The introduction of a lifetime cap on superannuation contributions would not save the federal government much money and could even be a drain on the budget if poorly designed, according to new figures from the parliamentary budget office (PBO).
The government has indicated all options remain on the table for tax reform. Changing the limits on voluntary contributions to retirement accounts is reported to be one idea being considered.
A paper by the independent PBO – and commissioned by the Greens – says individuals aged under 65 are allowed to contribute up to $540,000 into their superannuation accounts over a three-year period.
Most of these post-tax contributions are made by people who are preparing to retire and want to move their assets into super where they benefit from tax-free earnings.
The Greens asked the PBO to estimate the cost of replacing the existing cap rules with a lifetime cap on voluntary contributions of $500,000, $600,000 or $800,000.
The first option, a $500,000 cap, would boost the budget bottom line by $165m over four years.
But the second and third options involving higher caps would cost the budget $85m and $335m respectively, according to the estimates. This higher cost is because the extra contributions from one-off contributors would be expected to drive an increase in super funds under management.
Income earned in superannuation funds are taxed at concessional rates. The PBO suggested the increase in funds under management could be accompanied by “a corresponding decrease in capital income attracting personal income tax”.
The Greens MP Adam Bandt said the figures showed a lifetime cap was “unlikely to generate the kind of savings we need to address the growing cost of unfair super tax breaks”.
“We need to do much more to end the unfairness in our super system to make sure it properly looks after people in their retirement,” he said.
“To raise the revenue we need to properly fund our schools, hospitals and services, the government will need far more serious reform.”
Bandt instead called on the government to adopt the Greens’ previously announced proposal to apply progressive tax rates to super contributions, saying that would raise $10bn over four years.
The proposals are the latest in a series to be floated by political parties, economists and industry groups with a focus on overhauling superannuation tax concessions.
On Friday, Industry Super Australia unveiled a plan to overcome the gender pay gap in super savings, including government “seed” payments early in a low-income earner’s working life that would grow over decades of compounding earnings.
Labor has previously announced a policy to curb tax concessions for annual earnings above $75,000 from super accounts in the pension phase. Labor’s package, announced in April, was estimated to improve the budget bottom line by about $14bn over the next decade.
The Australian newspaper reported earlier this month that the Treasury was examining a lifetime cap on contributions. Deloitte has proposed one set at $580,000. The Association of Superannuation Funds of Australia has previously proposed a $1m lifetime cap on non-concessional contributions.
The government has sought to keep its options open. The assistant treasurer, Kelly O’Dwyer, told Sky News the government was “looking at superannuation overall because we have to make the whole system work [and] we need to be very clear on our objectives for superannuation”.
The PBO warned of uncertainty about its lifetime cap costings, pointing to limited data on superannuation contributions across the life cycle and people changing their behaviour after policy changes.
