Superannuation, the ultimate government cash cow?

[sptrawler]

Those in the lower income deciles can't receive much in the way of tax concessions, as they don't actually pay much tax.

Yes I think we went around that loop last time, it doesn't seem to help.

I think it ended up with, a super contribution for them is just an increase in welfare payment, so why not just increase their welfare? rather than tie it up in super.

 

[Junior]

Yes I think we went around that loop last time, it doesn't seem to help.

I think it ended up with, a super contribution for them is just an increase in welfare payment, so why not just increase their welfare? rather than tie it up in super.

Thanks sp. Endless deja vu in this thread.

 

[k.smith]

if anyone can give me an economic rational as to why the below is equitable and good for the budget I'm all ears.

The top 20%, some 2 million people, get 60% of around $35 billion in tax concessions, or around $21 billion.
average concession per person = $10k plus.


why should the bottom 80% be happy to support that?

 

[sptrawler]

The top 20%, some 2 million people, get 60% of around $35 billion in tax concessions, or around $21 billion.
average concession per person = $10k plus.


why should the bottom 80% be happy to support that?

You missed juniors point, most of the bottom 80% aren't paying tax.

You said above:
the average tax concession per person = $10k. The average tax per person in the top 20% probably= 40% which may be $60k plus

Average tax per person in the bottom 50% probably = $0 or minus$.

How are they supporting anything?

I suppose the easy answer is to do what happened here and in the U.K, 40 years ago, just hit everyone on high incomes 60% tax.
Then they all relocate their head offices overseas, jeez
I was an electrician, always worked for wages, why can I see that constant handouts and constant tax increases can't work.
Obviously there is something wrong with my logic.

Syd's had the best idea with RBL's

Then he blows his feet off,IMO, with non sensical emotional garbage

 

[banco]

The only outcome of superannuation tax concessions to the top decile is likely to be making an already relatively comfortable retirement more comfortable.

 

[Julia]

You missed juniors point, most of the bottom 80% aren't paying tax.

You said above:
the average tax concession per person = $10k. The average tax per person in the top 20% probably= 40%

Average tax per person in the bottom 50% probably = $0 or minus$.

How are they supporting anything?

+1.

Mid year NATSEM data shows:

The analysis also reveals for the first time which family types are most reliant on the public purse.

The results would shock many in Australia, according to NATSEM principal research fellow, Ben Phillips.

“Most people rightly or wrongly think they pay too much tax and don’t receive enough benefits,” Mr Phillips said. “So people might be surprised to learn only about half of Australian families pay more tax than they receive back in benefits.”

 

[sptrawler]

+1.

Mid year NATSEM data shows:

It's really hard to get people to understand that simple concept.

 

[sptrawler]

The only outcome of superannuation tax concessions to the top decile is likely to be making an already relatively comfortable retirement more comfortable.

Well then stop super, because the bottom decile don't pay tax.

At least then the top decile, can have the extra money in their pockets, to spend as they like and move it into family trusts.

Then they can at least claim the pension, like everyone else.duh:1zhelp:

HELP, PLEASE HELP. Syd explain rbl's again.

 

[Bill M]

They use to have Reasonable Benefit Limits (RBL's) before. From memory when the Super Guarantee first started it use to be around 450K and it was indexed every year (I think). That, somewhere along the line, was abolished and now there are no limits.

What do readers think would be a fair RBL these days? $1 M, $2 M, $3 M or what? For me $2 Million sounds fair but others will think much more is needed.

Getting onto the discussion about tax and low income earners, we have never had it better. An individual can earn up to 20K before having to pay any tax at all, (that is by getting the low income tax offset as well). If you are married then that's 20K each. Structure your investments (or you work income) so you are both receiving 20K each and you are on $40,000 a year without paying any tax, not bad at all.

 

[Junior]

They use to have Reasonable Benefit Limits (RBL's) before. From memory when the Super Guarantee first started it use to be around 450K and it was indexed every year (I think). That, somewhere along the line, was abolished and now there are no limits.

What do readers think would be a fair RBL these days? $1 M, $2 M, $3 M or what? For me $2 Million sounds fair but others will think much more is needed.

Getting onto the discussion about tax and low income earners, we have never had it better. An individual can earn up to 20K before having to pay any tax at all, (that is by getting the low income tax offset as well). If you are married then that's 20K each. Structure your investments (or you work income) so you are both receiving 20K each and you are on $40,000 a year without paying any tax, not bad at all.

A couple in that scenario would also have access to Government Co-contribution ($500 each from the government should they add to their super) and LISC (zero tax on SG contributions). If they have kids they would also receive Family Tax Benefits.

 

[k.smith]

You missed juniors point, most of the bottom 80% aren't paying tax.

You said above:
the average tax concession per person = $10k. The average tax per person in the top 20% probably= 40% which may be $60k plus

Average tax per person in the bottom 50% probably = $0 or minus$.

How are they supporting anything?

I suppose the easy answer is to do what happened here and in the U.K, 40 years ago, just hit everyone on high incomes 60% tax.
Then they all relocate their head offices overseas, jeez
I was an electrician, always worked for wages, why can I see that constant handouts and constant tax increases can't work.
Obviously there is something wrong with my logic.

Syd's had the best idea with RBL's

Then he blows his feet off,IMO, with non sensical emotional garbage

Tax on $180,001 = $54,547, or 30.3%
Plus 2% medicare levy = total 32.3%

While I acknowledge that some at the bottom end need may need to lift a bit harder, it seems to me that the majority are beholden to the wages they receive, and taxed accordingly, such as tax on $80k is approx. 22%.
It is the majority of us who make it possible for the top deciles to achieve. We buy what they produce, we use their professional services, etc. The top end then pays a higher proportion of tax as being part of their responsibilities within our social structure. They can hardly achieve what they achieve in a land where everyone achieves equally ! I have no problems with such a democratic system. But taxing the top end, and then handing it back as tax concessions?

 

[banco]

They use to have Reasonable Benefit Limits (RBL's) before. From memory when the Super Guarantee first started it use to be around 450K and it was indexed every year (I think). That, somewhere along the line, was abolished and now there are no limits.

What do readers think would be a fair RBL these days? $1 M, $2 M, $3 M or what? For me $2 Million sounds fair but others will think much more is needed.

Getting onto the discussion about tax and low income earners, we have never had it better. An individual can earn up to 20K before having to pay any tax at all, (that is by getting the low income tax offset as well). If you are married then that's 20K each. Structure your investments (or you work income) so you are both receiving 20K each and you are on $40,000 a year without paying any tax, not bad at all.

It should be tied to some multiple of the age pension ie if you have accumulated enough money to be able to live on 200% of the pension for 25 years then you shouldn't be able to get any more super tax concessions etc.

 

[sydboy007]

They use to have Reasonable Benefit Limits (RBL's) before. From memory when the Super Guarantee first started it use to be around 450K and it was indexed every year (I think). That, somewhere along the line, was abolished and now there are no limits.

What do readers think would be a fair RBL these days? $1 M, $2 M, $3 M or what? For me $2 Million sounds fair but others will think much more is needed.

Getting onto the discussion about tax and low income earners, we have never had it better. An individual can earn up to 20K before having to pay any tax at all, (that is by getting the low income tax offset as well). If you are married then that's 20K each. Structure your investments (or you work income) so you are both receiving 20K each and you are on $40,000 a year without paying any tax, not bad at all.

In the 2006-07 tax year the limit was $678,149 as a lump sum or $1,356,291 if at least half was taken as some form of pension / annuity. Howard's introduction of tax free super for the over 60s also abolished RBLs, even though they impacted a very small number of people. Since then the balances within SMSFs have really taken off since there's no limit on the level of assets that can be accumulated.

As for a couple on 40K tax free a year never having it better, well they're likely to never be able to afford their own home anywhere they can get work. A 200K property would put them into sever mortgage stress. A $200K property at 6.5 over 25 years would cost them $16200 a year. factor in council / body corp / water / maintenance and there's half their income gone. That wouldn't get you much, and there's no point saying they could move outside a big city because then they'd not likely have jobs.

It should be tied to some multiple of the age pension ie if you have accumulated enough money to be able to live on 200% of the pension for 25 years then you shouldn't be able to get any more super tax concessions etc.

I suppose until there's a consensus as to what super is going to achieve, it will be quite tricky to decide on what the reasonable amount of lightly taxed funds that can be accumulated.

I have a fairly utilitarian view. Minimise the impact of the aging tsunami on the budget. Currently I don't believe super is achieving this goal as the tax concessions are out weighing any reduction in the cost of the aged pension. Some will argue the super system hasn't been running long enough, and that may be true, but we seem to be in a massive deficit so far in terms of the benefits to ongoing tax payers.

So if single / couple has enough money in super to exclude them from receiving the pension, is there any benefit to the remaining tax payers for allowing extra money to be saved away? Currently for a couple those levels would be no primary residence $1,145,500 or with $1,292,000. Those levels allow for an income at double the current pension. Seems this isn't a high enough income to satisfy people on this forum. On the one hand they criticise some boomers for complaining super wasn't around long enough for them to save for their retirement, yet believe if we limit the how much can be saved in super people will stop saving for retirement. It's a compulsory system so savings is pretty much guaranteed.

I'd say the person without their own house is being short changed, but then everything within the tax system benefits housing over just about everything else. So I'd say once a person achieves the balance to exclude them from receiving the pension they can no longer make contributions. Receive their super payments as extra income, and should their balance fall below the current threshold they can top up easily enough. With a conservative portfolio one should be able to achieve a fairly high balance above the actual contributions threshold. You could then get rid of the annual contributions limits as there's no real need for them.

We've got to consider that as each year passes the participation rate keeps falling. The dependency rate keeps on increasing. How do we continue to afford the level of services we currently have when each year there's less people paying tax (as a proportion of the population)?

Is tax free super affordable over the next 30 year? It might be when the super system is fully mature, but is it during the transition phase where young boomers and gen x are forced to cover both systems?

From some of the arguments presented it seems people believe higher income earners deserve their super tax breaks because they already pay the majority of tax receipts. I say bumpkin to that. It's just another symptom of the inefficiencies we have in the tax expenditures riddled tax system that's grown over years.

We'd be better off tax super at full marginal rates on the way in, siphon off half that money as deficit reduction and half to lowering income taxes. Quarantine NG to new housing builds. Once again split the savings 50 50 between debt reduction and lowering income taxes. Personally constructing tax measures like this would make them far easier to sell and get us to a more globally competitive income tax system.

We have to stop treating the primary residence as being invisible to pension system. Pretty much every Australian views housing as an asset rather than a home these days, so start treating it like one. As i said before, use the land value as part of the assets test, bring in reverse mortgages supplied by the Govt at cpi or the Govt bond rate to help those who have their pensions cut. You could use these savings to bump up the pension asset limits as well as fund health care.

The less tax leakage we have in the system, the lower the headline rates need to be for income tax, and the less incentive there is to try and beat the system. Then we can start to really examine what levels of income require got support. Kill off the tax churn that is a major feature of the system. Get rid of the dead hand of Govt at each step of taking and giving. We might be better off with a tax free threshold of $35-40K for singles and 50K for those with children. Gut the welfare system so it only provides assistance to those on the bottom 3 income deciles.

 

[Julia]

It should be tied to some multiple of the age pension ie if you have accumulated enough money to be able to live on 200% of the pension for 25 years then you shouldn't be able to get any more super tax concessions etc.

That doesn't sound unreasonable.

We have to stop treating the primary residence as being invisible to pension system. Pretty much every Australian views housing as an asset rather than a home these days, so start treating it like one.

You're making an assumption there. I think most people really want to live in a home they own because they can change it, do what they like, have a sense of security.

How would your land value idea work, given the huge variation in values between mid capital city etc and the boondocks?

Kill off the tax churn that is a major feature of the system. Get rid of the dead hand of Govt at each step of taking and giving. We might be better off with a tax free threshold of $35-40K for singles and 50K for those with children. Gut the welfare system so it only provides assistance to those on the bottom 3 income deciles.

Yep, agree.

Also, I know a lot of people disagree, but I'd like to see an obligation for a proportion of pension to be taken as allocated pension. Just not fair for people to spend the lump sum so they can then access age pension.
I know "it's my money, I'll do what I like with it" is popular, but it's about time we faced up to being a bit more realistic. If you get the tax concessions, then you have an obligation to spend those accordingly.

 

[sydboy007]

You're making an assumption there. I think most people really want to live in a home they own because they can change it, do what they like, have a sense of security.

How would your land value idea work, given the huge variation in values between mid capital city etc and the boondocks?

People talk about housing as a financial asset these days. It's all about the value of your property. It's the BBG topic of choice. Yes people still like the benefits of home ownership, but in general terms the family home is the biggest asset most people will have in their lives.

Where you live is to a degree based on wealth You don't get millionaires living at Liverpool. You don't get median wage earners living at point piper. Wealthy people know buying an asset that can't be increased ie water front land or in desirable suburb - is a great way to store wealth. That's why properties in NYC with views of central park go in the tens of millions.

So someone living outside of a capital city will in general terms have less wealth than one living in the city. There's also the issue where the current system traps people in their current housing because of the generous invisibility of the primary residence. Start treating the land component as visible and then it makes it easier for people to downsize or move to a cheaper suburb.

By focussing on the land value you don't need to start up a whole new bureaucracy and systems to calculate what should be included in the assets tests. There's also well understood methods to seek a variation if you believe the land valuation is incorrect.

Also, I know a lot of people disagree, but I'd like to see an obligation for a proportion of pension to be taken as allocated pension. Just not fair for people to spend the lump sum so they can then access age pension.
I know "it's my money, I'll do what I like with it" is popular, but it's about time we faced up to being a bit more realistic. If you get the tax concessions, then you have an obligation to spend those accordingly.

Now now Julia, everyone on this forum has been saying this doesn't happen, or for those that do it the balances are not that big so it doesn't matter. I find it unfair that someone not owning their home has their $100K super balance fully accounted for, but someone with a $1M property (there's plenty of them in Sydney and Melbourne) can spend some money on renovations and get the full pension. Much fairer to maybe treat the super balance at retirement a bit like the way gifting works (Any gift or gifts with a total value greater than the allowable amounts will be assessed as a deprived asset for 5 years from the date of gift and will be subject to the income deeming provisions). I'd prefer to see the 5 years increased as the balance of super spent increases and also still be part of the pension assets test. That way there wouldn't be an incentive to scoot off on a holiday or spend $50K renovating the house.

 

[sptrawler]

People talk about housing as a financial asset these days. It's all about the value of your property. It's the BBG topic of choice. Yes people still like the benefits of home ownership, but in general terms the family home is the biggest asset most people will have in their lives.

Where you live is to a degree based on wealth You don't get millionaires living at Liverpool. You don't get median wage earners living at point piper. Wealthy people know buying an asset that can't be increased ie water front land or in desirable suburb - is a great way to store wealth. That's why properties in NYC with views of central park go in the tens of millions.

So someone living outside of a capital city will in general terms have less wealth than one living in the city. There's also the issue where the current system traps people in their current housing because of the generous invisibility of the primary residence. Start treating the land component as visible and then it makes it easier for people to downsize or move to a cheaper suburb.

By focussing on the land value you don't need to start up a whole new bureaucracy and systems to calculate what should be included in the assets tests. There's also well understood methods to seek a variation if you believe the land valuation is incorrect..

The other way is to bring back death duties.

Now now Julia, everyone on this forum has been saying this doesn't happen, or for those that do it the balances are not that big so it doesn't matter. I find it unfair that someone not owning their home has their $100K super balance fully accounted for, but someone with a $1M property (there's plenty of them in Sydney and Melbourne) can spend some money on renovations and get the full pension. Much fairer to maybe treat the super balance at retirement a bit like the way gifting works (Any gift or gifts with a total value greater than the allowable amounts will be assessed as a deprived asset for 5 years from the date of gift and will be subject to the income deeming provisions). I'd prefer to see the 5 years increased as the balance of super spent increases and also still be part of the pension assets test. That way there wouldn't be an incentive to scoot off on a holiday or spend $50K renovating the house.

You are really starting to nail it Syd, I think you could just about present your suggestion as a viable platform.
For what it's worth, well done.

 

[Julia]

People talk about housing as a financial asset these days. It's all about the value of your property. It's the BBG topic of choice. Yes people still like the benefits of home ownership, but in general terms the family home is the biggest asset most people will have in their lives.

That doesn't alter the basic premise that the ownership of the home is primarily a personal security and even 'emotional warmth' concept.

By focussing on the land value you don't need to start up a whole new bureaucracy and systems to calculate what should be included in the assets tests. There's also well understood methods to seek a variation if you believe the land valuation is incorrect.

Could you explain how this would work? That's what I asked earlier. When you have X sqm of house of similar standard in Sydney CBD on the one hand and the same in regional Australia, obviously they will be worth vastly different amounts. How are you going to address the tax you suggest on both of these?

 

[sydboy007]

Could you explain how this would work? That's what I asked earlier. When you have X sqm of house of similar standard in Sydney CBD on the one hand and the same in regional Australia, obviously they will be worth vastly different amounts. How are you going to address the tax you suggest on both of these?

The house is irrelevant. The value based on location is irrelevant. In general terms the more valuable the land you own, the wealthier you are. Most of that value hasn't been "earned". I've not done anything to have caused the value of my small 127 sqm of land in the inner west of Syd to jump from $165K in 97 to $500K in 2013. Seems one way to bring some of the economic rent back into the public purse, and regain some of the privatised profits from public infrastructure spending.

Base the pension assets test on the value of the unimproved land. This is pretty much how council rates work.

The information is already available to the Government. It would be a very easy system to implement, it would also be pretty cheap to implement. Most likely would need to bring in some for of Govt subsidised reverse mortgage scheme ie CPI interest rate - so those seeing their pension reduced would still have enough income to live on.

You'd definitely need to provide an increase in the pension assets tests limits, but raise them too much and there wouldn't be much of a saving on the aged pension.

 

[Bill M]

Yesterday I bumped into a 74 year old man whilst I was on one of my walks. We got on to talking about pensions and savings.

He went on to say that when he was 6 Months away from turning 65 he went to see Centerlink about getting his government funded pension. The only problem was that Centerlink told him he had too much money and was not entitled to one. He said that it was his right and that he worked all of life and felt that he wasn't going to get duded by the Government.

He ended up disposing his assets in ways that when he did turn 65 he was entitled to a full pension. He said, "now I have everything, my pension, health card and all the perks". He said, I just don’t think it is fair that someone can spend their whole life drinking, smoking and gambling their money away whilst another person who saves his money, buys a house and then gets penalised for it. I kind of saw the old mans point of view and why he was thinking like he was.

The reason why I mention this is because there are many Aussies out there that will go to all lengths in order to get a Government funded pension. It just doesn't matter what the rules are, there will always be a way of getting around them legally. I think over taxing, penalising and complicating the Super system is the wrong way to go. People need to have reasons to save, otherwise they will put the whole deal in the too hard basket and say things like, why should I save, anymore than $XXX in the bank or super and they will take my pension away.

The Super system encourages me away from the pension system, isn't that a good thing?

 

[poverty]

The Super system encourages me away from the pension system, isn't that a good thing?

Only because you're a member of a forum like this. The average joe, with the socialist welfare mentality that we have allowed to breed in this country cannot leave free money on the table. He will take his super as a lump sum and dispose of it any way he can. Gotta get that pension, or, gotta get that part pension. Buy a caravan and spend a few years travelling Australia blowing your super and you'll be on that free-welfare time befre you know it, with all the perks. Gotta blow the money, gotta blow it, gotta blow it to get the free money. This is Australia.