Balancing books at all costs is not a super idea
THIS year's federal budget has proven beyond doubt that the Gillard government is more concerned about balanced budgets and wealth redistribution than encouraging Australians to save for retirement.
THIS year's federal budget has proven beyond doubt that the Gillard government is more concerned about balanced budgets and wealth redistribution than encouraging Australians to save for retirement.In what can only be described as a cynical attempt to maximise excess super contributions tax, there will only be one concessional contribution limit of $25,000 for the next two years. There is now a $25,000 limit for people under 50 and $50,000 for those 50 and older.When the new super system was introduced in 2008, there were limits of $50,000 for those under 50 and $100,000 for those 50 and older. This higher limit was always due to decrease to $50,000 from July 1 this year. As a result of the global financial crisis, the government halved the contribution limits to present levels and also stopped legislated $5000 increases in line with increases in average weekly ordinary time earnings.In the 2011 federal budget, it was announced the $50,000 limit would be retained after July 1 this year for those people 50 and older with less than $500,000 in super. With this measure now being delayed for two years, the maximum contribution for the 2013 and 2014 years for everyone will be $25,000. In 2007, the higher limit was $105,113.Having a $25,000 limit for the next two years severely restricts baby boomers from maximising their super at a time in their working life when they have the greatest capacity to do so.Another budget measure will affect only very high income earners. From July 1, individuals with income of more than $300,000 will have their super contribution taxed at 30 per cent instead of 15 per cent.The income counted in the $300,000 limit will be a person's taxable income plus any concessional super contributions. Where a person's income exceeds $300,000, due to concessional super contributions, only contributions in excess of the $300,000 will be taxed at the higher rate.Another measure included in the budget is a proposal to decrease tax payable on contributions for low income earners. How this will work now that that the lowest marginal tax rate is 19 per cent has not been made clear.Several other measures aimed directly at higher income earners were also included in the budget. They include a massive reduction in the medical expense tax offset and an income limit placed on employment termination payment tax offsets.From July 1 this year, singles who earn more than $84,000 a year, and couples earning more than $168,000 a year, will not be eligible for the medical expenses tax offset until their total net medical costs exceed $5000. Currently, the limit is $2000 for all taxpayers. In addition, the amount of tax offset available decreases to 10 per cent of the excess costs, down from 20 per cent.Under the change to the tax offset for eligible termination payments, the offset will only apply to payments that take a person's income up to $180,000.The budget confirms a tradition of Labor governments trying to balance the budget by taxing super and reducing benefits. The worry is, with Tony Abbott being opposed to super receiving tax advantages, things may get worse with a change of government.