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Four experts clarify super tax and franking misconceptions

Firstlinks has received hundreds of comments on the Government’s $3 million superannuation tax proposal, similar to the lively exchange when Labor proposed a change in the treatment of franking credits at the 2019 Federal Election. With few exceptions, it is an informed and quality debate adding understanding and fresh perspectives.

We also receive contributions by email which make good points but are not long enough to include as a separate piece. In this article, we bring together four observations which add to the super tax and franking debate. Of course, we could fill a dozen articles with the great comments on our existing articles (such as here and here), but these four are worth highlighting.

We already tax income in different ways, by Aaron Minney

Many commentators have noted that the proposed additional tax on super balances over $3 million will tax any unrealised gains in the investment portfolio.

Normally only realised gains are taxed. This is a difference between economic and accounting income. Generally, the concepts are the same, but there will be timing differences, largely driven by unrealised gains but there are also some differences in the tax treatment, such as a discount for capital gains. There is a clear benefit in delaying the taxation point, so investors will often avoid realising capital gains for as long as they can. Taxing the economic value-add (income) on an annual basis will prevent this.

But taxing economic income is not as unusual as it sounds.

Another intriguing Australian tax consideration is franking credits. They are designed so that the ultimate owner is only taxed once on earnings. In this, it could be said that as they are taxed on an economic income basis as they remove the accounting construct of double-taxation to provide economic neutrality.

In theory, the two taxes proposed by the new super reforms, each at 15% will result in a 30% tax rate for the higher balance super members. In practice, the normal tax rate is more like 8% with franking credits and capital gains discounts but there are no offsets to the economic income tax. There is even a risk that a carried forward loss, which would be a deferred tax asset on the balance sheet, might be lost resulting in an effective tax rate of over 15%. In total, the tax will be more like 23% than 30%.

The $3 million super tax proposals highlight that we can think about income in different ways. With a growing number of Australians relying on super and other investments to provide their income in retirement, it is helpful to understand the differences.

The other super proposal - to legislate an objective for super - uses a third income concept: retirement income. With the start of the retirement income covenant last year, we saw how that income is different again because it includes capital consumed over retirement. Ultimately this is the aim of super to provide income through retirement using the capital that is accumulated in super across our working careers.

Stop perpetuating franking credit myths, by Jon Kalkman

There is a myth that needs regularly correcting that franking credits are a tax refund and that the refund applies only to taxpayers on low marginal rates.

Franking credits are primarily additional income. CBA recently announced a dividend of $2.10. If you owned 1,000 shares, your additional taxable income is not $2,100 but $3,000 because the $900 the company pre-paid as tax (30% of $3,000) before you received that dividend is also part of your taxable income. That’s why you need to ‘gross up’ the dividend in your personal tax return. Here is a simple way to understand what is happening:

  • This additional taxable income is held by the ATO, so you have to pay tax on income you never received.
  • As it is held by the ATO, it becomes a tax credit when you complete your own tax return.
  • It is a tax credit so you can use it to pay some or all of your personal tax.
  • If your tax obligation is lower than the tax credit, the ATO is holding some of your income on which no tax is payable and you receive a tax refund

It is just like an employee whose employer has overpaid their tax obligation through fortnightly PAYG salaries. A franking credit refund is NOT a refund of tax never paid, it is a refund of income never received.

At present we have a myth that a zero-tax pension fund collects $2.10 in dividend from CBA but also a tax refund of 90 cents ($3.00 altogether) even though it has paid no tax. It would be more honest if the income derived from shares were quoted as a pre-tax distribution (in this case $3.00 not $2.10) because that applies to all other investments and makes comparisons more valid. In that case it would be obvious that a zero-tax pension fund received $3.00 per share in income - because it pays tax on its income at a zero marginal rate.

And if dividend income was quoted on a pre-tax basis, it would be obvious that everyone was paying tax on their income from shares on the 'grossed up' dividend ($3 not $2.10) at their personal marginal tax rate - as they do now.

Moreover, every shareholder receives a $0.90 tax credit which can help to pay some or all of their tax obligations. That tax credit has the same value for every Australian taxpayer.

Stop overlooking the proportionality in new super tax, by Tim Walker

Please read the Better Targeted Superannuation Concessions fact sheet carefully. Even Jim Chalmers does not seem to have read and understood it.

The statements in the Overview and Application sections are wrong in stating that is a flat tax rate of 15% on earnings over $3M. It is really a progressive tax starting at 0% at $3M, growing to 3.75% at $4M, 7.5% at $6M, 10% at $9M, etc in an upward trending curve that can never quite reach 15%.

Take special note of the definition of ‘Proportion of Earnings’. It is not Total Superannuation Balance (TSB) - $3M as many seem to think. It is (TSB - $3M) divided by the TSB. Therefore nobody pays an extra 15% on earnings over $3M. A member with a TSB of $3.2M pays only 0.9375% extra tax on their earnings. A member with a TSB of $4M pays 3.75% extra tax on their earnings. The infamous SMSF member with a TSB of $400M pays 14.8875% extra tax on their earnings.

As an example, say you start the year with a TSB of $3M, earn income and have (realised and unrealised) capital gains of $200K, withdraw $100K as a pension/lump sum and make no contributions. At the end of the financial year, you will have a TSB of $3.1M and will have to pay extra tax of 0.48387% on earnings of $200K. This works out to be $968 of extra tax.

I can see many people with TSBs around $3M paying much more than $1K in financial advice and fees setting up trusts and companies to try and avoid this extra tax.

Also, I think that a lot of people are misunderstanding the taxing of unrealised capital gains. Earnings does include unrealised capital gains, but only the unrealised capital gains during the financial year just completed, not the unrealised capital gains since the asset was purchased.

Cost of super tax concessions is overstated, by Tony Dillon

The impetus for the recent imposition of an additional 15% tax on earnings on the portion of super balances exceeding  $3 million was undoubtedly the almost $50 billion worth of superannuation tax concessions as detailed in the recently released Tax Expenditures and Insights Statement (TEIS) compiled by Treasury.

The tax concession cost is determined by comparing ordinary income tax rates on super income versus the tax actually collected at concessional super tax rates.

The estimated tax concessions are absolute numbers at a point in time. They say nothing about the cumulative nature of superannuation and the ultimate rate of superannuation tax paid by a worker over long periods of a working life.

To assess the validity of the tax concession estimates, we estimate the fund tax rate paid by a middle-income-earning employee on their Superannuation Guarantee Contributions (SGC) over a working career and compare it to their marginal personal income tax rate.

Consider the following scenario.

A working career starts on a salary of $95,000, with compulsory super  commencing at an annual $10,000. Assume their salary grows at a modest 2% per annum over a 30-year career, and their super fund earns a before-tax rate of 6% per annum. Applying 15% tax to the SGC contributions and investment earnings results in a super fund balance of $760,000 at the end of 30 years.

If no tax had applied to contributions and earnings, the fund would have grown to $1,042,000. Lost funds due to the super taxes is therefore $282,000, which yields an implied rate of tax paid over the full period of:

$282,000 / $1,042,000 = 27%

For someone whose marginal personal tax rate was 32.5% for the first 14 years, this is hardly a big concession, particularly when the employee has no access to their compulsory savings for the full 30 years. And under the Stage 3 tax cuts regime, should they eventuate, their marginal tax rate would be just 30% for the entire 30-year career, reducing the concession even more.

Drilling down further, the $282,000 drop in end-fund balance is made up of $61,000 in contributions tax, $73,000 tax on earnings, and critically, a $148,000 reduction in fund earnings as a result of the taxes.

Meanwhile, the $760,000 final balance consists of $407,000 in contributions, plus $488,000 in interest, less the taxes. Noting:

$61,000 = 15% x $407,000
$73,000 = 15% x $488,000.

The wage earner in this example moved from a personal marginal tax rate of 32.5% to 37% on current tax scales after year 14. Let’s assume an average marginal tax rate of 35% for the full 30-year period.

Under Treasury’s method of determining tax concessions, in this case it would estimate $179,000 in total super tax concessions, over this worker’s career:

(0.35 - 0.15) x ($407,000 + $488,000) = $179,000

What the calculation hasn’t factored in, however, is the employee’s lost earnings of $148,000 over the journey, which shouldn’t be lost to the system. In fact, it effectively transfers to the government along with the tax take, if you assume that government return on investment (social or otherwise) is comparable to that of the super fund earning rate. The net concession to the employee therefore is just $179,000 - $148,000 = $31,000, which over 30 years of compulsory saving is really just a pittance.

What we are seeing is an implicit rate of tax on the end fund balance close to the employee’s marginal tax rate. Such that overall tax concessions are far less than:

(marginal rate - 15%) x (fund contributions plus investment income)

Superannuation is an earnings-related concept over long-term investment horizons, and the super tax concessions do not reflect the compounding nature of super earnings and taxes.

Aaron Minney is Head of Retirement Income Research at Challenger Limited.

Jon Kalkman is a former Director of the Australian Investors Association.

Tim Walker is a retired database administrator and SMSF trustee.

Tony Dillon is a freelance writer and former actuary.

This article is general information and does not consider the circumstances of any person. The comments are based on an understanding of the proposed tax change and existing franking credit rules at the time of publication.

March 28, 2023

Thank you Jon for your concise article on the myths surrounding franking credits. I shall share it with some of my retired friends who still see franking credit refunds as a refund of tax not paid. Perhaps they will believe you!
Also, I am too often frustrated by financial commentators who suggest that:
1. Franking credits can be used to reduce one’s rate of tax.

They are a pre-payment of tax and so naturally reduce any further tax liability that a shareholder may have.
Ironically Aaron Minney has done exactly this in the article preceding yours, but he is far from alone.

2. Franking credits are more valuable to retirees in pension mode than to other taxpayers.

They are in the sense that low-rate taxpayers get to keep more of their income than high-rate taxpayers, but no-one says that about term deposits, for example, which is equally true.

Geoff R
March 29, 2023

Neil, I also get frustrated with people who do not understand franking credits and think of them as a "scam" or a "rort" when clearly they are completely fair once you understand them. You can explain things simply to some but others have a political view and simply aren't interested in the facts.

The attacks on franking have unfortunately continued on - for example the proposal to ban franking credits being used in off-market share buy backs or another proposal to ban franked dividends when there has been (or soon will be) a capital raising. And depending how these go, perhaps more attacks on franking fairness are still to come.

Aaron Minney
March 29, 2023

That's not an assumption I am making at all.
What I am highlighting is that standard accounting treatment would ignore the 'pre-payment' of tax by the company. This is how most tax systems operate around the world. Considering the franking credit as tax already paid relates to the economic concept of tax incidence. As you are noting, the franking credits ensure that the actual tax paid on the earnings reflect the economic situation of the shareholder.

March 30, 2023

Thanks for the clarification Aaron. Apologies for misrepresenting you.

March 30, 2023

Hi all....
while everyone talks about as people saving their $$ for retirement, being the reason for super to exist, and thus many are getting unfair tax advantages for their investment in super, I can remember that many decades ago the REAL arguments were that the future generations could NOT afford to finance the pensions of masses of future retirees, and that something had to done to ease that financial burden..... and thus we were forced to forgo and lock up for decades some of our income into what became compulsory superannuation ..... whether we could afford it or not.
(yes I know it's paid by the boss, but it's still OUR $$$)
To save the government multi millions $$ for not paying those pensions, and for locking up our funds for decades we were offered/bribed a low interest rate.....
Yes it worked well (even though some unfortunates could not pay mortgages, and not draw on their super to help}.
It worked sooooo well that now the government can now only see the $3.5 trillion in super and now wants to claim it has LOST, & will loose, $$ billions in taxes we should have paid, and will not pay, and wants to double dip and rape the super system, while NOT taking into consideration the massive super entitlements of well over $3 mill per person for public service employees and politicians who's super is not put asside into fund, but paid from future government income and our taxes.
I for one am NOT impressed by their greed and misrepresentation of the truth and facts.

Mark B
March 26, 2023

Really enjoyed this article and the new tax is definitely not as bad as I had thought as I was definitely overlooking the proportionality. This light is now switched on!

Jon's explanation on the Franking Credits myths is something that needs to get out into the wider public sphere of understanding. I honestly get sick of making similar comments to friends and relatives that do not understand it at all. It doesn't help with the mainstream media continuing to propagate the myths.

D Ramsay
March 25, 2023

Great article thanks.
It also opened my eyes re the calculations on the Capital Gains(CG)
So in regard of your example - "Earnings does include unrealised capital gains, but only the unrealised capital gains during the financial year just completed, not the unrealised capital gains since the asset was purchased."

So extending that (to test my understanding)... if it made $200K CG again in the following year (so now asset is worth $X + $200K (year 1) + $200K (year 2) where $X is the price you bought the asset for in year 0 ) also (and you repeat the numbers for lump sum withdraw etc), then you would pay the extra tax on $200K from year 2 only - right ?

Mark B
March 29, 2023

Not quite right as you only pay tax on a proportion of that $200K increase in unrealised capital gain for year 2. Depends how much over the $3M mark you are, for instance if the $3M represented 50% of the total super balance then only $100K of the $200K increase would be subject to the additional tax. The other $100K would be attributed to earnings on the first $3M which is not subject to the surcharge.

At least that's how I understand it now.

March 24, 2023

What happens at death of retiree if on any date BUT 30/6? Read Treasury super fact sheet, no example if taxpayer were to die mid yr & formula is balances Start Yr & Year End.
eg. Start year 1/7 bal 4 . 1mill, drawdown 100,000 on 31/7, death 30/9, bal super $4mill. How or at what will unrealiised gain value be calculated when fact sheet only states End yr balance? I understand the decedent re Final return has right to be treated equally as if had been alive and lasts until final distribution and final tax calculated. If a notional unrealised figure applied at 30/9 then it's possible decedent won't be treated equally unless there is either a refund or extra tax due as at 30/6 year end based on that 30/6 unrealised gain + 100,000 drawdown, and then tax proportioned to 92 days of 365 or decedent not been treated equally. How will excess 1mill super be treated when passes to will trust entity from 1/10 to date of final distribution when super ceased at death, is tax on the 1mill to be assumed as if had been alive?

Richard Lyon
March 24, 2023

Tony, certain aspects of this are incorrect, even setting aside your (unspoken) simplifying assumption that contributions are made at the start of each year. Let's compare a 30% taxpayer with your example. In so doing, we recognise that the equivalent of the super contribution is extra income and must be taxed at 30%. That gives an accumulated fund of $539,000. Compare the $760k in super with this $539k for the 30% taxpayer. Super has generated $221k (or 41%) in extra retirement savings. Just for fun, do the same calculation for a 45% taxpayer, and the accumulation reduces to $366k. Super has generated $394k (108%) in extra retirement savings. By the way, in your language, the effective tax rate for a 30% taxpayer is 503 / 1042 = 48%. And the 45% taxpayer pays 65%. As with the 27% in your example, these are meaningless numbers. Similarly, the $148k cost of a compounding a lower net contribution at a lower net return hasn't "transferred" to the government. Nor does the $273k for a 30% taxpayer or $377k for a 45% taxpayer. That's the economic drag of taxation - but it is overstated, since the taxpayer would otherwise have to pay for a basket of services. Also, if there was more investment money in the system without more real economic activity, it would drive share prices down and lead to a lower return anyway. All that is a discussion for another day and/or another forum.

Tony Dillon
March 24, 2023

Hi Richard, good to hear from you. Just picking up on your points.

Well done for replicating my numbers, and I have reproduced yours. Yes, I made the assumption that contributions were made at the start of the year. I did start out assuming uniformity across the year but for the sake of the exercise, it wasn’t material, and so for simplicity I just left everything at the start.

Yes, you have derived equivalent implied tax rates across the thirty-year period using marginal tax rates. As I explained to Graeme earlier today, such a comparison is ill-conceived because employees given a choice, would be unlikely to lock away savings until retirement voluntarily with earnings taxed at marginal rates. They are more likely, particularly young workers at the beginning of their career, to consume that income on goods and services or indeed a mortgage, the latter of which more often than not, would continue right through to retirement. I therefore maintain that comparing the implied tax rate of the fund across the working career with a marginal tax rate is therefore valid. In any case, if individuals were to invest, they would likely invest in a structure such that earnings would not be taxed at their marginal rate, if they were half savvy. They might invest in franked dividend paying shares, negative gear property, set up a family trust, or any number of other ways to shield themselves from their marginal tax rate.

The compulsory, inaccessible nature of superannuation, often for decades, is such that rates of tax on contributions and earnings should indeed be less than the equivalent personal rates of tax, and that coupled with the behavioural outcomes likely in the event that super was not compulsory as I have described, renders a comparison of an implied super fund tax rate over a working career with one derived from ordinary tax rates, illogical.

In summary, the effective tax rate of 27% that I have calculated is most definitely not “meaningless”, because it actually reflects the impost on employees forced to defer a dollar that they could consume today, into the distant future.

Finally, the $148k lost earnings. It is real money lost to the employee as a result of the compounding effect of the super taxes over a long period. And it is right to say it should not be lost to the system, it doesn’t just vanish. Yes, it doesn’t “transfer” to the government literally. The government collects the taxes and therefore has more money to invest in for example, infrastructure (things like Rewiring the Nation, Housing Australia Future Fund, National Reconstruction Fund, NBN etc), social welfare, and on it goes. All of which should provide a return on investment, which may or may not be explicit (I did say “social or otherwise”). If nothing else, in theory government borrowing should be less than it otherwise would be, so it would at least be “earning” an equivalent bond rate on the tax collected. The lost earnings can’t be ignored, but may like you say, be a discussion for another day.

In the end, I certainly did not set out to “mislead” with my example. Rather, I explored the real implication for savers with realistic assumptions and outcomes. I set out to show that the method Treasury uses to determine super concessions is flawed, measuring revenue foregone in a single year, failing to take into account the long term nature of super and the cumulative effect of taxes over a long period. To show that Treasury's conclusion that super is so heavily subsidised that it is appropriate for the government to take a bigger share, is open for debate.

Appreciate you challenging me, and all the best.

Richard Lyon
March 24, 2023

Tony, you've just articulated the whole point of the super system for a typical worker. Because they wouldn't save what they should for retirement, they will end up on the Age Pension. So, we mandate contributions and give a tax concession on these and on earnings in exchange for locking them up and using them to reduce the pension burden.

You've also highlighted the challenge in making comparisons and, in particular, in determining the amount or value of tax concessions. Not an easy question, but I think that you need to (as John De Ravin says) compare like with like. Treasury looks at one-year flows. You've looked at lifetime impact. You can't reasonably compare one with the other.

In the same vein, if you want to compare Scenario A (save in super regime) with Scenario B (spend for a while, put money on mortgage, etc, etc) then you open all kinds of issues, including:
- is Scenario B the appropriate comparator (i.e. does it really represent the typical or average alternative)? and
- do both scenarios capture the whole picture, so that the comparisons are on an equal footing?

The compounded frictional cost of tax and other charges is an interesting one. The rational investment asset for your taxpayer will pay no income until their retirement. In that case (and assuming a balance below $3M), no tax should be payable on earnings until the end, when it's paid at 10% (or not at all, if the balance is rolled over into pension mode). But the super industry will "tax" the member every year. So, you might be looking in the wrong place for your $148,000!

By the way, I don't think that super tax concessions are excessive for most Australians. But, because I think that the purpose of super is to provide a reasonable income in retirement, it's self-evident to me that they ARE excessive for those of us who have enough super to fund much more than a reasonable income and to have money left over.

I'll leave it there.

Tony Dillon
March 24, 2023

Thanks for the comment Richard. I’ll have my final say also.

I deliberately haven’t mentioned the Age Pension because that opens up other discussion. But that in itself is another argument as to why the Treasury concessions are overstated because it doesn’t account for the reduced Age Pension burden. In fact Chalmers argued that the concessions were too high because they are projected to cost the budget more than the Age Pension some time in the future. But aren’t people forced to save via super to reduce pension costs? Strange logic.

As for the implied tax rate over a working career comparison to marginal rates. If you re-read my piece, I didn’t hang my hat on such a comparison. Having arrived at the effective 27% career tax rate, I merely pointed out that it was somewhere in the ballpark of a marginal tax rate, and so the concessions as determined by Treasury may not be what they seem. And I have since made the point in these comments that it is not unreasonable to highlight the fact that you can end up paying a similar rate of tax on consumption that you are forced to defer for a long period of time, compared to the rate of tax you pay in order to consume today. When the oft headlined rate of 15% dominates super tax discussion, I thought it instructive to highlight that that rate can actually compound to something higher.

I was more trying to make the point that the Treasury method of calculating concessions fails to recognise the long term nature of super and the compounding effects of taxes over that time. In fact the Henry report to the Treasurer on Australia’s Future Tax System Review, in 2009 recognises that point, and I quote:

"Because superannuation is a lifetime savings vehicle, the compounding effect of interest has a significant influence on how much superannuation a person can accumulate. The taxation of earnings reduces this compounding effect. It is therefore appropriate that earnings are taxed at a low rate.”

Finally, and for what it’s worth. I do agree that very large super balances should be capped to ensure concessional rates of tax aren’t exploited for purposes other than for providing for a reasonable level of income in retirement. But the justification employed by the Treasurer in using the Treasury model of determining concessions, and the end policy he has put on the table to cap the use of super, I certainly think is up for debate.

All the best.

March 30, 2023

I would suggest that the counterfactual is what would happen in an economy with no compulsory superannuation system or superannuation taxes.
An employer would be willing to employ an employee for a total starting salary of say $105k p.a. The employee recognises that it is necessary to provide for her retirement so the employer and employee negotiate an agreement whereby the employer pays $95k p.a. but then agrees to pay as an annuity, the future value of the other $10k p.a. compounded at say 6 % p.a. after retirement. The employee is happy because she effectively has an investment compounding tax free at 6% p.a. and the employer is happy because it has funding at a 6% p.a. cost of funds for several decades (arguably they would negotiate a higher rate). After retirement, the employee receives periodic payments from the former employer which is now taxed at the employee's then marginal tax rates.
Notice the tax free compounding in the equivalent of the accumulation phase and the low tax rates upon receipt after retirement. It is basically a defined benefit scheme. if you do the calculations, I suspect the so called concessional superannuation tax system does not leave the employee better off.

John De Ravin
March 24, 2023

I agree with your comment here Richard.

I do acknowledge that the assessment of the quantum of "tax concessions" is somewhat artificial in the sense that we don't actually know what the taxpayer would have done with their investment had they not been obligated to contribute to superannuation. Maybe they would have found some even smarter, more tax-effective way to invest than via superannuation! How they would actually have spent or invested their money is unknown. But still, Treasury is tasked with computing the amount of the concessions. Their approach of comparing super taxes with the tax that would have been collected on the assumption that the individual had invested in similar assets but in their own name instead of via their super fund is simple and broadly reasonable. And as you say, it is meaningless to compare a current-year marginal tax rate with the cumulative effect of tax on the investment balance over a large number of years: that's definitely not a "like for like" comparison.

March 23, 2023

Re Tim’s Analysis. I disagree with the statement in your example: “..will have to pay extra tax of 0.48387% on earnings of $200K”. In your example, the total earnings are 3.1-3+0.1=0.2M. The proportion of earnings corresponding to funds above $3 million is 3.1-3/3.1=0.03225. The earnings corresponding to funds above $3 million are 0.03225x200,000=6450. The tax on earnings corresponding to funds above $3 million is 6450x0.15=967.50, i.e. extra tax of 15% of the earnings corresponding to funds above $3 million is paid. Contrary to your statement, the extra tax is a flat tax rate of 15% on earnings (as defined) corresponding to funds above $3 million.

March 24, 2023

I think you are right but haven't read the examples yet in the government sheet

Richard Lyon
March 24, 2023

Yes, but it's mathematically the same.

Tthe formula says 15% x earnings x proportion. Tim has chosen to restate this as (15% x proportion) x earnings. I don't know why he does that, because it makes no logical sense to me, but it gives the same outcome, i.e. $968 in the example.

March 24, 2023

Yes, but if you present it the way he does, and not as Graeme has, to me at least, it's a little scaremongering - people don't read the detail, they just take the headline ' progressive tax' and run with it. That said, the whole article is excellent to get the subject examined really well.

Peter Knight
March 23, 2023

Does anyone remember the Super Surcharge Tax? I paid mine out in 2008 at a total cost of about $55,000!
There are people out there who have not paid their liability out. How are they going to fare under these new retrograde rules? This is not a reform but a tax grab initiated by people who aren't affected by the new rules. As always, changes of this nature and magnitude should be grandfathered. Why is it OK to have $3 million plus in one's PPR (own home) but not in one's Superannuation account. The PPR doesn't pay tax at anytime but the super account is always paying some tax. Contribution tax, earnings tax and now, unrealised capital gain tax.
Does the Government really want people to cash in all of their super above $3 million and put the money into a new PPR where the money is no longer a part of the taxable economy? Good luck Australia with idiotic policies such as this one being proposed. Taking money from those that work and giving it to people who don't. Socialism writ large.

March 23, 2023

"Does the Government really want people to cash in all of their super above $3 million and put the money into a new PPR where the money is no longer a part of the taxable economy? "

You make a lot of good, valid points and the Super Surcharge was a Coalition government grab. My point on another thread that governments of all persuasions just won't leave super alone!

As for PPR, they still get you just another way! I live on the Sunshine Coast and my land valuation has gone up 60% in 1 year, so annual rates will jump well north of $1,000. The year before land valuation increased 40%. Great if you want to sell, terrible if you want to hang onto your house on a fixed income!

March 24, 2023

"People who are not affected" saying the curtailments are a matter of fairness. Should they not be leading the way and taking action to limit their defined benefit pensions instead of obfuscating, refusing to engage and hoping it will slip under the radar. Where is the media in calling out the hypocrisy.

March 23, 2023

Re Tony's analysis. I fundamentally disagree with the methodology applied to the example scenario. The amount of tax concession received should be calculated by comparing the super tax paid (super contributions tax and super earnings tax) to the tax paid (PAYG income tax and tax on earnings) if the equivalent amounts were contributed to an investment outside of super.

Tony Dillon
March 23, 2023

Graeme, the comparison I have undertaken is valid because if it wasn’t for the compulsory nature of super savings, it is highly probable that a young worker would consume goods and services with their after-tax salary, and not lock away their hard earned for decades at high personal marginal tax rates.

In any case, it could be argued that forced savings unable to be accessed until retirement, should be taxed less than ordinary income, and so applying the full difference between ordinary income tax rates and super fund tax rates to super income, would appear to overstate the super concessions detailed in the TEIS. My analysis looks at that possible overstatement from a different angle.

March 23, 2023

Re Tony's analysis
Where have you recognised the tax concessions accruing to super fund members in pension phase? I would have though Costello's give away to be a substantial share of the total.

Tony Dillon
March 23, 2023

Stephen, in the TEIS, revenue foregone (or “concessions”) is estimated at $49b for the 2023/24 year, split $27.25b super contributions concessions, and $21.75b super earnings concessions. Obviously there are no pension phase concessions in the super conts cohort. And of the earnings concessions, approx. 46%, or $10b, goes to recipients aged over 60. That is, approx 20% of the total $49b in concessions for 2023/24, are attributable to pension phase assuming all those over age 60 have retired. But of course many over age 60 have not retired, so 20% is an upper bound.

March 23, 2023

And....none of you mentioned indexing but talked about how it wasn't quite as bad as we think it is. Well, I'll believe it when I see it and hear it from a Gen-X/Y financial adviser.

March 23, 2023

As long as that financial adviser is up to speed on all the facts. 


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The crash in lithium and nickel prices has left companies scrambling to cut production, billionaires red-faced, and investors wondering how a ‘sure thing’ went so wrong. There are plenty of lessons for everyone.

16 ASX stocks to buy and hold forever

In his recent shareholder letter, Warren Buffett mentions several stocks he expects Berkshire Hathaway will own indefinitely, including Occidental Petroleum. We look at ASX stocks that investors could buy and hold forever.

Welcome to Firstlinks Edition 545 with weekend update

It’s troubling that practical skills like investing aren’t taught at schools as it leaves our children ill-equipped to build wealth, and more vulnerable to bad advice. Here are some suggestions to address the issue.

  • 1 February 2024

For the younger generation, we need to get real on tax

The distortions in our tax system have been ignored for too long, and we're now paying the price. It's time Australia got real and addressed the problems to prevent an even greater intergenerational tragedy.

Latest Updates


16 ASX stocks to buy and hold forever

In his recent shareholder letter, Warren Buffett mentions several stocks he expects Berkshire Hathaway will own indefinitely, including Occidental Petroleum. We look at ASX stocks that investors could buy and hold forever.

Investment strategies

Clime time: 10 charts on the outlook for major asset classes

The charts reveal that interest rates can't rise much further as Australian mortgage holders are under stress, bank dividends look solid, and the bond market is in flux because yields are being manipulated.


Phasing out cheques, and what will happen to cash?

Cheques and bank service, or the lack of, were major topics when I addressed a seniors’ group recently. The word had got out that the government was phasing out cheques, and many in the audience were feeling abandoned.


What financial risks do retirees face?

Treasury's consultation into the retirement phase of superannuation is generating a lot of interest. This submission to the consultation outlines the key financial risks to an individual’s standard of living in retirement.


Recession surprise may be in store for the US stock market

Markets are partying like it's 1999, but history suggests that US earnings and economic growth are vulnerable following an interest rate tightening cycle. Investors should prepare their portfolios accordingly.

Investment strategies

3 under the radar investment opportunities

The Magnificent Seven are hogging the headlines, yet there are plenty of growth opportunities elsewhere, at a fraction of the cost. Here are three stock ideas riding key areas of structural and cyclical change.


Why a quant approach can thrive in the age of passive investing

The rise of passive investing is unlikely to derail the value of quantitative strategies. Passive investing hasn’t eradicated the irrationality of crowds, leaving pockets of opportunity to outperform indices.



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