Thursday, May 07, 2009

So high income earners will lose some of their superannuation tax dodges

I feel sorry for them. Not.

KEVIN RUDD has been accused breaking an election commitment by preparing to limit superannuation tax breaks for high income earners in next week's Budget.

The Opposition says that shortly before the 2007 election Mr Rudd promised there would be "no changes to the superannuation laws, not one jot, one tiddle.”

Six months later it set up the Henry Tax Review with a mandate to examine every aspect of the superannuation tax arrangements but one, tax-free payouts for over-60's.

The retirement incomes part of Dr Henry's report has been with the Treasurer since March.

It is understood to find that 37 per cent of Australia's superannuation tax concessions go to the top 5 per cent of income earners...

Its recommendations are not detailed, but indicate a number of broad directions in which the panel believes superannuation taxation should move.

As a result of the report and in order to make room for other spending in the Budget the government is preparing to move in at least one of those directions by halving the amount high-income earners can salary-sacrifice into superannuation.

The maximum would be cut from $100,000 to $50,000 for people aged over 50, and from $50,000 to $25,000 for people under 50.

Modeling prepared for the Budget suggests the measure will hit hardest Australians on exceptionally high annual incomes of $221,000, leaving untouched the 98 per cent of Australians who do not salary sacrifice into super.

Coalition superannuation spokesman Chris Pearce said Mr Rudd made the promise about no change to the superannuation rules just one week before the election.

"And here we are around 17 months later and there is all this speculation which is providing no certainty or confidence to anyone," he said.

"I have my own constituents coming in my own office every week asking should they be doing this, should they be doing that. They don’t know what to do. They’re fearful that the goal posts are being moved again."

The Coalition introduced tax-free payouts for Australians over 60 in its second-last budget in 2006. The move sparked a wave of multi-million dollar voluntary contributions to super funds in order to get in ahead of associated tighter contribution limits.

If the Rudd government does tighten those contribution limits next Tuesday the change is expected to apply form midnight budget night in order to prevent a similar rush.

Financial planners say they have been inundated with requests with set up salary sacrifice schemes ahead of the Budget in the belief that existing schemes will be "grandfathered" and exempted from the tighter rules.

They are telling many people who come to their doors that it is now too late to set up such a scheme as at least one salary payment would need to be sacficed ahead of the Budget.

Separately six pensioner and welfare groups yesterday called on the government to extend any boost to pensions to parenting payments for sole parents. The government has promised only to boost aged pensions, carers payments and disability benefits.


What the budget has in store

Salary sacrifice limits for over 50s to be halved, forcing high-income Australians to take more of their income as taxed wages and less as confessionally-taxed superannuation contributions.

The limit to be cut from to $100,000 to $50,000 for Australians over 50, and from $50,000 to $25,000 for Australians under 50.

Budget saving of $2.7 billion over four years.

Only 2 per cent of Australians potentially affected. 98 per cect do not salary sacrifice into super.