Accounting management assignment on: Sustainability issues in Australia
Q?? Critically appraise the current system of taxation of superannuation contributions, fund earnings and benefits in Australia; emphasizing the economic, equity and fiscal sustainability issues involved.
Introduction
The model of the superannuation in the Australia includes government pension funds, mandatory contributory savings of the superannuation and voluntary savings of the superannuation which are called as 3 pillars of the superannuation. The model of the superannuation is proposed to move the aging population burden away from the government with the stress on the self- fund retirement as compared to the pension arrangements of the public. Until the current changes in the superannuation taxation under the system of the Australia, tax can be gathered on the superannuation earnings, benefits and contributions paid through the fund of the superannuation on the retirement (Piggott, 2004). Interestingly, regardless of the demands of the industry to eliminate taxation on contributions of the superannuation that could closely coordinate the system of the Australia with that of same nations, the changes in the superannuation taxation shall view the removal of the tax paid on the benefits of the superannuation.
It is very clear that 1st pillar of the superannuation system of the Australia considered as old aged pension. This is referred as publicly offered social security gain that is financed by federal government. The old aged pension shows the large amount of the most individual’s retirement revenue in Australia (Price, 1994). It is observed that 2nd pillar of the superannuation system of the Australia that involves savings of private retirement and regulated by the SG. On the other side, 3rd pillar comprises of voluntary retirement and superannuation savings. Various employees and employers offer voluntarily to the fund of the superannuation in addition to necessary level offered by SG. 
Superannuation and taxation in Australia
The taxation and Superannuation in Australia considered as second & third pillar of superannuation system which offer rise to opportunities of taxing when contributing to the fund, when incomes are earned on funds invested and benefits are rewarded out of fund (James, 2001). It is noted that, Australia was the country to levy tax on the superannuation at each of the three points, when changes to taxation of superannuation take place from 1Jul 2007 and taxation on the superannuation advantages shall be removed for individuals who age 60 and above 60.
It is very clear that taxation terms on the superannuation contribution, when the employer gives the amount to the fund of the superannuation on the absence of the employee then the sum is tax deductible for employee and come under the age based upon the contribution limit. For workers who are less than 35, the deduction amount for the tax is $A38, 702 and for workers who are 50 and more than 50 the deduction limit is $A95, 980. In general, the Government of the Australia taxes the contributions of the superannuation at 15% p.a. In summation, to 1 July 2005, the surcharge was also applicable to the contributions of the superannuation where the income of the employee is more than $94, 691. The surcharge on the superannuation has been abolished with the change came into effect from 2005-2006 fiscal year (Price, 1994). Earnings on sums given to the pension funds of the Australia are also subjected to the tax at the 15%. It is very clear that, due to usage of the imputation system to few investments, the effective rate of the tax is usually presumed to be incurred on earnings of the fund (Laurence, 2004).
In Australia, the benefits of the superannuation might be taken as pension or lump sum or mixture of two. Prior changes in the Federal Budget of 2006-07, if the benefit of the superannuation was treated as lump sum then it was treated to rates of concessional tax to the lump sum of 588, 056 for 2004-05 income year. In the effort to simplify and streamline the superannuation taxation in region of the Australia, the Budget of the Federal has suggested to remove RBLs to offer people higher flexibility (Price, 1994).The superannuation system of the Australia positions trustees in the basic function of coordinating superannuation assets and manage agent and principal problems which survive in industry. The superannuation system of the Australia refer only two issues such as member fund choice and transferability of the accumulated balances to view how they could enhance the capability of the members to increase the benefits of the retirement and the productivity of system. The compulsory involvements to the fund of the superannuation are created to privately manage the funds which are subjected to least regulation. The government of the Commonwealth clearly disclaims any accountability of the result of superannuation private management even there are some national objectives which are embodied in the policy of the superannuation. The superannuation system of the Australia has become the individual system for the individual involvements and incomes on those involvements which find out the terminal advantage received (Laurence, 2004).
The regulation of the Fund of the Superannuation is the accountability of the ARPA, the body generated from the suggestions of Report of the Wallis Committee. The regulation is significantly light without any restrictions of the portfolio except to make sure arm length transaction. In general, the funds of the superannuation are arranged as the trustees and the accountability for the funds. In summation to particular accountabilities in the regulatory regime of the superannuation, trustees have law duties and other legislative accountabilities. It is significant to find out the objectives of the regulation and take the objectives of the regulation for protecting the individual contributor’s interests and to make sure that the terminal excellence of the benefit of the superannuation is enhanced (Pearse, 2001). There is significant difference among the two kinds of funds: explained benefit funds and explained contribution funds. The members of the explained benefit funds have given no any promises to the ending value of the retirement benefit, the superannuation on endeavors basis, effort to increase the benefit. On other side, the members of the explained benefit funds are offered an explicit guarantee or promise on which members offer the defined advantage in terms of final salary. In general, Government has offered schemes of defined benefit to their workers and big corporations to its managerial workers. The benefits payment is fulfilled on the emerging basis of the cost.
The Benefits of the Superannuation and taxation in Australia
Obligatory award related superannuation under which 3% of salaries and wages are given to the fund mentioned in award. The Guarantee on the Superannuation under which workers are needed to offer payments of the given proportion of salaries and wages to the conforming fund of the superannuation according to the choice of the employers. Occupational schemes of the Superannuation that might be mandatory for workers under which workers might pay the sum higher than the Superannuation Guarantee to the conforming fund of the choice of the employers and that might be evaluated by the given contribution from workers (Gollier, 2000). DIY schemes are self managed Funds regulated by the Taxation Office of the Australia. The schemes of the personal superannuation, not related to the occupational schemes of the superannuation in the fund of the retail. The government offered annuity, the pension according to the age carries on to be the main income source hold for retired individuals in Australia, and over 67% of the individuals received the part or full pension. The ratio of the retired individuals on the pension of the age is not likely to reduce in upcoming time due to least participation rate of the workforce age 45 and above. Recently, 38% of the individuals who are between 55 and 64 considered in the income support of Commonwealth Government.
The main demographic change experiences Australians in upcoming decades with further growth in retired individuals as compared to the people who recently comes under the working age. After the period of the war, the baby boom considered as the significant reason for the aging population, medical advances and preferences of the lifestyle show that people of the Australia are gradually retiring younger people and surviving longer (Gallery, 2003).
In country Australia, the reaction to the obstacle of the ageing population and the incapability of the system of the social security to hold the population of the aging considered as Superannuation scheme of the Guarantee. The SG needs employers to offer the minimum superannuation support for every employee into the conforming superannuation fund. The industry of the superannuation in Australia has formed dramatically with approximately $700 billion investment in assets recently under the management and approximately 90percent of the employees comes under the system of the superannuation. There is something which may be done to reduce the agent and principal problems and to create the regime of the trustee more reactive to the member’s requirements (Barrett & Chapman, 2000). This needs easily the change of the policy to permit for choice of the member of the fund and full transferability of the accumulated sums besides the lines recommended by the Committee of the Wallis. The initiation of such measures shall bring few range of the market discipline to the regime of the superannuation and has been graded captive markets creating quasi rents to the members. Fund managers and Trustees shall react to the requirements of the member when failure views the shrinkage of remuneration and business. The costs and difficulties of the measures are overstated by the opponents who are viewing to safeguard the vested interest and who reject the member’s capacity to create informed choices (Knox, 1996).
The economic implications for the required superannuation are two like moral hazard and myopia. Myopia receives when agents are willing to offer for the retirement postpone due to short horizon of the time and when agents obtain the position that they are ready to store for the retirement if it is late. The problem of the moral hazard prevails when agents are capable of offering for the retirement and don’t do so because agents support the principle that the society shall not permit them to survive in the retirement (James, 2001). Both factors are not sufficient to evaluate the case that agents cannot create the rational decision about the favored fund for the contribution of the superannuation. Under recent compositions, it is not advisable for superannuation members to get knowledge about the superannuation because there is no as such benefit in doing so. For most Workers in Australia, superannuation suggests small interest and take least time when workers may view the deduction for the superannuation in the pay-slip and might evaluate the yearly return from the superannuation fund even they will obtain little advantage and happiness from doing so.
Conclusion
The mandatory Superannuation Guarantee has made huge changes to the superannuation sector of the Australia. The employee’s coverage under the system of the New Superannuation is very high. The prevention of the benefits for the retirement has been individualized and most workers become the members of the accumulation fund and defined contribution which shows that members suffer the risk of the investment. Overall, the system of the New Superannuation is non efficient, high cost and low return. The inefficiency prevails due to insufficient competition and survival of the severe problems of the principal agent in specific trustees doesn’t perform in the interests of the members. The concentration of the policies of the Australia Government has been on enhancing measures which advance the self funding of retires people to make sure that the income system of the retirement in Australia is feasible in long period. The Government of the Australia has supported the fact that the superannuation taxation was not at all intended as revenue source. Reform recommendations concentrate on the minimization of taxes on the contributions of the superannuation and earnings of the fund and currently the package of the reform was passed that comprised tax reduction for high earners of the income and co-contributions of superannuation for earners of low –income.
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