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TES system flawed, needs rethink: SMSFA

The SMSF Association has called for Treasury’s Tax Expenditures Statement (TES) to be replaced with economic modelling, following recent calls to cut super tax incentives based on their size as reported in the most recent statement.

“The release of the updated 2015 Treasury TES has resulted in the predictable criticism that superannuation tax incentives are too generous and the government should take immediate steps to reduce them,” SMSF Association chief executive Andrea Slattery said.

“As we have stated many times, the TES measurement of superannuation tax incentives should not be used as a basis for determining retirement incomes policy.

“They are unreliable due to the lack of behavioural change they account for and because of the unrealistic nature of the tax benchmark used to measure incentives.”

Slattery said she believed the benchmark used to measure incentives was unrealistic, with the TES also failing to assess the value of the reduction of future government expenditure on the aged pension.

“If you use a different benchmark against which to measure the impact of incentives, it can lower the cost to government revenue to about $11 billion – a number that presents a totally different debate,” she argued.

“It is also inconceivable that we should use a short-term revenue measurement that does not account for the long-term savings to government through lower age pension spending to assess the performance of superannuation tax incentives.

“It’s not just the SMSF Association saying this.

“In December, the House of Representatives Standing Committee on Tax and Revenue’s report on tax expenditure statements recommended that Treasury model the long-term savings of superannuation tax incentives to government via lower spending on the age pension.

“That the TES fails to assess the value of the reduction of future government expenditure on the aged pension because of the tax incentives is a major reason why we argue the system is flawed and needs a total rethink.”

It was critical the TES was replaced with economic modelling that estimated the longer-term costs and benefits of superannuation, she said.

“Until we get this, all public discussion on this critical issue is skewed towards a short-term argument over government revenue requirements,” she said.

“Tax incentives that encourage people to forgo income today to become self-reliant in retirement are absolutely integral to the system.”

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