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While Federal Government’s response to the Henry Review of Taxation has drawn a mixed reaction from the financial services industry, one thing stakeholders mostly agree on is that more needs to be done.
The Institute of Actuaries of Australia (IAA) welcomed the improvements in superannuation, but suggested the Government needed to do more work in the short to medium term to tackle problems around Australia’s ageing population.
Three of its recommendations were adopted, including fixing the contribution tax inequity for low-income earners, lifting the compulsory super age to 75 and increasing the compulsory super rate to 12 per cent.
However, IAA chief executive Melinda Howes said the biggest piece missing in the announcement was the Government’s response to longevity and retirement incomes.
Russell Investments was also concerned that longevity was an important area overlooked in the Government’s response.
“Greater support for the development of a competitive market in tax and cost-effective annuities would have been a major breakthrough on this issue,” said Russell Investments’ director of actuarial and benefits consulting, Matthew Burgess.
However, Russell said the lower income tax break for super was “great news”.
“Superannuation has long discriminated against low income earners by applying a flat 15 per cent tax rate to all employer contributions, even where this was more than an individual’s marginal rate,” Burgess said.
Accounting firm Deloitte said the increase in the super rate to 12 per cent was welcome, but said it did not go nearly far enough.
“The appetite of Australian business is for more,” said Deloitte superannuation tax partner Noelle Kelleher.
“The Government’s announcement, while a move in the right direction, will fall short of business expectations,” she added.
The National Institute of Accountants (NIA) heralded the proposed changes as a win for small businesses that face a disproportionate burden when meeting current tax obligations.
The changes, contingent on the implementation of the Resource Super Profits Tax, will reduce the small business tax rate and give small business the ability to write-off capital assets faster.
NIA chief executive Andrew Conway said the small business measures would provide cash flow benefits and increase the international competitiveness of Australia’s company tax rate.
However, he did not agree that the lift in the superannuation guarantee was a good idea, stating it represented another cost for small businesses over time.
Tax firm BDO agreed with the NIA that the increase in the superannuation guarantee would merely increase the cost of employment and might not help many Australians build their retirement nest eggs.
BDO partner Paul Motta said the Government was focusing on improving super savings for low-income earners and the elderly, but had done little to make changes that would have significantly fuelled retirement savings.
“The 12 per cent compulsory contribution will have to be funded by employers, which substantially increases the cost of employing staff. Though the change is gradual, it is not good news for employers, especially small business, for whom this is a large impost.”
He also said the Government was wrong to ignore the recommendation that the tax on super fund earnings be cut in half to 7.5 per cent, suggesting this measure would go a long way towards fuelling savings without putting the burden on employers.
“Generating revenue now seems to be a greater priority than fuelling retirement savings,” Motta said.
