Superannuation, the ultimate government cash cow?

[So_Cynical]

Low income earners allready get government assistance for super in the form of a government co-contribution.

$31,920 is not a low income...its subsistence living, assuming you don't own you own home and are working part time for fun etc...$61,920 is the cut off point as it should be because people pulling over 62K a year don't need any special Govt help IMO.

Anyone further up the income chain (6 figure incomes, net worth above 2 mill - ex PPR) should be taxed more.

 

[Starcraftmazter]

Low income earners allready get government assistance for super in the form of a government co-contribution.

In a broader context, tax on super should be reformed, but not necessarily as a wealth redistribution exercise as the Greens would like. Any reductions in super tax concessions higher up the income scale should be reflected in lower marginal tax rates.

Given they would still be better off, I am not sure why this is necessary.

 

[drsmith]

$31,920 is not a low income...its subsistence living, assuming you don't own you own home and are working part time for fun etc...$61,920 is the cut off point as it should be because people pulling over 62K a year don't need any special Govt help IMO.

Anyone further up the income chain (6 figure incomes, net worth above 2 mill - ex PPR) should be taxed more.

We should not be aiming to tax any group more as an end in itself.

We need to strengthen the tax base so marginal rates can be reduced. What's the point of greater tax on a person with a 6-figure income if they can then minimise that tax by, for example, negative gearing into property.

Given they would still be better off, I am not sure why this is necessary.

It's called tax reform and is a better approach than just increasing taxes.

 

[Starcraftmazter]

We need to strengthen the tax base so marginal rates can be reduced. What's the point of greater tax on a person with a 6-figure income if they can then minimise that tax by, for example, negative gearing into property.

Very simple solution: Get rid of negative gearing.

It's called tax reform and is a better approach than just increasing taxes.

I'm all for tax reform. But my idea of tax reform does not include any federal taxes for anyone. Or maybe just a little.

Realistically, we will never get tax reform in Australia because our politicians are far too incompetent.

 

[Pager]

It does make you think, ive more or less secured my future by salary sacrificing and running a SMSF and by learning how to trade and taking an interest in were my money is invested, im a tradesman with an average income, I don’t waste money, don’t spend a fortune going out or on clothes, gambling, new car every other year etc, I take responsibility for my own future and don’t want or expect government handouts, sadly I know plenty of people my age (late 40,s) who don’t take any interest or really care about there Super or there financial future, they live for today and EXPECT a pension when they hit 65, each and every week they will spend all there wages.

Now there is going to be a lot of these people hitting retirement in a few years time and does anyone really think these VOTERS can be ignored, like it or not In my opinion those who have done the right thing and provided for there older years will be subsidising those who have not.

Sometimes I think what the hell maybe I should go and get that new BMW or go on cruises 2 or 3 times a year, buy designer brands, eat at nice restaurants as the alternative is somehow im going to be stripped of much of this wealth ive worked hard for so as the government can get re-elected on the promises it makes to the masses many of whom never gave it a second thought and had the BMW, went on the cruises, spent all of what ever they earned and never bothered with there future.

IMO, its going to take many more years and need a higher % of compulsary contributions to super before it becomes self funding as it were, in the mean time those currently in there 40,s and 50,s and maybe even 30,s who are doing the right thing will more than likely be shouldering the burden for those that didnt.

 

[StumpyPhantom]

It does make you think, ive more or less secured my future by salary sacrificing and running a SMSF and by learning how to trade and taking an interest in were my money is invested, im a tradesman with an average income, I don’t waste money, don’t spend a fortune going out or on clothes, gambling, new car every other year etc, I take responsibility for my own future and don’t want or expect government handouts, sadly I know plenty of people my age (late 40,s) who don’t take any interest or really care about there Super or there financial future, they live for today and EXPECT a pension when they hit 65, each and every week they will spend all there wages.

Now there is going to be a lot of these people hitting retirement in a few years time and does anyone really think these VOTERS can be ignored, like it or not In my opinion those who have done the right thing and provided for there older years will be subsidising those who have not.

Sometimes I think what the hell maybe I should go and get that new BMW or go on cruises 2 or 3 times a year, buy designer brands, eat at nice restaurants as the alternative is somehow im going to be stripped of much of this wealth ive worked hard for so as the government can get re-elected on the promises it makes to the masses many of whom never gave it a second thought and had the BMW, went on the cruises, spent all of what ever they earned and never bothered with there future.

IMO, its going to take many more years and need a higher % of compulsary contributions to super before it becomes self funding as it were, in the mean time those currently in there 40,s and 50,s and maybe even 30,s who are doing the right thing will more than likely be shouldering the burden for those that didnt.

With you all the way Pager. I'm 49 and doing the same as you - determined not to live on government handouts.

All the stories I hear about this dividing line between those on the pension and those self funded retirees is "what so-and-so did to hide or give away money so that he/she could get the pension". I've never heard a story going the other way.

So good for you - hang in there and do the right thing.

 

[banco]

Why is allowing people to save money for retirement without having it taxed harshly considered a benefit?

As a younger person, I am more than happy to have every benefit for "younger" people removed. I didn't ask for any damn welfare to have children or speculate on property, and I sure as hell don't need it.

Well call it a benefit or a tax break but the effect is the same. You could deliver family benefit and the baby bonus through the tax system in the form of tax credits. It's still money foregone by the treasury.

Fact is in the real world Federal Government spending as a % of GDP is going to stay roughly at current levels (and probably increase). That level of spending has to be funded through some combination of taxes and if you tax one area less you are inevitably going to have to tax another area more ie there's a respectable argument that capital gains should be taxed less but then you have to make the revenue lost somewhere else.

What I'm afraid we are going to end up with due to demographics and politics is relatively high rates of taxation with regards to the taxes that young employed people pay (ie income tax, medicare levy etc.) while at the same time fewer services etc. for young people because all the money will be going to fund the oldies pensions and healthcare. So if you're a young person you'd have the worst of all worlds relatively high rates of taxation and see very little of it back.

 

[StumpyPhantom]

What I'm afraid we are going to end up with due to demographics and politics is relatively high rates of taxation with regards to the taxes that young employed people pay (ie income tax, medicare levy etc.) while at the same time fewer services etc. for young people because all the money will be going to fund the oldies pensions and healthcare. So if you're a young person you'd have the worst of all worlds relatively high rates of taxation and see very little of it back.

That's the logic I don't get. If you're really afraid of that then the solution is to let as many of those 'oldies' save for (and then support) themselves so that they're not eating into your precious taxes?

Given that it appears so easy to slip into a pension, it is surely counter-productive for you to support taxing these super contributions out of existence?

 

[drsmith]

Very simple solution: Get rid of negative gearing.

With regard to salary income, I agree, but state based property taxes should also be abolished as well. That would reduce investment decisions to investment merit ann not on tax. Any balance could go into reduced marginal tax rates.

If the top marginal rate could be reduced to 30% by strengthening the tax base and overall simplification, the Greens super policy objective would be satisfied with the current super tax rate of 15%.

I'm all for tax reform. But my idea of tax reform does not include any federal taxes for anyone. Or maybe just a little.

Realistically, we will never get tax reform in Australia because our politicians are far too incompetent.

The feds have to function off of something and provide some support to those less well off.

We won't get meaningful tax reform as it would take many steps to implement and political parties are much more concerned about what will attract the swinging voter within a single electoral cycle.

 

[banco]

That's the logic I don't get. If you're really afraid of that then the solution is to let as many of those 'oldies' save for (and then support) themselves so that they're not eating into your precious taxes?

Given that it appears so easy to slip into a pension, it is surely counter-productive for you to support taxing these super contributions out of existence?

Well it depends what actual policy changes to superannuation you are talking about but most of the proposed changes I've seen (and certainly the ones that are likely to actually become law) are not going to make the difference between people being self-funded retirees and on the pension.

 

[Starcraftmazter]

What I'm afraid we are going to end up with due to demographics and politics is relatively high rates of taxation with regards to the taxes that young employed people pay (ie income tax, medicare levy etc.) while at the same time fewer services etc. for young people because all the money will be going to fund the oldies pensions and healthcare. So if you're a young person you'd have the worst of all worlds relatively high rates of taxation and see very little of it back.

Yep, couldn't agree more.

If the top marginal rate could be reduced to 30% by strengthening the tax base and overall simplification, the Greens super policy objective would be satisfied with the current super tax rate of 15%.

Could you please elaborate on your reasoning here, I am not sure I understand how this would be achieved.

 

[drsmith]

Could you please elaborate on your reasoning here, I am not sure I understand how this would be achieved.

It's a very simple principal.

Strengthen the tax base by removing exemptions such as deductions and use the proceeds and consequent reduction in compliance/administration costs to reduce marginal tax rates. The result would be a leaner, more efficient government and investment decisions based more on economic merit, not on tax minimisation.

How far one could go with reducing marginal rates would depend on how broadly the tax base was strengthened and simplified.

 

[Eager]

It's a very simple principal.

Strengthen the tax base by removing exemptions such as deductions and use the proceeds and consequent reduction in compliance/administration costs to reduce marginal tax rates. The result would be a leaner, more efficient government and investment decisions based more on economic merit, not on tax minimisation.

How far one could go with reducing marginal rates would depend on how broadly the tax base was strengthened and simplified.

I am all for true reform.

I have kept the following article, published several years ago, for just such an occasion. The salient point is regarding what happened in NZ:

LOWER TAXES MUST BE ON THE MENU by Kevin Bailey (Herald Sun, 5/9/05)



The debate in relation to the unfairness of tax cuts that seem to only help the rich and not low income earners reminds me of an article I read in the Chicago Tribune a number of years ago.
I wrote about this in an investment journal last year and I believe it is relevant still in light of the current debate. The story was about a group of friends who went out to dinner together once a month and the story has lots of lessons for us in the current tax debate.
Sometimes, we lose sight of where wealth comes from and that we need to encourage enterprise as well as care for the less well off. There is no question that the country should be structuring taxation mire simply.
The article in the Tribune talked about putting tax cuts in terms everyone could understand. It was a story of how once a month for many years, 10 men went out to dinner together and the bill for all 10 came to $300. If they paid their bill the way we pay our taxes it would be paid as follows.
The first four men, the poorest, would pay nothing, the fifth would pay $3, the sixth would pay $9, the seventh would pay $21, the eighth would pay $36, the ninth would pay $54 and the tenth man, the richest, would pay $177. Which is what they decided to do.
The 10 men ate dinner in the restaurant every month and seemed quite happy with the arrangement until one day the owner gave them an unexpected benefit. In tax language he gave them a tax cut.
“Since you are all such good customers, I am going to reduce the combined cost of your meal by $60,” he said.
So now the dinner for the 10 men only cost $240. The group still wanted to pay the bill the way we pay our taxes so the first four men continued to eat for free. What about the other six?
These were the paying customers and they had to work out how to divide the bill so that everyone would get his “fair share” of the windfall.
The six men realised that the $60 divided by the six was $10 but if they subtracted that from everyone’s share then the fifth and sixth men would end up being paid to eat their meal. Therefore the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same amount.
He proceeded to work out what each man should pay. The result was that the fifth man now paid nothing, the sixth put in $6, the seventh put in $15, the eighth put in $27 and the ninth put in $36. This left the tenth man to put in $156 instead of his earlier $177.

Each of the six men was better off than they were before and the first four continued to eat for free. Once outside the restaurant however, they began to compare their savings.
“I only got $3 out of the $60,” declared the sixth man, pointing to the tenth, “But he got $21.”
“That’s right,” said the fifth man, “I only saved $3 too. It’s unfair that he got seven times more than us.”
“That’s true,” said the seventh man. “Why should he get back $21 when I only got back $6? The wealthy get all the benefits.”
“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. The system exploits the poor.”
So the nine men surrounded the tenth man and beat him up. The next month he didn’t show up for dinner (or in the real world he took his business out of the country).
So the nine sat down for dinner and ate without him. When it came time to pay the bill, they discovered too late what was very important. They were $156 short of paying the bill.
The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy and they might just not show up at the table any more and where will that leave the rest of us? It is a shame this rather straightforward logic doesn’t always get through to the electorate.
When New Zealand lowered its highest income tax rate from 66 per cent to 33 per cent and the low end tax rate from 38 per cent to 19 per cent and introduced a 10 per cent consumption tax but eliminated Capital Gains Tax, Property taxes and all other indirect taxes it was designed to be revenue neutral. In fact, what actually happened was it received 20 per cent more tax because of an increase in voluntary compliance.
Every country of the world that has dramatically simplified and lowered its tax rates has ended up with more revenue not less. We could all learn this lesson.

 

[Julia]

In other words keep the benefits for older Australians and pay for them by getting rid of benefits directed at the younger generations?

On the contrary. I think most older Australians, including those who have had no problem paying tax all their working lives, are happy for these taxes to be funding the education and healthcare of younger people.

The baby bonus is a whole different matter. The people who will produce worthwhile citizens who will make a contribution to Australian society, both socially and financially, will not at all be influenced in their decision to breed by a $5000 payout.

The people who are influenced by this are the unemployed and those on minimal incomes who see it as funding that new supa dupa plasma, and various other toys.
I spent over 12 years in the welfare sector and saw hundreds of these people.
You would ask them "what are you planning to do with the baby bonus" (hoping they'd tell you it was going in a bank account for the child's future, or at the very least buying the necessities for a new baby).

Not on your life. They didn't mention providing for the coming child, and just listed all the ubeaut stuff they'd be able to buy, having never in their entire lives having had a whole $5000 to spend.

So if you really think this sort of government spending is worth taxing retirees who have saved as Pager describes above, then I would absolutely question your values.

Btw, banco, would you care to share with us what plans you yourself are making for looking after yourself in retirement so that the younger generation is not burdened with looking after you?

 

[drsmith]

I am all for true reform.

I have kept the following article, published several years ago, for just such an occasion. The salient point is regarding what happened in NZ:

LOWER TAXES MUST BE ON THE MENU by Kevin Bailey (Herald Sun, 5/9/05)

That's a good find. It puts Labor's class warfare into sharp focus.

The Coalition does not get off scott free either as some of the tax cuts and welfare handouts from Howard's latter years was focused more on votes and less on true tax reform.

 

[Starcraftmazter]

LOWER TAXES MUST BE ON THE MENU by Kevin Bailey (Herald Sun, 5/9/05)

Great story, 10/10 - would read again.

On the contrary. I think most older Australians, including those who have had no problem paying tax all their working lives, are happy for these taxes to be funding the education and healthcare of younger people.

Healthcare of younger people? Young people probably use some small and insignificant portion of the healthcare budget. Every clinic in Sydney is stuffed with old people (and immigrants I might add!).

Education also benefits the old tremendously. Some of us have to be earning real money and paying real taxes so that the rest of them have welfare dollars to draw on.

What benefit the young get from supporting boomers who own 2/3 of all property in the country is a much more questionable concept. Sounds like slavery to me.

 

[StumpyPhantom]

Well it depends what actual policy changes to superannuation you are talking about but most of the proposed changes I've seen (and certainly the ones that are likely to actually become law) are not going to make the difference between people being self-funded retirees and on the pension.

Wrong Banco. It's the human beahviour that you're not taking account of here. If there is no incentive to be a self-funded retiree, it gets blown on fast cars, holidays, you name it. It goes very easily.

Then, come retirement day, exactly the outcome you're fearing comes to pass when the baby boomer you're afraid of supporting with your taxes walks into Centrelink.

You think that's not gonna happen? How many stories have you already heard of a 60-something selling up and giving it away to their grandkids, anyone, or stuffing it somewhere so it doesn't show up when they apply for a pension.

Those stories are going to multiply if these future 60-somethings could have put money away but haven't because the Government made it just as easy for them to spend it when they earned it.

So be careful what you wish for. Most of us would enjoy spending that money now rather than saving it for our retirement when we're not sure how many years we have post-65 anyway.

 

[drsmith]

Great story, 10/10 - would read again.

It's something the Greens should read as well.

 

[breaker]

What about taking payments from able bodied dole recipients,and helping the older generation who have paid taxes all there lives.

Todays dole bluger will be old one day .

 

[Julia]

What about taking payments from able bodied dole recipients,and helping the older generation who have paid taxes all there lives.

Todays dole bluger will be old one day .

There are plenty of decent Australians, who have paid their share of taxes, struggling to survive on the dole which is pathetically inadequate.
Companies, fail, downsize, all the time. If you're retrenched, especially if you're over 40, it's difficult for people to get another job. Doesn't make those people bludgers.