Super serves as budget's age-old target
This year's federal budget has proved 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 proved 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 contribution limit for people under 50 and a limit of $50,000 for those 50 and older.When the new super system was introduced in 2008, there were two limits - $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, 2012.As a result of the global financial crisis the Labor government halved the contribution limits to the present levels and also stopped legislated $5000 increases in line with increases in average weekly ordinary time earnings.In last year's budget it was announced that the $50,000 limit would be retained after July 1, 2012 for those 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, before the new super system started, 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 only affect very high-income earners. From July 1, individuals with income of greater than $300,000 will have their super contribution taxed at 30 per cent instead of the present rate 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 the $300,000 limit because of concessional super contributions, only contributions in excess of the $300,000 will be taxed at the higher rate.This increase in tax on super contributions for high-income earners has been made under the guise of making the system fairer. Another measure included in the budget papers is a proposal to decrease tax payable on contributions for low-income earners. How this will work now 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, 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. The limit now 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 for everyone else.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. This means the maximum offset will be 22 per cent of a lump sum received.This week's federal budget confirms a long tradition of Labor governments trying to balance the budget by taxing super and reducing benefits. The worry is that with the Coalition leader, Tony Abbott, being opposed to super receiving tax advantages, things may get worse if there is a change of government.