Superannuation - Proposed $500K Cap and 3Yr B/F Rule (ouch)

The problem is the general public seems to think that all higher income earners are paying bugger all tax. In a corporate environment it is difficult for employees no matter how high their renumeration is to avoid paying high tax unless they want to take on a frightening level of negative gearing etc which is certainly higher risk.

The other problem is the Government's definition of the very wealthy. Based on some of the rubbish I see them put out it would appear most here at Property Chat are filthy rich.

 

@austing - I did also hear (again) Labor's intention to remove negative gearing - so which is worse?

 

I wouldn't say "most", but there are certainly some high worth individuals on here. Keep in mind median household wealth in this country is is around $460k, 20% of households have a net worth under $35k.

 

The hurdle isn't that high to be a HNW household: Linky

 

This change remains something that only impacts the wealthy and only acts as a limit to avoiding tax for people who don't need to avoid tax. A couple late in life would be able to dump $2m into super from the age of 55-75 under the proposed rules. That's still a very comfortable retirement, especially given that requires you to have sufficient assets to actually live whilst doing that. Again, this limits the very wealthy from dumping significant money into a lower tax environment for only one reason and that's tax minimisation.

Same deal here, 1.6m is a very, very healthy superfund balance and enough to retire off and it's only a cap on the tax free portion. Those with balances significantly higher than this aren't being punished other than that they have to pay tax on the income generated by balances above this amount, at 15%. Again, super isn't a concept that is supposed to be designed as primarily a tool for the wealthiest to avoid tax, unfortunately (or fortunately if you're the wealthy!) that is exactly how it has been designed in Australia due to mostly terrible planning and foresight or outright corruption (Let's be honest, those who designed the system are also some of its biggest benefactors, there is absolutely an element of intention in its design)

Spot on.

Not exactly my point I'd be lowering the marginal rates significantly if I was in charge but as long as we have a marginal system that is designed to operate on the Robin Hood theory it seems incredibly counter intuitive to then go and design an entire system that creates a perfect option for those that are meant to be robbed to actually end up paying less tax on large amounts of their income than the middle class.

I've got plenty of high wealth clients and I push them pretty much all towards utilising super in some fashion, they'd be stupid not to when the decision is pay tax at 0-15% or pay it at 50%. Super is basically the ultimate weapon for the wealthy with how it has been designed, it's a legitimate government sponsored tax avoidance scheme essentially. If you don't need the money right now then why would any reasonable person pay extra tax if the government is happy to give you a big fat discount?

I also agree that our idiotic marginal tax system creates a real disincentive towards wealth and working, if I was in charge I'd pretty much tear up our tax system and start from scratch because I think it's awful from the local government level all the way on up but that's a whole different topic!

None of that changes my thoughts though that the super system is the most broken element in comparison of what it is meant to be and what it actually is, it's supposed to be a system to replace the aged pension where possible but fails almost completely in achieving that while instead providing massive tax benefits to the very people who never would have been eligible for the aged pension in the first place and as long as we have a Robin Hood taxation system where the wealthiest are supposed to pay more that entirely broken element is actively sabotaging the tax system because of how poorly it is implemented.

Superannuation has basically become a tax subsidy to the wealthiest in Australia taking them from not being a burden in retirement to actually being a burden because they wouldn't have got the age pension in the first place and are now instead being given massive tax discounts.

I don't doubt the last paragraph and I never said the first part of the equation had changed with regards to helping more people retire, that's the whole other side of the failed super equation that remains the other big reason it's such a failure of a system, it's not getting anyone off the aged pension that wouldn't have been off it anyway.

I see 3 major failures in the superannuation system right now that make it the problem it is...

1. It's a legal tax avoidance mechanism for the rich. The government is literally giving government sponsored and endorsed tax cuts to the very people who would never have gotten the aged pension. They've literally created an additional cost for themselves that didn't previously exist. This is the worst part of the system, it's pure government waste that benefits only the wealthiest and runs completely in the face of our taxation system (whether I agree with that system or not...)

2. It's not helping people avoid the aged pension. This was meant to be it's major job but it's only the wealthy who actually put enough in super anyway so again, the only people you're keeping off the pension are the people who weren't likely to get it anyway. It's such a small minority that would earn the kind of income required for a super balance to retire on and still manage to end up on the age pension. I guess it's good that it fixes those though.

3. It actively punishes the lower and middle class in the mean time. 9.5% of someones income is a significant amount to not get access for 45 years (and growing) of your working life. Yes it's a good anti-stupidity mechanism but it also punishes a lot of responsible people who would be significantly better off had they had access to that money. For example that extra part of my income would have allowed me to buy and pay off a house already if I'd had access to it from the start. That's not even counting those lowest income earners who actually pay more tax on the super than they would if it was income!

I think superannuation is a great concept and if it was executed well it would be an excellent government mandate. Unfortunately our governments have instead created yet another massive waste in how they've done it, they've actually taken a great idea and basically created about as counter-intuitive system as they could. It's like they looked at the concept and went "System to replace the aged pension where possible, nah **** it, tax cuts for the rich instead" when designing it. Maybe I'm just being naive in my belief that it was supposed to be a system to replace/supplement the aged pension and not just a tax cut for the rich though

 

@Scott No Mates If I'm reading that correctly, median HNW Household is $1 594 626?
Coincidentally that's $5,374 off my "goal" wealth.

 

Negative gearing affects a relativity small section of the community, Super affects a huge section of the community if not directly certainly in terms of having confidence in putting money in there. Labor has made it clear the NG change won't be retrospective.

I'm actually not a fan of negative gearing. I only use leverage where the income from the asset covers interest eg Industrial shares purchased at opportune times.

This is a property forum so I would suggest there is likely to be a much more favourable view here of NG as opposed to the view of a large part of the rest of the community.

That said, yes being a property forum I've just put my running shoes on for a quick escape when this is posted. I'm not as young as I used to be so please give me a head start. ...... Zooooommmmm

 

Just strategically place a home brew bottle for them to find and you'll lose them in no time

Negative gearing is another element I would change, personally I think that rental, dividend, interest and other passive income sources should be treated the same as capital gains are treated. Any losses incurred should be quarantined and only off settable against income of the same type, I could even be pushed to just lump all passive income together and be happy with offsetting it against other passive income sources but I'd prefer it was still separated by class if practicable. This would just mean there is a great incentive to pay down debt (a big issue in Australia) and to, eventually, pay tax on that income because until you're earning income there is no benefit to having the losses.

Having said that, I still think we need wholesale changes to our tax system, right now it's archaic and based on an entirely different economic environment to what we now operate in. It punishes achievement, disincentivises success and just overall impedes the economy and it's becoming more and more bloated because we've now had 10 years of governments incapable of making tough decisions or restricting spending and thus having to manufacture more and more anti-productive revenue streams to help reduce the strain that them spiraling into debt has caused.

 

You've got to be joking. That's the most rediculous comment in this entire thread. I will suffer the consequences rather than give away our precious home brew.

Couldn't agree more as per my comment about the wife calling it quits at 51.

 

That's a great way to look at it and to incentivise/accelerate the repayment of capital.

 

What if the consequences was long term separation from the rest of the brew

It happens to so many people that there is so little incentive to continue being highly productive members of society when they've established a position where they can just enjoy life. In a functioning economy those earning the most are going to be the most competent or providing the most high value services to the public and we have a system that basically encourages them to do less of that because of the rapidly diminishing returns they will see.

Unfortunately Australia has a massive spending problem, the parenting style currently in trend of giving everyone participation medals and never saying no because that might hurt someones feelings have expanded into how we run the country. We wont tell the very high wealth pensioners sitting in their $2m houses that we can't afford to give them the pension when they can so easily support themselves because they'll get offended and it's "not fair". We can't bring in a co-contribution to see the GP because again, feelings, we can't tell the regional areas that cost 1000x more to give the same NBN service that will get 1% of the utility that they just have to accept that their choice to live there is why they'll get a lesser service so that the rest of Australia can afford a better one and provide maximum benefit because that would be unfair on them, we can't tell those who are making excellent profits on their capital gains to man up and pay the tax on the full gain because ripping off that bandaid would hurt their feelings as well and the list just goes on and on of wasteful and feel good spending that all comes at great future cost (because we have to borrow to pay for it) and provides nothing to the economy or the future, where we could be spending on education and innovation to make the country/world a better place we instead are spending so that our richest 1% can save 30% on their tax rate and similar wasteful exercises. There is just so much waste that we refuse or are unable to stop because we're worried about hurting feelings.

 

Oh dear, didn't think of that. Will comptemplate over a couple of home brews tonight.

Beautifully stated.

One glaring omission from your posts has been welfare abuse especially those capable of working who choose to live on welfare. Plenty of them up here. Very fit and healthy types who move to a rural area of high unemployment so that they can continue to get the dole with very low risk of ever finding a job and having to work for a living! And no shortage of those I know of who aren't satisfied with the dole so manage to get on a disability pension despite the fact I know that the disability doesn't genuinely exist.

Most of those you have been referring to have at least paid some OR an enormous amount of tax along the way.

So yes the rich need to pay their share and we need to wean many off middle class welfare but we also need to ensure that only the genuine needy get welfare.

I'll never forget the words of my father not long before his death. His income was low but he saved extremely hard having been through the Great Depression in his youth. But his work colleagues at QLD Railway pis*ed their money up against the wall. They received the pension and numerous pensioner benefits. They all had the same opportunity as him. He was very angry that he as a low income worker was penalised for working and SAVING hard. His words were "son it is not worth the sacrifice of saving every penny, just go out and enjoy yourself and let the Gov't look after you in retirement". I didn't follow his advice but I can sure understand why he gave it!

And by the way my wife came from as poor a family you could ever imagine in Australia. She and her family lived in an old corrugated iron mining shack rented for $10 pw with a loud working tin mine with toxic soil at the back fence. Her father was crippled with a devastating rare back disease and emphysema. She helped her father work his own tin mine as a child / teenager (no brothers) until he became crippled. Paid her own way through Uni by cleaning and working multiple jobs incase anyone who read my previous posts thought she was born with a silver spoon in her mouth!

The senior executive corporate role wasn't handed to her on a silver plate. It was a hard slog getting there. Yet it is the likes of her that the general public like to criticise as being priveliged and should lose at least lose half their income OR more in tax. Any wonder after highly stressful 12 hrs plus days and often weekends spent working for many years she finally had a gutful of being taxed heavily and quit working life at 51.

End of rant.

 

Bloody hell after a few home brews those little fellas are doing my head in. Better go and have some more to settle me down.

 

I have seen people with disability pension cards because they are a type two diabetic and the list could go on and on with real but minor and made up conditions. Someone needs to crack down on these people as they are basically stealing from those that genuinely need and deserve assistance along with everyone else who is working. Which doctors sign off on this stuff? The thought of the headlines of outrage that would surely appear probably stops it from been openly investigated.

He said it well. There is no incentive is for those that save enough to just support themselves or close to, they have had to sacrifice and in the end are no better off than those that just spent it all.

 

Haha my original list was much longer when I realised I'd written something long enough to replace the constitution and culled many a target The types you mention are significantly higher on my list of targets but unfortunately they're kind of a harder problem because you do have, imo at least, a social responsibility for those incapable of providing for themselves and there really is only so much you can do with regards to that side of things and those who just refuse to play the game without moving towards forced labour that's pushing ethical boundaries.

On the flip side things like the aged pension exemption for the main residence (set it at the HNW cutoff which is roughly 1.6m to start with and phase it down to median over time, there's more to it such as setting up the reverse mortgage facilities and such but in essence it's a simple fix), super exploitation by the rich, capital gains concessions and the like are very easy fixes. Yes, they'll impact some people and there will be people who have to pay more tax, not be a drain on the economy, leave smaller inheritances for their children and the like but ultimately none of those expenses are helping improve Australia and are just entitlements that just pamper to those getting them because we refuse to say no!

There are just so many areas of waste that are literally a result of not being willing to hurt some feelings (and lose some votes, I very much glossed this part over and it's something that in and of itself requires fixing, whether that be term limits or something bigger) and the worst part is that those areas of waste are not just bankrupting the country but also taking away those funds from far better purposes. Innovation, infrastructure, education, health and the environment are all areas that suffer massively as a result of money being wasted on not hurting feelings or asking people to pay their own way or fair share...

 

Ah, I didn't realise you vote for the Greens. Definately no home brew for you. Besides it not totally organic. Mind you most Greens I know are heavy smokers.

While there are those who are capable of working BUT expect money for nothing (increasing in number at an alarming rate) it is any wonder that those who do work hard will always be bitter about paying additional tax which is in part supporting those types.

So I stand by my previous statement:

Do you really want us to end up like Greece and similar! That seems to be the way Australia is heading albeit early days yet.