Taxation of super a windfall for rich: reform overdue

8 May 2009

The Brotherhood of St Laurence today welcomed mooted changes to the taxation of superannuation in next week’s federal budget but said that they don’t go far enough.

“Reform to superannuation would make the tax system fairer while at the same time provide the means to fund increases in benefits for the unemployed and sole parents – and of course their families. Current taxation of superannuation is a windfall for the super rich,” said Brotherhood Executive Director Tony Nicholson.

“Each year the top 5 per cent of income earners get 37 per cent of the $26 billion in superannuation concessions from the Federal Government. Clearly the superannuation rules are grossly inequitable and in dire need of reform,” Mr Nicholson said.

“Most contributions to superannuation are made from pre-tax income and then taxed at a rate of 15 per cent, as are the earnings from super accounts –well below the highest tax rate of 46.5 per cent. High income earners aged 55 and over are able to manipulate the system by salary sacrificing up to $100,000 a year – more than most peoples’ incomes – while simultaneously withdrawing money from their super, which is taxed at only 15 per cent. The tax advantage is the greatest for the over-60s on the highest tax bracket as withdrawals are then tax free.”

Mr Nicholson said the Government could make the system fairer and make savings that can help fund measures such as improving the meagre government benefits for single aged pensioners, single unemployed and sole parents by:

• Taxing all superannuation contributions and earnings at the individual’s tax rate, but withdrawals would be tax free: potential saving is $24.4 billion (based on 2007-08 Treasury estimates).
• Or, at a minimum, taxing superannuation contributions at the individual’s tax rate, but not earnings from super or withdrawals: potential saving is $4.6 billion.
• Preventing the 55-plus high-incomes earners salary-sacrificing into super and simultaneously withdrawing from their fund at a lower tax rate – and tax free when they reach 60: potential saving: from $1 billion to $10 billion.
  “These changes would improve the fairness of the system and could fund measures such as a $30 increase in government benefits for the single unemployed and sole parents. Increasing all single pensions as well as benefit for the unemployed and sole parents, would cost around $3 billion – which is easily achievable with a few tweaks to the superannuation system,” Mr Nicholson said.

“It seems likely that the budget will include the welcome announcement that the rate for single people on aged, disability and carer’s pensions will rise. However other single people receiving government benefits such as the unemployed, and sole parents, have been given no such hope. Even though this is a tough budget, we can afford to be a bit more generous with the unemployed and with sole parent families,” Mr Nicholson said.