SOLVING SUPER – FOR BOTH PRINCES AND PAUPERS Yesterday I discussed the problems (twitter.com/ChrisEconomist/s…) Now it’s time for solutions Australia has an EARNINGS SUBSIDY RATHER THAN AN EARNINGS TAX The simplest way to improve that is to lift the tax on earnings in super from 15% to 20%: · That would mean actual taxes on earnings would rise all the way up to zero – but at least they’d no longer be a subsidy · It keeps intact the integrity of franking – no double taxation of anything · It also means taxes on super would actually raise the $s Treasury forecasts them to (Treasury effectively forecasts zero earnings taxes) This proposal is the least that could be done in super. (As Major Denis Bloodnok notes, ‘the least they can do’ is the quantity that politicians specialise in.) The more important change is needed in THE TAX ON SUPER CONTRIBUTIONS At the moment the way we tax super means that, for every $ going into super, we give a huge tax benefit to princes, while levying extra tax on paupers So the best reform is to give princes and paupers the exact same tax incentive to save through super I’ve recommended versions of this reform for decades. It would be an updated and simplified version of the contributions tax changes proposed in the Henry Review There are two steps: · First, pre-tax contributions into super would remain exactly as now, but what actually goes into your fund is the after-tax $s · Second, the government would then top up your contribution in your fund account by 15 cents in the $ of your pre-tax contribution This approach: · Means the tax treatment of every $ for every person – prince or pauper – is exactly the same. Hallelujah! · It would massively simplify the system. Contributions would effectively be integrated into the existing personal tax system (rather than carving them out) · And all sorts of stickytape could be discarded. No need for LISTO to help the less well off (cos that would happen automatically). No need for Div 293 tax to rein in excess tax concessions to the well off (again, that would happen automatically) · Because this is a change to the taxation of contributions – when the money goes in – it avoids the need for any grandfathering Super has become a force for evil The above approach would – finally!! – treat everyone the same way