I notice that the Rice Warner Pre-Budget Submission – Improving Superannuation – has canvassed (indeed recommended) having a uniform tax rate of 12% across the earnings of superannuation accumulation and pension accounts. Currently, the rate is 15% on accumulation accounts and nil on pension accounts.
There are many factors put forward for this change by various commentators and reviews including:
- More simple and cheaper administration.
- Encourage smaller accounts to be held outside of super.
- Help younger Australians to build higher retirement benefits.
- Government not suffer erosion of revenue as pension assets increase as a percentage of overall assets.
- A more equitable share of revenue from wealthy retirees.
- Stop the deferral of GST liabilities to pension phase with a resultant revenue loss.
There is a recommendation not to grandfather existing pensions. The review of Transition to Retirement pensions makes the review of pensions in a wider context a distinct possibility in the May Budget, especially as now the GST tax hike is unlikely.
Such a change as suggested above would bring us more in line with NZ. Withdrawals from a KiwiSaver account are tax free but investment earnings are taxed at a prescribed investor rate (PIR). This talk of marginal rate less a rebate e.g. 15% or 20% is similar to PIR. The difference is nobody in Australia at the moment is suggesting applying a marginal tax rate less a rebate to both contributions and investment earnings. It could reduce down the concessions for wealthy but not at the expense of retirees on modest amounts.
I doubt we will see a change that fundamental in May, but it’s an interesting debate.
The NetActuary Team