While both major political parties have announced they would not interfere with the superannuation system in the next parliament, the reality is that change is needed. There are a number of things MPs and senators should agree to do. Admittedly a lot of what they should be doing is unwinding some of the less well-considered policies implemented in the last parliament. Below is a list of issues the Institute of Public Accountants believes should be addressed as a matter of priority by the new government.
1. Taxing super funds in pension phase that earn $100,000 or more in a financial year
The Institute of Public Accountants (IPA) opposed this policy when it was announced and we call on the new government to reject this proposed piece of legislation. The tax-free status of post-retirement income is sacrosanct and has been built into people’s retirement saving plans. It was a rude and unwelcome shock when the previous government announced the policy intention to tax high-income funds. The IPA opposes this proposed policy on the following fronts:
- It goes against the tenet of not taxing benefits in retirement.
- It will add significant complexity to the super laws.
- It will disproportionately affect funds with lumpy assets, such as housing, which when disposed of will bring many smaller funds under the taxing regime.
- Expecting tax-free benefits in retirement, many funds will not have appropriate records in place to show net costs.
- It does not recover sufficient revenue to neutralise the cost of compliance.
- We therefore call on the new government to reject this proposed piece of legislation and show true intent to not make political changes to the superannuation system to plug other fiscal holes.
2. Increased taxation of contributions for those earning over $300,000 a year
The IPA is also a strong opponent of the proposal to tax those earning over $300,000 a year an extra 15 per cent on their contributions. The IPA opposes this measure both because it discriminates against one sector of the economy over others and more importantly because it imposes excessive regulatory burden on the system.
The IPA does not believe those earning over $300,000 are receiving excessive contribution deductions and does not believe the superannuation system should be divided between various groups. Where possible the law should be the same for all.
The main reason though for the demand to rescind this piece of legislation is its complexity. It runs to around 50 pages of legislative and regulatory additions and 130 pages of explanatory memorandum. While the calculation will be made by the Australian Taxation Office (ATO), this will require the diversion of important ATO resources to a measure that does not raise significant revenues. It is also difficult to offer advice on the subject because advisers will need to know the totality of their client’s income before they can tell them whether there is likely to be a payment required.
The IPA believes that by rescinding this change to the law the new government will be demonstrating its commitment to reducing the red tape burden and unnecessary regulatory measures. To date, the new government has not said what it will do with this measure.
3. Lifetime contribution limits versus annual contribution limits
The IPA is calling on the government, as part of its promised review of superannuation and retirement savings policies, to open a debate on whether the superannuation system should retain the current annual contribution limits, or move to a lifetime contribution limit. There are advantages and disadvantages to each proposal and it is important this discussion is had so appropriate policy measures can be adopted.
Given the advantages and disadvantages of both options, it would make sense for the government to have a rational debate before making any determinations.
Rather than do nothing in relation to superannuation and waste the next three years, the government should be undoing the tangled mess introduced by the previous government by focusing on removing the two most egregious policy announcements and restarting debate on a third. By engaging with the profession and those affected by policies, the government can be assured of effective and well-supported superannuation policy.