Super tax concessions:  did the Treasurer meet his own objectives?

 In a speech on 18 February 2016, the Treasurer said “there is a strong case for examining the size and structure of [superannuation] tax concessions” in order “to be confident they are sustainable, well targeted and fair”. The changes announced in the Budget go a long way to providing such confidence.

In terms of fiscal sustainability, the reduction in annual concessional contribution caps, the introduction of lifetime non-concessional contribution caps, the reduced threshold for imposing additional contributions tax and the cap on balances transferable into the tax-free pension phase all reduce the tax concessions which had mostly benefited higher income earners. These changes would all bring long-term savings to the budget. Sensibly these have been re-distributed within the superannuation system.

The changes improve the targeting of the tax concessions in the context of the Government’s stated primary objective for superannuation “to provide income in retirement to substitute or supplement the Age Pension”.

If the purpose of the tax concessions is to ensure greater financial independence in retirement then there is less need to provide taxpayer-funded concessions to higher income earners to fully or partly fund their own retirement. That societal grouping is already sufficiently incentivised, and has the means, to achieve such independence. Restriction of the concessions at the high income end has afforded better targeting in other areas: for example, tax deductions for contributions for a wider range of taxpayers; for low income earners via the lower income superannuation tax offset; and for those with interrupted work patterns, in particular women, through more flexible contribution cap arrangements.

The Budget has also gone much further than anticipated in addressing issues of equity and fairness which, in the longer term, should improve the adequacy of self-funded retirement incomes for those with reduced capacity to save for retirement.  At the same time, reducing inappropriate levels of tax subsidies to those who don’t require them to fund adequate retirement incomes removes unfair tax advantages.

Arguably some degree of intergenerational tax inequity will continue, as those with existing large superannuation savings will be able to retain them in the concessionally-taxed environment (albeit that may be at 15 percent rather than 0 percent for amounts over $1.6 million). But this tax incentive might be preferable to having large sums re-invested in other tax-subsidised ways which may have potentially damaging economic effects, such as distortions in property markets through negatively geared investments or tax exempt principle residences.

Damian Ryan

Bernard Finnegan

Read our full report on the Implications of the Budget on Superannuation.


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