Labor’s second go at taxing the earnings on superannuation funds pre-empts the outcome of the Taxation White Paper which we all hope will lead to a better retirement incomes system.
Labor has committed to a bipartisan approach to defining the objectives of superannuation which will influence the future shape of the superannuation system and the appropriate taxation of it. Yet they have jumped the gun by announcing the new tax more than two years before it will be applied if Labor forms the next government.
The new tax-free ceiling of $75,000 in earnings is significantly lower than the $100,000 proposed in 2013 by Labor when in government and will hit many more people.
Labor’s announcement does not say whether the $75,000 will be indexed. If not, it will drag more people into Labor’s tax net each year as their superannuation savings and earnings grow.
Labor says it is reacting to calls for action on superannuation tax concessions for high income earners. These calls come from predictable quarters – left wing think tanks and industry funds that don’t like SMSFs. They are usually based on a mis-reading of tax estimates which Treasury itself says contain no policy message and don’t acknowledge that the high income earners who get most of the superannuation tax concessions actually pay an even higher proportion in income tax.
Putting an earnings tax on superannuation accounts will do nothing to improve the effectiveness of the superannuation system and the economic benefits it delivers.
Reducing the incentive to save for independence in retirement is economically inefficient. Savings are put to better use in superannuation funds which invest in the economy for the future than in current spending by governments.
Taxing superannuation earnings that provide an income comparable to average weekly earnings will reduce the incentive for people to save more, improve their financial well-being and afford a comfortable retirement.
Taxing superannuation earnings now results in higher pension costs later.
People need encouragement to save more, rather than be penalised for their success in saving, and this will be the thrust of our plan for a better way to manage the retirement savings system which we will be submitting to the Taxation White Paper process.
