The Federal Government is set to push ahead with a tax increase for high-income earners on their superannuation despite experts warning of the high costs of collecting the estimated $3,500 extra per person.
The government wants to increase the tax on concessional contributions to superannuation from 15% to 30% for people with pre-tax incomes of $300,000 or more, a move which it is estimated will bring in an additional $1 billion.
“We think it’s very important to ensure that superannuation tax concessions are targeted appropriately and it is the case that people on very high incomes get a very big benefit compared to people on average incomes,” Treasurer Wayne Swan said yesterday.
“So the government is determined to have a look at the distribution of these concessions.”
The new tax slug has been compared to the Howard government’s superannuation surcharge, which initially added a 15% tax slug to people earning more than $70,000 and was scrapped in 2005 when it became clear it would shortly become uneconomical.
Swan said the change was still worth making despite experts saying the scheme will be costly to administer.
“Well, I think it’s very important that everybody out there has confidence that the distribution of tax concessions has a degree of equity and fairness about it, and I think that’s an entirely reasonable thing to do,” said Swan.
Andrea Slattery, chief executive of the Self-Managed Superannuation Fund Professionals Association of Australia told SmartCompany it was difficult to say how much it would cost to implement the increased tax, but the cost was likely to be significant.
“There has been no announcement on the cost and we will get that in the Budget, but the cost to introduce something like this will be significant [because] there is going to have to be a significant amount of admin to work out the range of incomes that it might apply to.
“There is an enormous increase in complexity and an enormous increase in cost, to get $1billion you are likely to be looking at raising $3,500 per person extra.”
Slattery says she is concerned that the changes will lead to a lack of confidence in the superannuation system.
“Both sides of government committed over the last 10 years that there would be no change in the next 10 years in the superannuation environment once the last set of reforms were finished.
“Once again there is no consistency and it is an attack on confidence.
“It is a tinkering where they can get a quick short term dollar and it provides great risk for our future retirement saving system.
“We can’t consistently make changes for tax grabs without any thought to what the system is all about, this is a big, flourishing, world-renowned system.
“Whatever changes come about need to be well thought out.”
Slattery says the Labor policy could be compared to the Green’s proposal to change the tax rate for those earning over $80,000.
“This is something where the figure is picked at $300,000, the Green’s said $80,000; what is next?” says Slattery.
“Confidence will drive people into another area and the likely beneficiaries will be negative gearing and property.”