The federal opposition’s announcement that it will introduce new superannuation taxes if it wins power at the next election has been met with a mainly negative response from the SMSF sector.
Under Labor’s proposals, yearly superannuation earnings over $75,000 will be taxed at 15 per cent, instead of being tax free as they are currently, and the income threshold for the high-income superannuation charge of an additional 15 per cent on contributions will be lowered from $300,000 to $250,000.
The SMSF Association welcomed the announcement, describing it as “a key step in developing an equitable and sustainable system”.
However, it raised concerns over the administration process associated with the policy and the extent of the fiscal benefits it would really deliver.
“There are issues around how will earnings from multiple superannuation accounts be aggregated and taxed, variations in super fund returns, large capital gains from the sale of ‘lumpy assets’ that may distort earnings and ‘encouraging’ people to look outside superannuation to minimise their tax obligations,” association chief executive Andrea Slattery said.
“Policy changes to improve the equity of superannuation tax concessions will create trade-offs in terms of increased complexity or reduced confidence in superannuation, and as such must always be carefully assessed and considered.”
The Self-Managed Independent Superannuation Funds Association (SISFA) echoed Slattery’s sentiments about how effective the move would be as a fiscal lever and also attacked the policy as to how the limits involved were determined.
“[The ability to raise] $14.3 billion over 10 years. Seriously? It would cost more to administer,” SISFA chair Michael Lorimer said.
“[And] on what basis is the earnings threshold now $75,000 as opposed to the ALP’s previously proposed $100,000?
“Similarly, why has $250,000 suddenly replaced the ALP’s previous high-income threshold of $300,000?
“[These amounts seem] totally arbitrary and make no sense.”
The SMSF Owners Alliance criticised the policy on several fronts, including the misleading prediction of how many Australians it affected.
“The number of people who will have to pay the earnings tax will be more than the number quoted by Labor and will include people with balances far lower than $1.5 million,” SMSF Owners Alliance executive director Duncan Fairweather said.
“The proposed earnings threshold of $75,000 is not to be indexed for inflation. This means that from year to year, more people will be drawn into this sneaky tax net as their superannuation earnings and their fund earnings grow.”
Furthermore, the industry lobby group could not see the actual benefit to the superannuation system itself.
“This extra tax does nothing to improve superannuation for the many Australians who don’t have enough,” Fairweather said.
“Indeed, due to the extra complexity and cost, this idea would probably lower returns and reduce the chances for all Australians to save enough in their super.”
The chief executive of administration specialist Xpress Super, Olivia Long, was also critical of the proposal suggesting inadequate thought had been given to it before the announcement was made.
“Superannuation should not be about raising government revenue; it is about retiree savings and security,” Long said.
“Labor’s proposal of a 15 per cent tax on earnings at and above $75,000 in the pension phase looks like back-of-the-envelope numbers, and assumes the tax will only kick in for those with super balances of at least $1.5 million. That is expected to affect about 60,000 people and the supposed ‘kick’ to revenue, estimated at $1.4 billion a year, is nothing better than speculation.”
