The inclusion of superannuation in the tax discussion paper process is a necessary and important step in the maturing of Australia's superannuation system and tax system.
Through the call for community involvement, and the key principles for a well-designed tax system – equity, efficiency and simplicity – the paper lays out a robust framework for reviewing the system.
"Superannuation has matured to a point where its tax treatment needs to be fully reviewed as part of the overall tax system. The tax discussion paper provides sound principles and a strong process through which to hold a public debate
on how best to deliver the objectives of superannuation," said ASFA CEO Ms Pauline Vamos.
"How superannuation is taxed not only has an impact on the budget and economy today, but on outcomes for the next 40 years. Superannuation has a crucial role in investment in the economy and for the standard of living for all Australians when they retire."
The tax discussion paper identifies good reasons for superannuation to receive concessional tax treatment compared to other types of savings.
"Superannuation should be taxed at a concessional rate as it is compulsory and cannot be accessed till retirement. ASFA's research also shows that even at a contribution rate of 12 per cent, many Australians won’t have enough for the comfortable retirement they deserve. Therefore, tax incentives are needed for people to save beyond the minimum statutory requirement.
"However, ASFA has long acknowledged that a review of the tax concessions in superannuation, particularly for those with large balances, is needed so that they can be better targeted to those who most need the concessions to achieve a comfortable retirement, while minimising the draw on the Age Pension."
The tax discussion paper also acknowledges the benefits of superannuation in terms of reducing the cost of the Age Pension.
"The recognition of the benefits of superannuation to the budget, through reduced Age Pension and other payments, rather than just a focus on the cost to the budget today, is an important step forward."
Superannuation has created a large pool of capital which is professionally invested. By investing to maximise returns to members, superannuation maximises growth in the economy. Superannuation's large pool of funds and long-time horizon makes it perfect for investing in infrastructure, research and development, and start ups which would not
otherwise be funded.
As the paper points out, superannuation funds under management stand at $1.93 trillion, or 120 per cent the size of GDP. Superannuation and funds management are significant industries in their own right.
"Through superannuation, Australians have shares in the companies that drive economic growth. They have a stake in how these companies are taxed and how the tax system impacts on their returns."
By growing domestic savings, superannuation has reduced Australia's dependence on international capital markets and made it easier and cheaper for Australian companies to invest.
Superannuation is an effective savings vehicle, providing stability to the economy, as was witnessed in the GFC. These types of benefits that superannuation provides are the fundamental difference between superannuation and other savings vehicles.
"The fact that superannuation has benefits to the budget, to investors and to the economy underscores the unique nature of superannuation compared to other savings vehicles," concluded Ms Vamos.
For further information, please contact:
Lisa Chikarovski: Manager – Consumer Strategy, Media and Public Affairs, 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 to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice.