Taxing Super

Abstract

Australia's taxation arrangements for retirement saving are among the most complicated in the world. It is almost unique in applying tax at all three possible points in the retirement saving cycle: contributions, earnings and benefits. Starting from the proposition that the 'best' pension tax is to tax benefits under the personal income tax, this paper proposes a 'withholding tax' arrangement which would have impacts on individual contributors equivalent to a benefit tax, while altering the time profile of tax collections to address cash-flow concerns on the part of the revenue authorities. Simulations are presented to show that individual contributors benefit from the proposed reform, and that equity across contributors in different wage bands is broadly maintained.

Progressive Tax Changes to Superannuation in a Lifecycle Framework

“…Prior to the 2007 superannuation changes, many retirement income commentators and industry experts called for the move towards the traditional EET regime (see, for example, ASFA (1998) and Doyle et al, 1999) and some proposed abolishing the ‡at tax on contributions (for example, Clare, 2006). Horne (2002) assessed the ASFA (1998)…”

“…proposal, arguing that it would increase savings and improve vertical equity. The analysis of the shift to the EET regime by Doyle et al (1999) show only a small net loss in tax revenues as the revenue loss from the abolition of contribution and fund earning taxes is partly o¤set by imposing the marginal income tax rates on superannuation bene…ts. Atkinson et al (1999), using a cohort micro-simulation model, …nd that the traditional EET regimes scores better in terms of intra-generational equity and overall progressivity than the concessional TTT regime in Australia at that time.…”

“…In the long term, the average welfare gain is smaller under this policy because of lower welfare for higher income households who bear most of the burden of the progressive income taxation applied to their superannuation contributions. 19 The other two equity measures for which we provide results are the net income shares for …ve household types and the Gini coe¢ cient. The percentage changes in net income shares and in the Gini coe¢ cient are presented in Table 5.…”

Australian Superannuation: The Current State of Play

“…Earlier work on the Australian approach to pension taxation includes Bateman, Kingston and Piggott () and Doyle, Kingston and Piggott (). The Henry Review examined pension taxation in Australia in considerable detail (Henry et al ).…”

The Labour Supply and Savings Effects of Superannuation Tax Changes*

“…1 1 On the alternatives see, for example, Knox (1990), Piggott (1997), Doyle et at. (1999) and Whitehouse (1999). …”