| Super 7 Ignored! |
 |
 |
|
During this past month discussion about the level of taxes within the super environment continues unabated. On the one hand some ill informed politicians, together with the super industry lobby groups, are arguing that "contributions tax" should be reduced from 15% to 13%. The trouble is, this could be seen as a tax cut for the so called rich. Since when is income of $90,000 p.a the definition of rich? On the other hand the Government have a range of measures designed to reduce the overall tax burden on superannuation. The debate is, to be honest, a bit pathetic. "If you are getting sick and tired of saying something, the punters are just beginning to hear it," is an old political maxim. In other words, keep up the effort of getting your message across. There are some issues which should be brought forward in any Super debate: 1. There is no such thing as contributions tax. There never has been. Large funds collect 15% tax on contributions because it is the quickest, and dirtiest (?) solution to the equity problem that surrounds large funds. (Often funds deduct this tax from member accounts many months before they are required to remit it to the ATO but this is a story for another day.) 2. The quantum of income taxes paid by a super fund is determined by the trustee and their advisers. This is an extremely powerful position to be in. This is part of the real effect of running your own SMSF ie. the ability to pay tax when due. The fact that most trustees seem to ignore their power (or should one say legislative and trust law responsibility to run the fund as efficiently as possible?) is not a reason to reduce taxes. 3. Super fund returns should be compared on a pre-tax and post-tax basis. And this comparison should also show the level of income earned plus realised and unrealised capital gains. Whilst maximising tax efficiency is not necessarily going to ensure greater returns, it is possibly a sign of an organisation's commitment to "best practice" and all the other phrases many mouth at the drop of a hat to over-sell their company's bona fides. 4. The super surcharge should not necessarily be reduced. The maximum rate could remain at 15% however the level of income at which it becomes payable should be increased quite dramatically, perhaps to say $150,000. As is well known the surcharge effectively increases from 0% to 15% over $15,000 of income. In my view the level of surcharge should increase over $30,000. 5. The possibility of increasing the SG has almost completely disappeared from everyone's radar and we should be thankful for ever getting it as high as it already is. The super industry is still predominantly asleep on this issue. Working longer and more productively are the keys to this nations ability to ride out the aging population problems that emerge over the next 40 years. You may have seen or heard media reports of a speech given by Ken Henry, Secretary to the Treasury. In that speech he says, "Sol Encel notes that what we now somewhat euphemistically call 'early retirement' should more correctly be called 'early exit'. OECD reports of longitudinal studies in 13 EU members emphasises that the withdrawal from participation among older workers often follows a job loss, usually afflicts the poorer, less educated and less skilled, is seldom reversed and is associated with persistent poverty. Although Australian data is not yet well enough developed to permit direct comparison with these findings, what we hear from case workers and observe ourselves leads me to suspect that much the same applies here. Improving participation outcomes is worth pursuing for it's own sake - for the (constitutive) contribution it might make directly to wellbeing - and not just because of its (instrumental) contribution to GDP per capita." 6. Why do politicians say on the one hand, we want to encourage all Australian's to pay/provide for their own retirement and on the other hand squeeze us on deductions, tax rates and impose unrealistic income limits? Surely, a more sensible concept might be co-contribution, that is, the surcharge only becomes payable on combined (his & hers) incomes at a reasonable income level of say $250-300,000. Why do we currently have a maximum RBL pension limit of around $1 million? If we assume a couple needs gross $60,000 p.a. income to live comfortably in retirement for say 25 years, then current RBL pension limits should be in the vicinity of $1.5 million each! If we put a limit on the amount in accumulation, why put a limit on amounts you can contribute and get a deduction? 7. Income must be earned within funds to pay pensions or annuities or fund expenses, such as "contributions tax" or super surcharge. Total return funds are not adequate for this type of arrangement. The silence about this issue from the industry has been truly deafening. A simple question for you all to ponder and respond to - why is this not an issue worthy of your time, comment or public discussion? 8. The super industry should be pushing for choice of fund and the co-contribution at the earliest opportunity. Sure these policies have some serious flaws. But they are about the only positive things you are likely to see from government's for some time in relation to super. We look forward to providing more comments in future articles. Geoff O'Neil - Director |
+ 61 8 8333 1944
Join Us