Saturday, April 06, 2013

Super is broken. Now the Coalition will have to fix it

The morning after. Tim Colebatch in The Age:

You messed it up - you fix it. Labor's new ''reforms'' to superannuation are a cop-out that handballs the mess created by the last Coalition government on to the next Coalition government to resolve.

The changes proposed by Treasurer Wayne Swan and Superannuation Minister Bill Shorten are small and sensible. But they are only proposals, which Labor plans not to make law before the election. And after the election, it won't be Labor's problem.

It will be Tony Abbott's problem, and a big one. Treasury estimates that in 2009-10, tax breaks on superannuation fund earnings cost revenue (that is, other taxpayers) $9.5 billion. This year, it estimates, they will cost $17.1 billion. In three years' time, they will cost $25.1 billion.

Total superannuation tax breaks have grown from $26 billion, then to $34 billion now, and are put at $47 billion a year by 2015-16. You can blame the Howard government, which removed the reasonable benefit limits, and made payouts tax free.

Faced with another Coalition scare campaign, Swan and Shorten threw in the towel on big changes, and settled for three small nibbles, which will cut the tax breaks by less than 1 per cent.

There is no raid on superannuation savings. Despite Abbott's claims, there is no new tax on superannuation payouts. These reforms tackle taxes on future earnings of superannuation funds, and close a loophole in the means test for pensions.

The biggest nibble would cap the loophole by which retirees on income streams are not taxed on their funds' earnings. Earnings above $100,000 a year would be taxed at 15 per cent, as other super fund earnings already are from the first $1. It will affect fewer than 20,000 people.

The second nibble would have a wider cost: Labor will scrap its plan to allow people with less than $500,000 in their account to put in $50,000 a year at the concessional 15 per cent tax rate, instead of the $25,000 cap now applying.

The third nibble would close the loophole by which people with large super savings can still qualify for the pension. The pension income test would be changed so we are deemed to have earned the same income from super savings as we already are from savings held in bank deposits or stocks.

You can't seriously argue with any of these changes - except that they don't tackle the problem. They raise millions when the tax breaks cost billions. The response from the industry was relief, particularly as it won a couple of gains.

Those over 60 would have the cap on their superannuation contributions lifted from $25,000 a year to $35,000. The Tax Office will start paying interest on the ''lost'' superannuation accounts it minds for missing owners.

But it's all irrelevant. While shadow treasurer Joe Hockey was careful not to oppose the changes, the impulsive Abbott immediately ruled them out. ''We don't support this new tax,'' he said. ''Our policy is not to have adverse changes to superannuation.''

Is it really Liberal policy to give away $47 billion a year in superannuation tax breaks, of which just 23 per cent goes to the 60 per cent of Australians in the bottom and middle, while 26 per cent goes to the richest 5 per cent?

Related Posts

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

. The outrage. Why Labor has to act

. Treasury versus Knox. Who has it right?