At the beginning of 2013 a fresh round of speculation emerged on the taxation of super, with suggestions the government might increase tax on higher income earners in the 2013 budget. The speculation lasted weeks, until eventually the government announced proposals that were broadly accepted by the super industry.
Last week in their budget reply, the Coalition announced a proposed pause in the increase in the super guarantee, again setting off a series of headlines, speculation and uncertainty.
According to Industry Super Network economists, the delay in the SG will yield short-term budget savings of $1 billion a year from July 1, 2014 for the next seven years. It will also reduce super inflows by more than $5 billion a year.
It could also result in a cumulative impact of $45 billion less in super savings in the system over the next seven years, and therefore $45 billion less to be transformed from savings into investment.
The increase in the super guarantee was widely debated and received broad consensus in the community, as a critical measure in ensuring adequate retirement savings for an ageing population.
The super industry has been unanimous in expressing not only its concern at the measure, but also in the fact that once again superannuation is the subject of uncertainty and instability.
In April of this year ISN proposed that there be no changes to the policy and taxation framework of superannuation until after the election. Then a considered process could be undertaken by the government of the day to assess whether there needs to be further changes to the system.
Community and industry consultation could lead to an agreement that the policy settings would remain stable for a period of say five years, therefore taking super out of the budget and electoral cycles. Bipartisan support should be sought and hopefully achieved.
This would deliver members’ confidence and certainty when planning for their retirement and reduce the constant speculation about super. It would also reflect the fact that increasingly Australians are as engaged with superannuation as they are with other, more immediate financial decisions such as changes to interest rates. As super nest eggs grow, the effect of investment markets, tax settings and contribution rules become increasingly important to financial wellbeing.
There are legitimate debates to be held about the sustainability of the taxation settings and other elements of superannuation policy, but these should be held in a structured and considered manner, rather than in response to short term budget pressures.
As a nation we accept that unless compelled to save, most of us probably won’t. People support super because they recognise it is necessary for our future as individuals in retirement, and as an economy and society whether in the form of reducing the taxation burdens on future generations or transforming a pool of savings into investment.
The importance of superannuation to Australia’s future economic prosperity demands that whichever party forms government, the constant iterative changes to superannuation policy and tax settings cease and a structured and ideally bipartisan approach is implemented.
A first and welcome step would be reconsideration by the Coalition of their pause in the super guarantee and rescinding of the low-income earners’ super contribution.