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Superannuation and income tax - moving to an EET model

Superannuation is the primary retirement savings vehicle for the majority of Australians, so it is appropriate that tax concessions are used as a policy lever to provide an incentive, encourage desired behaviour and compensate individuals for locking their savings away in the superannuation system.

However, there has been considerable public debate in recent times about the quantum, distribution and equity of the tax concessions provided to superannuation. Further, successive governments have made changes to the taxation treatment of the superannuation regime to shore up flagging revenue. The frequent rule changes undermine public confidence in the system, which will have a negative impact on Australia’s long-term savings. (Consider for example the federal government's 2016 Federal budget announcements).

As the system matures, it is appropriate to consider shifting some of the tax burden from the contributions phase to the benefits phase, albeit with a long transition phase. Ideally, the most equitable retirement savings system would tax income in the hands of the individual when it is actually received. That is, contributions would be tax exempt, fund earnings would be tax exempt or concessionally taxed, and benefits would be taxed. What is known as the EET model (exempt, exempt, taxed) is the most common taxation model used in the majority of OECD countries. Australia is unique in taxing retirement savings at all three points. We propose the Federal Government consider what it would take to shift to an EET system, modelling the economic, social and revenue impacts of a transition to such a system - including any implications for the age pension and the public purse in general..

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Idea No. 33