The Su­per ob­jec­tive and taxes

Cbus Chair and former Vic­to­rian Premier Steve Bracks re­cently called on the Fed­eral Govern­ment to move as quickly as pos­si­ble to in­crease the Su­per­an­nu­a­tion Guar­an­tee (SG) to 12% and to re­in­state the Low In­come Su­per­an­nu­a­tion Con­tri­bu­tion (LISC), funded b

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There has been a lot of de­bate about Malcolm Turn­bull’s tax poli­cies, or lack of them at this stage, but one thing we do know is that tax on su­per is on the ta­ble.

The govern­ment is con­sid­er­ing four op­tions for re­duc­ing the cur­rent tax con­ces­sions that ap­ply to su­per­an­nu­a­tion. • Lower the in­come thresh­old to $180,000 (down from $300,000 now) where the con­tri­bu­tions tax rises from 15 per cent to 30 per cent; • Limit an­nual con­ces­sion­ally capped con­tri­bu­tions to

su­per to $20,000 (down from $30,000 at present • Halve the cap­i­tal gains tax dis­count for su­per funds

(from 30 per cent to 15 per cent); • Abol­ish the tran­si­tion to re­tire­ment strat­egy.

Many groups have weighed into the de­bate and it isn’t just tax that is fac­ing change.

Fol­low­ing the Su­per­an­nu­a­tion Leg­is­la­tion Amend­ment (Choice of Fund) Bill 2016 in­tro­duced into the House of Rep­re­sen­ta­tives by As­sis­tant Trea­surer Kelly O’Dwyer on 17 March 2016, AMMA ex­ec­u­tive di­rec­tor, pol­icy and pub­lic af­fairs, Scott Bark­lamb weighed into the de­bate wel­com­ing the pro­posed leg­is­la­tion to en­sure unions can­not use en­ter­prise agree­ments to stop Aus­tralian em­ploy­ees choos­ing which fund they want to di­rect their su­per­an­nu­a­tion into.

“Unions reg­u­larly in­sist that en­ter­prise bar­gain­ing agree­ments (EBAs) cov­er­ing wages, leave and hours

also com­pel em­ploy­ers to di­rect all em­ployee su­per­an­nu­a­tion con­tri­bu­tions into an in­dus­try su­per­an­nu­a­tion fund nom­i­nated by the union,” Bark­lamb said.

“Em­ploy­ees cov­ered by these en­ter­prise agree­ments are de­nied su­per­an­nu­a­tion choice. This means they can­not choose where to di­rect their re­tire­ment in­comes, and are de­nied the full range of com­pet­ing su­per­an­nu­a­tion prod­ucts. It also stops em­ploy­ees con­sol­i­dat­ing their su­per­an­nu­a­tion into a sin­gle ac­count to re­duce fees.

“This in­cludes em­ploy­ees who did not vote for the agree­ment and are not mem­bers of the union.

“This is un­ac­cept­able. Union bosses, en­joy­ing the sup­port of just 11% of pri­vate sec­tor em­ploy­ees, should not be able to de­cide where the su­per­an­nu­a­tion of work­ing Aus­tralians is di­rected and re­move their right of choice – par­tic­u­larly not to force con­tri­bu­tions into funds with union of­fi­cials sit­ting on the board.”

But back to the is­sue of tax, Terry McCrann wrote in his Her­ald Sun column on 20 March that su­per­an­nu­a­tion is too tempt­ing for Malcolm Turn­bull and Trea­surer Scott Mor­ri­son.

Here’s an ex­tract from McCrann’s column: “The govern­ment has aban­doned the idea of in­creas­ing the GST and switched in­stead to tar­get­ing su­per­an­nu­a­tion.

“We will find out in the May Bud­get pre­cisely who it is go­ing to tax and how.

“In­creas­ing the GST from 10 to 15 per cent would have tapped the pot called ‘con­sump­tion spend­ing’.

“Ev­ery year con­sumers spend around $1 tril­lion. Af­ter ex­clud­ing those things that are not taxed, like fresh food and health, the ex­ist­ing 10 per cent GST adds around $55 bil­lion to the cost and takes that ex­tra money to Can­berra.

“The su­per­an­nu­a­tion pot is nearly dou­ble that, at around $2 tril­lion, and of course grow­ing ev­ery year, thanks to the manda­tory in­flows and, hope­fully, in­vest­ment re­turns.”

Mean­while, Mr Bracks was re­spond­ing to both the con­sul­ta­tion pa­per re­leased by Kelly O’Dwyer into es­tab­lish­ing a leg­is­lated ob­jec­tive for Su­per­an­nu­a­tion and re­ports the Fed­eral Govern­ment is con­sid­er­ing in­creas­ing taxes on su­per­an­nu­a­tion as part of the 2016 Fed­eral Bud­get.

“Cbus sup­ports a sin­gle ob­jec­tive, not just for the su­per­an­nu­a­tion sys­tem but the whole of re­tire­ment pol­icy that moves be­yond bud­get and elec­toral cy­cle tin­ker­ing and kite-fly­ing.

“Cbus will be mak­ing a sub­mis­sion to the Govern­ment which will ar­gue that the ob­jec­tive should be “To de­liver a com­fort­able re­tire­ment to all Aus­tralians”.

“The ob­jec­tive mea­sure for this could draw from the well-es­tab­lished Aus­tralian Su­per­an­nu­a­tion Funds As­so­ci­a­tion (ASFA) com­fort­able re­tire­ment in­come stan­dard.

“The ASFA stan­dard is to reach sav­ings on re­tire­ment of $640,000 for a cou­ple and for a sin­gle per­son of $545,000.[

“At the mo­ment less than 6% of Cbus mem­bers aged 60 or over have reached this stan­dard. Based on re­tire­ment in­come es­ti­mates, we project less than 20% of all of our mem­bers will reach this stan­dard when they re­tire.[

“This makes the de­ci­sion by the Govern­ment to push back the move to a 12% SG to 2025 short-sighted. It is also likely to in­crease pres­sure on the Fed­eral Govern­ment’s bud­get as re­tirees will need to rely even more heav­ily on the Age Pen­sion.

“Sim­i­larly the de­ci­sion to re­move the LISC for low in­come work­ers will put a com­fort­able re­tire­ment fur­ther from reach, es­pe­cially for women. This im­por­tant con­tri­bu­tion should be re­in­stated in the 2016 Fed­eral Bud­get.

“The Govern­ment should also put more re­sources into en­sur­ing com­pli­ance with the cur­rent SG leg­is­la­tion. Non-com­pli­ance to SG is es­ti­mated to be as high as $2.6 bil­lion a year. The ef­fect of non-pay­ment on work­ers re­tire­ment can be dra­matic with Tria In­vest­ments es­ti­mat­ing that an av­er­age 25 year old im­pacted by non-com­pli­ance for 5 years loses 14% of their re­tire­ment sav­ings.

“These mea­sures should be funded through a re­di­rect­ion of su­per­an­nu­a­tion tax con­ces­sions that are cur­rently skewed to­wards the wealth­i­est Aus­tralians.

“To reach the ob­jec­tive of our su­per­an­nu­a­tion and re­tire­ment sys­tem, govern­ment pol­icy and con­ces­sions in su­per­an­nu­a­tion should be tar­geted to ben­e­fit low and mid­dle in­come earn­ers who con­tinue to strug­gle to reach a com­fort­able re­tire­ment in­come.”

Mr Bracks said the first pri­or­ity for any in­creased rev­enue from su­per­an­nu­a­tion taxes should go to im­prov­ing the su­per­an­nu­a­tion of low to mid­dle in­come earn­ers.

“Ex­tra rev­enue from tax in­creases on su­per­an­nu­a­tion should be used to re­store the Low In­come Su­per­an­nu­a­tion Con­tri­bu­tion be­fore any cuts to per­sonal in­come taxes are con­sid­ered. This would im­prove re­tire­ment in­comes and re­duce pres­sure on the Fed­eral Bud­get, es­pe­cially given Aus­tralia’s age­ing pop­u­la­tion,” Mr Bracks said.

Es­tab­lished in 1984, Cbus is the in­dus­try su­per­an­nu­a­tion fund for the con­struc­tion, build­ing and al­lied in­dus­tries. Cbus re­cently re­ceived recog­ni­tion for its 10 years as a plat­inum rated fund by in­de­pen­dent rat­ings agency Su­perRat­ings. Cbus is run only to ben­e­fit mem­bers, and doesn’t pay com­mis­sions to sales agents or fi­nan­cial ad­vis­ers.

The lump sums re­quired for a com­fort­able re­tire­ment as­sume that the re­tiree/s will draw down all their cap­i­tal and re­ceive a part Age Pen­sion.

Based on ASIC RIE Guid­ance, es­ti­mates as at 2015, as­sum­ing 50% of ASFA cou­ples fig­ure

“IN­CREAS­ING THE GST FROM 10 TO 15 PER CENT WOULD HAVE TAPPED THE POT CALLED ‘CON­SUMP­TION SPEND­ING’

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