By Daniel Archibald | CFA
It doesn't get much trickier for a Treasurer than to deliver an election-year budget, and Scott Morrison's first budget was always going to be met with a high level of scrutiny. With proposed changes touching almost all sectors of the community, the budget looked to address such issues as the "Work for the Dole" scheme, the corporate tax environment and the superannuation system.
A decade ago, Treasurer Peter Costello coined the phrase "simpler super". His 2006/2007 budget heralded a new age of superannuation, with greater flexibility for older Australians and tax-breaks for those who have saved hard for their own retirement. At the time, with a budget in surplus and a debt-free Government, such measures seemed like a fair adjustment of the tax system. However, the past few years have highlighted that significant tax breaks have been accessed by those with the ability and know-how to take advantage of the more-than-generous concessions offered.
In order to convince Australians to save significant amounts of money away until old age, the superannuation system was always going to require reasonable tax incentives. However, the ease of obtaining large tax breaks, particularly as a tax haven for the rich, has been a focus of Governments for the past few years. To date, reducing contribution limits (money going in to super) had been the main budget tool for restricting tax breaks to wealthier Australians. The key feature of Scott Morrison's proposed superannuation changes is to further limit transfers into superannuation and limit tax breaks on pension accounts (money already in super).
Budget 2016/17 - Major changes to super (Note: These are the proposed changes. Given we are heading into an election there is a chance that some or even all of these proposals will be scrapped or amended):
- A balance cap of $1.6 million (i.e. a lifetime limit) on transfers to pensions - this will reduce the access to this tax-free environment
- $500k lifetime limit on tax-fee contributions - this will be another way of reducing access to the concessionally-taxed environment of super (15% earnings tax) or pensions (0% tax on earnings)
- Concessional contribution cap reduced to $25k per year - this will reduce the tax breaks available from contributing into super
- 5-year rollover benefit of annual concessional contribution limit - this will actually help individuals manage contributions with more flexibility
- Work test removed for those aged 65-74 - this will make it easier for those in this age group to continue to contribute to superannuation
- Personal, tax-deductible contributions to be allowed for all taxpayers to age 75 - this also adds more flexibility to individuals by not requiring contributions to go through employers (salary sacrifice)
- Transition to retirement pensions earnings to be taxed at 15% - this effectively reduces the benefit of tax-free pension accounts for those still working
- Tax benefit for annuities - earnings for retirement deferred annuities will be exempt from tax creating another avenue for retirement savings
- The Div 293 threshold (the point at which high income earners pay addition contributions tax) will be lowered from $300,000 to $250,000 – this means more high income earners will pay 30% contributions tax rather than the usual 15%
There are another three or four more minor changes to super proposed within the pages of this election-year budget. Again, depending on the outcome of the election, there may be more changes to come.