Tax benefits on super likely to be the first casualty
When Tony Abbott rules out changes to super only in his first year as PM, you know both parties are taking aim - and that the opposition is hoping like crazy that Wayne Swan shoots first in May.
Thursday's Treasury Tax Expenditure Statement reckons individuals' superannuation concessions of one sort or another will cost the tax man $31.8 billion in 2012-13, overtaking housing's $30 billion.
More impressive is that, on current policies with an ageing workforce making the most of the opportunity, Treasury estimates super concessions will cost $34.6 billion next financial year, $39.6 billion in 2014-15 and $44.8 billion in 2015-16.
On top of individuals' super tax breaks, the concessional taxation of employer contributions will cost another $13.2 billion this year - so $45 billion all up in super concessions.
Housing remains relatively stable, reflecting that with not much in the way of capital gains, owner-occupied housing being exempt from capital gains tax is not costing much more.
Treasury estimates the "tax expenditure" for housing will dip from $30 billion this financial year to $29.5 billion in the next, recovering to $30 billion in 2014-15 and $30.5 billion in 2015-16.
Together, superannuation and owner-occupied housing make up nearly two-thirds of all tax expenditures which, at $115 billion, represent 7.5 per cent of gross domestic product this year.
It used to be worse. In Peter Costello's last budget year, tax expenditures reached $126.5 billion - 10.7 per cent of GDP. As a percentage of GDP, Treasury forecasts tax concessions will dip another notch to 7.4 per cent next financial year before starting to rise again.
That's not necessarily a reflection of the Labor government tightening up on tax perks and the Coalition handing more out - there were more capital gains about in 2007-08.
There are other "interesting" tax expenditures for fiscally constrained governments to consider - the $4.2 billion in capital gains tax discounts for individuals and trusts, for example - but for treasurers of either party facing our demographic inevitabilities and education, welfare and infrastructure ambitions, it's the big bags of money that will attract attention.
There are tax sweeteners for superannuation on the way in, while it's accumulating, and, most of all, on the way out again. Concessional rates of tax apply to a super fund's earnings, and payments are tax-free no matter how wealthy an individual might be.
The extent of the Howard/Costello super concessions overwhelmingly benefited those on the highest tax brackets and have been pegged back a little by Swan.
Super's huge tax advantages were expected to be hit harder than they were in the last budget, but there's another one every May.
Frequently Asked Questions about this Article…
Treasury flagged that superannuation has become the nation's biggest tax concession, costing more than owner-occupied housing. For 2012–13 it estimated individuals' super concessions at $31.8 billion versus housing's about $30 billion.
The article cites Treasury projections of rising costs: $31.8 billion in 2012–13, $34.6 billion the next financial year, $39.6 billion in 2014–15 and $44.8 billion in 2015–16 for individuals' super concessions.
Yes. Concessional taxation of employer super contributions was estimated at $13.2 billion in the referenced year, bringing total super concessions to roughly $45 billion when combined with individual concessions.
Together, superannuation and owner‑occupied housing account for nearly two‑thirds of all tax expenditures. Treasury put total tax expenditures at $115 billion, around 7.5% of GDP in that year.
Because super concessions represent very large sums and are rising with an ageing workforce, fiscally constrained governments may target them to fund priorities like education, welfare and infrastructure. The article notes both parties are watching super closely and that political timing (for example budgets in May) matters.
The article says the Howard/Costello era super concessions overwhelmingly benefited people on the highest tax brackets. Some of those concessions were later scaled back a little by Treasurer Wayne Swan.
According to the article, concessional tax rates apply to a super fund's earnings while the money is accumulating, and super payments can be tax‑free on the way out, regardless of how wealthy an individual might be.
Yes. The article highlights other tax expenditures such as the capital gains tax discount for individuals and trusts (about $4.2 billion), but notes that the very large sums tied up in super and housing are the main attractions for reform.
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