Shorten super net to trap a million
Up to a million Australians would be hit by a complex set of superannuation tax changes if Bill Shorten wins government, new Treasury analysis has revealed, with mothers returning from maternity leave and the selfemployed among those most affected.
As Labor attacks the Productivity Commission’s key recommendation to establish a top-10 shortlist of default superannuation funds, Treasury data obtained by The Weekend Australian shows four of the opposition’s less well known tax policies would increase tax or sap the retirement balances of up to 1.17 million Australians at retirement to the tune, potentially, of hundreds of thousands of dollars.
Josh Frydenberg, who has already launched a new-year preelection assault on Labor’s negative gearing, franking credit ban and capital gains tax policies, seized on the figures to declare the opposition’s suite of super taxes would not only discourage people to save but “punish those who do”.
Labor plans to cut the cap on non-concessional superannuation contributions a person can make each year from $100,000 to $75,000 and abolish “catch-up” contributions for people with super balances under $500,000 — changes that would affect 17,000 and 230,000 taxpayers respectively.
“If given the chance in government, Australians should not be under any illusions about Labor’s approach to superannuation and their plan for $19 billion of higher, misguided taxes and the further targeting of aspirational Australians,” the Treasurer writes in The Weekend Australian.
“Labor is promising to reduce the non-concessional contribution cap from $100,000 to $75,000, which will hit around 20,000 taxpayers. The issue is not whether the contribution should be taxed at the individual’s marginal rate, as that is not in dispute, but rather whether individuals should be given the choice and flexibility to contribute more in any particular year in the event that their capacity to do so increases. It’s about striking the right balance.”
Labor would also reverse scope for people who are partly self-employed to deduct super- annuation contributions from their business income — affecting up to 800,000 people — and lower the high-income super contribution threshold from $250,000 to $200,000, which would ensure more higher earners pay the 30 per cent tax rate on their concessional contributions.
Michael Rice, an actuary at Rice Warner Actuaries, said Labor was “attempting to cut the value of super concessions for the wealthy”. “The non-concessional cap (of $75,000) is probably OK — not many people have a spare $100,000 to put into super,” he said. “The high-income threshold is more interesting. Once we go to a 12 per cent superannuation guarantee, there will be some mandatory contributions taxed at 30 per cent — that will be unpopular.”
The four Labor measures are expected to raise $18.9bn over the medium term (to 2026-27).
Treasury estimates 130,000 taxpayers would pay more as a result of a reduction in the threshold from $250,000 to $200,000 where the contributions tax increases from 15 per cent to 30 per cent.
Labor says the four areas overwhelmingly benefit high-income earners while having a massive impact on the budget.
Opposition Treasury spokesman Chris Bowen, who declared this week that Mr Frydenberg’s persistent attacks on Labor’s economic platform were ensuring a Shorten government had a rock-solid mandate to implement its plans, said the Treasurer was showing “just how out of his depth and incapable he is”.
Mr Bowen would not say if Labor remained committed to the four super policies or if the party had any estimates regarding how many Australians they would affect or the out-of-pocket costs.
“There’s still no comment from Mr Frydenberg on Fitch Solution’s very troubling report on the economy and budget. Mr Frydenberg seems only capable of talking about the opposition when the nation needs economic leadership,” Mr Bowen said.
The Treasurer’s office provided several cameos based on Treasury numbers to demonstrate the financial impact of Labor’s policies. According to the analysis, if the concessional catch up contribution is scrapped, a 30year-old who takes four years leave without pay to raise her family would lose $311,000 in super.
“Diana” would make no super contributions while she was not working but, under existing arrangements, when she returned to work at age 34 she could draw on her previously unused concessional contribution caps to make additional super payments for the years she missed.
“If Diana had continued to work she would have contributed $15,000 to her super each year. Instead, she fully catches up on her missed superannuation contributions over the next four years, making use of the carried forward unused cap space to contribute a total of $30,000 each year,” the cameo states.
“By the time Diana retires at 67, her superannuation balance is estimated to be around $311,000 higher (in 2018-19 dollars) as a result of her being able to utilise the superannuation catch-up.”
The $100,000 non-concessional cap was introduced in late 2016 after the May budget’s measure to impose a divisive proposal for a $500,000 “lifetime cap” was met with stiff resistance from Coalition MPs, higher earners and the super sector.
Labor introduced a higher tax on concessional superannuation contributions, which had been taxed at a flat rate of 15 per cent since 1988, in 2012 for taxpayers with combined gross salary and compulsory superannuation contributions above $300,000. The Coalition government lowered it to $250,000 in 2017.
When Mr Bowen announced his super reform package in November 2016 he said the government’s $100,000 annual cap on non-concessional contributions remained “too generous” and under Labor the super system would be “fairer and the budget will be better off”.
Mr Bowen yesterday said Labor remained committed to a 12 per cent superannuation guarantee but had concerns about the “best in show” list of the nation’s top super funds, which the Productivity Commission estimated could save new job entrants more than $500,000 over a career.
“That’s a very big change and I have some concerns about it and not just me, lots of people in the superannuation industry have concerns about it and not just one type of funds, not just industry but retail corporate funds,” he told 2GB radio.
“A lot of people say ‘be careful what you wish for here’ because if there are 10 funds identified that’s going to make life very hard for the other funds who aren’t on the list and some funds would struggle to survive.
“There are some funds frankly that should not be there, they’re underperforming and they should have a good hard look at themselves and if they can’t lift their performance they should close themselves down and go in a better performing fund and some of those (are) retail funds, there’s a couple of industry funds, that’s across the board.”