When Morrison, as treasurer, limited Super to $1.7m (together with a spouse $3.4m), that meant a 5% return earned $170K in tax-free income (for a couple) and $85K for a single, was sufficient to live on and reversed Superfunds from a tax avoidance vehicle to a genuine retirement vehicle.
All income earned up to $3.4m (couple) will be tax-free, and any income earned above $1.7m (single) and $3.4m (double) will be taxed at 15%.
At a 15% tax rate, it was still generous because the next lowest tax rate is a company tax rate at 30%.
Therefore, it was still an incentive to have more than $1.7m ($3.4m husband and wife) in Super paying 15% tax on its income earned above the threshold of $3.4m (double).
Why was this not overly generous, some might ask?
Because for those who worked hard and saved for their retirement and therefore did not become a burden on a government old age pension, and who had the ability to contribute more than the mandatory limits into Super, they should be rewarded for their sacrifice and for taking personal responsibility.
Times of old, one could put an unlimited amount into Super, and all income earned on the capital was tax-free, and stories abound, including one person who rolled over 2,000 rental properties into his SMSF, turning all rents collected into tax-free income.
Clearly, this was not in the spirit of saving for one’s retirement or giving a “tax helping hand” for those who took personal responsibility for their retirement instead of relying on the old age pension, but it became a tax avoidance vehicle.
Related Read: Why SMSF to Invest in Property
It would seem any changes to the current (fair) rules would disincentivize the lifters from creating economic activity and jobs for thousands and move Australia towards socialism.
Socialism does not work, as demonstrated throughout history because of Pareto’s Principles, where 20% of people create 80% of productivity, 80% of the jobs and pay 80% of the taxes, and 80% of the people produce 20% of the productivity.
Stalin in the 1920s took land off the “rich” 20% farmers and gave it to the 80% “poor” farmers and asked them to produce what the 20% did, and 50 million people starved to death. Mao did the same, and 100 million starved to death during the Cultural Revolution of China. North Korea (Communism and poor) versus South Korea (Capitalism and rich).
We need to get the balance right and not overtax the 20% lifters; otherwise, they will take their businesses, productivity, and taxes to another country, and we will be the poorer for our “tall poppy syndrome.”
