The federal government should abandon plans to increase the compulsory superannuation guarantee for workers, an independent think tank says.
Instead, the Centre for Independent Studies (CIS) says there should be reforms to the way super is taxed.
As part of the government’s minerals resource rent tax (MRRT) package, the compulsory super rate will rise incrementally over a number of years from nine per cent to 12 per cent, starting with an increase to 9.25 per cent on July 1, 2013.
But the CIS says increasing the rate won’t address the many problems with current super system.
‘‘Double-dipping - where lump sum superannuation benefits are dissipated to maintain age pension eligibility - is just one problem,’’ research fellow Stephen Kirchner said in a statement.
He said Treasury projections show what when the superannuation system reaches maturity in 2040, there will only be a small reduction in the number of people eligible for the aged pension.
In the meantime, every dollar forced into super will come at the expense of take-home pay, hours worked, or employment, creating financial constraints for low-income households, Dr Kirchner said.
Instead, Dr Kirchner believes the taxation of super should be reformed so that only super benefits are taxed, not contributions or earnings.
‘‘This would place the taxation of super on a similar basis to the taxation of saving via housing, making it a more attractive vehicle for voluntary saving and reducing the need for compulsory contributions,’’ Dr Kirchner said.
‘‘Superannuation benefits receiving this tax treatment should be subject to compulsory income streams rather than being taken as lump-sums to solve the double-dipping problem.’’
He believes such reform will improve retirement income, reduce future demands on the federal budget, and make super saving less vulnerable to future government tinkering within the existing taxation arrangements.