The Federal Treasury is still overstating the cost of superannuation tax concessions, despite having revised them downwards in the recently issued 2015 Tax Expenditure Statement (TES), according to the Association of Superannuation Funds of Australia (ASFA).
ASFA chief executive, Pauline Vamos said that while the revised methodology has led to an improvement in accuracy of the TES forecast over the coming five years, they still do not reflect the reality.
According to Vamos, the tax expenditures figure on a tax foregone basis are now estimated to be $29.8 billion in 2015-16, down from an estimate of $33.5 billion in last year’s TES for the same year with the revisions to later years being even greater, down from an estimated $45.9 billion for 2017-18 to $32.2 billion.
However, she said that while ASFA believed the most recent estimates were a considerable improvement on previously published data, there was still significant work to be done to get an accurate picture of the costs and benefits of superannuation tax concessions.
“The estimates now clearly take into account the tax concessions relative to the same investment being held outside the superannuation system,” Vamos said. “If fund are invested outside super in similar assets, they would be likely to attract concessions associated with capital gains and the benefits of dividend imputation, which also involve a cost to revenue.”
“The more accurate method for estimating tax expenditures confirms that contribution caps are working and that there is not a prospective blowout in the cost of tax concessions for superannuation,” she said. “Contrary to what some commentators have claimed, the cost of tax concessions for super is not overtaking the cost of the Age Pension.”
Vamos said that while the recently published estimates were an important improvement, ASFA believed that the actual cost of tax concessions was more likely to be around $16 billion per year.
“When you take into account the savings the government makes on the Age Pension as a result of super, and the impact of behavioural change (people shifting money from one tax-effective vehicle to another) that would occur if super tax concessions were removed, a more accurate estimate would be around $16 billion a year,” she said.
Vamos noted that with the current legislated settings for the Superannuation Guarantee (SG), expenditure on the Age Pension is projected to reach 3.6 per cent of GDP in 2054/55 and that in the absence of superannuation savings, expenditure on the Age Pension would be likely to reach 5.5 per cent or more of GDP and retirement incomes on average would be lower.
