Budget 2012 – more changes to superannuation

Of all Australians, the proposals in this year’s budget will benefit lower income earners and families, social security recipients and the elderly most of all.

For others, the exception being modest tax cuts for those earning $80,000 pa or less, there are few other changes to get excited about.

As per usual, the government also announced changes to superannuation, this time in an attempt to claw back tax revenue and assist with delivering a forecast $1.5b surplus in 2013.

Two key changes have been proposed.

The first will affect high income earners, specifically, those earning $300,000 or more each year. From 1 July 2012, superannuation contributions tax for high income earners will be increased from 15% to 30%. Contributions tax applies to concessional superannuation contributions which include both employer (i.e. 9% compulsory superannuation guarantee) and salary sacrifice contributions.

This change is expected to affect 128,000 people in 2012-13, but there are concerns that the income threshold may be reduced next year which has the potential to increase this number significantly.

Additionally, the definition for ‘income’ for the purpose of concessional contributions for high income earners will also be changed. The new definition will include taxable income, concessional super contributions, adjusted fringe benefits, total net investment losses (i.e. from negatively geared investments), target foreign income and tax-free government pensions and benefits – less child support. Simply put, some individuals earning less than $300,000 pa under the existing ‘income’ definition could be captured under the new definition.

The second key change is the delaying of the increased concessional contributions cap by two years, from 1 July 2012 to 1 July 2014.

Originally, the government had proposed that individuals with $500,000 or less invested in superannuation aged 50 and over would be eligible to contribute $50,000 pa in concessional contributions. These terms have not changed, but the timing has. In effect, the delay means that eligible individuals can only make concessional contributions of $25,000 pa for 2012-13 and 2013-14.

Whilst it is clear why these changes have been announced and important for the government to deliver a budget surplus, these proposed changes to superannuation are not the answer. To reduce the strain on the social security system when the majority of baby-boomers retire over the next 5-10 years, the government should be encouraging Australians to self-fund retirement via superannuation. In other words, the government has a vested interest to ensure the superannuation system inspires confidence. The proposed changes not only restrict the ability to save for retirement, but again illustrate an insistence to keep fiddling with the system. Confidence-inspiring? We think not.