Innovative…intuitive…realistic? Adam Creighton’s thinking on making making superannuation voluntary puts forward some pretty accurate sounding reactions of many Australians.
Over recent weeks I have seen several suggestions of ways of balancing the Federal Government books. All involved politically suicidal actions affecting important voter groups, so little meaningful discussion has taken place.
Adam Creighton suggests removing just ONE regulation that would be popular all round. He says:
“The government need only remove the regulation that makes super contributions compulsory.
The national accounts show wages and salaries in Australia totalled $632 billion last financial year, with an extra $76bn in super and workers compo payments. The super contributions are taxed lightly at 15 per cent.
More Money To Spend On Everything – Bye Bye Nanny State?
Many Australian workers, who are permitted only 91 per cent of their remuneration before tax, would quickly opt for a 9.89 per cent pay rise given the choice. They’d have more money for mortgage repayments, school fees, or even fancy suits and holidays, if that is what suited them. Although it would infuriate a handful of policy nerds, this would be an extremely popular measure among ordinary workers.
Some Would Pay More Tax
But the happy workers with more disposable income would start paying much more tax. If we assume current super contributions would be taxed at about 40 per cent if they were taken as income – the value of super contributions is heavily skewed towards those paying the highest rate of personal income tax – the government could reap an extra $20bn a year in tax.
Some Would be More Prudent
Many, of course, would leave their super arrangements alone, perhaps more prudently. But even if half chose to have their money now, about $10bn in extra revenue, say, would be available, enough to pay for DisabilityCare without lifting income tax, as the government instead proposes.
A Welcome Increase In Competition Among Fund Managers
Making super voluntary would also dramatically lift the level of competition among fund managers, whose fees are excessively high. The average annual fee for super balances is still near 1 per cent, which is at least double what it should be, given the reasonable costs of management.
Would We Start Thinking About What Actually Happens To Our Super?
Also, those who choose to keep contributing money to super are likely to be more aware of the super fees they are paying. The fact most contributors neglect to think about their super contributions is an enormous implicit subsidy for the financial services industry, which distorts the economy.
Some Hard Thinking To Be Done By The Policy Establishment?
The government could even keep its promise to lift the super guarantee to 12 per cent by 2019, but restrict the increase to those who want to keep contributing.
Making super voluntary would shock the policy establishment, which is bizarrely convinced that it helps improve the government’s fiscal position long in the future, but the Henry review said clearly that the reduction in pension costs is outweighed by the losses in income tax revenue.”
Worth some discussion?