With media outlets reporting today that the tax concessions applied to super will cost the Budget up to $32 billion this year, the Association of Superannuation Funds of Australia (ASFA) is calling for a debate based on accurate information regarding the actual value and context of the concessions.
ASFA CEO Ms Pauline Vamos says while it's important we have a conversation about how the system can be adjusted to accommodate the demands posed by an ageing population who are living longer and have higher expectations of the lifestyle they will have in retirement, it's important that we get the facts right.
"Analysing the tax concessions applied to super is not as simple as just looking at the Tax Expenditure Statement. It's important that all relevant factors are taken into account, to generate a more accurate picture of the incentives the Government provides to help people save for their retirement. The bottom line is the system is sustainable for the medium-term so there is time to have a measured and informed debate."
This includes taking into account that the Government is currently saving $7 billion annually in Age Pension expenditures as a result of super.
"These Budget savings will only increase as the system matures and more and more people have adequate super balances to self-fund their retirement," says Ms Vamos.
Policy discussions also have to incorporate the likelihood that if savings are not put into super, these funds will go into other tax-advantaged areas such as negative gearing. This would mean a reduction in the final tax savings generated for the government as a result.
"After considering the impact of these factors, the actual tax concessions received by the community on their super drops to around $16 billion per annum. Importantly, this is money that is going towards a diversified, well-regulated pool of the community's retirement savings. This will deliver many benefits to individuals, governments and the economy now and into the future," says Ms Vamos.
Ms Vamos says it's also time to bust the myth perpetuated by some groups that the tax concessions applied to super were highly inequitable.
"In fact, the level of financial assistance for retirement provided by the Government is broadly comparable across the personal income tax brackets. When you take into account the Age Pension, tax concessions and rebates, the present value of Government assistance is around $300,000 over a person's lifetime across the range of tax brackets.
"A lower-income person will receive this mostly in the form of the Age Pension, concessionally-taxed contributions and the low-income superannuation contribution (LISC), while a person in the top income tax bracket will receive it as tax concessions for super," Ms Vamos says.
"A recent OECD report shows that in Australia, total government support for retirement incomes as a percentage of GDP is lower than in just about all other OECD countries. This means that the tax concessions for superannuation, together with the means tested Age Pension, provide outcomes that are more equitable than in many other developed countries, where typically governments provide retirement payments linked to the earnings people had when they were in the workforce.
"The policy focus should be on closing the gaps in the system, and ensuring that governments provide appropriate incentives for people to save for their retirement across all income brackets," Ms Vamos concluded.
For further information, please contact:
Lisa Chikarovski, Media Manager, 0451 949 300.
ASFA is the peak policy, research and advocacy body for Australia's superannuation industry. It is a not-for-profit, sector-neutral, and non-party political national organisation, which aims is to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice.