Superannuation, the ultimate government cash cow?

FxTrader · 6 June 2014

sydboy007 said:
Buying existing shares in a company is not investment. Purchases of newly issues shares via an IPO or issue of new shares is likely to be investment, but then maybe not depending on what the raised funds are put to.

Really? Your flawed argument was that such investment did not contribute to capital formation. Since shares represent an ownership stake in a business however small, the extent to which a business participates in capital formation is attributable to the owners of the business entity.

Investment: the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value. What dictionary are you reading from or are you asserting a new definition for the term "investment"?

If you build a new office tower - that's investment.

Such an "investment" may indeed contribute to capital formation if goods or services production occurs as a result of its use. The act of building an office tower in itself is not capital formation.

Capital Formation: The creation of productive assets that expand an economy's capacity to produce goods and services. Private savings facilitates capital formation by allowing resources to be diverted to corporate investment rather than individual consumption.

medicowallet · 7 June 2014

sydboy007 said:
Isn't it more about the income earning potential of the company. It's like asking someone which is more expensive? The $1 share, or the $600 share. Wouldn't, or shouldn't, it be the case that the one providing the better yield, and the likelihood of increased income wins? Certainly larger companies have easier access to debt markets, but that is not relevant to the share price, or are you saying that if 2 companies with billion dollar market caps could be judged by banks differently because 1 has a share price of $100 and the other only $20?

I'd say only the ASX 20-50 are take over proof, otherwise pretty much most Australian companies are easy takeover targets because they're not really worth much on a global scale, and with practically free money available in the US and EU getting the debt to buy prob isn't much of an issue either, especially now the PIK (Payment In Kind) loans are making a comeback.

No. I am saying a company worth 1 billion and zero borrowings and access to an investment with excellent returns xan borrow more than a similar company with a value of 100000 dollars.

Plus the argument is bs anyway. At the end of the day it comes down to money coming into the country vs money leaving it. Asset prices within the country are kess important imo.

Like i inferred all that can happen is like what hapoened over the past ten years where we had heaps of money coming in eg from mining and our stupid govt facilitated it going into overpriced unproductive residential housing which generates net outgoings of money from the country. Sure we feel richer, but what we have done is squandered the opportunity afforded by the boom.

Stupid govts have no idea how to make lifestyles better and more sustainable as the general population only want what is best for the individual, and cant see past their own wants

k.smith · 13 June 2014

these two articles say it all...

http://www.eurekastreet.com.au/article.aspx?aeid=41519#.U5ql4unlrmK

''....Wealthy beneficiaries often claim they are entitled to pay no tax because they paid some while working. But they still have a big income. Unless they pay tax on it, younger people will have to fund more of the growing cost of government services for retirees who are often better off financially. Many low and middle income employees would be better off if their compulsory contributions to super were instead paid out as higher take-home income when they are often struggling to bring up a family, pay off a mortgage, education fees and so on.

According to conservative Treasury projections, scrapping the concessions should increase revenue by over $35 billion in 2016–17, rising each year. This money could be used to improve living standards for the workforce via tax cuts and improvements to health care, education and infrastructure. Moreover, reputable studies show that the cost of the concessions outweighs the likely savings on the age pension costs.

Compulsion has another bad result. It distorts the flow of resources away from more productive uses. It encourages fund managers to trade existing financial assets rather than help mobilise capital for productive new investment to boost growth in a country with an ageing population....''

http://citynews.com.au/2014/increasing-inequality-brings-high-social-cost-report/

''....But from the mid-1970s, full-time wages for the bottom tenth of the income distribution have grown only 15%, while full-time earnings for the top tenth have increased by 59%.

Australia’s unemployment benefit is the lowest of OECD countries and 20% below the poverty line. Many government benefits “have barely kept place with inflation over recent decades”, the report finds.

Australia is one of the lowest-taxing countries in the industrialised world and its welfare spending as a proportion of GDP is among the lowest in the OECD....''

sydboy007 · 14 June 2014

Hewson also notes that there is no comprehensive list of tax expenditures (or tax breaks, as we know them more commonly) included in the budget, which keeps Australians in the dark about how much we are losing in forgone revenue.

According to one of the report's authors, Richard Denniss (the executive director of the Australia Institute and a former adviser to former Greens leader Bob Brown), if we abolished all super tax concessions, we could give the aged pension to everyone, and increase it by about 25 per cent

Read more: http://www.smh.com.au/comment/joe-h...ing-the-war-20140612-zs5v2.html#ixzz34ZBB5iKt

FxTrader · 14 June 2014

k.smith said:
"Australia is one of the lowest-taxing countries in the industrialized world...''

Not even close to being correct with respect to the top marginal tax rate (top 10) and the income level this kicks in at with the deficit tax pushing us further up the list. Yes, low to middle income taxation ranks us lower but this is as it should be - the wealthy pay proportionally more tax.

Compulsion has another bad result. It distorts the flow of resources away from more productive uses. ...''

LOL, would those more productive uses by chance include foreign made consumer goods like TVs and appliances, a better car, more expensive houses etc. (how most people choose to spend disposable income rather than save and invest it)? Consumption is the problem not the solution. Compulsion to save is the solution to funding the retirement of an aging population. How super savings are deployed for investment is restricted by legislation.

FxTrader · 14 June 2014

sydboy007 said:
According to one of the report's authors, Richard Denniss (the executive director of the Australia Institute and a former adviser to former Greens leader Bob Brown), if we abolished all super tax concessions, we could give the aged pension to everyone, and increase it by about 25 per cent

Of course that's it, eureka! Why hasn't anyone else proposed this simple solution. Abolish compulsory super and just pay an aging population a tax funded age pension and keep increasing it every year starting with an immediate increase of 25%!!! Pure genius .

Oh wait, what happens when a shrinking proportion of the working population needs to fund an ever growing age pension obligation via government taxation? Conclusion, it's unsustainable in the long run.

sydboy007 · 14 June 2014

FxTrader said:
Of course that's it, eureka! Why hasn't anyone else proposed this simple solution. Abolish compulsory super and just pay an aging population a tax funded age pension and keep increasing it every year starting with an immediate increase of 25%!!! Pure genius .

Oh wait, what happens when a shrinking proportion of the working population needs to fund an ever growing age pension obligation via government taxation? Conclusion, it's unsustainable in the long run.

Note, they didn't say abolish superannuation, just the tax breaks. It's compulsory, so why do we need massive tax breaks to encourage compulsory savings??

FxTrader · 15 June 2014

sydboy007 said:
Note, they didn't say abolish superannuation, just the tax breaks. It's compulsory, so why do we need massive tax breaks to encourage compulsory savings??

The point is that if you don't provide tax incentives to save for retirement in a long term savings vehicle like superannuation then why would anyone bother to add to it? The CSG levy alone is insufficient and doesn't apply to the self employed, additional voluntary contribution is required. Advocating for the removal of tax incentives for superannuation is advocating for it's demise. Arguing for more fairness with respect to how such tax incentives are apportioned is a different matter.

banco · 15 June 2014

FxTrader said:
The point is that if you don't provide tax incentives to save for retirement in a long term savings vehicle like superannuation then why would anyone bother to add to it? The CSG levy alone is insufficient and doesn't apply to the self employed, additional voluntary contribution is required. Advocating for the removal of tax incentives for superannuation is advocating for it's demise. Arguing for more fairness with respect to how such tax incentives are apportioned is a different matter.

Whatever system of tax breaks you have it's hard to get around the fact that the people who are most likely to end up on the old age pension are also the ones least likely to have excess cash to put into super.

FxTrader · 15 June 2014

banco said:
Whatever system of tax breaks you have it's hard to get around the fact that the people who are most likely to end up on the old age pension are also the ones least likely to have excess cash to put into super.

Exactly what the age pension should be, a safety net pension income stream for those with inadequate retirement income and/or assets that can support the basic necessities of life in old age. However, the principle asset many elderly have is their home. Exempting this asset from the assets test is one of the loopholes that turns the age pension into a lifestyle supplement rather than a retirement income safety net. This loophole needs to be closed.

sydboy007 · 15 June 2014

FxTrader said:
The point is that if you don't provide tax incentives to save for retirement in a long term savings vehicle like superannuation then why would anyone bother to add to it? The CSG levy alone is insufficient and doesn't apply to the self employed, additional voluntary contribution is required. Advocating for the removal of tax incentives for superannuation is advocating for it's demise. Arguing for more fairness with respect to how such tax incentives are apportioned is a different matter.

* tax incentives go to those who need them the least

* taxing super contributions at marginal rates would allow a significant drop in income taxes and / or increase in spending on infrastructure which should increase GDP growth and a larger economy is better able to support the same $ costs of the pension.

* By around 2017 the tax expenditures associated with super will cost more than the aged pension. What's the point of spending more than the cost savings?

* super tax expenditures are currently growing at ~12% while the aged pension is at ~4%. So roughly every 7 years the cost of super is doubling, while the aged pension takes 18 years. Possibly around 2025 super tax expenditures could be ~70% higher than the aged pension.

* there's nothing stopping those who make the most use of super tax expenditures from saving elsewhere.

* something really needs to be done to close down the transition to retirement pension re-contribution tax minimisation scam.

sptrawler · 15 June 2014

sydboy007 said:
Note, they didn't say abolish superannuation, just the tax breaks. It's compulsory, so why do we need massive tax breaks to encourage compulsory savings??

If you abolish the tax break on super, you are changing the intent of the contract, allowing the removal of 9% of your wages.
You then have to give the person the option, whether they want 9% taken out of their pay, they may decide they need the money know.
You could say that over a certain amount it will be taxed higher, oh they already do that.

Don't you think your statement is a bit out there, "do we need tax breaks to encourage something that is compulsory"?
The system was sold on its tax concesions, your statement sounds as though it's ok to scam people.
You are forcing people to have money taken from their pay, that they can't access.
Then you are taxing them on that money at their marginal rate, it would be easier just to put up the marginal tax rates.
It the tax concessions on super are costing more than they are saving, the system needs closing down and another system designed.

Also you say super tax expenditure will cost $x that is a bit of a furphy, it isn't an expenditure, isn't it a non collection.
Expenditure is an outgoing, from memory, like the pension.

banco · 15 June 2014

sptrawler said:
If you abolish the tax break on super, you are changing the intent of the contract, allowing the removal of 9% of your wages.
You then have to give the person the option, whether they want 9% taken out of their pay, they may decide they need the money know.

I'm not sure why you'd have to give the person the option?

k.smith · 15 June 2014

FxTrader said:
The point is that if you don't provide tax incentives to save for retirement in a long term savings vehicle like superannuation then why would anyone bother to add to it? The CSG levy alone is insufficient and doesn't apply to the self employed, additional voluntary contribution is required. Advocating for the removal of tax incentives for superannuation is advocating for it's demise. Arguing for more fairness with respect to how such tax incentives are apportioned is a different matter.

Tax incentives to save for retirement ... sure.
But surely not into "infinity and beyond" where the pursuit of tax minimisation seems to have become an art form?

http://www.macrobusiness.com.au/2014/06/smsf-property-investment-surges/

''....Meanwhile, the ATO has reportedly begun a crackdown on SMSF property investors using a loophole in the rules whereby they lend money to their SMSFs at zero or low interest rates in order to get around contribution limits, thereby increasing the amount of money taxed at low rates and minimising tax paid:

The loan was at zero or low interest with long repayment terms and the money was to be used by the self-managed superannuation fund to invest in property, generating rental income taxed at 15 per cent, instead of at the top personal rate of 46.5 per cent......''

sptrawler · 16 June 2014

banco said:
I'm not sure why you'd have to give the person the option?

Although some may be too young to remember, the first 3% of the super levy was in leiu of a payrise. The basic terms of the super guarantee were laid down then.
I would have thought, if the terms of the super system were going to be turned completely on their head. People would have to be given the option of whether they wanted to remain in the scheme.
It is one thing tying peoples money up for the majority of their lives, allowing it to be a slush fund for the markets, when their is a tax incentive.
It is completely another to remove your money and giving you no benefit. Other than a hope there is some for you at the end.

Vixs · 16 June 2014

banco said:
I'm not sure why you'd have to give the person the option?

You'd voluntarily give up 9%, soon to be 12%, of your pay into an account you can't touch until the government says so? Whatever, I've got things I'd rather do with my money. If they take away the concessions I would vote in a heartbeat for whoever will end compulsory contributions and get my 12% pay-rise.

sydboy007 · 16 June 2014

sptrawler said:
If you abolish the tax break on super, you are changing the intent of the contract, allowing the removal of 9% of your wages.
You then have to give the person the option, whether they want 9% taken out of their pay, they may decide they need the money know.
You could say that over a certain amount it will be taxed higher, oh they already do that.

Don't you think your statement is a bit out there, "do we need tax breaks to encourage something that is compulsory"?
The system was sold on its tax concesions, your statement sounds as though it's ok to scam people.
You are forcing people to have money taken from their pay, that they can't access.
Then you are taxing them on that money at their marginal rate, it would be easier just to put up the marginal tax rates.
It the tax concessions on super are costing more than they are saving, the system needs closing down and another system designed.

Also you say super tax expenditure will cost $x that is a bit of a furphy, it isn't an expenditure, isn't it a non collection.
Expenditure is an outgoing, from memory, like the pension.

Then how do we afford the current system over the next couple of decades? As more people hit the magic 60 year mark and can turn their super into tax free income, how does the system work with a rapidly declining participation rate? Possibly by 2030 super tax expenditures could be double cost of the aged pension.

I'm all for forcing people to save for their retirement, but is it fair to provided hundreds of thousands of dollars in tax expenditures for the ultra wealthy to accumulate millions in super? At a minimum we need to go back to RBLs to stop the near unlimited loss of tax revenue from super. I'm also not sure how long we can afford to have tax free super pensions when the number of people receiving them is likely to double by around 2030.

Considering how little money someone on <37K a year would accumulate in super, I think they'd be better off receiving their super as an increase in income. They're going to get a full pension at retirement anyway, and when you factor in that fees take out a larger % on smaller balances, it's a large burden on the poor for little to no benefit, or in the case for those on < 18K they pay more tax on their super income than wages.

sptrawler · 16 June 2014

sydboy007 said:
Then how do we afford the current system over the next couple of decades? As more people hit the magic 60 year mark and can turn their super into tax free income, how does the system work with a rapidly declining participation rate? Possibly by 2030 super tax expenditures could be double cost of the aged pension.

I'm all for forcing people to save for their retirement, but is it fair to provided hundreds of thousands of dollars in tax expenditures for the ultra wealthy to accumulate millions in super? At a minimum we need to go back to RBLs to stop the near unlimited loss of tax revenue from super. I'm also not sure how long we can afford to have tax free super pensions when the number of people receiving them is likely to double by around 2030.

Considering how little money someone on <37K a year would accumulate in super, I think they'd be better off receiving their super as an increase in income. They're going to get a full pension at retirement anyway, and when you factor in that fees take out a larger % on smaller balances, it's a large burden on the poor for little to no benefit, or in the case for those on < 18K they pay more tax on their super income than wages.

Absolutely, if the system requires overhauling then it has to be fair to those that have also placed money in super, in good faith.
Super is made up of taxable and taxfree components, those with large sums in super would have mainly taxfree money in there.
The taxfree component is generally money that has been put in after tax, therefore if it is to be taxed differently the member should be given the optoin of removing it.
Then what is left is the taxable component that was placed in with a tax concession, the government would then be able to do what it likes with it.
The problem is the taxfree component is such a large proportion in the large super balances , the removal of it would probably leave a lot of super funds embarrassingly short of funds.
Isn't the excessive earnings tax still comming in to being, whereby earnings over $100k get taxed at 15%.

If you are going to take money out of peoples take home pay at their marginal tax rates, then give it to fund managers who have no responsibilty to look after it, people won't be happy.

banco · 16 June 2014

sptrawler said:
Absolutely, if the system requires overhauling then it has to be fair to those that have also placed money in super, in good faith.
Super is made up of taxable and taxfree components, those with large sums in super would have mainly taxfree money in there.
The taxfree component is generally money that has been put in after tax, therefore if it is to be taxed differently .

In other words the changes should be grandfathered in to ensure the baby bomers aren't hit? Just like Hockey's increase in the retirement age.

sptrawler · 16 June 2014

banco said:
In other words the changes should be grandfathered in to ensure the baby bomers aren't hit? Just like Hockey's increase in the retirement age.

Not necessarily, as long as a member has the option of removing after tax personal contributions, no one should be able to complain.
Other than that, grandfathering of funds in the pension phase would probably be required, as the pension was commenced with existing rules.
Somewhat like what would happen if a change was made to negative gearing.

That would put super back to just a savings account, see how that works.lol

Superannuation, the ultimate government cash cow?

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