AUSTRALIA - Doubts have been raised over the sustainability of the Australian government's plans to simplify superannuation law by scrapping exit tax on taxed pension funds.
The Australian government first announced plans to end tax on superannuation benefits for the over-60s back in May.
While the general World Bank pensions model is one of taxing only at the benefits stage, Australia is currently the only country in the world that taxes superannuation at every stage of the cycle: contribution, investment earnings and benefits.
In the paper 'A Plan to Simplify and Streamline Superannuation' - released as part of the 2006-07 budget - aimed to change this situation and restructure a system that had been flagged up by the Regulation Taskforce as being overly complicated.
Other proposals suggested in the paper included introducing "greater flexibility" on the drawing down of benefits, abolishing reasonable benefit limits and age-based contribution limits and introducing measures to help the self-employed, including government co-contribution for certain personal contributions.
The government announced in May that it would undertake an "extensive consultation process on the proposals", the results of which treasurer Peter Costello has now described as "overwhelmingly positive".
He said: "The plan has been endorsed in all of its key principals. In fact, I am not aware of anyone who has opposed it, and to date, although they have not announced a position, the opposition has not even opposed it."
However, doubts have been raised that the proposed changes were both financially unsustainable in the long run and biased towards the baby boomer generation who formed the backbone of the Liberal Party's political support.
David Harris, Australian national and managing director of TOR Financial Consulting Ltd, stated that, as part of generation X (born between 1967 and 1972) he was questioning whether the reforms would still be in place when he retired.
He claimed they were fiscally expensive and mostly of benefit to the baby boomer generation which had already seen a massive increase in equity thanks to the rapid climb of housing prices over the last couple of decades.
He suggested the government might have been better placed to consider younger generations of Australians and find ways to encourage them to save.
The changes to superannuation are due to enter into effectivity from July 2007.
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