The problem with the government’s superannuation cap
Last November, it was revealed that government was considering implementing a lifetime cap to the amount of voluntary super contributions someone could make, as part of the government’s tax reform package. As with any issue related to retirement income the reasons are complex.
Basically, the government is currently losing a significant amount of money from high income earners who voluntarily contribute large amount of money into their super just before retirement, with a view to take advantage of the various tax concessions available when they withdraw it after retiring.
The government is reportedly favouring the idea of a lifetime cap to voluntary contributions, mainly because it would potentially mean that the $2 trillion dollars in super that has already been saved up by millions of Australians will not be affected by a sudden change to the rules.
Currently, there is an annual cap of $180,000 on non-concessional super contributions and while people under the age of 65 are allowed to bring forward future contributions, they cannot contribute more than $540,000 over three years. Modelling commissioned by The Greens from the Parliamentary Budget Office (PBO), suggest that if a lifetime superannuation cap of $500,000 was created then it would improve the budget by approximately $2.5 billion over the next decade.
Interestingly though, any cap that goes higher than $540,000 end up costing the budget money over the long term, due to costs administering the contributions.
But not everyone is a fan of the idea. John Daley from the Grattan Institute warns of the problems in fairness that would be associated by the government administering a lifetime super cap, “We only really have very good records back to about 2003, so anyone who has put any money in before 2003 will probably get a free pass. And superannuation which has of course already delivered phenomenally large tax breaks to an older generation will effectively deliver even more.”
The results of the reforms remains to be see, and whether placing caps on voluntary super contributions is an effective means of achieving income for the government is somewhat debatable but as Greens MP Adam Bandt points out, “It’s getting next to impossible to have a sensible debate about how to raise money in this country, because the government says everything is on the table but they’re keeping the table in a closed room behind locked doors.”
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