Untangling the super knot

With nothing seriously impacting superannaution having been contained in the Federal Budget, Blake Briggs writes that all attention must now be focused on the tax white paper.

Superannuation tax policy is the Gordian Knot of Australian politics. There is no clear starting point to reform, no agreed ending point, and the layers of complexity deter even the bravest politician from attempting to find a solution.

The Tax White Paper process has gathered a crowd of anxious onlookers, waiting to see who can cut through the malaise and put years of tinkering and uncertainty in superannuation behind us.  

The superannuation industry has a rare opportunity to lead the debate on tax reform in a manner that promotes trust in the system, puts adequacy at the heart of any reforms and strips out the complexity that drives disengagement.    

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Superannuation has been an outstanding success and, over generations, is delivering higher standards of living in retirement for Australian workers. This is easing the cost of an ageing population and will reduce the proportion of Australians on the full age pension by 40 per cent over the next 30 years.   

Public concern is growing, however, that the superannuation system is not targeted to achieving its objectives.  

While the Government's commitment to make no negative changes to superannuation is a welcome reprieve for the industry from the fever pitch debate and gives Australians confidence in the stability of superannuation so they can save for a comfortable retirement without being concerned about the system being tinkered with, it is not a sustainable solution.   

The Financial Services Council (FSC) has a long held the view that superannuation must be considered as part of a holistic retirement policy which includes a number of elements, including the age pension and health care.    
Superannuation, the age pension and the tax systems must be aligned to deliver the best possible outcomes for "Australia's ageing community and a national retirement policy, which reduces the pressure on the public purse and on future generations."  

The superannuation industry would be well served to use the Tax White Paper process to ground the debate using a solid, evidentiary basis that supports a policy position with integrity.   

The current super tax debate is being driven by information we believe is misleading, relying on the annual Tax Expenditures Statement (TES) to put a cost on current tax concessions.  

The TES is conceptually flawed as a starting point, even with Treasury agreeing the TES is not the basis for determining the 'cost' of the system.   

Reports by Mercer, the FSC, and others have demonstrated that the TES fails to consider behavioural changes that would result from removal of the tax benefits afforded to super.  

The TES also ignores downstream savings on the age pension as a result of superannuation savings, which NATSEM estimates will be worth $11.1 billion per annum by 2030.   

Flat taxation of contributions and earnings makes it easy for opponents to claim the ballooning 'concession', rising to $45 billion by 2017-18, is unsustainable.  

Unfortunately, this number – while flawed and misleading; will continue to grow exponentially as funds under management continues to rise.   

The current super tax debate is being driven by information we believe is misleading, relying on the annual Tax Expenditures Statement (TES) to put a cost on current tax concessions.  

The Tax White Paper process presents an opportunity for the industry to reshape public opinion and advocate for reform that promotes the stability and sustainability of the superannuation system for generations.   

Firstly though, we share the view of the Financial System Inquiry that the purpose and objective of superannuation - a comfortable retirement for the majority of Australians which reduces reliance on the public purse should be defined and enshrined in legislation.   

Superannuation must remain the preferred vehicle that helps Australians save for their retirement.  

This means preserving concessionary arrangements for all participants in our mandatory system and lightly taxing earnings so that members are incentivised to make voluntary contributions.   

The FSC believes, however, that the tax settings must be reorientated towards those who have the most capacity to reduce their reliance on the age pension.    

The superannuation industry should lead this debate and shape a package of reforms that address perceptions of inequity while ensuring that superannuation continues to incentivise Australians to save for their own retirement.   

Industry leadership requires both retail and industry funds to come together and design a package of reforms that can be demonstrated to promote adequate retirement savings.  

It also means protecting superannuation from vested interests that see retirement savings as a honey pot to fund other government programs.   

The FSC has taken the first step by examining the tax treatment of superannuation as part of a holistic review of the whole system, where other levers, such as the age pension are on the table.

Blake Briggs is Senior Policy Manager at the Financial Services Council.