It’s looking increasingly likely that the government will increase superannuation taxes to balance out its ballooning budget deficit, but this move could cost Australian retirees more than $150,000, according to investment firm Parametric.
Parametric’s head of research Raewyn Williams and analyst Josh McKenzie said that an investment tax inside super would be a political “soft target”, because it wouldn’t be directly felt by most voters’ wallets.
But the tax would leave retirement balances “severely hurt”.
The current tax on super in 15 per cent, but according to Parametric, increasing that to 17.5 per cent would see super members lose $40,509. That loss could explode to $150,448 should the tax increase to 25 per cent.
“The ‘tit for tat’ retirement impact of a super investment tax rise is clear, even if not immediately felt by the super fund member,” Williams and McKenzie said.
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The government could also opt to reduce the capital gains tax (CGT) concession by 3 per cent, which would see the average retiree lose just $1,545. Under the most aggressive assumption (cutting CGT concession to 15 per cent), the expected loss to a retiree’s nest egg is $8,446.
That move has a more “subdued” effect to retirement balances, given CGT changes only impact some assets inside super, and wouldn’t erode members’ contributions.
“Other more muted changes to the super CGT rules are also possible, such as extending the current one-year holding period rule (for CGT discount eligibility) to three years, capping carry-forward capital losses or limiting the types of assets eligible for CGT discounting,” they said.
Given the difference in the impact on balances, Williams and McKenzie said the superannuation industry should favour changes to CGT rules.
“Lobbying against tax changes that will be most harmful to members’ precious retirement savings should be part of the industry’s response.”
Will tax cuts be brought forward?
With Australia’s GDP falling 7 per cent in the June quarter, Federal Treasurer Josh Frydenberg has once again hinted that the government could bring forward the 2022 tax cuts.
“The tax cuts are in three different stages, and we are considering the timing of those tax cuts, and any announcements would be made in the budget,” he said.
“But it is fair to say these are very substantial reforms to our tax system.”
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