Not for Profit sector Parliament and Politics – 13 May 2016: The superannuation debate
The Federal Government’s superannuation changes announced in the Budget less than two weeks ago have emerged as one of the key election campaign issues in the first week of the campaign.
The Not for Profit sector has a strong interest in superannuation and superannuation reform, and this week’s Inside Publishers Government Affairs Briefing is devoted to the superannuation debate.
A large part of the political debate about superannuation since the Budget has been about the details of the Government’s proposed changes and whether they are ‘retrospective’.
The Not for Profit sector has for some time taken a strong interest in superannuation tax reform generally as a pathway to a more equitable tax system and to better Government provision of services for those most in need.
A bit of history
It is worth reprising how the superannuation reform debate got to here.
In March 2015 the then Abbott Government announced the start of a Tax Reform process intended to produce a Tax Reform Green Paper by the end of 2015, to be folowed by a White (final) Paper. As part of the process the Government called for submissions on Tax Reform Many organisations and individuals produced submissions to the Tax Reform consultation.
(The change in Liberal leadership in September 2015 produced major changes in the tax reform process. The Green Paper was initially delayed and then killed off, proposals for an increase in GST were floated and killed off and a proposal for a states’ role in income tax were debated before being laid to rest – at least for the time being.)
The two major parties’ proposals on superannuation tax changes are the outcome of this process.
What happens next
Many of the changes proposed by both the Coalition and Labor require legislation – which is only likely to be passed if the respective party is elected at the 2 July election. It will also depend on the governing party controlling both houses of parliament.
What the Coalition is proposing
- Introduce a $1.6 million cap on the total amount of superannuation that can be transferred into retirement stage accounts; earnings on amounts above $1.6 million will be taxed at (the still concessional) rate of 15 per cent. This amount is presently uncapped;
- People with incomes (including superannuation) greater than $250,000 will pay 30 per cent tax on their concessional superannuation contributions, up from 15 per cent. This lowers the threshold for the 30 per cent tax rate from $300,000;
- Lower the concessional contribution caps so that individuals can contribute up to $25,000 a year pre-tax to superannuation. These caps are currently $30,000 for those under age 50 and $35,000 for those aged 50 and over; and
- Introduce a lifetime cap of $500,000 on non-concessional (after-tax) contributions that can be made to superannuation. This replaces the existing yearly cap of $180,000 between 65 and 75 years of age and a cap of $540,000 over a three-year period for members under 65
- Introduce a Low Income Superannuation Tax Offset to replace the Low Income Superannuation Contribution (abolished by the Abbott Government) when it ends on 30 June 2017, which will reduce the tax rate on superannuation contributions to zero for low income earners;
- allow all Australians (under age 75) to claim a tax deduction for personal superannuation contributions made to an eligible fund, irrespective of their employment arrangements;
- allow the rollover of unused concessional caps for individuals with superannuation balances less than $500,000, to allow those with interrupted work arrangements to make ‘catch-up’ superannuation contributions;
- encourage partners to make contributions to their low-income spouses’ superannuation by extending the eligibility for individuals to claim a tax offset to these contributions; and
- remove the current regulations that restrict people aged 65 to 74 from making contributions to their superannuation, to allow those who are no longer working to top up their retirement savings from sources not necessarily available to them before retirement.
The Government said the superannuation changes will deliver savings of $5.69 billion over the four years of the Forward Estimates, offset by increased spending on increased superannuation concessions of $3.09 billion – a net $2.6 billion in savings over four years.
What Labor is proposing
Under the changes which Labor announced in April 2015:
- From July 1, 2017, once a person is retired and drawing on their super, the first $75,000 in super income will remain tax free but earnings above that would be taxed at the concessional rate of 15 per cent. This change would not affect eligibility for a partial government pension and would affect about 60,000 retirees who have $1.5 million or more in their super accounts.
- Any capital gains on assets held in funds before the new laws apply would be exempt from the tax. But capital gains realised after July 1, 2017, and which exceed $75,000 would be taxed.
- Defined benefits schemes would also lose a 10 per cent tax cut on earnings over $75,000.
- Reduce from $300,000 to $250,000 the income threshold at which the tax on a person's super contributions increases from 15 per cent to 30 per cent. This would affect about 110,000 people who earn between $250,000 and $300,000, who will have to pay 30 per cent on earnings.
- Mr Shorten promised that if elected Labor would make no other changes to the tax treatment of superannuation.
The reintroduction of tax on super income, which was abolished by the Howard government in the 2006 budget, would raise about $1.4 billion a year and $9.2 billion over a decade. The lowering of the High Income Superannuation Charge threshold would raise $500 million a year or $5.1 billion over the decade.