Tuesday, 12 February 2013

Superannuation

It appears that the Government will change the taxing arrangements of superannuation in Australia.

So they should but not in the way the article suggests.

First let us go back into history. Paul Keating saw that the only people who had superannuation in Australia ,when he became treasurer, were essentially public servants and some white collar workers.
He wanted every worker to have a retirement income.
He recommended every worker get an Super Guarantee Charge ( SGC) that would get to 9%.

He also wanted to only tax the benefit stage at the same level as ordinary income.
This came undone when the then secretary of the ACTU ( Bill Kelty) would not have a bar of this. Blue collar workers deserved to get all their superannuation when they retired and after that went go on the pension.
Bob Hawke fell for this malarkey. We then got each stage getting taxed at 15%. Contributions, Earnings and Benefits.This naturally meant a lot of complexity.
He also late in his term as PM wanted to boost the SGC to 12% by way of a tax cut.

The Incoming Government did two silly things
They reneged on boosting the SGC to 12%. They got rid of the tax on benefits.

The Present Government is thinking about changing the tax on either contributions and/or earnings.

NONO NO!

Go back to the basics. The best way to get people to have a decent retirement income ( a 60-70% replacement income in industry jargon.) would mean this:

  • The SGC should be boosted to 15%. This would mean a person in retirement would need little assistance from the government. you know be an actual independent retiree. It would cover everything including the most important HEALTH COVER.

  • The government should over time  get rid of all taxes on superannuation. They then should align superannuation with income tax.

Hence over time complexity goes away and equity is restored and taxation reflects the ageing population.