When falling commodity prices bite, the government will seek soft targets to raise revenue, writes David Potts.
It's no secret the government is about to get stuck into super again in the interests of rescuing its shrinking surplus.
One reason there's a problem is that falling commodity prices have, well, undermined the mining tax that was supposed to pay for higher compulsory super - although levied on bosses it costs the budget because the contributions are taxed at 15 per cent rather than marginal rates - as well as the $500 assistance to low-income earners.
Not that it was ever going to raise anything after a nip and tuck by the miners. Still, a start would be dropping - or "not proceeding with", as Wayne Swan would say - the higher compulsory contribution.
After all, there is form reversing budget decisions before they ever happen. Remember how interest earned was to be tax-free two, or was it three, budgets ago?
Too easy. Now it's your nest egg's turn. The tax on contributions of those earning more than $300,000 was doubled or, in the memorable words of Bill Shorten, "the tax concession on their contributions will be reduced".
That's one way of putting it I suppose. Better bear that in mind about any super changes in the mid-year budget review. What we would call doubling a tax is "halving a concession" to the government.
Before it does anything rash, though, it might care to go back to the Henry Tax Review, even if a certain K.Rudd commissioned it, where there was a clever suggestion of more super for everybody at less cost. Employer contributions would count as part of your income, in return for the 15 per cent tax being dumped.
So more money would go into your super because it's not taxed any more and the government gets more revenue.
Oh, and your take-home pay would drop. But hang on, that's going to happen anyway.
Why do you think the Reserve Bank cut interest rates?
Lower incomes - or, same difference, higher prices if the dollar drops - are the inevitable consequence of tumbling commodity prices.
At least with Henry's idea there'd be no more Treasury tinkering.
Hands up if you know the difference between a restricted, non-preserved amount and an unrestricted preserved amount?
I'd tell you - only I seem to have suddenly run out of space.
Where was I? Oh yes, don't think super is the be-all and end-all of tax breaks in retirement. Keep this under your hat, but there's a huge tax break outside super thanks to the last budget. I still can't believe how it slipped through.
The tax-free threshold on ordinary income of $20,542, counting rebates, jumps to $32,279 (or up to $57,948 for a couple) with the new senior Australians and pensioners tax offset once you reach pension age.
So there's a good excuse for, uh, not proceeding with super.
Frequently Asked Questions about this Article…
Why might the government target superannuation in the next budget to raise revenue?
The article says falling commodity prices have shrunk the budget surplus and undermined the mining tax that was supposed to help pay for higher compulsory super. That makes superannuation an attractive ‘soft target’ for the government to seek extra revenue in mid‑year reviews.
What recent change was made to the tax on super contributions for very high earners?
According to the article, the tax concession on contributions for people earning more than $300,000 was effectively halved — described as doubling the tax on those contributions or, in political terms, ‘reducing the tax concession’.
How did the mining tax and commodity price slump affect plans to fund higher compulsory super?
The piece explains that tumbling commodity prices weakened the mining tax receipts that were intended to fund higher compulsory super. Miners also watered down the tax, so the funding shortfall now pressures other revenue sources, like changes to super.
What did the Henry Tax Review propose about employer contributions and superannuation tax?
The Henry Review suggested counting employer super contributions as part of an employee’s income in return for removing the 15% tax on those contributions. The article says that would put more money into super (because it wouldn’t be taxed at 15%) while increasing government revenue — but your take‑home pay would fall.
Could proposed changes to super reduce my take‑home pay?
Yes. The article notes that some proposals (like treating employer contributions as income) would shift taxation and reduce take‑home pay even though more would go into your superannuation account.
How are Reserve Bank interest‑rate cuts tied to falling commodity prices and household incomes?
The article links the RBA’s rate cuts to the flow‑on effects of tumbling commodity prices: lower incomes, or alternatively higher domestic prices if the dollar weakens. Those economic pressures make rate cuts more likely.
Is there a significant tax break for seniors and pensioners outside of super?
Yes. The article highlights a large tax break from the last budget: the tax‑free threshold on ordinary income rises from $20,542 to $32,279 (and can be up to $57,948 for a couple) once you reach pension age thanks to the senior Australians and pensioners tax offset.
What's the difference between a restricted, non‑preserved amount and an unrestricted preserved amount in super?
The article raises that question but doesn’t explain the difference — the author literally ran out of space. For a clear, personalised explanation you should check your fund’s documentation or speak with a financial adviser or super provider.
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