime cap was also amended.
The modified package got through Parliament in the final sitting weeks of the year. While Treasurer Scott Morrison called the changes the most significant “in more than a decade”, comprehensive reform they are not. They are incremental at best and motivated more by short-term budget repair imperatives than the long-term retirement needs of Australians.
Combine these changes with the government’s attempts to define the objective of super — to supplement or substitute the age pension — and you have to ask where is the incentive to save, and what does the government have in mind for the aged pension?
There is significant concern in some quarters that, as currently framed, this definition could be interpreted by future governments as justification for winding back the welfare safety net. Super may well have been the star of the 2016 Budget, but its pigeon pair — the age pension — could be in the frame for 2017.
Between now and then we all have to comply with the new rules. The contribution caps have been screwed down, various thresholds have been added over the top of the existing caps and new caps introduced. While some professional accountants and financial advisers will be cheering this added complexity, it’s actually not something to celebrate.
Yes, access to super tax concessions has been curbed for high-income earners but every super fund member will be assessed against the various caps and thresholds. It’s a cost which will be borne by all of us to catch a few. Not to mention, the constant tinkering makes it difficult for us to have longterm confidence in super.
While the government is content to dress up its Band-Aid approach to super as reform, what if we threw it all away and started over?
We would move away from our current approach, which is to tax our contributions to super, tax fund earnings and, in some cases, tax ultimate retirement income streams too.
Common sense says that fewer taxing points is the way to go. If governments could confine tax to the pension phase only, and leave contributions and fund earnings untaxed, then the system would be simpler and more equitable. It would also help deliver longterm budget sustainability.
As an ageing population, as more of us retire we’d see greater tax revenue generated at retirement. This would help offset age pension expenditure pressures and counter the loss of revenue from the reduced number of workers paying income tax.
This is what real reform looks like.
It’s proved to be elusive in 2016 but if our politicians show a little more courage and a greater willingness to embrace the national interest, the new year may present new reform opportunities.
Alex Malley is chief executive of CPA Australia