The Federal Government’s announced superannuation changes are far from the major changes that were being road tested through the media in recent months.
While some of these changes are welcome, sustainability and equity in the system can only result from a long-term, holistic plan. When Governments tinker with the superannuation system it risks harming people's confidence in the system and in putting their hard-earned money aside to save for their retirement.
Turning to the Government’s announcement, it includes an acknowledgement of the long-held concerns of tax professionals with respect to the tax treatment of excess concessional superannuation contributions.
The Tax Institute has been a strong advocate for reforming the excess superannuation contribution laws so that inadvertent breaches of the contributions caps are not unfairly penalised. The current system is extremely and unnecessarily punitive. The proposed reforms will prevent most well-meaning taxpayers from being caught in the crossfire. Allowing voluntary withdrawals of excess concessional contributions and taxing the excess at the marginal rate will alleviate the current harsh consequences.
The Government’s changes to lift the contributions cap for Australians approaching retirement will bolster balances that may be too low to provide adequately for retirement. Additional capacity to contribute at the age and stage of life at which taxpayers have necessary savings will improve sustainability of the superannuation system. While the Governments’ stepping back from the promised increase in the cap to $50,000 is disappointing, the removal of the restriction to taxpayers with balances less than $500,000 is sensible.
Of course, it is important to remember that the announced changes are unlikely to be drafted into a Bill before this Parliament rises for the last time in late June 2013. This means that they will constitute the Government’s election platform for superannuation.
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.