Any retrospective super changes a backwards step
Speculation is rife that in addition to the federal government increasing tax on super contributions for the wealthy, income earned on their super accounts will also be taxed at a higher rate.
The changes by themselves are not the problem. But the failure of Prime Minister Julia Gillard and senior cabinet members not to rule out making the changes retrospective is the big cause for concern.
To put it into perspective, retrospective legislation has previously been passed to clamp down on blatant tax avoidance and criminal activity. A celebrated example was in the early 1980s when the Fraser government introduced bottom-of-the-harbour legislation. This retrospective legislation closed a gaping loophole that had allowed people to avoid tax by dumping their tax records in Sydney Harbour.
Any Australian who has been conducting their affairs lawfully, whether they are wealthy, middle class or poor, should not have to face retrospective legislation. If, as it appears, taxes will be increased on the superannuation of the wealthy it can only be hoped that the tax increases will apply from now or in the future, rather than being backdated.
One of the key arguments mounted by many critics of the superannuation system is its lack of sustainability. One wonders why this is a big problem considering Australia's superannuation system is ranked the third-strongest in the world on the basis of its adequacy, sustainability and integrity.
There is no denying that people on the top marginal tax rate get a greater tax benefit from the 15 per cent tax paid on super contributions. If the overall sustainability of Australia's superannuation system is at risk, and one of the contributors to this is over-generous tax concessions for the wealthy, changes should be considered.
In addition to an increase in the tax on contributions by people who pay the top marginal tax rate, there are other areas that could be considered that would improve the sustainability and integrity of the system.
Some superannuation experts believe that making super payouts tax free for people 60 and over was too generous when introduced in 2008. If this is the case, a change in legislation could be considered, similar to the change made to increasing the age when someone becomes eligible for the age pension, which would affect people born after a certain date.
The change could take the form of increasing the age at which superannuation received is tax free to 65. This would mean those older Australians who put their trust in - and have centred their retirement investments on - superannuation could continue with the current system and not be disadvantaged. Younger Australians still building their wealth for retirement could then make an informed choice about whether they want to maximise their superannuation.
Another potential area for change is the tax-free treatment of lump-sum payments. The changes that began in 1983 to the taxation of superannuation were primarily aimed at reducing the tax benefits for lump-sum payments and replacing them with tax benefits for superannuation pensions.
The prime purpose of super should be to provide income for people in retirement, not large lump-sum payment windfalls. Another possible change would be to make lump-sum payments over a dollar amount taxable.
Whatever changes are made to super taxation laws, to retain the integrity of the entire system they must be prospective and not retrospective.