Superannuation, the ultimate government cash cow?

drsmith · 20 April 2012

Soon after coming to office in 1996, the Howard Government introduced a superannuation surcharge for contributions from higher income earners. It's reintroduction is currently off the agenda (according to The Australian), but Labor is currently considering the following measures (below, again from The Australian).

Linking the contributions tax to a worker's marginal income tax rate would, in effect, be the same as the Coalition's surcharge, but Labor may go further, hitting income from super as well.

StumpyPhantom · 20 April 2012

drsmith said:
Soon after coming to office in 1996, the Howard Government introduced a superannuation surcharge for contributions from higher income earners. It's reintroduction is currently off the agenda (according to The Australian), but Labor is currently considering the following measures (below, again from The Australian).

Linking the contributions tax to a worker's marginal income tax rate would, in effect, be the same as the Coalition's surcharge, but Labor may go further, hitting income from super as well.

It's too easy. So you scrape the nation's future self-funded retirees, but it won't happen to the extent that we have to rely on the pension. Money for nothing.

But this says everything about Gillard's motivation. She keeps repeating it - share the wealth and prosperity around - somehow making it a sin for those who have earned it.

Just keep your powder dry. Put it in a piggy bank if you have to, and the political pendulum will swing away from Labor and then (hopefully) allow you to re-submit that money to your super.

banco · 20 April 2012

Given the number of baby boomers there are going to be on the aged pension it seems reasonable that the better off baby boomers help pay for them rather then leaving it for the younger generations.

StumpyPhantom · 20 April 2012

banco said:
Given the number of baby boomers there are going to be on the aged pension it seems reasonable that the better off baby boomers help pay for them rather then leaving it for the younger generations.

No problem with paying my fair share Banco. My problem is that this money being HOOVERED up by the Gillard government is going anywhere BUT!

It's going into general revenue to pay for everything else this Government has squandered money on.

Anyway, I don't get the logic of this baby boomer statement. Isn't the fact of being a self-funded retiree, on its own, what it means to be paying your way? The words alone suggest it.

Julia · 20 April 2012

StumpyPhantom said:
No problem with paying my fair share Banco. My problem is that this money being HOOVERED up by the Gillard government is going anywhere BUT!

It's going into general revenue to pay for everything else this Government has squandered money on.

Anyway, I don't get the logic of this baby boomer statement. Isn't the fact of being a self-funded retiree, on its own, what it means to be paying your way? The words alone suggest it.

Exactly.

Banco: why should those who have saved and made provision for funding their own retirement be obliged to subsidise those who couldn't be bothered and/or spent up large instead?

If the government go ahead with this they will be more than ever sealing their fate of electoral oblivion for decades. Just so Swanny can claim a surplus, something which most economists correctly label as a purely political aim.

Intrinsic Value · 20 April 2012

The whole things stinks but it was always on the cards with a government addicted to spending and with a philosophy of taking away incentives for those that want to take control over their own financial destiny.

The 15percent contributions tax on super is an especially good idea for older australians who have not had super long enough to be able to depend on it for retirement purposes. For people in their late forties and fifties it gives them an opportunity to super charge their super so that they dont have to depend on the old aged pension. It is eminently sensible.

In the long run they would save money by retaining this tax incentive.

But no it is back to lowest common denominator politics.

How about looking at out of control government spending and the vast array of government handouts that cost billions of dollars a year and the people that have become instituitionalised into a welfare mentality.

The whole things is a sad pathetic indictment on our current government and their policies.

banco · 20 April 2012

Julia said:
Exactly.

Banco: why should those who have saved and made provision for funding their own retirement be obliged to subsidise those who couldn't be bothered and/or spent up large instead?

The people who couldn't be "bothered and/or spent up large" are going to receive age pensions (not to mention medicare) whatever happens. The only question is how to pay for it. There's not going to be enough young workers to pay for it all so it's only logical that the Government would try and recover some of the costs from the wealthier retirees/retirees to be.

Intrinsic Value · 21 April 2012

banco said:
The people who couldn't be "bothered and/or spent up large" are going to receive age pensions (not to mention medicare) whatever happens. The only question is how to pay for it. There's not going to be enough young workers to pay for it all so it's only logical that the Government would try and recover some of the costs from the wealthier retirees/retirees to be.

False economy. These are not wealthy retirees yet. They are trying to save for their retirement so that they are not depedent on the old age pension but the government is removing the incentive that is currently in place for those that are not benefitting from compulsory super for the majority of their working lives.

Less people on the pension means greater savings in the long run for the government instead of looking at a short term fix for the current budget deficit.

So_Cynical · 21 April 2012

How about the thousands of struggling older Australians who were putting millions into super a couple of years ago before the new (anti rorting) limits came into force...now penalised for just wanting to put a few million away to look after themselves in retirement....shame Labor Shame.

banco · 21 April 2012

Intrinsic Value said:
False economy. These are not wealthy retirees yet. They are trying to save for their retirement so that they are not depedent on the old age pension but the government is removing the incentive that is currently in place for those that are not benefitting from compulsory super for the majority of their working lives.

Less people on the pension means greater savings in the long run for the government instead of looking at a short term fix for the current budget deficit.

Well it depends on the details of the actual policies but if its aimed at wealthier people it's unlikely to prove to be a false economy as they are likely to end up being self-funded retirees in any case.

But my broader point is that the tax concessions with regards to super are unsustainable in the medium run in their current form given Australia's demographics. In particular the policy of super income for over 60s being tax free isn't going to last. I've little doubt that in a few years retirees will be paying income tax on their super income.

StumpyPhantom · 21 April 2012

banco said:
Well it depends on the details of the actual policies but if its aimed at wealthier people it's unlikely to prove to be a false economy as they are likely to end up being self-funded retirees in any case.

But my broader point is that the tax concessions with regards to super are unsustainable in the medium run in their current form given Australia's demographics. In particular the policy of super income for over 60s being tax free isn't going to last. I've little doubt that in a few years retirees will be paying income tax on their super income.

Banco - your arguments have been shredded by the preceding. And your class warfare statement about robbing Peter to pay Paul shouldn't be dignified with a response.

As per your broader point, I'm afraid the media sensationalism about baby boomers has got inside your head. How is it that you can rationalise, in an exponentially growing global population, that the bulge of the population is STILL the baby boomers?

Have a read of this http://www.servicecentral.com.au/resources/articles/Gen-y-is-now-australia-s-largest-demographic/137 or do Statistics 101 at uni.

Intrinsic Value · 21 April 2012

banco said:
Well it depends on the details of the actual policies but if its aimed at wealthier people it's unlikely to prove to be a false economy as they are likely to end up being self-funded retirees in any case.

But my broader point is that the tax concessions with regards to super are unsustainable in the medium run in their current form given Australia's demographics. In particular the policy of super income for over 60s being tax free isn't going to last. I've little doubt that in a few years retirees will be paying income tax on their super income.

Well you have bought up another point here about the tax free income for over 60s which we were not discussing but I do agree that this policy is unsustainable and should never have been bought in. This was a Howard initiative i think to capture the grey vote.

The wealthy as you call it will do alright anyway without any caps or not but there is a vast number of people who are not wealthy and do not have adequate super but who can at the late stage of their working life put money into super and take advantage of the existing incentives so that they are not dependent on the old aged pension.

Cuts to govt spending could come in many areas particularly the vast array of middle class welfare like family allowances which are completely unsustainable.

Julia · 21 April 2012

Intrinsic Value said:
The whole things stinks but it was always on the cards with a government addicted to spending and with a philosophy of taking away incentives for those that want to take control over their own financial destiny.

The 15percent contributions tax on super is an especially good idea for older australians who have not had super long enough to be able to depend on it for retirement purposes. For people in their late forties and fifties it gives them an opportunity to super charge their super so that they dont have to depend on the old aged pension. It is eminently sensible.

In the long run they would save money by retaining this tax incentive.

Yes. Stupid to remove incentives for people to provide for their own retirement.

But no it is back to lowest common denominator politics.

How about looking at out of control government spending and the vast array of government handouts that cost billions of dollars a year and the people that have become instituitionalised into a welfare mentality.

The whole things is a sad pathetic indictment on our current government and their policies.

I couldn't agree more.

banco said:
The people who couldn't be "bothered and/or spent up large" are going to receive age pensions (not to mention medicare) whatever happens. The only question is how to pay for it. There's not going to be enough young workers to pay for it all so it's only logical that the Government would try and recover some of the costs from the wealthier retirees/retirees to be.

You are missing the point of my earlier comment.

I wonder if this is just something the government has dropped out just to see what the reaction is, and will elect not to go ahead if the backlash is loud enough?
Remember some months ago they did a similar thing with medical research funding and the various research groups made so much noise it was dropped.
Quite possibly the same will happen here. They cannot, after all, afford to reduce their electoral chances any more than they already have.

StumpyPhantom · 21 April 2012

Julia said:
I wonder if this is just something the government has dropped out just to see what the reaction is, and will elect not to go ahead if the backlash is loud enough?
Remember some months ago they did a similar thing with medical research funding and the various research groups made so much noise it was dropped.
Quite possibly the same will happen here. They cannot, after all, afford to reduce their electoral chances any more than they already have.

Fingers crossed, Julia that that's their strategy. This government is deluded and silly enough to think that it's still got a chance at the next election.

I suppose that's better than a 'crash and burn' government where they know they're going down and want to take as much down with them as they can.

drsmith · 21 April 2012

This was leaked on the same day as the aged care policy was released with the hope it would slip under the radar. It's just part of the usual budget softening up process.

Labor may not have decided on all the detail, but their intention to hit super is clear.

''There are a number of options on the table and none of them will bother the people whose votes we need,'' one source said.

http://www.smh.com.au/opinion/polit...rise-in-contributions-tax-20120420-1xcfa.html

StumpyPhantom said:
I suppose that's better than a 'crash and burn' government where they know they're going down and want to take as much down with them as they can.

By intention or not, they became a crash and burn government the day they announced a carbon tax.

Glen48 · 21 April 2012

Don't know why you are worried about super, the feds will take over super one day claiming they can manage it better and give you more money in the long run of course most will fall for the Feds don't lie trick and think it s a good thing when in fact you will be handed back your super like a kid getting pocket money if there is any money there after all how will the super scheme's get the money from a failing economy.

USA has 11 M house's close to going under water and soon will have 700K citizens with out any income once their benefits are cut off can you imaging what turmoil that will cause.
Of course its USA and can'thappen here

Starcraftmazter · 21 April 2012

Pretty unacceptable considering how much else there is to cut which doesn't contribute to the productive economy.

How much can be saved by getting rid of baby bonus? Family tax benefits A&B? Negative gearing? How about the capital gains concessions for property?

This government is mad, and needs to be put down.....after the NBN is built

Tyler Durden · 21 April 2012

Julia said:
Banco: why should those who have saved and made provision for funding their own retirement be obliged to subsidise those who couldn't be bothered and/or spent up large instead?

I see your point, and in a perfect world, they wouldn't.

But we live in an imperfect world. A similar analogy can be seen in the office - people who are efficient and prioritise their work will get all their work done within time and maybe even have a bit to spare. Those who are inefficient become unable to handle any other work, which then gets shifted to the efficient workers because they have 'spare' time.

Starcraftmazter · 21 April 2012

Tyler Durden said:
A similar analogy can be seen in the office - people who are efficient and prioritise their work will get all their work done within time and maybe even have a bit to spare. Those who are inefficient become unable to handle any other work, which then gets shifted to the efficient workers because they have 'spare' time.

Yeh, but the more productive of us get paid more :

drsmith · 21 April 2012

My guess at what the government will do.

Introduce an additional 1% tax for every pre-tax dollar contributed and earnings from super for every $10000 above $110000 (defined as some form of adjusted income to include pre-tax contributions). This would equate to an effective tax rate of 22% on pre-tax contributions and earnings at $180000 or 15% below the marginal rate of 37%, in line with Greens policy.

For incomes above $180000, this would continue to $260000, at which point the effective pre-tax rate on contributions and earnings would be 30% which is 15% below the marginal tax rate of 45%, again in line with Greens policy.

Thresholds and rate of increase may vary, but this is the way I suspect they will go.

Both the above could operate like the superannuation surcharge. The former Coalition government has shown the way here.

Members of unfunded-defined benefit schemes may not escape either. Again, the former Coalition government has shown the way.

Unfunded defined benefit funds and members of constitutionally protected funds, are not required to pay the surcharge liability until the member has left the fund, or begin to receive their benefits.

http://www.ato.gov.au/superfunds/content.aspx?doc=/content/77953.htm

Any such liability accumulates interest at the 10-year bond rate.

Superannuation, the ultimate government cash cow?

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