The Abbott government promised that there would be no “adverse unexpected changes to superannuation during our first term”, and now that Joe Hockey has presented his first budget it seems this promise has been broken. While they didn’t all make the budget speech there are important changes to superannuation buried in the budget papers, the most wide-reaching of which is a slowing in the increase to the Superannuation Guarantee.
Superannuation Guarantee increase to slow
The current legislation has the Superannuation Guarantee increasing to 9.5% from 1 July 2014. The government had intended to delay this to 1 July 2016 under the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013. However after this bill failed to pass the senate the government has decided to not change the currently scheduled increase in order to “give certainty to employers and employees”. However the increase in the SG rate will be further slowed – with the 9.5% rate to stay in place until 30 June 2018 and then increase at 0.5% per year until it reaches 12% in 2023/24. This is an even slower increase than that proposed in the Repeal bill, as shown in the following graph:
This longer delay in increasing the Super Guarantee rate is how the Government includes a net revenue gain of $ 90 million over the forward estimates. While the move to 9.5% will cost the government (based on the budget calculations) $ 170 million in 2014/15 and $ 180 million in 2015/16 it will gain $ 440 million in 2017/18 – and this gain comes from slowing superannuation savings for Australians, which is difficult to reconcile with a promise of no ‘adverse’ and ‘unexpected’ changes.
Allowing withdrawal of Excess Non-Concessional Contributions Tax
Currently superannuation members who exceed the Concessional Contributions cap have the option of withdrawing the amount and having it taxed at marginal rates instead of paying the Excess Contributions Tax. The budget papers include a policy of extending this to Non-Concessional Contributions. This change will apply from 1 July 2013. Details of the policy will be finalised following industry consultation; it is unclear at this stage if the taxation of ‘associated earnings’ will be treated the same as it is for excess concessional contributions.
This change is estimated to cost $40.1 million over the four year forward estimates.
Superannuation Pensions to count for eligibility for Commonwealth Seniors Health Card
Income from Superannuation Income Streams, referred to as ‘untaxed superannuation income’ in the budget papers, will be included in assessment of eligibility for the Commonwealth Seniors Health Card (CSHC). Superannuation pensions held by CSHC holders prior to the “implementation date” will have the income from their income streams grandfathered under the current rules.
This increases revenue to the Government by $ 20.9 million over five years.
The 2014 Budget also includes changes to the Age Pension:
- The Age Pension age will increase from 67 starting 1 July 2025 so that it reaches 70 by 1 July 2035
- From 1 September 2017 the Age Pension will be indexed to CPI instead of the higher of CPI, Male Total Average Weekly Earnings or the Pensioner and Beneficiary Living Cost Index
Note that these changes are as announced and may change after consultation, the legislation is released or on passage through the parliament. The full budget papers can be found on the Budget website.
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