Many of you will have heard the rumours about significant changes to superannuation in this year’s Federal Budget.
I encourage you to stay calm. For as long as I can remember, rumours that appear about likely changes are often nothing more than speculation and maybe even specifically designed to make us sufficiently on edge so that we feel like we’ve dodged a grenade when we see the actual policy changes.
There’s no doubt the Government is in a significant house of pain in their budgetary planning; they’re committed to bringing the budget back into surplus this financial year. Because of this objective, they’ll have to make significant savings.
What I think could change
I must stress that I’m as much in the dark about what the Government might do as everyone else and I can assure you I never receive any leaks from political insiders. That said, if I were in the Government’s shoes, I would think about attacking the following areas:
Government Co-Contribution: While I think this is a good policy, it’s a Coalition idea. The ALP doesn’t really like the co-contribution and over the last few years they have progressively been reducing the number of people who can access this benefit while also reducing the maximum co-contribution that it pays. I’ll be surprised if they don’t finally kill it from 1 July 2012.
Super Guarantee: Delay the proposed gradual increases from 9% to 12% by two or three years. While this is an unlikely change, it’ll save them a fair amount of money because employers will make smaller super contributions and will therefore receive smaller tax deductions. Less money in super means less super fund tax concessions. Employers would be happy because it delays a cost increase.
Super surcharge: There’s no doubt the Government is embarrassed that super isn’t taxed concessionally for the 50% of lower income earning taxpayers. They need to fix this and will probably tax higher income earners’ super contributions. With the additional revenue, they could put some of it towards their budget bottom line and use the remainder to reduce super taxes for lower income earners.
Increase the taper rate of Centrelink’s Age Pension Assets Test: This could be lifted from $1.50 to $1.75 and then later to $2.00. (Before Costello’s Better Super changes, the taper rate was $3.00 for every additional $1,000 of Centrelink assessable assets.) This change would see a significant reduction in the number of part-age pensioners and thereby save substantial Government expenditure.
Benefits tax: Re-introduce tax on super benefits for those aged at least 60.
Contributions cap: Postpone (or perhaps cancel) the $50,000 concessional contribution cap threshold for those 50-years-old and over if they’ve got less than $500,000 of super assets for at least two years.
Concessional cap: In a similar vein, reduce the maximum concessional contribution cap for those aged at least 50 to $25,000 per annum. If the policy mentioned above isn’t put in place, then this will happen automatically on 1 July 2012.
Non-concessional contributions: Reduce the non-concessional contribution threshold to $75,000 per annum, or $225,000 for three years in advance for several years.
Stop super gearing: This won’t save much revenue, but they’ll want to claim they’re getting rid of rorts for the undeserving rich.
I hope the Government makes none of these changes. The above is certainly a courageous list of changes that even the most able politicians would have difficulty selling.
If you can afford to make super contributions before budget night, then I strongly suggest you do so. (Make sure you don’t forget to watch your contributions cap!)
If the Government increases the super contribution taxes, then hopefully the changes will apply from budget night and you will therefore have avoided this additional tax.
Equally, if you’re interested in a super gearing transaction, then it might be a good idea to complete it before budget night.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should, before acting, consider the appropriateness of the information in regards to their objectives, financial situation and needs and, if necessary, seek professional advice.
Also in the Switzer Super Report:
- Peter Switzer: Is the stock market about to trip up?
- George Boubouras: Six foreign shares to diversify your SMSF portfolio
- Paul Rickard: Budget preview: five potential changes to the cap
- Rudi Filapek-Vandyck: The broker wrap: four stock buys