Taxed to Death: How superannuation taxes stop Australians from retiring comfortably
Superannuation is a program aimed at helping Australians to save money, so they have financial independence upon retirement. However, more money locked up in the savings account means less present financial capability.
The government claims to want to help its people, but continues to enforce taxes on mandated contributions and investment earnings. It even takes away the people’s freedom to make withdrawals by levying fines for doing so. Superannuation is a compulsory program from which the government collects additional revenue.
When the government does not give its people the right to opt out of superannuation, they are also forcing the people to pay administrative fees and performance fees for a service they may not necessarily want.
To help superannuation to provide Australians financial independence in retirement, the government does not need to increase the superannuation guarantee. The SG has a high opportunity cost taking choice from Australians. Instead, the government needs to reduce the tax burden on superannuation. The taxes on superannuation bring in only a small fraction of the expenditure on the age-pension. By ensuring Australians have enough on which to retire the government could save billion in pension payments.
Additionally, the COVID-19 crisis has shown us how often Australians need access to their savings. Allowing individuals to save or spend their earnings as they chose will yield the most efficient allocation of resources. Individuals, not governments, know how to best use their wages to maximise their own personal welfare. By restricting choice, the government stops many Australians from purchasing goods and services that would provide long term benefits such as housing, education, or business investments.
However, most people discount the value of goods in the future and as a result do have enough on which to retire. The Australian government can provide Australians with flexibility while still prompting the majority of Australians to save responsibly through an opt-out system. Most Australians automatically enrolled in superannuation will remain enrolled and not opt-out. Those who need the money or have a better way of preparing for their retirements can withdraw and use their money accordingly.
The Australian Taxpayers’ Alliance recommends removing the tax on super contributions, or the tax on super earnings, or both to ensure Australians have enough to retire comfortably without reducing current wages. We also recommend and opt-out superannuation system to give Australians the flexibility they need to most efficiently use their money while still incentivising saving. These changes will make a significant improvement on the lives of Australians and help them retire comfortably without having to depend on taxpayer-funded age pension.