12 September 2016
Sarah Martin Political Reporter Canberra @msmarto
Both major parties are condemning middle-income Australians to a dependency on the Aged Pension by targeting superannuation for budget repair, a report from the Institute of Public Affairs says.
As the government prepares to tweak its election commitment to rein in superannuation concessions , the free-market think tank says the government’s “desperation” for new revenue sources, as outlined in its $6 billion superannuation tax package, will undermine future retirement incomes.
The release of the report comes as Scott Morrison seeks to reach a consensus with Coalition backbenchers on the shape of the government’s super reforms, with MPs arguing for the Treasurer to lift the cap on non-concessional contributions from the proposed $500,000 to $1 million.
Mr Morrison has faced a barrage of criticism from backbench MPs about the reform package, including from former prime minister Tony Abbott, who argued that the “deeply unpopular” changes were an attack on aspirational voters and the Liberal Party base.
Institute director of policy Simon Breheny said instead of targeting retirement income to fund spending commitments, the government should cut superannuation taxes of middle Australians to encourage savings.
Mr Breheny said middle income earners could expect to have a retirement income equal to 58 per cent of their pre-retirement earnings, compared with nearly 90 per cent for low-income earners .
“The poor have the pension, the rich have alternative investments and the middle class will miss out again. The objective of the superannuation system should be for people to maintain their living standards in retirement, not imply that they should be grateful to be tied to the Age Pension,” Mr Breheny said.
The paper, written by Rebecca Weisser and Henry Ergas, recommends abolishing taxes on contributions and earnings to give incentive for retirement savings.
It also proposes taxing end benefits in retirement at an individual’s marginal income tax rate, prioritising the reduction of fees and charges and making it easier for people to access private, defined benefit pensions.
“Unfortunately, proposed changes to superannuation from both the government and the opposition worsen, rather than fix the system’s myriad weaknesses,” the report says. “Superannuation reforms should be judged by the effect that they have on helping each individual to accumulate sufficient funds to maintain their living standards in retirement.”
The report also concludes that the government’s proposal to introduce a cap on non-concessional contributions and lower the concessional contribution cap will “make a bad situation worse” .
“What is clear is that governments should not tax retirement savings at rates that make it difficult or impossible for savers to secure reasonable living standards in retirement based on the living standards they achieved during their working life. Nor should government taxes on retirement savings distort consumption decisions , undermining the quality of life in old age and reducing overall economic efficiency.”
The government has released draft legislation for the first tranche of the super package, which excludes the most controversial elements of the proposed changes.
A draft bill for the remaining measures, including a $1.6m cap on tax-free pension accounts and a $25,000 annual limit on pre-tax contributions is expected to be released next month once a compromise position is agreed to by the Coalition partyroom and backbench economics committee.