ACOSS Calls for Super Restructure

Welfare peak body ACOSS has called for a restructure of Australia’s superannuation system to deliver income security, fund crucial services and drive inclusive growth.

The call comes as part of the Australian Council of Social Service’s submission to the Government’s retirement incomes review.

ACOSS is calling for structural reform of inefficient tax breaks for superannuation to improve retirement incomes for the majority while helping to fund future growing needs in health, aged care and social security as the population ages.

“Security in retirement is not just about income, it’s equally about access to essential health and aged care services and having an affordable place to live,” ACOSS CEO Dr Cassandra Goldie said.

“We must strengthen all three foundations of a secure retirement: incomes, housing, health and aged care. Too much is spent supporting the retirement incomes of a well-off minority, and too little on income support and basic services for all who need them.”

Godlie said there was a “serious imbalance” in the Federal Government’s support for retirement, with an estimated $30 billion spent each year on inefficient tax concessions for super.

“We need a comprehensive Retirement Incomes Review, to settle the core purpose of superannuation, including the minimum adequate income level which should receive public support, and to design the changes we need to deliver on this goal. We need to recognise that, crucial to setting this income measure over time, is understanding the key drivers of adequacy, including the costs of health and aged care, and housing, in later life,” she said.

“With the ballooning costs of tax expenditures, the need for structural reform of superannuation is compelling. At the same time, health funding to the States is about to be cut by $10 billion a year and those older people who are struggling the most – those on Newstart Allowance and those who rent privately – get too little help.

“The Age Pension is a cost-effective way to reduce poverty in retirement, especially now that the assets test has been tightened to target those most at risk.  In stark contrast, one-in-seven people relying on income support aged 45-65 are struggling on the $37 a day Newstart Allowance whilst looking for paid work.

“Generous tax breaks come at a high cost and are skewed overwhelmingly towards people on higher incomes. For instance, a person on the top marginal tax rate saves five times as much per dollar invested in super as one on the lowest rate.”

Goldie said that half the value of these tax breaks goes to the top 20 per cent of taxpayers and that these concessions should be replaced by a 20 per cent rebate for contributions made to superannuation from all sources, as the Henry Report recommended.

“In the retirement phase, for too many, superannuation has become a tax avoidance and succession planning scheme rather than a retirement income system. This is inequitable, costly to the budget and bad for the economy, with our need to drive investment into more productive economic activity,” she said.

“High income earners are ‘churning’ their income and assets through their super accounts to reduce their tax rate to 15 per cent or zero. Combined with a tax free threshold for a couple over 64 years of $58,000, only one in five people in that age group pays any income tax.

“The recent COAG meeting was a ‘wake-up call’ on health funding. Governments cannot continue to provide universal essential health and aged care services unless tax revenues are restored.

“The fairest way to help restore revenue levels needed for future health and aged care needs includes removing tax shelters so that people who can afford to pay income tax  – regardless of age – do so on an equitable basis. This should be pursued before governments look at less equitable options including health co-payments and a higher Goods and Services Tax.”

Goldie said ACOSS had consistently argued that gaping holes in our income tax base, including negative gearing and the use of private trusts and superannuation to avoid tax, should be closed.

“In our submission to the Government’s review of retirement incomes, we raise two options for consideration as part of the wide-ranging tax reform process, to strengthen the personal income tax to fund essential services,” she said.

“First, the exemption from income tax for superannuation fund earnings after retirement should be removed. This would extend the existing 15 per cent tax rate to fund earnings in that stage (but not to super benefits, which are also tax-free). This could be offset by a rebate for people below the tax free threshold.

“Second, consideration could be given to extending the 2 per cent Medicare Levy to incomes sheltered from tax by these and other arrangements. This is different to proposals to increase the rate of the Medicare Levy advanced by two State Premiers last week.

“It would extend the existing two per cent Levy to income that is currently sheltered from tax such as the 50 per cent of capital gains that are not taxed. This is a first step towards curbing inefficient tax shelters in the tax system generally.

“The revenue from these and other personal income tax reforms could be used in the short term to restore the health care funding cut by the Federal Government.”

The  submission is part of the Federal Government’s discussion paper on tax reform which was released in March 2015.

The Paper specifically targeted the Not for Profit sector asking if the current tax arrangements are appropriate – raising issues around the ongoing availability of Fringe Benefits Tax concessions and other foregone tax revenue.

The White Paper, entitled Re:think, Better tax, Better Australia, includes a separate section on the Not for Profit sector said that while existing tax concessions help increase the level of activity in the NFP sector, the value of revenue forgone from the concessions is significant and growing steadily.

The Government has received more than 400 submissions.

Download the ACOSS submission HERE