After all the angst over superannuation, Labor has produced some minor changes targeted at the very wealthy that will marginally address the inequity of current tax arrangements but do little to curb the runaway cost of superannuation to the budget.
The changes — announced by Treasurer Wayne Swan and Financial Services Minister Bill Shorten this morning after extended criticism from the national newspapers and the former Rudd camp on the backbench — will save the government around $900 million over the next four years. The changes will, the government says, save about $10 billion over the next decade (on top of last year’s tightening of tax concessions on super contributions of very high income earners).
Over that same period, overall super tax concessions are likely to cost the budget around $350-400 billion. The key changes are:
- Superannuation earnings over $100,000 a year will be taxed at 15%, rather than being tax free — a change affecting those with over $2 million in superannuation assets, or about 16,000 people, according to government estimates. That will yield $350 million over the forward estimates.
- Changes to the deeming rules under the pension income test that currently differentiate superannuation-based and other sources of income, saving $158 million over the forward estimates.
- Changes to the higher concessional contributions cap rules for those nearing retirement, which will save $365 million over the forward estimates.
- An extension of the “lost super” rules introduced in MYEFO last year that will save a further $123 million over the forward estimates.
- The application of the >$100,000 earnings reform to defined benefit funds, making sure politicians and older generations of public servants who remain in defined benefit funds will also be taxed for earnings above $100,000.
The changes will slightly rebalance the inequity of current super arrangements that see the very highest earners benefitting the most from superannuation tax concessions, although the new arrangements will, overall, continue to mean taxpayers will contribute generously to the retirement of the very well-off. And superannuation tax concessions will continue to be, easily, the biggest single expenditure item in the federal budget, even after the government has shifted $10 billion back into consolidated revenue over a decade.
Moreover, these reforms are entirely aspirational and may well never happen: it’s unlikely there is enough time to legislate the reforms before the election, meaning an Abbott government, if elected, would determine whether they ultimately go ahead (unpassed bills lapse with the calling of an election, necessitating reintroduction).
For such a minor, though sensible, reform, the government has again had to endure a period of perceived crisis. This has partly been confected by the national newspapers running a campaign to protect their high-income readers from super changes, and exploited by aggrieved Rudd supporters like Simon Crean who are eager to attack the government at every opportunity. But yet again, the government has failed to do the simple stuff — explain what the problem was to voters first, before talking about solutions. The Coalition, naturally, readily exploited this failing, although its use of rhetoric about “class war” was only borrowed from Labor’s own internal critics.
If Labor is singularly inept at the politicking that is part and parcel of basic reform, there remain more serious problems on the Coalition side.
In responding to the announcement, Tony Abbott declared “it shows that this is a government which is prepared to tax the people to fund its own spending”. Quite how Abbott thinks governments fund their spending apart from taxing people isn’t clear. He then claimed there were “shades of Cyprus” about it. Perhaps Abbott seriously thinks slightly reducing the over-generous tax concessions on earnings from retirement savings is equivalent to an arbitrary extra-national raid on actual savings to fund a bank bailout. Hopefully he understands that it is not.
That this man is likely to be prime minister on September 15 is deeply worrying from an economic perspective. For the good of all of us, we can only hope Joe Hockey makes sure Abbott is never allowed near actual economic decision-making.
The tax is paid on earning above the $100,000 threshold. The first $100,000 remains tax free. So if a fund was to make $200,000 in atear tax is paid on $100,000 – $15,000. Leaving a miserly $185,000 made in the year after tax.
And in this debate lets note that people like Tinkler only have an “income” of less than $10,000 so the claim that they already pay heaps of personal tax is shot down. An example, when Alan Bond was at his peak his daughter qualified for AusStudy because Bonds “income” was less than $20,000 per year.
And while the right wing sychophants will rant about attcking the rich and the “class war” remember Abbott plans to remove $500 a year from the lowest paid taxpayers
Achmed
“Abbott plans to remove $500 a year from the lowest paid taxpayers”
You do know that this contribution was supposed to be funded by the mining tax profits that haven’t materialised don’t you?
Abbot is removing an unfunded promise – no mining tax no contribution. You can’t have what you haven’t budgeted for…simple really..
btw this also goes for the carbon tax rebate….no future carbon tax no need for carbon tax rebate…..
I get that but with the removal of the “income” from the carbon price legislation Abbott is saying the current tax cuts and compensation will remain (though this promise meanders from keep it to remove depending on who are his audience and which way the wind is blowing. Those tax cuts and compensation cost around $4.4 billion.
Then he intends to also fund the $3.2 billion Direct Action.
So we have around $7.5 billion in spending with reduced “income” with the repeal of the carbon legislation.
The MRRT is a profit based tax. More profit more tax, less profit less tax. So when the companies increase their profits, can no longer offset assett write downs the amount collected will increase.
This is a tax that should have been introduced 10-15 years ago but Howard was too busy sucking up to the billionaires