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Superannuation, the ultimate government cash cow?

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I'm not saying that Howard shouldn't wear some of the blame, but just highlighting the fact you apportion no blame on Labor.

From what I have read on the subject, as it does directly affect me, Labor actually relaxed the rules even further in 2010.

So all I'm saying, is keep it context.
 
Interesting article.

http://www.abc.net.au/news/2015-10-14/jericho-aged-pension-and-welfare/6852860

When i started reading the comments, I found it interesting that the comments were leaning toward, finding more tax to pay for the pension.

Yet, in the opening paragraphs of the article, a pertinent point was made, but as usual no one picks up on it, except asylum seekers.

The first thing to remember about Australia's welfare system is that it is unlike most other nations. As the commission notes: "In contrast to most OECD countries, in Australia eligibility for payments does not depend on a person's employment record and the rates of payment are flat and means-tested, rather than being at least partially linked to a person's earnings."

This is a huge problem,IMO.

Meanwhile, we are scurrying around, trying to find more ways of taxing savers, to support a system that rewards non participation, or jumping in the queue and joining the gravy train.

We must be the dumbest people in the World.IMO
Just my opinion, but I've always lived by the belief, "you only get out, what you put in".

Shows what a 'Dick' I am. lol

The system is, if you've contributed nothing, or saved nothing, kudos to you.

If you've saved and worked, more fool you.lol
 
k.smith said:
I am interested to read what forum members think of this idea.

https://theconversation.com/what-fair-superannuation-would-look-like-49879
Click to expand...

Sounds like, just an increase in personal tax rates to me, I'm interested in what you think.

What I would really like to see, is a system where, you are rewarded for your endeavour.
I have four middle aged kids, they are all in different socio economic groups, mainly from their personal choices.

We need to introduce a system similar to the U.K and Canada, it has been posted before.

The problem in our society is, the perception that everyone on welfare is needy and everyone on a $100k is a fat cat.lol
 

I'm still reading but so far, I like it.
I think it meets the four principles of Adequacy, Sustainability, Certainty and Fairness, see:

http://www.treasury.gov.au/Policy-Topics/SuperannuationAndRetirement/supercharter/Report/Appendix-A

Adequacy ... faster growth potential of members accounts as no tax is paid during accumulation
Sustainability ...a more affordable system
Certainty ... tax free retirement income
Fairness ... tax is paid before contributions are made at one's personal tax rate, and the argument re super concessions would no longer apply.


http://www.theage.com.au/comment/wh...he-success-of-tax-reform-20151108-gktvvn.html
''...That's what Stephen King and Rodney Maddock from Monash University argue in a paper prepared for the Committee for Economic Development of Australia. The administrative savings would be enormous. Employers would deduct tax from earnings channelled into superannuation in exactly the same way as they deduct tax from earnings channelled into bank accounts.
Once in the super funds, the earnings wouldn't be taxed at all. Because the funds would become very attractive, extra contributions would be outlawed or allowed only within tight limits.
Melbourne University's John Freebairn gave the idea a road-test at the Melbourne Institute's Economic and Social Outlook Conference on Friday. "If you are a low earner paying zero income tax, your money would go into super untaxed," he explained. "If you are on $180,000, 45 cents would be taken out before it goes in. That's exactly how we tax income."
He said it would save about $15 billion a year. He would do the same to fringe benefits, also taxing them as income. That would bring the saving to $20 billion a year. It would be enough to cut all income tax rates by 12 percentage points.
As he put it: "the losers would be those with more than average super and fringe benefits, the winners would be those with less than average super and fringe benefits".
....''
 

I don't know how you could draw that conclusion.

Who is to say that down the track, they wouldn't decide to tax the retirement income anyway.

The argument would change from, they have paid their personal tax rate, to they have a very high balance and it should be taxed they can afford it.

It is really silly, just put a limit on how much an individual and a married couple can have in the super system.

The problem with that is, the Government and financial system is thriving on the contributions.
If they cease, the financial system gets all wobbly again.
 

The saying goes that there is nothing sure in this world other than death and taxes, but the proposal being discussed here is that tax is paid before it is contributed and that at the other end of the equation both the earnings within the accumulation period and the retirement income are tax free. Seems to me (first to admit no expert at this!) it would be much simpler and straightforward.

http://grattan.edu.au/news/super-system-allows-some-big-earners-a-tax-edge/

''... Every year, contributions concessions cost about $17 billion and earnings concessions about $16bn ”” and mostly benefit the top 20 per cent of income earners. Although you can’t add these numbers and not all the revenue would be collected if there were reforms, it is the biggest leak in the income tax system. It means government can’t afford to reduce bracket creep, which hits middle Australia hardest....''

I do not believe that contributions would cease if tax was paid before going into the fund. The lure of retiring with tax free income would remain unchanged and the sweetener is that the earnings are no longer taxed at 15% in accumulation, which with compounding would be fantastic for the next generations coming up. I can't see anything wobbly about that !
 

It would only be a matter of time, before the fact it was paying no tax in accumulation and pension phase, would be seen as a loss of tax income.
Then there would be a debate, as we are having now, about the tax loss and how the earnings and or the pension should be taxed.
Unfortunately I don't believe, that the super system, will be there for your benefit, when it matures.


You miss understood, what I was saying.
I said re introducing RBL's, would solve most of the issues surrounding high account balances, as people couldn't put more in super.
But high account balances, is a red herring, the Government don't mind how much you have in super, they just want a cut of it.

Why stop at taxing the contribution at your marginal rate? Why not tax the earnings at your marginal rate also?
As the authors of the report said, it's compulsory, the Government can do as it likes with the tax on it.
 
sptrawler said:
.......

Why stop at taxing the contribution at your marginal rate? Why not tax the earnings at your marginal rate also?
As the authors of the report said, it's compulsory, the Government can do as it likes with the tax on it.
Click to expand...


Contributions would not be taxed, it's your income which is taxed. By contributing into super, you claim a tax concession. What is fair about high earners being able to claim tax deductions of more than 45% for each dollar they contribute to super, while the low income earners in some cases get zero for each dollar they contribute?

A person on $200,000 has a tax obligation of $63,547 tax, but by contributing $35,000 of that $200,000 to super receives a concession of $14,550, reducing his tax obligation to $48,997.
The wealthiest 20% receive more than half of the superannuation concessions Removing all concessions on super contributions would save a massive $17 billion.

http://thenewdaily.com.au/money/2014/12/16/hockey-protecting-fiscal-monkey-trap/

''...When Paul Keating set up the ‘superannation guarantee’ in 1991, he gave tax concessions on contributions to encourage people to save as much as possible. The aim was to create a pool of national savings that would give us ‘retirement income’ that was not a state-funded pension. And so not taxing the ‘pension phases’ seems to make sense too.

All good so far.

The problem, highlighted again in MYEFO, is that the purpose of these tax breaks has largely changed. They are now worth $36.25 billion in forgone tax revenue, in a year where the ‘horror’ deficit is $40.4 billion.

The volumes of money washing through the super system, particularly the burgeoning self-managed super fund (SMSF) sector where balances tend to be much higher, mean that a large portion of those tax breaks is being used for ‘wealth management’ or ‘estate planning’ purposes....''

It seems to me that it would make so much better sense to save the $17 billion by getting rid of the unfairness of the inequality of concessions entirely. It makes much better sense to remove the 15% on earnings within super during accumulation. The rewards - a tax free retirement income - need to be at the end, not at the beginning.

I wonder what Paul Keating thinks about this idea?
 

By your reasoning, what would be fair about a high income earners receiving the earnings of their high account balances, tax free?

I can't see the difference, you get all out of shape about high income earners getting a tax break on contributions.
Then you go on to say, it is o.k their earnings in super should be tax free, why?

IMO, it would be the next logical step.

Then the final step may as well be, tax their pension, if it is above a certain amount, say $75k.lol
 

There will always be high earners and low earners and those in the middle in our democratic system. The majority of our population - those at the low and middle - accept that those at the top earn more, and in return have voted for a system where the more you earn, the more tax you pay. The amount that people earn and save is their own personal matter, and the tally of their savings at retirement is their own personal matter.Where they invest it is their own personal matter. Each year, we all have to account for our earnings on our wages income and investment income, and pay our taxes accordingly.

Then we come to superannuation, where the purpose of superannuation is to encourage people to save for their retirement by way of both compulsory and hopefully voluntary contributions. Lock your savings up for years and years until you retire, says the government, and in return, it will come out at retirement age tax free. Sounds good ? Where else can you get a deal like that? Sounds good for everybody!

While it's in super accumulating and earning investment income, we will tax it just 15% on every dollar you're earning for your retirement, says the government. That's after tax payers have paid out $17 billion in concessions for you to put those $$$ into super in the first place, most of which went to the high earners.

I think the problem is that high earners are using super to minimise their tax obligations. I do not care how much anyone earns or saves, that is entirely their own affair. The concept of dropping tax concessions on contributions and not taxing the earnings which are working to achieve the very purpose of superannuation imo makes things fairer and makes a lot more sense. And saves an incredible amount of $$.
 

That all sounds nice, however IMO the reality is, as the pot of money in super increases over time, so will the tax on it.
This will be required, to fund a social welfare system, whose costs are increasing faster than the economy is growing.
It will become a future fund, for the provision of Government welfare obligations.IMO

How much you get out of it, will depend entirely on how much the Government needs out of it.
 
sptrawler said:
That all sounds nice, however IMO the reality is, as the pot of money in super increases over time, so will the tax on it. ....''
Click to expand...

Yes, that is the problem, because as the pot of money increases, the tax concessions balloon out.
About $50 mil next year. The cost to the budget of these concessions needs to be addressed, and repeated tinkering at the edges only causes mistrust and insecurity.

I think that the idea here...

https://theconversation.com/what-fair-superannuation-would-look-like-49879

...would make a dramatic difference. Rather than pay out ever increasing concessions on contributions as an "inducement", to my mind it makes infinitely more sense that the incentive should be a tax free saving environment within super during accumulation, which would markedly increase member accounts by the compounding of the tax saved.
 

I thought that article, was poorly presented and therefore lacked credibility, also making statements that undermine peoples freedom of choice.

1.
Take the following extract from the article:

The common rationale is that we all need an incentive to compensate us because our savings are locked away for a long time. This is rather like a compensation for being compelled to do something. It is a bit odd though because the government compels us to do lots of things without any incentive payments. There is no incentive payment for driving on the left, or for paying one’s taxes. There is no obvious reason for the government to provide incentives for compulsory payments into superannuation.

There is no incentive payment for driving on the left side of the road, or for paying one's taxes, but there are fines and penalties for not doing so.

2.
Let's go on to the next statement:

A more subtle explanation for the incentive would be that savings should always be lightly taxed (as argued in the Henry review). This is to provide equity between savers and consumers – if I consume all my income today, but you save and then pay tax on your savings, you are paying higher taxes than I am. While this makes sense for voluntary savings, it is not relevant in the context of compulsory savings.

That would rate up there, as one of the most deprecating statements about super I've heard.

Whether it is voluntary savings or compulsory savings, it's still your money, from your wages.
If they want to change the taxation on it to your marginal rate, you should be able to chose, whether you want to contribute to it.

If you can't chose to opt out, and it is compulsory to stay in, then it is just a personal tax increase.

There is no guarantee, your money has to be there at the end, yet there is a guarantee the Government will take more of your money as tax, every pay day.

3.
Then the next stupid statement:

Once the savings are in the compulsory sector they would not need to be taxed further. Again this would simplify the system and reduce administrative complexity.

Who says it would not need to be taxed further? How dumb is that? People who agreed to the current system didn't expect it to be taxed further.:1zhelp:
That would rate highly in the dumb statements arena.

All just my opinion, same as the article was theirs.
The difference is I think it is your money, they think it is the Governments money.
While there is a tax concession on that money, the Government can have a say. Once it is at your marginal rate, you should have the choice whether or not you participate.

4.
The Government has brought about the problem itself, we had a pension system similar to the U.K and Canada.
A portion of peoples tax was put aside to fund pensions, everyone recieved the pension.

Then the Government decided to incorporate the money, and pay pensions from consolidated revenue.
Next came means testing, so some people shouldn't get a pension, they have plenty of money anyway.

Then the problem, people spent their money and had little savings, which manifested itself during the 1987 stock market crash.
Because Australia had no savings reserves, our major banks borrowed all their money from overseas, they nearly went belly up.

So the Government goes "$hit that was close", we need a pool of savings to underpin our equity market, lets introduce compulsory savings.

We will tell the plebs it is to enhance their retirement, and will be in lieu of wage rises and give tax concessions to sell it.

Now we are here, priceless.

If they had kept their fingers out of the old system, pensions would be funded and superannuation pensions would be taxed as personal income.

Now that would be easier, to administer.

I think they would be better off just concentrating on returning to the original concept, rather than trying to get everyone off the pension. It won't happen, so give everyone the pension and tax super.
 

http://www.ifs.org.uk/bns/bn105.pdf


"everyone received a pension" it was a set amount, and the amount you received was relevant to the number of years you had worked, not how much you had earned.

I think the aged pension IS an entitlement, and I think every tax payer, rich or poor, does have a right to a pension in their old age. Not only would a universal pension greatly reduce the burgeoning administration dilemma of attending to the current means tests ( as well as treat people with some dignity) wouldn't it be fairer to just give it to everybody and then apply tax as on other assets and income in tax returns?

So agreed, the old system was much simpler and fairer, but it seems to me that we are too entrenched in the current super system now to revert back. The problems need to be addressed.

sptrawler said:
''.....While there is a tax concession on that money, the Government can have a say. Once it is at your marginal rate, you should have the choice whether or not you participate.....''
Click to expand...

We do not have a choice about compulsory contributions, whether we receive a tax concession or not. We have to contribute...the only choice is whether you contribute MORE.


Here's the link to the report....

http://adminpanel.ceda.com.au/FOLDE...engeofRetirementIncomePolicySept2015FINAL.pdf
 

You keep talking as if contributions are taxed.... they aren't. It's your INCOME that is taxed. Contributions give you TAX BACK...
Your contributions (your capital) will be returned to you with compounded interest in retirement.
The more capital you contribute, the more you will get back. Yes, it's your money.
But why should some people get TAX BACK of more than 45% of their capital deposit, and some people get zilch?
 
k.smith said:
You keep talking as if contributions are taxed.... they aren't. It's your INCOME that is taxed. Contributions give you TAX BACK...
Click to expand...

The super guarantee when introduced was a contract between the workers and the Government, in lieu of a pay rise, there would be a compulsory levy introduced on your wages.

This levy was to take the form of national savings, to enhance peoples retirement and slowly reduce the requirement for a Government pension. The main reason for it being introduced, as per what Paul Keating said, was to help under pin our financial system, as the Banks were borrowing all their money from O/S at that time.

To forego the pay rise, the workers were told this levy would be taxed at 15%, these contributions are taxed.
The problem is perception, now the Government and blind believers, see the reduced tax rate as a loss to the ATO.
Where in actual fact, it is compensation for loss of take home pay, that the financial system is using to make them a lot of money.


k.smith said:
Your contributions (your capital) will be returned to you with compounded interest in retirement.
Click to expand...

Where is that written?
There is an expectation, that will happen, but there are no guarantees.
That is the main reason, I get annoyed when people say, there should be no concessions.
If there isn't any concessions, why would I give my money to a complete stranger, to look after it till I retire?


k.smith said:
The more capital you contribute, the more you will get back. Yes, it's your money.
Click to expand...

Now you are starting to sound like an insurance salesman.

k.smith said:
But why should some people get TAX BACK of more than 45% of their capital deposit, and some people get zilch?
Click to expand...

I suppose it is a bit like asking why do some people pay 50% tax and some pay 0%.
 


Concessional contributions are BEFORE TAX (i.e personal tax) contributions. There is a 15% tax to your super account of your fund account's income, which includes contributions. Personal taxable income is reduced by claiming a concession for the amount paid.

Example - A high income earner earning $200,000 p/a pays approx $19000 in compulsory super, his super fund account pays $2850 in taxes, and his personal taxable income is reduced from $200,000 to $181,000 which reduces his tax from $63,547 to $54,997 - saving him $8850. His super fund account is charged $2850.
Cost to the budget = $6000. ($8850 - $2850 = $6000)

A low income earner earning $20,000 p/a pays approx $1900 in compulsory super, his super fund account pays $285 in taxes, and his personal taxable income which was 0 remains 0. His super fund account is charged $285.
While at this stage the Low Income Superannuation Contribution (LISC) refunds his super account 15%, in this case $285, this scheme is destined to end in June 2017.

Each dollar the high income earner contributed as a concessional contribution in this case saved him 31.5 cents.
Each dollar the low income earner contributed as a concessional contribution saved him 0... and after 2017, will cost him 15 cents.

How can that be fair?


If that is the case, do you think it fair that some are "compensated" more than others? Do you think it fair, in the example above, that a low income earner can be up to 46 cents worse off for each dollar he contributes compared to a high income earner? If so, why?

Perception is in the eyes of the beholder... I see buying beer and smokes as a loss of take home pay !
And by the growing tally of SMSFs, I'd say that the financial sector isn't the only one making a lot of money !



No, there are no guarantees, true enough. But if you think like that, what makes you think that your money is safer in the bank? Some countries now charge 1.2% of your bank account capital., see
http://www.nortonrosefulbright.com/knowledge/publications/60997/netherlands-to-introduce-a-bank-levy
(plus high earners already pay up to 52% in NL on incomes over 57k euros)

Some of us have learnt the hard way about giving $$$ to strangers.
These are my two favorite sites now
http://www.apra.gov.au/Pages/default.aspx
http://asic.gov.au/

sptrawler said:
.....I suppose it is a bit like asking why do some people pay 50% tax and some pay 0%.
Click to expand...

https://theconversation.com/the-super-rich-and-tax-lifters-or-leaners-27700

''....The 2011/12 tax statistics show that only 2% of income earners return a taxable income of more than $180,000, contributing 26% of the total tax revenue. This compares with 37.4% of income tax collected from the 14.4% of individuals earning between $80,000 and $180,000.
Many people would be surprised to find out that only 2% of Australians pay the top rate of tax, which raises questions over how high flyers are reporting their income, or structuring their tax affairs...''
 

Pay 50% on what?
High earners are treated equally under the tax thresholds, and just as the low income earners, benefit from the tax free threshold, where the first $18k is tax free, and the following threshold, where they pay 19 cents etc... People who are paying the higher rate of tax are paying it on the proportion of their income which exceeds the previous threshold.
High earners do not pay 50% tax on all their income...they just pay a higher rate of tax on the higher portion of their income....
 
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