The superannuation arrangements spelt out by the Federal Government last Budget look increasingly unfair and cumbersome. An announcement by Treasurer Peter Costello this week illustrates the difficulty. Previously all earnings of superannuation funds were taxed at 15 per cent. Under the Government’s plan, additional tax will be paid on funds held by people with incomes above $70,000. The extra tax will apply on a sliding scale tapering out at an additional 15 per cent at $85,000.
The trouble with this is that some people do not have individual superannuation accounts with identifiable earnings which can be taxed at the new rates. Rather they are paid on retirement according to a formula based on income at retirement and other factors. These are called defined-benefit schemes. Public servants, including politicians and judges, frequently have this sort of superannuation. Mr Costello proposes that these people pay the surcharge upon retirement, not each tax year like everyone else. Pity the poor funds managers who have to work out the tax payable on the superannuation payout of a person whose income has varied over the years. Or is the rate to be fixed by some other formula which means that people with defined-benefits superannuation are to be treated differently from others, with inevitable unfairness?
The other difficulty is that at present funds pay the same rate of tax for every contributor. It is an easy task to pay 15 per cent of the funds’ earnings in tax and apply it across the board to all accounts. The Government’s proposal presents a costly accounting nightmare. It would be better for the Government to abandon this proposal rather than abandoning Labor’s plan for an across-the-board government contribution to superannuation, as has been hinted.