Any retrospective super changes a backwards step
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.
Frequently Asked Questions about this Article…
There is widespread speculation that the federal government may increase the tax on super contributions for wealthy Australians and possibly tax income earned inside super at a higher rate. The article also notes concern that senior ministers, including Prime Minister Julia Gillard, have not ruled out making any changes retrospective (backdated).
Retrospective tax changes can penalise people who have lawfully managed their affairs under the existing rules. The article argues Australians—wealthy, middle class or poor—should not face backdated laws, and it contrasts legitimate retrospective laws used against clear tax avoidance (such as the 1980s bottom-of-the-harbour laws) with proposals that could affect regular investors.
Yes. The article explains that critics say the 15% tax on super contributions can be a bigger benefit for those on the top marginal tax rate, and one likely reform would be to increase the tax on contributions for high‑income earners and possibly adjust how earnings in super are taxed.
Some superannuation experts cited in the article believe making super payouts tax free for people aged 60 and over (introduced in 2008) may have been too generous. A proposed change would be to raise the age at which super benefits are tax free—perhaps to 65—for people born after a certain date, similar to recent age‑pension eligibility changes.
The article suggests revisiting the tax-free treatment of lump-sum payments. Since reforms beginning in 1983 aimed to reduce tax advantages of lump sums and favour pensions, one option would be to make lump-sum payments over a specified dollar amount taxable to discourage large windfalls.
The article notes a tension: critics highlight sustainability concerns, yet Australia’s superannuation system is ranked third-strongest in the world on adequacy, sustainability and integrity. It suggests that if sustainability is genuinely at risk, reforming overly generous tax concessions for the wealthy could be part of the solution.
The prime purpose of superannuation, the article says, should be to provide income in retirement rather than large lump‑sum windfalls. That perspective underpins proposals to tax large lump sums, favour pensions, and adjust tax concessions so the system better serves retirement income objectives.
The article stresses that to preserve the integrity of the system any changes to super taxation should be prospective—not retrospective—so they apply from now or in the future rather than being backdated to penalise people who followed the rules at the time.
Call 1300 880 160
Start a chat
Schedule a call
