More than 60 per cent of voters support increasing the tax on superannuation contributions for high-income earners in a Newspoll that will buttress plans by the Turnbull government to strip back the generosity of tax breaks on compulsory savings.
The government intends to make the change in either the May budget or in its tax package, believing the move could generate about $6 billion a year to fund other tax cuts and boost confidence in the fairness of the superannuation system.
Reducing the scope of existing tax breaks for superannuation by 15 or 20 percentage points is one of the options being seriously examined by the government, as the latest Newspoll shows majority support for taking action, including among Coalition voters and those living in households earning above $100,000.
The Newspoll, taken exclusively for The Australian, shows 62 per cent of voters in favour of the government raising the tax rate on superannuation contributions by high-income earners, while 27 per cent were opposed and 11 per cent undecided.
The poll of 1837 voters, taken from last Thursday to Sunday, also found 59 per cent of Coalition voters backed the move while support rose to 68 per cent among Labor voters and 73 per cent among Greens.
There was 53 per cent support among voters in households with an income of $100,000 or more and support rose to 65 per cent among those living in a household earning less than $100,000.
Superannuation contributions are taxed at a flat 15 per cent — or 30 per cent for people earning more than $300,000 — giving a big 30 per cent tax break for people who are on the top tax rate of 45 per cent earning between $180,000 and $300,000.
The concession is only 4 per cent for people on the bottom marginal tax rate of 19 per cent.
Malcolm Turnbull has been highly attracted to the idea of reducing super tax breaks by 15 percentage points for those on high incomes and has held talks with Deloitte Access Economics director Chris Richardson, who has been a leading proponent of the change. The government believes it still leaves superannuation as an attractive investment but eliminates “excesses” that anger voters, especially low and middle-income households.
Scaling back super tax breaks for the wealthy would help smooth the way for a GST increase as part of a bigger package that would help fund across-the-board income tax cuts and compensation for low-income earners and welfare recipients.
Scott Morrison’s tax taskforce argues that the superannuation change would mean tax concessions were appropriately targeted to secure an “adequate retirement income” but would not be an open-ended savings vehicle for the wealthy to accumulate large balances underpinned by tax breaks far more than required for an adequate retirement.
The Future Fund’s chairman, former treasurer Peter Costello, has warned, however, that repeated changes to the superannuation system and increasing taxes risked changing savings behaviour that could create a larger Age Pension burden for taxpayers.
Treasury estimated last week that the tax breaks on superannuation contributions would cost the government $16.2bn in tax revenue this year, or almost half the projected budget deficit. The concessional treatment of superannuation earnings costs the budget a further $13.6bn. The Treasurer said last year the government wanted to “strike the right balance” with superannuation incentives, fairness and cost to taxpayers. “When Australians see the government supporting the accumulation of enormous superannuation fund balances in a tax preferred and, in retirement, a tax-free environment, the confidence in the system is significantly undermined,” he told a superannuation conference.
He said he was looking at better using super tax breaks for other tax cuts. “Could the costs of providing superannuation tax concessions, for example, be directed elsewhere in the economy to make it work more efficiently?” he said. “Could they, for instance, be directed to tax cuts elsewhere, to encourage participation, productivity and growth?” Treasury has been pressing for a tightening of superannuation tax concessions since 2008. It estimated that in 2012-13, people on the top tax bracket were gaining concessions on contributions worth an average of $4900 a year while people on the bottom two tax rates got concessions of $320.
Mr Morrison’s tax taskforce has been considering a plan under which, instead of contributions being taxed at a flat 15 per cent, they would be taxed at a person’s marginal tax rate less either 15 or 20 per cent.
Deloitte Access Economics estimates switching from the current system to a 15 per cent discount to the marginal tax rate would raise about $6bn a year compared with the current arrangement, while a 20 per cent discount would be revenue neutral. With a 15 per cent discount, a person paying a marginal tax rate of 45 per cent would pay 30 per cent tax on their contributions, while someone in the 19 per cent bracket would still pay only 4 per cent tax.
Labor’s policy envisages a more modest crackdown on concessions for high-income earners. It would lower the threshold at which contributions were taxed at 30 per cent from the current $300,000 to $250,000 and would impose a tax of 15 per cent on the superannuation earnings of retirees receiving more than $75,000. At present, all superannuation earnings in retirement are tax free. The government proposal retains this as it would only change the tax on money going into super funds rather than earnings on investments.
Labor has used Parliamentary Budget Office costings to estimate that this would raise $14.1bn over a decade. It has not revealed the annual breakdown, but it would likely be about $1bn a year over the first few years.
Assistant Treasurer Kelly O’Dwyer will today continue her push to change governance of super funds and choice of fund for workers, saying she wants to encourage a debate. “We won’t be seeking to favour or go after industry funds or retail funds or self-managed super funds,” she will tell the National Press Club. “We won’t be seeking to favour or go after employers or unions either. But we will be unashamedly focused on getting the framework right for the millions of ordinary Australians who are required to contribute to superannuation and rely on superannuation for their retirement income.”