Andrea Slattery
The SMSF Association is calling for an informed debate across industry and government about the cost of superannuation tax concessions.
SMSF Association CEO/Managing Director Andrea Slattery says the need for such a debate is critical if superannuation is to achieve its primary goal – allowing people to retire with dignity and security.
“Currently we are seeing a misinformed, simplistic and distorted debate about the tax concessions, and the future of the superannuation system and Australians’ retirement is too important for this to continue.
“At the same time this issue is being confused by the actual purpose of superannuation – it is to forgo and save current income to allow people to be self-sufficient in retirement. Superannuation is not, and never has been intended to replace the Age Pension, the system’s safety net, but to reduce the reliance on the pension as a source of income in retirement.”
Slattery says it has been the SMSF Association’s strongly held position that the tax concessions are integral to superannuation, and their opponents, who often use Treasury Tax Expenditure Statement (TES) measurement to provide their “conclusive evidence” for cutting them, are failing to tell the full story to the millions of Australians who are looking to superannuation to provide “dignity and security” in retirement.
The TES is an annual exercise undertaken by the Treasury to measure the numerous concessions in the tax system and is not designed to send a policy message or be used to estimate improvements to the Budget position if a tax concession were cut.
“Critics often cite the TES measurement to bolster their arguments that tax concessions are fiscally unsustainable. In the Association’s opinion, this ignores the nature of the TES measurements of the concessions that have the following unrealistic assumptions.”
- They are measured against a “comprehensive income” benchmark that measures tax concessions against an “idealised” tax system where all income is taxed at people’s marginal tax rates. The choice of this benchmark has a substantial influence of the cost of the concessions.
- The measurements do not account for behavioural change (i.e. they assume that people would not invest their income in other tax effective ways if superannuation tax concessions did not exist). For instance, the measurement ignores the fact that people may seek discounted capital gain investments or negatively geared investments to minimise their tax liability.
- The separate tax concession measurements are not additive.
Slattery says it was “extremely interesting” to note that at the recent SMSF Association National Conference, Rob Heferen, Deputy Secretary, Revenue Group Treasury, qualified the TES estimates when he said: “So when people report ‘this is a measured tax expenditure and therefore this is the amount that could be saved if the government did something about’, that is untrue.
“Some have suggested simply because there is a large measured expenditure, government should necessarily do something about it. That is not the case. There is no policy message in the TES.”
Slattery says it is also often forgotten that the TES measurements fail to account for the current or future savings to government created by reducing people’s reliance on the Age Pension. This is a key objective of the superannuation system and a key policy rationale behind the tax concessions.
“Excluding the future savings to Government expenditure on the Age Pension results in a myopic and overly simplistic analysis of both the true costs of the superannuation tax concessions.”
She says criticism of the superannuation tax concessions point to the high number of retirees still reliant on the Age Pension (either a full or part-pension). This ignores current retirees not having had the benefit of a mature superannuation system with both compulsory and voluntary contributions throughout the majority of their working life to build retirement savings.”
Slattery says that the SMSF Association is looking forward to the Government’s release of the upcoming Intergenerational Report and the Tax White Paper process in which the Association will participate in to ensure that there are sustainable and equitable tax settings for superannuation that provide certainty for people to have confidence in the system and their long-term savings plans.
She says that settling the ongoing debate surrounding tax settings now will provide the stability needed over the next 40 years to allow the system to develop and meet the needs of future retirees.
End.
