IN THE 2011 Reader's Digest trust survey politicians came in with a ranking of 44, only slightly ahead of last-placed telemarketers ranked 45. If you want reasons why politicians are not trusted you need look no further than the new health insurance rebate means test and superannuation.
After backflipping on not introducing a carbon tax, the Gillard government has reversed its position on means testing the health insurance rebate. In essence, the means testing of the rebate is an increase in taxes on high and middle-income earners. Insult is added to financial injury when you factor in the extra tax middle- and high-income earners pay if they don't take out health insurance.
Under the Medicare levy surcharge tax system, a single person earning more than $77,000, and a family with income of more than $154,000, pay an extra 1 per cent tax if they don't have health insurance. In reality, the health rebate means test is another tax disguised as a social equity initiative.
When it comes to super the examples of dishonesty are numerous. Despite Kevin Rudd saying after being elected he would not change super one bit, it did not take long for changes to be made. Another example is the Gillard government's passing of legislation to increase the superannuation guarantee charge (SGC) contribution rate from 9 to 12 per cent.
Allegedly this is being done to help improve the retirement savings of working Australians. If the Gillard government was serious about maximising super benefits of employees it would fix a problem with the way the SGC system works. Under the current regime an employer is required to make a super contribution of 9 per cent of an employee's ordinary times earnings. This means an employer must pay a 9 per cent super contribution on the wage or salary paid to an employee, but not on amounts paid for overtime.
Where an employee decides to maximise their super retirement benefit by sacrificing salary or wages as an extra super contribution, many employers use this to reduce the amount of SGC contribution they make because the amount paid to the employee is reduced.
For example, a person on $60,000 a year would normally have their employer make a compulsory super contribution on their behalf of $5400. Under the current regime, for every $1000 they sacrifice as an extra super contribution, their employer can cut the compulsory super contribution by $90.
This means someone who wanted to boost their retirement funds by salary sacrificing $10,000 a year does so at the cost of their employer super contribution reducing by $900. Once the SGC increases to 12 per cent the employee will have reduced the employer's contribution by $1200.
A government spokesman said they "do not plan to introduce legislation to force employers to contribute the superannuation guarantee charge on the pre-salary sacrifice employment basis".
If Australia's workers were hoping the opposition or Greens were interested in fixing this they will be disappointed. The shadow minister for superannuation, Mathias Cormann, was contacted for a comment. On both occasions no response was received. The Greens are instead focused on increasing the tax on super contributions for middle- and high-income earners.
Frequently Asked Questions about this Article…
What is the health insurance rebate means test and how does it affect middle- and high-income earners?
The health insurance rebate means test introduced by the Gillard government reduces the private health insurance rebate for higher-earning households. The article says this effectively acts as a tax increase on middle- and high-income earners, and when combined with other measures (like the Medicare levy surcharge) it increases the cost of not holding private health cover.
How does the Medicare levy surcharge work and what income thresholds trigger the extra tax?
Under the Medicare levy surcharge system described in the article, a single person earning more than $77,000 and a family with income above $154,000 pay an extra 1% tax if they do not have private health insurance. The surcharge is an additional cost aimed at encouraging private health cover for higher earners.
What change did the Gillard government make to the superannuation guarantee (SGC)?
The Gillard government passed legislation to increase the compulsory superannuation guarantee (SGC) contribution rate from 9% to 12%. The change was presented as a way to improve retirement savings for working Australians.
Why might salary sacrificing not deliver the extra employer super benefit it appears to?
Because the SGC is calculated on an employee's ordinary times earnings (not on overtime or pre-salary-sacrifice amounts), some employers reduce their compulsory SGC contributions when an employee salary sacrifices. The article gives an example: on a $60,000 salary the employer's 9% contribution is $5,400; for every $1,000 sacrificed, the employer can cut the compulsory contribution by $90, so sacrificing $10,000 could reduce the employer contribution by $900 (and would be $1,200 when SGC rises to 12%).
Will the government force employers to calculate SGC on pre–salary-sacrifice wages?
According to a government spokesman quoted in the article, they 'do not plan to introduce legislation to force employers to contribute the superannuation guarantee charge on the pre-salary sacrifice employment basis.' In other words, there was no plan to require employers to base SGC on wages before salary sacrifice.
Did political promises on superannuation affect public trust?
Yes. The article points to examples that have damaged trust: Kevin Rudd reportedly said after being elected he would not change superannuation, yet changes were later made. Such reversals, along with other policy shifts, are cited as reasons for declining trust in politicians on retirement and tax issues.
Are opposition parties or the Greens pushing to fix the salary-sacrifice and SGC issue?
The article reports that the opposition shadow minister for superannuation, Mathias Cormann, did not respond to requests for comment. It also says the Greens are focused on increasing the tax on super contributions for middle- and high-income earners rather than fixing the employer contribution calculation basis.
What should everyday investors take away from these policy changes on health rebates and super?
Everyday investors should be aware that means testing of the health insurance rebate and the Medicare levy surcharge can raise costs for middle- and high-income households, and that increases in the SGC may not fully boost retirement savings if salary sacrifice leads employers to reduce compulsory contributions. The article highlights the importance of understanding how policy design (what counts as ordinary earnings) and political decisions can affect take-home pay and super outcomes.
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