Government super calculations slammed

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The potential revenue gain for Government from superannuation reforms could be much lower than the quoted value of super tax expenditure, according to the latest superannuation tax report from Mercer.

Mercer Senior Partner and author of the report, Dr David Knox, said that by using Treasury’s tax expenditure figures to shape super policy, the Government has ignored age pension savings.

Knox said future age pension costs will inevitably increase if super benefits are reduced by higher tax. Mercer’s report revealed that the cost of super tax concessions to the Government increases by 187% from an average wage earner to someone who earns double the average wage.  However, the age pension savings for the Government increase by 310% between the two.  

Accounting for pension savings, the net cost of tax concessions for an average wage earner is 63% of the tax concessions. This reduces to 45% for an individual on double the average wage, according to Mercer. As income rises, the cost reduces as a percentage of the concessions; which means there is a direct relationship between tax concessions and age pension costs.

“The cost of super tax concessions to Government is therefore only part of our retirement savings story. Concentrating only on one element is a flawed approach to setting long-term policy that will affect Australians and the Australian economy,” said Knox.

More stories:

Controversial super changes stir debate

Superannuation Council: Will it do the job?

Government announces tax changes


  • Innocent Observer on 9/04/2013 10:53:12 AM

    Comparing rates of change misrepresents the actual difference in costs. For example, if an increase in taxes reduces the individual's retirement savings by $10k, it doesn't mean it is going to then cost the govt. $10k or $20k in additional pension costs. On the contrary. This $10k reduction in retirement savings will either (a) have no impact for those ineligible for the pension, or (b) increase the individual's pension entitlements, and govt's expenses, by the deeming rate.

    Let's not forget too that in the above scenario the $10k, if not spent, is retained by the individual and in most cases (subject to estate structure, beneficiaries) will be passed onto their heirs tax-free. This compares to a standard non-reversionary pension (Age Pension etc) which ceases at time of death.

    Whether or not you agree with the changes, it's in all of our interest to consider the facts and not get derailed with the populist rhetoric. This is the only way we'll be able to design and implement a system that works well without being overhauled every 6 - 12 months

  • Mel on 9/04/2013 10:35:52 AM


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