Former Australian Institute of Superannuation Trustees chief executive and long-time superannuation advocate, Fiona Reynolds, has criticised the recent outcry over the Labor government’s proposal to increase tax on superannuation earnings for higher income earners. The proposal has led to fierce debate in Parliament and industry, with Labor being accused of “class warfare” in the House of Representatives.
However, Reynolds says she’s disappointed the debate hasn’t centred on the opposition’s promise, if elected, to abolish the Low Income Super Contribution Scheme (LICS), a rebate for low-income earners implemented by the government last year.
The rebate impacts 3.6 million workers, 2.1 million of who are women.
“We know that women retire with nearly half the retirement savings of men, and this rebate really is about boosting the retirement savings for women,” says Reynolds. “So I would like to see the industry have a bit more of an outcry and a bit more of a call for this to be kept, rather than just this focus on a potential change for people in the top 1 per cent of the nation.”
Reynolds says superannuation has become political and needs bipartisan support. “Superannuation, I think, is too important to the Australian economy and also to individuals to be used as a political football.”
The opposition offends
Minister for Financial Services and Superannuation, Bill Shorten, came out in defence of Labor, telling a press conference last week that having the opposition back down from a billion-dollar tax cut is the next issue to resolve. “They’re going to put a new tax because we’ve got rid of it. It’s a new tax on 3.6 million Australians, whose only chance of not relying on the aged pension, is to have superannuation savings balances that grow.”
Shorten emphasised Labor’s track record in superannuation, saying it brought the system to fruition and raised the contribution from 9 per cent to 12 per cent. “We are interested in a system which is sustainable, which is fair. We’re also interested in a system which ensures that Australians don’t work hard their whole lives and retire poor.”
Just last week, Joe Hockey indicated the opposition would also look to abolish the increase of super contributions from 9 per cent to 12 per cent.
Pauline Vamos, chief executive of the Association of Superannuation Funds of Australia, is concerned that the talk of more changes will stop engagement in superannuation, which has increased over the last couple of years.
Like Reynolds, she advocates bipartisan support and is dissatisfied with the Coalition’s stance.
“The benefit that the tax-free threshold gives these people is that their account balance builds a lot more quickly. And that means they become engaged more quickly, and it means that they’re more likely to get a better retirement outcome. And it doesn’t cost that much.”
Vamos says taxing higher income earners will stifle progress, by way of a substantial reduction in already decreasing voluntary contributions.
“Higher income earners then put that money into other investments that attract a tax incentive. And we said this last budget,” she tells IM Online. “If you pull one lever in super, then you take money out of super, it doesn’t suddenly go into consolidated revenue, so you don’t get the full tax saving… so you never get the dollar-for-dollar savings, ever.”