Superannuation is our nest egg. It's the stashed away cash that we all trust will be safe and secure for years to come and will be there when we need it to fund our retirement. It is the ultimate long-term investment.
However, it is an investment made on the basis of a core compact between every Australian and Government: we agree to forgo part of our income now to save for our retirement, whilst in return the Government agrees to respect the sacrifice and the long-term nature of our investment.
The superannuation system depends heavily on the confidence that people have in it. When Governments tinker with the superannuation system it risks harming people's confidence in the system and their confidence in putting their hard-earned money aside to save for their retirement. It also affects superannuation funds and the capital markets.
Unfortunately, the political debate about superannuation has moved once more to the familiar battle ground of class warfare.
The Henry Tax Review found that superannuation is a core component of our retirement income system and one that rightly receives concessional tax treatment compared to other savings. However, the structure of these concessions is inequitable because high-income earners benefit much more from them than low-income earners.
To improve the situation for some low-income earners, today's law effectively offsets the tax paid on their superannuation contributions. For some high-income earners, the law now increases the tax they pay on superannuation contributions.
However, these changes are hardly the reform of the superannuation system outlined in the Henry Review roadmap: an overhaul that would see superannuation contributions taxed at marginal tax rates with a capped tax offset, and with a very low tax rate on earnings in the fund. This would ensure that both earnings and benefits are largely tax-free, while evening-up the concessions provided to higher and lower income earners.
Superannuation reform should only proceed in line with a long-term, holistic plan focussed on equity and sustainability. A reactionary tax-grab out of existing taxpayer savings invested in good faith and on the basis of the current laws is in no-one's interests.
Robert Jeremenko CTA is Senior Tax Counsel of The Tax Institute.
The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.