Industry fires shot in defence of tax breaks
THE superannuation industry has hit back at suggestions tax breaks on super provided to Australians are too generous.
Mooted changes to superannuation tax concessions worth billions of dollars have been high on the political agenda since November, when the Treasury Secretary, Martin Parkinson, questioned whether the tax breaks were too high and favoured the rich. He said the super system risked becoming too much of a burden on the budget, given the ageing population.
Treasury estimates that the budget misses out on more than $30 billion a year in tax revenue through super, a figure it expects will hit $45 billion by 2015, overtaking the capital gains tax break on housing as the single biggest concession.
But financial consultancy Mercer said when compared with the world's best retirement savings systems, super rules in Australia were not overly generous.
"Our research reveals when the Australian approach is compared to countries with world-class retirement income systems, the after-tax retirement benefits provided to Australians are lower than five of the eight countries," said David Knox, a senior partner at Mercer.
Mercer modelled its retirement systems against eight other countries, which are considered to have the best pension systems in the world.
It showed the net retirement benefits for an average British worker would be 16.4 per cent, or $43,534, higher than for an Australian, while an American worker would be 11 per cent, or $29,273, higher. Retirees were also expected to be worse off than those in Canada, Switzerland and the Netherlands but better off than those in Denmark and Sweden.
The debate surrounding super tax breaks has escalated since the Prime Minister, Julia Gillard, announced the election date. The Opposition Leader, Tony Abbott, has pledged to close off the low-income super tax concession, while opposing Labor's mooted plans to increase super tax rates on the top few per cent of income earners.
Mr Abbott says Labor is punishing the rich in a bid to repair its budget position. Ms Gillard says the Coalition was revealing itself as fiscally reckless and a champion of the wealthy.
"The taxation treatment of superannuation may be controversial, as the greatest benefits are inevitably received by those who participate to the greatest extent - primarily the higher income earners," Dr Knox said.
"However, it's also important to look at our retirement savings system in its entirety and the impact altering the tax model could have on the future costs of funding the age pension."
The scrutiny on superannuation tax breaks forced Ms Gillard to rule out reintroducing tax on withdrawals for wealthier over 60-year-olds.
The managing director of Mercer, David Anderson, said he was relieved at the Prime Minister's decision.
"Our research into superannuation members tells us there is significant confusion around tax on super and the last thing Australians need is more tinkering," he said.
Perceptions of the tax effectiveness of super have declined over time, Mercer research says. Mr Anderson said 34 per cent of working Australians considered super to be tax effective in 2008. "By June 2010, this had dropped to 20 per cent," he said.