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7 radical financial steps the government needs to take

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Now I know that governments these days, from both sides of parliament, seem to be unable to take some simple steps to set up Australia to be prosperous over the long term.

I don’t expect any government to really implement all of these suggestions, but moving towards these goals would be a positive step forward for the country as a whole, in my opinion, and generate significant savings as well as increase government revenue…

Ban SMSFs from borrowing

Allow Self-managed super funds (SMSFs) to own property yes, absolutely. But no borrowing to buy investment property, or any other assets for that matter.

Ban negative gearing

A huge call I know, and most likely to upset many readers. But here’s why. It cost taxpayers $14 billion in 2012, as more than 1.2 million Australians own a negatively geared property. That means the losses they make on their property investment can be deducted from their taxable income. It’s also biased to the wealthy – 2% of income earners claim half of all capital gains.

Ban lump sum payments of super

Instead, make retirees take their super as regular payments (annuities), and tax the proceeds at a nominal amount, say 15%, or a proportional amount, similar to outside super.

Force banks to hive-off their superannuation and wealth management businesses

Clearly, there is far too much incentive for financial planners – most of whom work for the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corp (ASX: WBC) as well as AMP Limited (ASX: AMP), to sell their employers’ products and give conflicted advice.

We don’t allow big pharmaceuticals companies to own pharmacies, so why should banks own wealth management and superannuation funds?

Super funds to tender for the right to manage the default superannuation product

In an effort to cut the costs of super and stop the gravy train of fees from the numerous industries set up to profit from our $2 trillion superannuation industry, super funds (both retail and industry funds) should tender to manage the default super option.

Ban fees calculated as a percentage of assets

To cut the fees investors pay to fund managers, fees calculated as a percentage of assets should be banned and replaced with a fee-for-service. Why should it cost 10 times as much to manage $1 million as it does $100,000?

Setup a sovereign wealth fund

We may have already missed the windfall opportunity from the mining boom to collect a significant amount of wealth, but there’s no time like the present to set up a sovereign wealth fund to benefit future generations such as the one established by Norway. Using proceeds from off-shore oil over 25 years, the fund is now worth more than US$1 trillion. The government is limited what it can take from the fund, so it continues to grow.

Ok, yes there may be some exceptions to each of these steps. And yes, some of these will negatively affect me. But I want Australia to be a prosperous nation, where taxes are fairer and certain sectors don’t benefit at the expense of others. If I have to bear some of that pain to see that vision come true then I’m 100% willing.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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