Moral Dilemmas on Supertax
On 25 May 1988 Paul Keating, then Federal Treasurer, introduced a 15% front-end tax on superannuation contributions and investment income. Now 18 years later, the first wave baby boomers have on average $104,186 saved in super rather than $129,436. By age 65 their shortfall due to this tax (in today's dollars) will become $51,844. You can use the Numbers View (second last column) of the Retirement Simulator to estimate what these numbers might be for yourself.
Enter Federal Treasurer Costello in 2005. He wants the baby boomers to keep on working longer. He also set up the Future Fund to make public servants and politicians feel relaxed and comfortable about their unfunded liability for over generous promised superannuation (now $149 billion - check Table B.20 in the RBA Bulletin). And what goes into the Future Fund? - future budget surplus - in other words, keeping income taxes higher than necessary.
Enter Nick Minchin, federal Finance Minister last week telling generation Y at the Young Liberal's convention that the 15% front-end tax on super could be abolished. FinDem calculates this would save them each $437,161 by the time they reach 65 in today's dollars. But there's dissention in the government ranks on whether this will happen in 2006. Meanwhile the baby boomers need to keep working on to make up for Keating's front-end tax, paying extra income tax for Costello's Future Fund surplus and saving 10% more to cover GST on retirement expenditure. A few moral dilemmas here.
Posted Saturday, 28 January 2006
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