There has been considerable public debate about both the quantum and equity of tax concessions for superannuation. This has been in the context of recent government budgets facing fiscal challenges and the Intergenerational Report which highlighted Australia’s ageing demographics and the likely impact on tax revenue.
Quite rightly, part of that debate has been in relation to the proportion of tax concessions for superannuation provided to higher income earners and/or those compared to lower income earners.
This paper analyses data from both the Australian Taxation Office (ATO) and Australian Bureau of Statistics (ABS) to inform the debate about the tax treatment of superannuation, and particularly when it comes to relatively high superannuation balances.
Today there is a small proportion (around 0.5 per cent) of people who have very high account superannuation balances (above $2.5 million), who are receiving tax concessions that could be regarded as being outside the purpose of the retirement income system.
Although most large balances owe their existence to features of the system that no longer exist, there is still the capacity for individuals to accumulate large balances. Large caps for after-tax contributions and the ability to rollover proceeds from the sale of small businesses into superannuation at concessional CGT rates, means the number of large balances are likely to continue to grow, albeit at a slower rate. While adjustments to those settings are needed, most of the current very high account balances were accumulated under previous rules. Those rules allowed very large contributions and transfers of assets to be made into superannuation. Most of this money is now being pulled out as tax-free retirement income or is retained with tax-free investment earnings in superannuation funds.
Although the proportion of members with high balances is low, the value of funds involved is large, and therefore we should be doing something about it on both revenue and equity grounds.
Applying the same tax framework to very large balances, as that which applies to lower balances, undermines support for superannuation, as few believe they will ever achieve such heights.