Increasing superannuation cap could cost budget more than it saves, PBO says

Independent costings suggest the Federal Government could end up losing money out of its proposed overhaul of superannuation changes if a key measure is watered down.

key points

The Government has proposed a $500,000 limit on after-tax contributions to superannuation, in a move it says will save $500 million over four years.

The changes have upset a number of Coalition MPs, with some pushing for the $500,000 limit to be increased.

Analysis conducted by the Parliamentary Budget Office (PBO) — commissioned by the Greens before the Government's proposal was put in place — suggest any increase of that limit could see those budget savings evaporate.

The PBO document from last year modelled the impact of hypothetical caps on superannuation after-tax contributions, ranging from $500,000 to $800,000.

According to the PBO, placing a $500,000 lifetime cap — which the Government is proposing — will see an additional $165 million put into government coffers over four years.

Increasing that cap to $600,000 would see those savings disappear — and end up costing the Government $85 million over the same period.

An $800,000 cap would cost the Government $335 million.

Move could make super system 'less fair': Bandt

The PBO predicted the move would encourage more money to be channelled into superannuation from people wanting to avoid paying personal income tax, which would reduce the tax revenue collected by the Government.

"In these options [$600,000 and $800,000 caps], a net increase in superannuation funds under management would be expected, resulting in an increase in concessionally taxed superannuation earnings [and a corresponding decrease in capital income attracting personal income tax]," the PBO reported.

Greens MP Adam Bandt said any move by Treasurer Scott Morrison to lift the cap could end up hurting the budget.

"It beggars belief that the Government could put forward a measure that could cost the budget money and make the superannuation system less fair," Mr Bandt said in a statement.

"I am concerned that the Government is intent on giving even more money to the very wealthy just to appease hard-right conservative backbenchers."

Under the current system, those under 65 can put in $180,000 a year in non-concessional contributions, with the option of bringing forward three years of future payments, worth $540,000.

According to the PBO, this essentially acts as a "lifetime cap" anyway, and any increase in that cap above $540,000 will encourage people to put more money back into superannuation to avoid paying additional tax.

"[Under a $500,000 cap], the lifetime cap is lower than the three-year bring forward, so a net decrease in superannuation funds under management would be expected, resulting in a decrease in concessionally taxed superannuation earnings [and a corresponding increase in capital income attracting personal income tax]," the PBO reported.

Super overhaul would save $550m: Morrison

The analysis did not look at the impact of back-dating the measures to 2007, which is a key part of the Coalition's proposal.

Mr Morrison announced the cap in non-concessional contributions as part of an overhaul of the superannuation system, forecasting it would save $550 million, starting from July 1, 2017.

Mr Morrison has been negotiating with the backbench following concerns raised within the Coalition about aspects of the policy.

On Monday, Mr Morrison resisted rolling-back on superannuation unless savings were found from elsewhere.

"I would find it pretty hard to look my kids in the eye and tell them they have got to saddle a higher debt because someone who had a very big income wanted to pay less tax," Mr Morrison told 2GB.

The changes are yet to pass through Federal Parliament.

Source: ABC News

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