There is a general consensus that most people are happy to pay their share of taxes, but not a penny more. It comes as no surprise when governments tinker with superannuation that there is a lot of debate in the media and on talkback radio. The population affected is large and they are worried about their future.
The announcements in the recent Federal Budget to change some of the taxing points of superannuation remind us that when there is a good thing going, it may not last forever.
Super funds in pension phase for those over 60 have had an incredible tax treatment. Not only are the earnings within the fund tax free but also the income drawn has been tax exempt.
Whether you have a lot of money on super or not, the key principle around superannuation is
If you save for your retirement you will receive a tax incentive so that you do not rely on the Government to support you
The Government simply can’t afford to keep paying the amount of aged pension at projected rates
It therefore makes sense to encourage everyone to save as much as possible
So is the solution to tax those who have saved? I don’t think so.
A better solution I believe would be to think about some of the ideas below:
Not tax pension funds at all
Increase the tax in accumulation funds by one per cent ( ok not popular but 16 per cent is still a low rate)
If your total household income is above $200,000 from a pension, then the marginal tax rates apply for any income above this level
Ban all conflicted commissions and advice in the super industry – saving many people at least one cent. Why should a compulsory savings system be subject to commissions for poorly trained sales people? Almost every bank has now disappointed the Australian public so they should simply not be allowed to provide advice if they also manufacture products. They have to choose one or the other. There is too much as stake to allow them to continue to sell their products via their sales teams
Increase the GST by one per cent to spend on education, science and health
Build cities of the future West of the Great Dividing Range, perhaps a Nevada style and Silicon Valley style cities to attract innovation and Chinese tourism and push the population west and away from the coast. Enable new arrivals to our country an incentive such as good job prospects and cheaper housing to live and work in these new cities
Encourage savings and investment; retain capital gains and deduction incentives for investors
Mandate that industry funds and large super funds invest a percentage of assets in Australian agriculture and infrastructure
Allow tax deductions for parents and grandparents who spend money on their family’s education (for all ages and public or private). Our children are our future
A family tax free threshold – allowing mothers and fathers a tax incentive to return to work. Hard working families need some help to encourage workforce participation
Nigel Baker is a Chartered Accountant, Certified Financial Planner and Wealth Management Specialist, who owns and is the Managing Director of Arch Capital, a boutique wealth advisory and tax practice in Sydney. Together with his team, he helps affluent clients address their biggest concerns: Preserving their wealth, mitigating taxes, taking care of their families, ensuring their assets are safe.
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