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Superannuation tax concessions and the 2012 Federal budget

Super tax concessions – why they shouldn’t be touched.

In the run up to the 2012 Federal Budget, Superannuation “tax concessions” appear to be increasingly targeted as one possible cost saving. I get annoyed at the reporting and analysis of superannuation tax concessions, and thought it worth making the following points.

  • Winding back superannution “tax concessions” are not Government savings – they are tax increases plain and simple. Lets cut the spin and call it for what it is!
  • Superannuation was designed as a form of compulsory saving, principally to save the Government future pension costs. Recognising that 20 and 30 year olds really don’t want to lock their money away for the next 30-40 years, the system included a number of incentives. Most important of these was the favourable tax treatment of funds injected into, and retained within, the superannuation system.
  • The most common criticism of the superannuation taxation regime is that it is biased towards high income tax payers. The benefits enjoyed by high income earners have been progressively reduced, largely by the introduction highly restrictive of superannuation contribution caps, but also by the introduction of a rebate to low income earners which effectively offsets the 15% superannuation contributions tax (commences 1 July 2012 for incomes up to $37,000).
  • Even if you accept that high income earners are the main beneficiaries of superannuation tax concessions, when you look on a whole of lifetime basis, these tax benefits are nearly fully offset by the pension savings associated with these taxpayers becoming self funded retirees (that is, low income earners who benefit less from superannuation tax concessions, typically benefit from greater Government pension support when they stop working). For additional information and analysis refer to the detailed report from Mercer avaialable at
  • Unfortunately, much of the reporting of superannuation tax concessions focuses on the cost to Government revenue. The implicit assumption appears to be that every dollar contributed to superannuation would be taxable as normal income if superannuation tax concessions were removed. It not only ignores the longer term cost of higher Government pension costs (as individuals would be less inclined to save via superannuation, and a portion would be spent rather than saved) but also ignores that fact that many individuals would arrange their affairs to take advantage of other tax effective investment opportunities (Eg negative gearing, franked dividends).Federal budget changes to superannuation taxes
  • Treasury analysis of the annual cost of superannuation “tax concessions” is based on historic data before the introduction of current contribution caps and low income superannuation rebate. The data therefore overstates the costs associated with superannuation tax concessions, and particularly the benefits for higher income earners.

Based on the points above, I can only hope the Federal Government takes a longer term view and does not take the easy option of milking the superannuation system for additional revenue. The resultant loss of confidence in the superannuation system will have significant long term costs for all taxpayers.

DIYSuperAudit : Self Managed Super Audit Specialists : SMSF Audits : TOLL FREE 1300 733 159