Hi Nicholas, I am thoroughly enjoying your newsletter. Thanks you. I am wondering if you would be able to touch on your thoughts on the unrealised capital gains tax on superannuation accounts in a future newsletter please? Interested in your measured view :)
I haven't given the matter a great deal of thought so Express myself tentatively and also just by working through some basic principles.
First the taxing of capital gains takes us into an imperfect world. On the one hand we would like to tax the acquisition of wealth when it occurs because we tax income when it is earned. On the other hand, taxing wealth as it is marked to market (or valued in the market) introduces range of inefficiencies because assets cannot be quickly liquidated and often cannot be liquidated in the right proportions to efficiently pay the tax.
Given that, my instinct is to go with basic principles of income distribution. The superannuation system and in particular the flat tax that dominates it is one of the great policy scandals of the Labor Governments that have built it. It is remarkable to me that it is still held up as a fine Labor achievement by Labor stalwarts.
But putting a flat tax on such a large part of Australian)'s wealth is an awful piece of policy. So if the original sin of the flat tax cannot be corrected directly at source, we should introduce additional measures to tax those on higher balances more and in that spirit I endorse the changes that are being made. Further I don't see that there is necessarily a way to decide on principle whether wealth should be taxed on accrual or on realisation for reasons outlined above. Practical details matter.
And for that reason, I'm provisionally okay with what has been done.
Hi Nicholas, I am thoroughly enjoying your newsletter. Thanks you. I am wondering if you would be able to touch on your thoughts on the unrealised capital gains tax on superannuation accounts in a future newsletter please? Interested in your measured view :)
Thanks Ryan,
I haven't given the matter a great deal of thought so Express myself tentatively and also just by working through some basic principles.
First the taxing of capital gains takes us into an imperfect world. On the one hand we would like to tax the acquisition of wealth when it occurs because we tax income when it is earned. On the other hand, taxing wealth as it is marked to market (or valued in the market) introduces range of inefficiencies because assets cannot be quickly liquidated and often cannot be liquidated in the right proportions to efficiently pay the tax.
Given that, my instinct is to go with basic principles of income distribution. The superannuation system and in particular the flat tax that dominates it is one of the great policy scandals of the Labor Governments that have built it. It is remarkable to me that it is still held up as a fine Labor achievement by Labor stalwarts.
In Broad outline, the idea of a compulsory saving system may be a good idea (though see Cameron Murray for a different view- https://www.fresheconomicthinking.com/p/mega-post-on-why-superannuation-is).
But putting a flat tax on such a large part of Australian)'s wealth is an awful piece of policy. So if the original sin of the flat tax cannot be corrected directly at source, we should introduce additional measures to tax those on higher balances more and in that spirit I endorse the changes that are being made. Further I don't see that there is necessarily a way to decide on principle whether wealth should be taxed on accrual or on realisation for reasons outlined above. Practical details matter.
And for that reason, I'm provisionally okay with what has been done.
My views are broadly in line with more informed views of Chris Richardson - https://www.linkedin.com/posts/chris-richardson-0086441b6_that-3m-super-tax-the-many-fails-in-australia-activity-7328962692478652417-LT8d.
and Brendan Coates - https://www.linkedin.com/posts/brendan-coates-9937696_superannuation-in-australia-has-become-a-activity-7330502962072473600--cka - both expressed on LinkedIn
Thanks for taking the time to respond. And so quickly!
These are great insights and thanks for linking these articles which are also interesting reads.
cheers,
Ryan