Archive for February, 2012

Super roundtable talk

February 26th, 2012 No comments

Now there is going to be another gabfest on super, but can the Australian super provide a better standard of living in retirement for the average Australian citizens?
Although the super contributions are compulsory, the Australian government does not provide a defined benefit system for every contributor who would like a defined retirement income. Then there is the means test of the basic pension, which affects now 70% of retirees and will so in the future. Only the top 20-30% of retirees will have sufficient funds to be be independent of the Centrelink pension and they will benefit much more from tax concessions than they would from a full age pension.
Ironically, organizations like ACPSRO (Australian Council of Public Service Retirees Organization) and its affiliated Associations are only trying to get the government to index the super of its members the same as the age pension is indexed, and while this would benefit to some extent, all of their members, it would benefit mostly the high super recipients.
Acoss,The Seniors, as well as the ACTU are also looking mainly after the high income earners.

It does not matter which party is in government, they are only representing the elites of this country, as far as the social service of Australia is concerned.
The Australian government provides every retiree the safety net of the age pension by using the means test, yet this system penalises the retirees who have just sufficient income, or assets to be affected by the means test, and will not change by the compulsory super, because 70-80% of the people will never accumulate sufficient income or assets to be independent of the age pension.</em>
Instead of looking to the US for guidance on social systems, the government should look at Japan,Germany and other more socially egalitarian countries.

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Letter to Bill Shorten re-super

February 10th, 2012 No comments

e Hon
Bill Shorten
PO Box 6022
Parliament House
Canberra ACT 2600

9’th of June 2011

The Australian government provides everybody of pension age a safety net in the form of the basic pension, so why should the government give such huge tax concession to the self funded retirees?
If a retirees income falls below $41,719.60 he/she can apply for a part-pension, and for a couple it is $63,824.80, which are very generous limits, particularly as most of the self-funded retirees pay little, or no tax if their incomes come from taxed super funds.
Consider the part-pensioners at the lower end: as soon as a single person income reaches $3,796.00 his/her pension is reduced by $0.50 for every dollar extra, and for couple it is $6,656.00, hardly a very generous standard of living.
Currently the Australian government pays some $25 billion in age pension, but at the same time allows some $25 billion in tax concessions. As the compulsory super starts maturing, the tax concessions will by far exceed the cost of the age pension, although at least 70% of the retirees will be still dependent on a part age-pension, but where is the government get the tax revenue to sustain such expenditure?
As the self funded retirees are enjoying extreme wealth, paying little or no taxes, they will travel a lot more overseas, which will again strain the Australian budget and affect the local business, because more money will be spent outside Australia. This will widen the gap between the have’s and have not’s enormously, particularly among the retirees, as the 20-30% with incomes above the age-pension, but always the assurance of a part-pension, should their incomes fall, and the 70% on a full or part-pension, who will be prevented to a large degree by the means test of the basic pension, to a decent standard of living.
Australia is the only country among the OECD countries which means tests the basic age-pension, and allows such generous tax concessions for super, which benefits mainly the upper 30% of the population, and as a result the average Australian retirees are the second poorest after Ireland.
The means test for the basic age-pension should be abolished, but so should all the tax concessions for super, and the compulsory super should be scrapped.
Australia also spends a larger percentage of the GDP on military, more than most European countries, to go fighting in other countries, to establish Democracy, yet Australia is not a Democracy but a Plutocracy. I probably will not see it in my life time, but if Australia does not become more egalitarian and democratic, it will have similar riots that other countries experience now.
This are the tax savings for a person who can use the maximum super contributions if under 50 Years of age.
Concessional contribution at 30.June 2010
$25,000 *0.465=$11,625
$25,000*0.15=3,750 Tax saving= $11,625-$3,750=$7,875
$450,000 in super fund
$450,000*.06=$27,000 Interest
$27,000*0.15=$4,050 Tax saving $12,555-$4050=$8,505
Total tax saved = $8505+$7875=$16,380 for this year.

If the person is over 50 contribution is as follow.
$50,000*0.15=$7,500 Tax saved= $23,250-$7,500=$15,750
Total Tax saved==$15,750+$8505=$24,255 This is well above the age pension

As the persons super balance can exceed the $500,000 limit for the over 50’s the contribution drops to $25,000, but the person contributes $450,000 non concessional into the fund so that the fund now holds $900,000

Tax= $54,000*0.465=$25110
Tax= $54,000*0.15=$8100 Tax saved= $25110-$8,100=$17,010
Total tax saved=$17,010+$7875=$24,885

The tax savings for a person in this position will only increase further as the balance in their fund increases and therefore the income which is taxed at 15%. And when the person reaches the age of 60 and starts drawing down the super, there will be no tax obligation at all. Assume a fund balance of $2million*6% =$120,000 income completely tax-free and this is a very conservative approach by having super balance in a term deposit.

If a person starts to contribute the maximum concessional contribution at the age of 30, by the time they reach the age of 65, he/she will have saved more in tax concessions than what he/she would get in the form of age-pension, even if they live to the age of 100.

Yet you talk about a “sustainable social system” and you have been challenged by the Australian Taxation Office for breaches of the contribution limit.

Could the government prove that my calculations are wrong, or else admit, that it governs only for the benefit of the elite 30% of the population.

Yours truly
W. Hawil

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