Axing LISC allows for opting-out of superannuation argument

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Low Income Superannuation Contribution (LISC), low income opt-out of superannuationThe consequences of the Government’s decision to axe the Low Income Superannuation Contribution is being used as an argument in favour of allowing low income earners to opt-out of receiving Superannuation Guarantee contributions.

This week saw front-page reports in the News Corp papers that the Government was considering allowing low income earners to opt-out of receiving Superannuation Guarantee contributions, with the expectation that they would receive the cash. 

The idea appears to have originated in a pre-Budget submission, though it is unclear whose. It is reported that senior cabinet ministers have said the Treasurer should consider the idea. Deputy Prime Minister Barnaby Joyce also appeared to be in favour of the idea.

As currently legislated low income earners, from 1 July 2017, will pay more tax on their superannuation contributions than they do on their wages. This is because Government legislation, passed with the support of the Palmer United Party, will axe the Low Income Superannuation Contribution (LISC) from this date. The LISC offsets up to $500 of tax on superannuation contributions for low income earners.

With little tax policy to show from a broken policy process, it is possible the Government would announce allowing opting-out of superannuation in the upcoming Federal Budget. The likely line would be putting more money in people’s pockets and saving them tax.

However this would have to be measured against the long-term costs, both to individuals and to the Budget. People on low incomes are most likely to have to depend on the Age Pension to at least some extent, increasing the long-term Budget pressure. Additionally younger people are likely to be on lower wages, if they were to opt-out of superannuation they would lose decades of compounding returns on their retirement savings.

Or this is simply another policy balloon floated in the press ahead of a Budget to test reactions.

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