Opinion – Labor has managed to snatch a superannuation policy defeat from the jaws of victory with the announcement that they will oppose removing the 10% rule and the work test.
The superannuation industry has long campaigned for the removal of these complicating and confusing restrictions. Labor says Australia “cannot afford” these changes, which are estimated to cost the Budget $1.13 billion over the forward estimates.
Why should the ability to claim a tax deduction for super contributions be confined to those who only earn a small fraction, or less, of their income from employment – as the 10% rule does? Though employees may be able to make salary sacrifice contributions this requires the support of the employer and can have Super Guarantee implications.
John Daley, CEO of the Grattan Institute, said that Labor was wrong to oppose this measure:
If pre-tax voluntary contributions are allowed at all, there is no rational basis for limiting this to employees with more sophisticated employers.
In a submission to the Financial System Inquiry the Institute of Public Accountants called for the the repeal of the 10% rule, saying:
The IPA believes the source of the concessional contribution should not matter and that this particular item of legislation should be repealed. It is felt that Australians should be subject to a concessional contributions cap that does not discriminate against the source of the contribution.
Why should the ability of older Australians to contribute to super be based on how much they work? In a pre-Budget submission ahead of the 2016 Budget the Australian Institute of Superannuation Trustees (AIST) recommended that the work test be abolished:
The work test was designed for an earlier period, where superannuation benefits were subject to a reasonable benefit limit imposed through use of taxation, and the use of such disincentives tacitly noted that one’s life expectancy was shorter.
We view the imposition of this requirement to be unnecessary, as well as being unable to be enforced. The removal of this limitation will enable all Australians to contribute as well as allow superannuation funds to get on with their job of processing contributions, unencumbered by this layer of regulation.
Unfortunately so much attention is directed at the $500,000 lifetime non-concessional contribution cap, and not the other changes in the Budget which will impact far more people.