Rice Warner submission to the Tax White Paper Task Force

This submission specifically addresses Question 22 of the Tax Discussion Paper, namely:

• How appropriate are the tax arrangements for superannuation in terms of their fairness and
  complexity?
• How could they be improved?

It looks at the effectiveness of the three pillar structure of superannuation comprising the Age Pension, mandatory employer contributions (superannuation guarantee) and voluntary contributions.

We note the size of tax concessions provided on contributions and earnings as well as the growing
expenditure on Age Pensions. We comment on whether the tax concessions are well targeted and
whether they will reduce dependence on welfare benefits for the retired population.

In our opinion, the current structure fails some of the Principles set out by the task force regarding equity, efficiency and simplicity. We show what changes are required to meet these Principles. This occurs because superannuation suffers from political confrontation which is a barrier to effective policy.

We have limited our analysis to the retirement system but we note that the share of personal taxation has risen to 48% of the $415b of revenue expected to be raised in 2015-16. We expect this will need to be reduced in future years though the Discussion Paper suggests the share of personal taxes will continue to grow.

We suggest the top marginal tax rate should be lowered in time to no more than 40 cents in the dollar. It is well known that tax rates are not efficient nor internationally competitive at the current level of 47% (including Medicare levy) or 49% if we also include the Temporary Budget Repair Levy.

If the top marginal rate is reduced, the cost of superannuation concessions will reduce since the
concession will be lower. We have noted this when costing our suggested improvements.