Thursday, March 28, 2013

Super. The funds say it's hard to more heavily tax the rich

The government’s options for more heavily taxing superannuation are shrinking. The industry has warned that one of the options - a higher tax on the earnings of funds held by high earners - would be almost impossible to administer.

“The funds would have to attribute to individual tax file numbers earnings on every product they sell,” one source said. “It be an administrative nightmare. Right now funds can apply the same tax rate across the entire pool.”

“It could probably be forced through, but it would have unintended consequences.”

The industry could more easily live with a higher tax rate on all fund earnings.

The government had been considering boosting the tax on the super fund earnings of high earners from 15 to 30 per cent. The change would net it between $500 million and $1 billion per year.

An alternative proposal - boosting the earnings tax on all super accounts from 15 to 20 per cent - might raise $4 billion per year, and much more over time as fund balances climb.

The Fairfax calculation is based on the long-term super fund return of 6 per cent per year. But fund earnings are uneven. Many will report losses when they next pay tax meaning the higher tax rate on earnings would cost the government money because it would be offset at a greater rate against the tax on super contributions.

Treasurer Wayne Swan is understood to be reluctant to increase super taxes across the board, and is continuing to look for ways that cut back concessions for high earners without touching low to middle earners.

Treasury calculations show that in 2009-10 the top 1 per cent of earners received an average super tax concession of $19,200. Middle earners got $800.

Mr Swan began attacking concessions for high earners in the May 2012 budget, taxing the contributions of Australians earning more than $300,000 at 30 rather than 15 per cent.

After a few years the change is set to net the government $475 million per year. But it hasn’t yet been legislated, giving Mr Swan the option of amending it in the May budget to cut in earlier at $180,000, where the top marginal income tax rate begins.

The change would net the government a further $145 million per year, an extra take which is relatively low because the incomes below $300,000 are much lower than those above it.

In a sign that it could also cause political problems former Kevin Rudd backer and Hunter Valley MP Joel Fitzgibbon said he was worried Labor would botch the definition of “wealthy”...

''Coal miners in my electorate earning $100,000 $120,000 $130,000 and $140,000 per year. They are not wealthy,” he told Fairfax TV.

He would agree to higher tax at the ''very very very high end'' but not changes that hit ''ordinary people, like my coal miners living in the Hunter''.

In Perth Prime Minister Julia Gillard said she wanted to make super "sustainable for the long-term future".

"Superannuation is only in this country because Labor brought it here. Otherwise ordinary working people wouldn't have super, only some high-income earners would,” she said.

Treasury calculations disputed by the industry show the cost of super tax concessions is set to explode from $32 billion per year to $45 billion by 2015, at which time they will be more expensive than the aged pension.

David Whiteley, chief executive of the Industry Super Network, said Wednesday that although there were ‘‘extraordinarily legitimate questions about the sustainability and the equity of the current tax concessions,’’ there was no need to rush.

‘‘You’ve got different industry bodies and Treasury and government all with a different interpretation,’’ he said. The best outcome would be five to ten years of stable settings. ‘‘To achieve that you would inevitably seek to have bipartisan support... something better undertaken after the coming election.’’

A Westpac analysis released Wednesday had the budget on track to be $8 to $10 billion worse than the government expected in October.

In today's Sydney Morning Herald and Age

Related Posts

. Super. Great if you're already well off

. Skewed. Why Labor is finally rounding on super tax breaks

. Simpler super. Letter of the day