Budget 2016: Superannuation shake-up to reduce tax breaks
TREASURER Scott Morrison has announced the biggest shake-up to Australia's superannuation system in a decade, targeting high-income earners while retaining concessions for the lowest paid.
While some roll-back of high end super concessions was flagged in the lead-up to the budget, the measures go much further than most people expected.
The main surprise savings measure is a retrospective cap on the transfer of superannuation balances into the retirement phase, set at $1.6 million, limiting the amount of tax-free income wealthy retirees can earn.
In his budget speech, the Treasurer said the proposed super cap would still allow people to enjoy a very comfortable retirement.
"A balance of $1.6 million can support an income stream in retirement around four times the level of the single age pension," he told parliament.
A balance of $1.6 million can support an income stream in retirement around four times the level of the single age pension. Treasurer Scott Morrison Most surprisingly, there has been no attempt to shelter existing wealthy retirees from the change.
"The transfer balance cap will be applied to both current retirees and to individuals yet to enter their retirement phase," Mr Morrison added.
Existing tax-free retirement phase superannuation balances beyond $1.6 million will have to be transferred into accumulation phase accounts and will be subject to a, still concessional, 15 per cent tax rate.
The move is expected to raise around $2 billion over the three years from its start date of July 1, 2017. Government matches Labor's policy commitments on lowering income threshold
The Government is also lowering the income threshold at which the 30 per cent (rather than 15 per cent) tax rate kicks in on superannuation contributions from $300,000 to $250,000, which matches one of Labor's policy commitments.
It is also lowering the annual cap on contributions entitled to the concessional tax rates to $25,000, from the current $30,000 for under-50s and $35,000 for those aged 50-plus.
The two moves combined are expected to save a further $2.5 billion over the three years following their introduction on July 1 next year.
Non-concessional contributions will also be subject to a lifetime cap of $500,000 from budget night, down from the current annual cap of $180,000, which will save the Government $550 million over the next four years.
This move is not retrospective, so people who had already made non-concessional contributions above $500,000 will not have to pull the money back out of their super funds.
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These are the biggest changes to super since then-treasurer Peter Costello gifted tax-free status to the earnings and payouts of superannuation funds for those in retirement in the 2006-07 budget.
Industry Super Australia's chief economist Stephen Anthony said the wind-back of super concessions for ultra-high-income earners removed some of the most egregious tax breaks for wealthy retirees introduced in that budget.
"It's a really great first step if you want to make the goal of the super system income adequacy, rather than just a safety net to prevent aged poverty," he told ABC News Online.
Mr Anthony was particularly pleased with the Government's decision to abandon its previously planned ditching of the Low Income Superannuation Tax Offset (LISTO), which was knocked back by Senate opposition.
"That means so much to 3.4 million low-income workers on incomes less than $37,000, and most of those are women who will retire on 45 per cent lower super balances than their male counterparts because of time off work," he said.
The measure provides a tax offset of up to $500 on the concessional superannuation contributions made on behalf of workers earning less than $37,000, and ensures that they do not end up actually paying more tax on their super contributions than they do on their income.
The Treasurer said the Government was "introducing" this measure, but in actuality it is simply budgeting for the fact that it has decided not to remove it, costing the budget $1.6 billion over the forward estimates.
In other good news for retirement savers, the Government is extending the ability for all individuals aged under 75 to make tax concessional contributions to their superannuation.
People aged 65-74 will also now be able to make contributions to, and receive contributions from, their spouse.
In a move that will particularly benefit women who take time out from their careers to have children, from July 1, 2017 the Government will allow catch-up concessional super contributions for those people with balances under $500,000 who did not reach their $25,000 concessional contribution cap in earlier years.