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Flaws in super tax approach, says Mercer
The focus on super tax concessions did not take a holistic view of the country's retirement savings strategy and would skew long-term policy settings, Mercer senior partner and author of the report, Dr David Knox said.
"Firstly, it ignores future age pension costs which will inevitably increase if super benefits were reduced due to higher tax on contributions, earnings or benefits," said Knox.
"Secondly, it ignores any redirection of contributions to other tax effective investments that would occur if the super rules became less favourable."
The cost of super tax concessions to the Government increased by 187 per cent from an average wage earner compared to someone who earned double the average wage. However, age pension savings for the Government increased by 310 per cent between the two, according to the report.
Mercer said as income rose, the net cost to Government reduced as a percentage of tax concessions, which revealed a direct link between tax concessions and age pension costs. The net cost to Government (when accounting for future age pension savings) for an average wage earner was 63 per cent of tax concessions and reduced to 45 per cent for an individual on double the average wage.
"Therefore, increasing the taxation of superannuation would reduce future superannuation benefits and thereby increase future age pension payments," the report said.
Knox said ongoing super changes would lead Australians to seek alternative tax-effective vehicles for their voluntary super contributions.
If tax expenditure figures continue to be used to shape superannuation policy,long-term objectives and certainty would be lost, the report said.
Mercer managing director and market leader for the Pacific, David Anderson, said a better long-term solution was increased integration between the age pension and superannuation.
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