The Financial Services Council has urged the Government not to tax Australia’s superannuation savings harder, but instead consider how best to deliver better retirement outcomes to Australia’s lower and middle income earners.
In an effort to focus the national superannuation debate on maximising savings, not taxing them, the FSC has released PwC modelling which shows that one idea being considered, a tax rebate of 15 per cent for superannuation contributions, would diminish retirement savings and increase reliance on the age pension for the vast majority, 80 per cent, of Australians.
If a rebate model was to be adopted, the FSC’s modelling shows that the rebate would need to be at least 20 per cent and the superannuation guarantee (SG) would need to rise to 12 per cent from the current rate of 9.5 per cent.
This model would deliver increased savings for middle Australia, those earning up to $80,000, while the better off would be taxed slightly more.
Other models in the current debate, including a 10 per cent or 15 per cent rebate option, leave Australians worse off across every income bracket and remove billions from people’s super savings, as demonstrated in Table 1.
Table 1. Replacement rates of super tax options currently subject to consideration (click to enlarge).
Sally Loane, FSC CEO said: “While the Government hasn’t yet spelled out what it wants to do with tax treatment of superannuation, if there are changes, we urge close consideration of options which deliver better retirement savings outcomes for the majority of Australians, those in the lower to middle income groups.
“The Government needs to be very careful it doesn’t sacrifice national retirement savings to appease calls for more taxation on super.
“Options that leave Australians worse off in retirement and even more dependent on the age pension should be discarded. Options that raid superannuation savings to fund other projects or fill Budget holes, must not be considered.
The FSC has consistently advocated the SG should get to 12 per cent as soon as possible.
“The decision by the Abbott Government to pause the SG at 9.5 per cent until 2025 was short-sighted policy that will push the cost of an aging population onto future generations and slow the ability of the superannuation system to achieve its purpose of delivering adequate self-funded retirements to the majority of Australians and reducing dependence on the public purse,” Ms Loane said.
“Options that leave Australians worse off in retirement and even more dependent on the age pension should be discarded. Options that raid superannuation savings to fund other projects or fill Budget holes, must not be considered.”
The revenue implications and cost to Australian’s retirement savings of different tax options are outlined in Graph 1
Graph 1. Annual Commonwealth fiscal impact of different tax options (click to enlarge).
