Labor's plan to target superannuation tax concessions for the well-off fails to take advantage of another $9 billion in savings available and falls short of making the system sustainable, according to one of Australia's leading economists.
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Opposition Leader Bill Shorten and treasury spokesman Chris Bowen on Wednesday announced a trio of proposed changes designed to raise about $14 billion in revenue over a decade.
Those changes include limiting the tax-free threshold to superannuation earnings at or below $75,000 per year, affecting about 60,000 people; removing a 10 per cent tax concession for people on defined benefits schemes earning more than $75,000, affecting about 9500 people; and reducing the high-income threshold at which the contributions to a super-fund attract a 30 per cent rate, twice the standard 15 per cent rate for everyone else.
That is currently set at $300,000 per year but would drop to $250,000.
Mr Shorten said on Wednesday the changes would make the system more sustainable and end the "practically unlimited tax concessions to people who have millions and millions of dollars" introduced by former prime minister John Howard and treasurer Peter Costello in 2006.
"What we want to do is lift everyone to a good standard," he said.
"We're saying let's look at this very small group who receive a high degree of taxpayer-funded largesse."
But Grattan Institute chief executive John Daley said that, with about $35 billion in super tax concessions in the budget annually, more needed to be done.
"We think that this proposal is absolutely in the right direction but does not go far enough and is not going to be enough to make the system sustainable," he said.
"So $14 billion over 10 years is about $1.4 billion a year. When your budget hole is about about $40 billion a year, you will need a few things that big."
Mr Daley said super tax breaks were "far and away the biggest concession" in the system and suggested another $9 billion annually in savings could be found.
"If you taxed all earnings in the pensions phase at 15 per cent, that would raise about $3 billion a year," he said.
"The other one is the contributions concessions, at the moment you can put in up to $30,000 or $35,000...the people who put in more than $10,000 are the quite wealthy."
"If you pulled the pre-tax free threshold from $30,000 or $35,000 to $10,000, that's worth around $6 billion a year to the Commonwealth budget. So another $9 billion."
Labor's proposal meant, he said, that someone earning $38,000 a year would be paying more tax than a retiree on $100,000 a year, who would be paying just 15 per cent on the last $25,000 of their income.
Bank of America Merrill Lynch economist Saul Eslake suggested the high-income threshold, which Labor had proposed to drop to $250,000, could be dropped further to $180,000 which is the kick-in point for the top marginal tax rate.
But he added that "I'm sympathetic to what the opposition is proposing in principle and I'm sympathetic to what John Daley is suggesting, too".
Labor's proposal "won't fix the structural issues, there is more that could and should be done but Rome wasn't built in a day", Mr Eslake said.
Mr Bowen said that Labor had looked at going further, conceding "we considered various options", but that the opposition believed it had struck the right balance.
"We want to see concessionality remain in the superannuation system. We want it to be fair. Some people will say we've gone too far, others will say we've gone not far enough," he said.
On Wednesday afternoon Treasurer Joe Hockey left open the option of scaling back superannuation concessions as part of the tax white paper process, but said as a general rule he was opposed to higher taxes.
Mr Hockey also flagged a package for small business and startups in the upcoming federal budget.
"We will have a look at the details, but I am always skeptical about Labor coming up with a plan that increases taxes."
"We've got a proper process in place to look at taxation," Mr Hockey said. "Mr Shorten's making it up as he goes along.. and last time Labor tried this the Treasury said it was unimplementable."
Industry Super Australia chief executive David Whiteley, who heads the organisation that represents five million Australians with an industry super fund, said Labor's proposal "recognised the reality that it is not going to be possible for unlimited tax-free super for retirees" to continue.
"The tax concessions on earnings in retirement are the fastest growing tax concessions and it is growing at more than twice the rate of aged pensions costs," he said.
"There is now community acceptance that has to change."
He said policy makers should reinvest some of the savings reaped from a crackdown on concession back into the system by retaining the low income super contribution introduced by Labor, which is due to be scrapped in 2017.
"We have to get people off the full and on to the part pension, for example," he said.
with Nassim Khadem
