Don’t tax super on the way in

Superannuation has become a honey pot for the government and does not encourage people to save for their retirement, a New South Wales Senator believes.

Responding to the Assistant Treasurer, Kelly O'Dwyer's, and the Shadow Minister for Financial Services and Super, Jim Chalmers's, addresses to Super Review's super conference on Thursday, Liberal Democrats Senator for NSW, David Leyonhjelm, said both parties were after people's super.

"We think all these arguments about retrospectivity is all crap. What they're doing is trying to put lipstick on a pig of raising more money, that's all it is and that's not right," Leyonhjelm said.

He said his party's policy was to do everything possible to help people save so that they would not have to rely on the Age Pension.

"The way to do that is to not tax it on the way in, don't tax it while it's in there — let it build up, and then when you take it out it's marginal income — well it's taxed as income," he said.

"So if somebody has got a lot of super and they are taking out $250,000 a year, then they'll pay tax on $250,000 a year. If they're only taking out $20,000 a year they'll hardly pay any tax.

"It would cost the government money because they would lose tax revenue but it wouldn't if they didn't spend so bloody much."

On using super as an estate planning vehicle, Leyonhjelm said there were ways to dealing with it and it was not a deal breaker for his proposal.

"If it's a device for hoarding money to not pay tax for your kids you can put a tax criteria for that. The tax office has got no shortage of answers on how to solve that sort of problem. They're very creative," he said.

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I think the Senator is spot on about a) How to tax super, and b) that the problem is how much the Government spends.

This is virtually what Mr Keating originally introduced in July 1983 when he changed the tax payable on withdrawals from 5% of withdrawal added to the marginal tax rate to 15% on the first $50,000 and 30% on the excess above. It took him 5 years to realise that as none of the Baby Boomers were retiring in the 1980's this tax wasn't helping him balance his budgets so he "brought forward" the 15% as the contribution and internal earnings tax. What Senator L is suggesting is what occurs in Canada and other countries but I can't imagine the short sighted pollies here changing it to benefit the budgets of future pollies not yet in parliament.

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