Govt's super tax debate has a familiar ring

Mike Taylor writes that it is passing strange that the Government has allowed a debate around the super taxes for upper income earners when it has failed to implement a very similar measure announced in its 2012 Budget. 

Amid the brouhaha over the Government’s intentions on superannuation policy in the May Federal Budget, there has been only fleeting reference to the fact that it actually targeted those earning over $300,000 in the 2012 Budget. 

For those unfamiliar with the complexities of turning Government policy pronouncements into workable legislation, the Government’s failure to implement a measure slated to save close to $1 billion over the forward estimates ($946 million) may seem very strange when, less than six months later, the Federal Treasurer, Wayne Swan, acknowledged that the Government would not be delivering on its promise of a modest surplus. 

However, the failure to deliver on the 2012 Budget announcement becomes less confusing when the administrative complexities inherent in such a measure are taken into consideration.

Those complexities would hit not only superannuation funds but also the Australian Taxation Office – the underlying cost of which would likely be similar to that of the superannuation surcharge introduced by the former Howard Government. 

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In fact, the superannuation surcharge was introduced in former Treasurer Peter Costello’s 1996 Budget and was removed in 2005. It was widely acknowledged that the underlying administrative costs were almost equal to the revenue it raised. 

But of course, the administrative complexity of such an approach is not the issue for the Government.

The greater imperative is the ability to book the revenue into the Budget and therefore underpin spending promises such as those entailed in the National Disability Insurance Scheme (NDIS) or the Gonski Review education measures. 

There is also the knowledge that once the measure is booked in the Budget, it will be difficult for a newly-elected Coalition Government to unscramble the resultant fiscal omelette without first identifying its own savings from elsewhere. 

However, given that the Government’s approach to upper income earners (those earning over $300,000) was “booked” into the 2012 Budget, it is worth reflecting upon how it was announced by the Minister for Financial Services and Superannuation, Bill Shorten.

It is also worth reflecting upon how closely Shorten’s 2012 words align with some of the rhetoric uttered by the Minister for Trade, Craig Emerson, in his references to the perquisites being enjoyed by upper income earners. 

Shorten’s announcement on Budget night 2012 read as follows: 

“The Government will make the superannuation system fairer by reducing the higher tax concession that very high income earners receive on their concessional contributions, to align it more closely with the concession received by average income earners. 

“It is clear that a small number of people on high incomes are getting a better tax deal out of super than millions of Australians on average incomes.

"The Government will make the system fairer by ensuring that the tax incentives for super are more in line across income ranges. 

“Currently, the 15 per cent flat tax on concessional contributions provides high income earners with a significantly larger tax concession than those on lower marginal tax rates. From 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their contributions reduced from 30 per cent to 15 per cent (excluding the Medicare levy). 

“There will still be an effective tax concession of 15 per cent for these high income earners. This measure will save $946 million over the forward estimates. It is estimated that it will affect around 128,000 people in 2012-13, or 1.2 per cent of people contributing to superannuation.” 

Shorten’s announcement then went on to say that the definition of ‘income’ for the purpose of the measure would include taxable income, concessional superannuation contributions, adjusted fringe benefits, total net investment loss, target foreign income, tax-free government pensions and benefits, less child support. 

It went on to stay the change would “only reduce the tax concession which very high income earners receive on their contributions into superannuation”. 

“The 15 per cent flat tax on earnings within superannuation (and tax exemption for assets supporting pension payments) provides high income earners with a significantly larger tax concession than those on lower marginal tax rates, and this will not be affected in any way by this reform,” it said. 

Nearly a year down the track, the Government has not introduced the legislation necessary to activate the Budget measure – and yet it has allowed a debate to develop around much the same measures being a part of a 2013 pre-election Budget. 

It remains to be seen whether the necessary legislation will find its way through the Parliament before the 14 September Federal election.

Even if it does, a big question mark will hang over whether the ultimate revenue objective will justify the underlying expenditure necessary to “book” it.