ACOSS has today released a new proposal, building on the Government’s superannuation reforms, to deliver better retirement incomes for 3.4 million people on low and modest incomes while strengthening federal revenue.
ACOSS CEO Dr Cassandra Goldie today argued the Government should hold the line on its proposed curbs on tax breaks for superannuation for people on the highest incomes.
“These are modest changes. After they are introduced, the average level of government support for retirement incomes (tax breaks and pensions) for the top 1 per cent of wage earners will only fall from $850,000 to $650,000 over their lifetime. Support for those in the lowest 10% is estimated by Treasury to be just over $300,000,” Dr Goldie said.
“We urge the Government to take a step further and improve support for saving by people with low incomes by doubling the proposed tax offset for people with low incomes (LISTO). This would bring a much better balance to the taxing of superannuation so that tax concessions for superannuation are better targeted to the core purpose of superannuation.
“Under the present system, a person earning $200,000 saves 34 cents per dollar contributed to super but a worker on $20,000 or less receives no tax break at all. Our proposal would go some way to fixing this inequity.
“This would ensure scarce government resources are directed at achieving the core purpose of superannuation – delivering decent retirement incomes for people who will otherwise rely mainly on the Age Pension. It will improve equity and it will put the Federal Budget on a more sustainable footing for the future. This is hands down the best policy outcome for Australia.
“This should be paid for by not proceeding with three of the Government’s changes to super that would cost $1.5 million and create even more generous tax breaks for people with high incomes. Instead of further reducing tax for people with high incomes, the system should redirect support towards those on low incomes, 60% of whom are women.
“The Government should not proceed with the proposed new deduction for contributions (which mainly benefits people on the top tax rate), the proposed ‘catch up contributions’ concession (which mainly benefits men on high incomes), and extending the rebate for contributions for a spouse (which will mainly benefit men with high incomes).
“Doubling the LISTO instead would improve retirement living standards for people with low incomes and reduce future Age Pension costs. It would benefit over one million people earning less than $20,000, 60% of whom are women.
“In contrast, the Government’s three new tax breaks would disproportionately benefit high income-earners who are unlikely to receive a pension in the first place. For example, only 51,000 women earning less than $79,000 a year could benefit from the ‘catch up’ proposal compared to 153,000 men earning more than $79,000 a year.
“The Government’s reform proposals go a long way to curb poorly targeted tax breaks for people with very high incomes. They should do more for people on low incomes who are very poorly served by the present superannuation system.
ACOSS has provided the briefing paper to the Government, Labor and the Greens.
The five measures proposed by the Government to cap concessions for high income earners and wealthy people, which ACOSS strongly supports, are:
- The $25,000 concessional contributions cap (down from $30-35,000)
- The 15% increase in the 15% contributions tax for individuals earning over $250,000
- The $1.6 million limit on superannuation assets attracting a zero tax rate on fund earnings in the ‘pension phase’
- The lifetime cap of $500,000 for non-concessional contributions
- The proposed 15% tax on fund earnings in ‘Transition to Retirement’ accounts.
The three changes the government is contemplating to the superannuation package announced in the 2016 Budget are:
- A new tax deduction for employee contributions, which would mainly benefit people on the top tax rate
- Extension of tax breaks for ‘catch up contributions’, which would mainly benefit men with high incomes rather than women with low incomes, since few people can afford to contribute over the proposed annual ‘cap’ of $25,000
- An increase in the rebate for ‘spouse contributions’ which again mainly benefits men on high incomes, who can afford to contribute for their partner.
- Replace the three measures above with a doubling of the proposed Low Income Superannuation Tax Offset (LISTO).
- That LISTO be doubled from 15% to 30% (and the $500 cap increased) for individuals earning less than the tax free threshold. It would remain at 15% for those earning between $20,000-$37,000.
- This proposal would cost at most an extra $1.3 billion over the next four years, which is less than the Government’s three proposals that boost concessions for people with high incomes.
Media Contact: ACOSS: Anthony Reed – 0419 626 155