Labor should incorporate incentives in its super changes!

English: Simon Crean in 2010.

English: Simon Crean in 2010. (Photo credit: Wikipedia)

Reasonable Benefit Limits on superannuation were dropped in 2007. They fairly limited excessive tax concessions to the most affluent who didn’t really need them. This change greatly increased the levels of tax concessions in superannuation.

The argument that superannuation is a benefit only for the rich could be addressed by a return to RBL contribution rules, but Labor’s aim is to gain as much revenue as possible without creating a voter back-lash.

It is politically expedient for them to portray their proposal as a tax on the wealthy.

But the changes to be implemented are a tax grab whose bite will strengthen with time.  $900 million in the first three years, but $10 billion over the first ten years, even without any further tightening of the rules. All this from those who are no longer working!

What is wrong with Labor’s focus?

Inflation augments the government’s tax take, but diminishes the buying power of the retired. The focus of the tax changes is wrong. 

Labor’s focus is on creaming off income during the first years of retirement, when fund balances are highest. This can quickly reduce fund capital.

Retirees’ interests are best served by maintaining their capital, and its purchasing power, for as long as possible.

Fund income, contrary to Labor’s spin, is not the income received by the superannuants.

Thrifty retirees (most are) sensibly retain excess income above their pension withdrawals within the fund to cover for inflation reduced purchasing power, and to allow for unexpected contingencies.  Most people do not realize that with capital of $1 million, inflation erodes $30,000 a year. Labor’s tax on retirees hampers their ability to cut this leakage  by maximizing fund returns, and being thrifty with their expenditures.

Why not keep incentives for thrift and independence?

It would be fairer in my view, to subject fund withdrawals in excess of the $100,000 threshold, to the appropriate tax rate (15% proposed). This would be a deterrent to unnecessary run-down in fund capital.  A further incentive to preserving capital into a second decade of retirement could be to cut the taxation rate to perhaps 10% after the age of 75%, and to zero if pensioner benefits are then not claimed.

Simon Crean‘s stance in avoiding rhetoric based on the politics of envy is to be commended. Labor would be wise to listen to him. Australians want a government that will be responsible in expenditure, and reasonable in taxation.

Categories: Community Issues, Super Sense, Superannuation

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