- Treasurer Morrison starts to firm up election reform package
- Any savings could be redirected to tax cuts elsewhere
Australia’s Treasurer Scott Morrison indicated he’s looking at reducing tax breaks for wealthy retirees as part of a government plan to overhaul the nation’s tax system.
The nation’s retirement savings scheme, known as superannuation, “should not be seen as an open-ended savings vehicle for wealthy Australians to accumulate large balances,” Morrison said in a speech in Brisbane Friday.
Since coming to power 10 weeks ago, Prime Minister Malcolm Turnbull has been leveraging his popularity with voters to pave the way for changes to the tax system, including potentially increasing a levy on goods and services to help fund cuts to income and company taxes. The superannuation system, which includes generous tax breaks for people saving for retirement, has been identified by the government as a key area for reform.
Turnbull has indicated he wants to take a tax package to the election, due in the second half of next year, in a bid to stimulate flagging growth and productivity in the world’s 12th-largest economy.
Under superannuation, employers are required to pay 9.5 percent of a worker’s wage into a fund that usually isn’t accessed until retirement. People aged under 50 can channel A$30,000 ($21,660) a year into the fund, including employer contributions, rising to A$35,000 for the over 50s, with every dollar taxed at 15 percent. That concessional rate compares with income taxes that rise as high as 45 percent.
Income generated in the fund is also taxed at 15 percent and is tax free when drawn in retirement.
“When Australians see the government supporting the accumulation of enormous superannuation fund balances in a tax-preferred, and in retirement, a tax-free environment, the confidence in the system is significantly undermined,” Morrison said in the speech.
As he sought to start a dialogue on the issue, Morrison asked whether any changes could be “directed to tax cuts elsewhere, to encourage participation, productivity and growth.”
Despite the superannuation savings system, four out of five retirees are still eligible for state pensions, with the nation’s A$40 billion annual pension bill accounting for 10 percent of government spending.