Keep your eyes on the end prize

In the lead-up to December all the talk in the industry was about David Murray’s Financial System Inquiry and what the implications would be for SMSFs.

With that panel’s recommendations now on the table, thoughts have turned to the tax white paper due later this year, which will include a review of how superannuation is currently taxed.

No doubt you’ve read and heard many arguments claiming the tax concessions related to superannuation are far too generous.

The argument extends further by stating people with higher average incomes are the people benefiting from these concessions – the very people who actually can afford to pay a higher level of tax.

Unfortunately both claims are flawed and ignore two very important points. The first is tax on superannuation cannot be examined in isolation and the second is a disciplined focus must be maintained on the ultimate objective of the superannuation system.

The tax on superannuation has to be looked at within the context of the taxation system as a whole, along with many of the other components playing a part in the country’s retirement savings structure.

For example, Financial Services Council chief executive Sally Loane has suggested any changes to the tax treatment of superannuation must be looked at in conjunction with changes to the age pension.

But perhaps more importantly, some perspective must be maintained about what the superannuation system was designed to achieve.

Its main purpose is to enable as many Australians as possible to fund their own retirement without having to rely on the age pension.

Naturally enough the people most likely to have the means to fund their own retirement will be individuals who earn higher incomes.

They’re the ones while working and in accumulation phase have the capacity to contribute more than just their super guarantee component to their retirement savings fund.

But of course, like everyone else, they need some sort of incentive to do so and within the current framework that incentive happens to be in the form of concessional tax treatment.

So it stands to reason taxpayers on higher salaries are the ones to benefit the most from the favourable rules around the taxing of superannuation.

Ironically, the fact people pushing for change to the taxing of superannuation contributions and benefits because they feel the ‘rich’ are benefiting from too many tax perks almost proves the system is achieving what it was designed to achieve.

I have no doubt the same people complaining about the tax inequality of the current structure will be the ones crying the loudest if the perceived rich relied on the age pension to fund their retirement in later years because they’re not the ones who are supposed to be entitled to it.

Well, as they say in the classics, you can’t have it both ways.

The moral of the story has to be that any change to super tax treatment must not be made to the detriment of the system’s ultimate goal and must ensure the correct people end up receiving the age pension justifiably according to their personal wealth.


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