16 June 2015
Media Release - #2015059, 2015

Tax White Paper consultation process to be extended

The Abbott Government believes that the retirement savings earned and accumulated by Australians are owned by Australians, and should be respected by Governments. 

The Government’s objectives for our retirement income system are to ensure stability and certainty, while optimising retirement incomes, ensuring fiscal sustainability and equity and encouraging self-provision for retirement.

This is why the Government has given clear commitments that there will be no unexpected, adverse changes to superannuation in this term of Government nor do we have any plans for such changes beyond the next election. Specifically, the Government will not increase taxes on superannuation and will not remove any current flexibility in accessing superannuation in retirement.

In addition, the Government‘s only planned changes to the pension are contained in the measures outlined in the 2015/16 Budget. 

The Tax White Paper is being undertaken consistent with these commitments.

As a result of the strong public response to the Tax White Paper, stakeholder interest in the retirement incomes component of this review and discussions with the Senate, the Government has decided to extend the submission period by six weeks and initiate an additional stakeholder engagement process.

The extension allows more time for interested parties to put their views into the Tax White Paper process in relation to key interactions between the age pension, superannuation, taxation and employment, consistent with the Government’s objective of ensuring stability and the commitments we have made to the Australian people.

This will facilitate more detailed consideration of the interactions between the tax system and the transfer system, including the sustainability of Australia’s retirement income arrangements.

The Tax White Paper will consider submissions on how policy settings can better encourage more productive use of savings to optimise retirement incomes, in simpler and more effective ways, not simply restricted to superannuation. This will include issues such as equity release and comprehensive retirement income stream products.

Consideration will also be given to previous reviews and inquiries, including the Financial System Inquiry (FSI) and any recommendations of the FSI as they relate to superannuation. In addition, the Treasury review of income stream products will be included in the Tax White Paper process.

The extended date for receipt of submissions will be 24 July 2015. 


Background

Overview

The Government is currently conducting a review of Australia’s tax system through the Tax White Paper process.

To ensure that our tax system is fit for purpose, the Government will need to take an ageing population and the demands of the 21st century economy into account.

The Tax White Paper process is examining the interactions between the tax system and the transfer system, including the sustainability of Australia’s retirement income arrangements.

This includes key interactions between the means-tested Age Pension, superannuation, taxation, and employment, especially broken work patterns.

The Government has made it clear that there will be no unexpected, adverse changes to superannuation in this term of Government and nor does the Government have any plans for such change beyond the next election. Specifically the Government will not increase taxes on superannuation and will not remove any current flexibility in accessing superannuation in retirement.

Objective

The objectives of the retirement income system are: optimising retirement income; fiscal sustainability; and fairness – while encouraging self-provision in retirement.

The Tax White Paper Process is evaluating the operation of Australia’s retirement income arrangements in relation to the taxation system to help inform consideration of these objectives. 

The Re:think Tax Discussion Paper states that the review of the tax system must take into account “Australia’s full retirement income support arrangements, including the means-tested Age Pension”.

Specifically, the Tax White Paper process will consider submissions on how policy settings can better encourage more productive use of savings to optimise retirement income, in simpler and more effective ways that are not simply restricted to superannuation. This will include issues such as equity release and a comprehensive range of retirement income stream products.

Consideration will also be given to previous reviews and inquiries, including the Financial Systems Inquiry (FSI) and any recommendations of the FSI as they relate to superannuation.

In addition, the Treasury review of income stream products will be included in the Tax White Paper process.

Process

As part of extending the period for submissions for the Tax White Paper process, there will be further consultation with key stakeholders on Australia’s retirement income arrangements. This will include key consumer, superannuation industry, academic and business stakeholders.

As the formal submission period for the Tax Green Paper has closed, the Government will provide a six week extension period for additional submissions and consultations on retirement incomes.

As part of the extended period for specific consideration there will be a stakeholder engagement process, designed to optimise opportunities for stakeholder consensus on key issues.

There will be a specific section on retirement incomes in the Tax White Paper.

Australia’s Retirement Income Arrangements

As outlined in Re:think Tax Discussion Paper, the Government’s objective is to achieve a better tax system that delivers taxes that are lower, simpler and fairer.

A better tax system is one that supports higher economic growth and living standards, improves international competitiveness and is well placed to adjust to a changing economy and new opportunities.

Critical to our continued economic growth and higher standards of living will be how we respond to the challenges and opportunities set out in the 2015 Intergenerational Report

The report shows that there will be fewer people of traditional working age as a proportion of the population in the years to come.

According to the OECD, Australia’s population is ageing progressively. On unchanged policies, this will increase government outlays for public pensions and health care, causing deterioration in budget balances, and reduce economic growth, mainly through lower workforce participation.

Over the next forty years the number of people in the ‘traditional’ workforce supporting those who have left the workforce will nearly halve. To maintain our economic growth and further improve our standard of living we will need to promote greater productivity and workforce participation.

The Tax White Paper process will help ensure that our tax system is fit for purpose. It must be better aligned with the broken work patterns, which will increase with an ageing population and the new digital economy. 

As highlighted in the Re:think discussion paper, one of the key mechanisms for managing the care and support for an ageing population and promoting sustainability in retirement is our superannuation system.

Retirement income can be considered to comprise three main components in Australia. The first is the targeted age pension, which provides a safety net and is financed out of general taxation. 

The second is distributions from superannuation funds financed by employment related contributions mandated by the Superannuation Guarantee. And the third is voluntary savings, which include sums voluntarily placed in superannuation funds, the purchase of owner-occupied housing and other private savings.

Australia’s compulsory superannuation system and concessional tax arrangements were introduced, in part, to overcome the tendency of individuals to underestimate the value of deferred consumption for long periods, such as for retirement. 

The Tax White Paper review is considering how specific superannuation tax arrangements can best encourage people to make voluntary contributions to their superannuation for the social objectives set out above, noting that these tax incentives in relation to superannuation are designed to encourage people to lock away savings to help fund their future retirement.

The effectiveness of these arrangements will be considered in the Tax White Paper process.

A well-functioning superannuation system will be important in alleviating these pressures and ensuring good outcomes for retirees. We want to continue to encourage as many Australians as possible to self-fund their retirement.  That’s why the Government supports a strong and stable superannuation system.