The Federal Treasurer, Joe Hockey has released the Government’s tax discussion paper today arguing that Australia’s heavy reliance on income taxes may be unsustainable.
The Treasurer’s release of the discussion paper has been welcomed by the major financial services organisations, with the Financial Services Council (FSC) chief executive, Sally Loane saying the tax review had to be thorough, considered and with everything on the table.
“It is no longer viable to rely so heavily on personal and corporate income tax to foot the bill for public services,” she said.
Among the key areas addressed in the tax white paper are superannuation tax concessions and negative gearing.
For the financial services industry, one of the opening statements in the tax white paper has set the tenor of the debate with the contention that “the tax treatment of savings is very complex and distorts savings choices”.
It goes on to say, “tax on savings should give people the incentive to save for the future. However, some savings are taxed at full marginal rates (for example, bank accounts) while others are not (for example, superannuation). This can affect people’s choices about how to save without necessarily doing much to increase savings overall”.
Within the broader white paper document, the Treasury has posed the question, “How appropriate are the tax arrangements for superannuation in terms of their fairness and complexity? How could they be improved?”
In doing so, its discussion of the superannuation tax concessions acknowledges that “the flat rate of tax on superannuation contributions means that most high income people receive a larger tax concession, relative to their marginal tax rate, than low income people”.
It adds that, “the same is true during the accumulation phase and even more so during the retirement phase when there is no tax on earnings”.
The Association of Superannuation Funds of Australia (ASFA) has welcomed the release of the tax discussion paper and the inclusion of superannuation as a discussion point, though its chief executive, Pauline Vamos said it had identified “good reasons for superannuation to receive concessional tax treatment compared to other types of savings.
“Superannuation should be taxed at a concessional rate as it is compulsory and cannot be accessed till retirement,” she said.
However Vamos noted that her organisation had long acknowledged that a review of the tax concessions in superannuation, particularly for those with large balances, was needed so that they could be better targeted to those who most needed the concessions to achieve a comfortable retirement, while minimising the draw on the Age Pension.”
