Tax and Super - Does The Government Have Too Much Say over Our Money?

• 

  jabroni on 03/06/2016 - 01:05

  but how will the banks and super industry feel?

  they dont donate to both parties for fun, no way the lib labs will go down this path

  • 

    nimnomnimy on 03/06/2016 - 01:10

    Banks can charge higher interest for loans with super money involved as they wont be first to regain any losses in case of defaulting etc.. And they can apply stricker lending terms.

    The super industry can be creative and charge more for additional administration of such activity and people will make larger voluntary contributions to super funds through capital gains splits on sale.

    Investments can still be low risk as long as they start slow with what they allow and the rules around it. The main point being that it will benefit everyone especially those struggling to get into the housing market in the first place

    • 

      jabroni on 03/06/2016 - 02:21

      i like the idea.

      i hate that we are forced to use super industry when my own money could be better off being used to fund a house which will leave me with a bigger retirement fund but NG and CGT discount are in the crosshairs of the voters so how long can they last? 6? 15 years max?

      we don't have a government brave enough to take on industry titans.

      if we could all write off costs of doing work [payg also not just ABNs] then society will benefit but govt loves our tax dollars and we have to fund corporate tax cuts and politicians retirement funds. imagine being able to write off fuel or rent/mortgage as cost of yourself contributing to society via payg work? i can only dream

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  gringo on 03/06/2016 - 03:46

  +15

  Allowing super to further inflate a housing bubble - nope don't like it.

  I think there are plenty of problems to be fixed in super before fiddling with things compromise the whole system and make yet more rorts (the rich would be the main beneficiaries - they have the most super).

  If you want outrage - get outraged about how people on low/irregular incomes are forced to pay into super accounts with high fees that eventually eat up their balance entirely.

  • 

    Geewhizz on 03/06/2016 - 06:16

    If you want outrage - get outraged about how people on low/irregular incomes are forced to pay into super accounts with high fees that eventually eat up their balance entirely.

    Yep, mine was all gone a long time ago.

  • 

    scotty on 03/06/2016 - 08:00

    Allowing super to further inflate a housing bubble - nope don't like it.

    Unfortunately that's what quite a lot of people do with their Self Managed Super Fund.

    • 

      mskeggs on 03/06/2016 - 13:20

      +1

      To be fair, there are restrictions on the property you can invest in via SMSF. So no holiday homes or rented out to family or yourself.
      The housing bubble is most attributable to the CGT concession, with negative gearing being a second order contributor as it effectively allows you to funnel some income to be taxed as capital gain.

      Super is just a tax effective way to invest for retirement, it doesn't discriminate for or against asset classes.
      Gringo is right that letting people use super to fund their home would be a disaster. Either it would push up prices further, as all evidence shows Aussies will pay as much as they can afford for a house, or there will be a correction and people will lose their retirement savings (or at least the opportunity cost of that investment if it is protected as clickship proposed).

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  Geewhizz on 03/06/2016 - 06:18

  +3

  I am often frustrated about the limited control over the tax I pay (PAYG)

  What makes you think you should have control over money that belongs to the government? Why should it fund a 'more lavish lifestyle' for you instead of what it's intended for?

  • 

    BigTed on 03/06/2016 - 11:14

    +3

    A portion of the money I earn "belongs to the government"?
    I guess you and I have a different idea of what 'belongs to' means, and who has the right to claim and control the money I earn.
    IMHO all of the money I earn 'belongs to' me, however, I am compelled to pay a portion of it to the government to pay for various things like funding the Diversity "you-aren't-allowed-to-call-people-guys-anymore" Council, the DFAT let's-give-funding-to-overseas-surfers Grant, and Parliament's Kaleidoscope Cubby (see http://ciswastewatch.org.au/ for these and many more examples).
    Most of us don't believe the government is doing such a great job spending our money that they should get any more than absolutely necessary, and your version of who that money 'belongs to' doesn't help.

    • 

      Online Bathroomware on 03/06/2016 - 12:25

      Most of us don't believe the government is doing such a great job spending our money that they should get any more than absolutely necessary, and your version of who that money 'belongs to' doesn't help.

      Kerry Packer was bang on many years ago. It's only become worse over time.
      https://www.youtube.com/watch?v=LnwYoOeWZGA

    • 

      mskeggs on 03/06/2016 - 13:28

      +2

      Our society depends on taxation to provide government services. I personally oppose high defence spending, chaplains in schools, tax concessions on negative gearing and CGT, middle class welfare, tax exempt status for religions (as opposed to their charitable works) and expansion of freeways in preference to rail. Yet we don't get to pick and choose where our individual taxes get spent, they are decided communally and we get to influence that on July 2nd.

      Many people who object to tax are quite well off. If you would be happier in a low tax regime, like the US or Singapore, consider if that would really be the case if you had to begin anew there with nothing. You might argue that you would find success faster with lower tax burdens, but the progressive taxation system we have in Australia, coupled with strong government services (education, healthcare, welfare) provide an outstanding platform for individuals to succeed, allowing them to then contribute to the success of others via taxation.

      • 

        BigTed on 03/06/2016 - 14:57

        I agree with almost everything you said mskeggs, however, while I agree that everyone should bear their fair share of the tax burden, I also believe that no-one should be compelled to bear one cent more than their fair share of the burden.
        The money I earn belongs to me. I contribute taxes for the welfare of our common society, but a tax system that is not both efficient and equitable does not contribute to our common weal.

      • 

        mskeggs on 03/06/2016 - 18:28

        @BigTed:
        Good on you.
        I actually reckon we should host a public dinner, like the Oscars or something each year and invite the top few hundred tax payers. Then give out awards for those who contributed the most tax.
        I think getting up on the stage to have the Prime Minister shake your hand and recognise you for your contribution to the country would take a bit of the sting out of a tax bill.
        It would be nice to see all the big wigs asking the dodgy Panama tax haven people if they will be seeing them at the tax dinner this year. And if you were on the fringe of getting an invite, you might be a little less aggressive in your tax planning when you realise the networking value of being invited to the event.

        And us normal folk could hold tax award night parties at home around the telly and screech at what Gina Reinhardt is wearing or the implausibility of Harry Triguboff's toupee.

      • 

        BigTed on 03/06/2016 - 18:52

        @mskeggs: I hate awards shows and loathe red carpet things - but that one might be funny.

• 

  bengal tiger on 03/06/2016 - 06:24

  +8

  Interesting ideas, but you've laid out your proposal as a win-win situation with no detrimental effects to other individuals or the greater economy.

  Brief history on super - back in the 1970/80s the Aust govt realised that the cost of govt pensions would blow out the entire federal budget by around 2030-50 so SGC (currently 9.5% pa) was introduced to alleviate the country's reliance on state welfare in retirement. Australia was actually ahead of the curve as most other countries realised they had the same problem at the turn of the century. In short, our super system is here so we still have a functioning government and society in the future that won't collapse into financial ruin from welfare payments.

  I understand the overall purpose of funding retirement… but the lack of flexibility is, in my opinion, stopping many Australians from realising their future goals of owning a house

  If you think the problem of house affordability is because of the superannuation system then I think your frustration is misguided. You might want to look instead at property indices (price increases) over the last 10 years. and if you're able to correlate that with the super system then I'd be keen to see your workings.

  enjoying a more lavish lifestyle in their youth etc..

  We're getting into the argument of self-entitlement here if you think retirement savings should instead be used on lavish spending prior to retirement.

  you should be able to use super and tax to things that make logical financial sense such as borrowing for a first home or offsetting a mortgage

  You're proposing something already offered by Singapore's CPF (their central super fund). There's a few reasons why it wouldn't work here, mainly that they contribute much less than Australians so there's less market distortion effect (see below on accounts > $1.6mil) and local culture where there's less reliance on govt benefits and greater reliance on the family unit and younger generations taking care, bearing the cost and living with older generations.

  Capital gains could be split between super and home owner

  If you've been following recent news there's proposed super tax rules for accounts over $1.6m which was estimated to affect around 4% of Australians (estimated > 1m people). I understand your concern is in regards to affordability for the average Australian but do you realise the broader consequences of letting every super account be able to immediately have unrestricted access to the property market? Even middle-aged Australians would start thinking about purchasing their 2nd/3rd properties, the people that lose the most from this situation would be younger Australians with smaller account balances.

  The super industry has already been suggested to distort equity markets (including real estate equity) due to their huge amounts of monies they invest in Australian shares on behalf of super accounts. There needs to be plenty of forecasting done before allowing super into the direct property market.

  PAYG should really be a personal choice

  Let Australians decide themselves if they want to pay tax or not at all?

  at least give people a year to pay their tax in arrears

  Australian governments (fed/state/local) collected $446 billion in tax over 2014/15. Imagine if every Australian decided to defer their tax for a year, our current account deficit is already large enough but to increase it by $446b wouldn't help the economy. Some countries do offer deferred tax but the problem here is implementation and transitioning.

  If you were able to defer your tax by one year, is that going to make any overall change to property prices? Will holding back a year's worth of tax make housing more accessible for everyone?

• 

  altomic on 03/06/2016 - 07:33

  +5

  Allow people to pay tax at the end of the year? Lol, yeah, because when people receive their pay they will put a little aside each week for that end of year payment. Yeah right. It would be chaos.

  • 

    humdingaling on 03/06/2016 - 13:09

    isnt this what self employed people do?

    • 

      mskeggs on 03/06/2016 - 13:36

      The tax office makes you pay an estimate quarterly and reconcile at the end of the year. This can result in big bills if your income goes up substantially.

    • 

      X35rgfF45 on 04/06/2016 - 14:46

      Just because they are meant to do it doesn't mean they actually do.

      Sure, most people pay on time, but plenty of self employed people get into a tax debt if they haven't entered into PAYGI yet or their income goes up, which means the government is losing interest even if they pay the money on time with their tax return. If they can't pay the debt because they suck at basic personal finance (and lets face it, most people do) the ato needs to chase it up which costs even more money, then in the end they probably end up with an interest free payment plan where they slowly pay it off over 6-24 months, which is still one of the better case scenarios for the ATO.

      If we multiply this shit by every single employed worker in Australia as well, suddenly we've got a huge problem.

• 

  CyberMurning on 03/06/2016 - 07:34

  If given give super to everybody to use, they will be gone in a second. So many people over 40 yo never have $50,000 cash in their bank … Means whatever comes had been used.. No saving education

  • 

    dasher86 on 03/06/2016 - 08:25

    this will fuel requirements for pensions etc in the future which means increases in taxes…

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  pao2x on 03/06/2016 - 09:50

  If you can prove to the tax office that you can basically net X amount of tax/ tax breaks for the year then they will adjust your payg accordingly, all you need is to apply for witholding tax variation.

  When my (tax deductible) education was costing me around 22k a year and I was earning low around 45k I basically had 0% witholding tax

  https://www.ato.gov.au/Forms/PAYG-withholding-variation-appl…

• 

  pantsparty on 03/06/2016 - 10:24

  +2

  I like the idea of forced superannuation. Sure some people can control their financials, but many people would piss away their superannuation and retire with $0. This would be a huge burden on the welfare system and those still working would pay much more in tax to fund the additional welfare costs.

• 

  spackbace on 03/06/2016 - 10:48

  +1

  I saw this argued recently, that those on lower-incomes should be able to access their super, because super was brought in to get people off the aged pension later in life. But the problem is, that those on lower incomes will be on the aged pension anyway, super or no super. What it does though is it it means they're less of a burden on the system, claiming less benefits as they're getting 100% of their income, which may allow them home ownership etc.

  So if it was income and means tested as to who could receive their super straight away, and who couldn't, I don't think that's a bad thing.

  • 

    gringo on 03/06/2016 - 14:50

    Furthermore, people on low incomes get no tax benefit from super - their tax is already 0%.

    To even it up, they really should get a 15% bonus in their account on contributions or not be forced to contribute.

    Unfortunately - people would game this by reducing their taxable income to qualify (e.g. with negative gearing). Significant penalties and common sense tests could shut this down though.

    • 

      mskeggs on 03/06/2016 - 14:56

      The Low Income Super Contribution is designed to counter this. Both major parties are now committed to keeping it.

      From the AFR:
      "The government had planned to abolish on June 30 next year Labor's Low Income Super Contribution scheme, an annual payment of up to $500 to help those earning less than $37,000 save for retirement, which cost about $1 billion a year. But a senior source said the budget would contain a LISC-style top-up scheme into the future.

      Originally, the Abbott government wanted to abolish the LISC immediately upon winning office but was forced to keep it under a deal to get rid of the mining tax."

      • 

        gringo on 03/06/2016 - 14:57

        The LISC just makes low income earners not pay a completely unfair additional 15% tax instead of 0%.

        Low income earners pay 0% tax already.. so even with this there is no advantage to contribute vs taking it as cash.

        All other income classes in Australia derive significant concessions from super contributions.

        Another way to fix it is to remove concessional rates for super contributions entirely. It would be a fair way of raising additional revenue that wouldn't hit the poor.

      • 

        mskeggs on 03/06/2016 - 18:20

        @gringo:
        True, it is absurd that our system gives the richest a tax refund to save but not the poorest. I like the idea of giving everyone earning below the top tax threshold a 15% discount on tax on contributions, which is paid as a bonus contribution to those paying no tax.
        If you earn over $180k you don't need my support to save for super, your earnings will get you a nice nest egg, but if you are poor then it seems reasonable to give you a leg up.
        Especially since it would be revenue positive to the budget.

• 

  Cheap Steve on 03/06/2016 - 11:30

  +7

  Money I have in super because it's compulsory and locked away = $200k
  Money I would have voluntarily saved towards my retirement in twenties and thirties if it wasn't compulsory or locked away = estimated $nil

  Thanks Big Brother!

• 

  Mad Max on 03/06/2016 - 12:13

  Superannuation is for people that cannot budget or plan for their future.
  Savvy people do not really need it. They can think ahead and put away for the future.
  All very good to abolish superannuation and let people use the money for bigger houses and a more lavish lifestile as long as they do not expect the government (taxpayers really) to support them with a pension when they are old and they have no money.

  • 

    mskeggs on 03/06/2016 - 13:47

    +3

    Super is for the >95% of normal humans that poorly evaluate their future.
    Prior to compulsory super, most old people subsisted on the pension, almost all the rest lived off an employer sponsored pension. A small fraction lived off accumulated savings. Even these days, after 20+ years of compulsory super, only about 20% of old people are "self funded" retirees, 80% rely on the pension or part pension.
    We can choose to have some of our earnings sequestered for retirement and face a lower tax burden later, or we can have access to our super now and pay more tax for retired people later. Since the super system is likely to result in a higher income in retirement than just the state pension, it seems a reasonable deal.

• 

  Mad Max on 03/06/2016 - 15:16

  Hi Mskeggs
  "Super is for the >95% of normal humans that poorly evaluate their future".
  95%…? That is scary.
  I suppose that is why there are so many people out there driving new cars and not so many driving 15-20 years old ones ;-).
  Or why so many need to have a big Mcmansion fully furnished with expensive new furniture and associated big mortgage.
  It is easy the live the high life today knowing that someone will help you later when you need it.

  • 

    Mad Max on 03/06/2016 - 16:32

    Do you know the story of the ant and the grasshopper? Interesting reading…

    www.enchantedlearning.com/stories/aesop/antgrasshopper/story…

    Although in the story I knew the grasshopper died that winter!
    The story in the link must have been adapted for children…

  • 

    mskeggs on 03/06/2016 - 18:42

    I don't think it is that fair to blame most people.
    The average weekly full-time in Australia is just over $80k p.a.
    If you are part time, or unemployed or disabled or poorly qualified you may be on a fair bit less. Minimum wage is $657 a week, and you get hit with $71 tax on that. That is $30,472 p.a. working full time, so you have to cover costs like getting to and from work etc. At least if you are on the pension you have all week to hunt out bargains, grow some veggies, catch some fish etc.
    If you are in the bottom half of the income pie you don't have a lot left over to save for retirement, and you won't be in a McMansion with a new car.
    And remember, that is talking about workers. Labour force participation is circa 65%, so half of those people, earn under $80k, and the a third of adults aren't working.
    So only 1 in 3 adults are earning more than $80k and could be reasonably expected to have room in their budgets for retirement saving.
    i'm middle age and earn good money, and have relied upon the super system to start off my retirement saving. It is only recently I have contributed more than the minimum, and my savings outside super are small in terms of funding a retirement, as I am still paying down my mortgage.

    • 

      gringo on 03/06/2016 - 19:22

      I think it's a myth that giving people money (income tax discounts) for mandatory contributions will stop people from going on the pension.

      What it is doing now is basically funding a retirement binge that people are incentivized to draw down upon ASAP - then go on the pension.

      So just guarantee the pension, force people to save 12% super (fully taxed) and get rid of the rest of it - the rich would never go into a centrelink anyway.

• 

  tonyjzx on 03/06/2016 - 15:16

  +1

  What the OP describes is a waste of time. If everyone was able to access their super to buy their first property that would just cause prices to rise even more than they already are.

  Everyone is starting with super so you're just making it worse for everyone.

  Also the govt. isnt sure about the viability of putting everything into your PPOR and also using it to finance your retirement.

  The superannuation industry is powerful and they wont allow anyone to attack their capital. By giving people access to their super in unconventional ways you are effectively attacking that industry.

• 

  Bargaingeek on 04/06/2016 - 13:06

  +1

  Problem with super is the fees and poor performance of the majority of funds. This is what really needs correcting.

• 

  Bargaingeek on 04/06/2016 - 13:10

  Problem with super is the fees and poor performance of the majority of funds. This is what really needs correcting.

• 

  ChrisLevo on 04/06/2016 - 13:34

  +2

  "enjoying a more lavish lifestyle in their youth"

  Yep, spend what would have gone into super, and then suck off the public teat when you retire and have bugger-all super.

  How about you are able to opt out of paying super, but the legal papers you sign opting out prohibit you from leeching on those who did care for their future when you retire in penury.

  Cheap Steve nailed it a few posts ago!

• 

  -.- on 04/06/2016 - 17:06

  If everyone in Australia had the wisdom and foresight of being what a retiree on a pension felt like, then maybe super wouldn't even exist. It certainly doesn't exist, in the form that it does in Australia, throughout Asia. East Asians are notorious savers (half of income is saved) and in fact it's causing issues with their economies. That's why there's a renewed push to spend in those countries to stimulate the economy. The high rate is largely a result of cultural and historical factors. There's been a lot of turmoil in those countries within the last one hundred years so it's understandable why people engage in high levels of precautionary saving.

  Australians don't necessarily have that culture, and haven't experienced hardship on the levels experienced by other nations. There's a very laid-back culture here, which is why the government needs to step in.

  Do you really think if that 9.5% of super was just regular income that people would actually save that money? Most would spend it as extra income, and then come to regret it when things take a turn for the worse or retirement sets in.