What Labor’s super changes mean for high-income earners

Australian Financial Review

8 November 2016

Joanna Mather

As many as half a million higher-income earners could be worse off under superannuation tax plans announced by Labor.

Labor is proposing two major changes, one of which involves lowering the point at which superannuation contributions are taxed at 30 per cent rather than 15 per cent.

Parliamentary Budget Office figures show less than 4 per cent of the nation’s 12.7 million taxpayers would be affected by this change.

The second proposed change is a lower cap on post-tax contributions to $75,000 a year, with a maximum carry forward over three years of $225,000. About 30,000, or 0.2 per cent, make post-tax contributions of between $50,000 and $99,999 a year, and so might fall into this category.

Pitcher Partners partner Charlie Viola said both measures served to limit the amount of money that older taxpayers could put away in super.

“When you get older, suddenly the kids are gone, you have more surplus income and generally you will consider downsizing your home, or selling a small business,” he said.

“These are things that aren’t possible earlier in life.

“The stringent tightening of caps doesn’t hurt just the wealthy, it hurts normal working Australians who have invested money into their home and business who intended on making bigger contributions closer to retirement.”

Lifetime limit

At present, anybody earning more than $300,000 pays 30 per cent tax on their super contributions.

In this year’s budget the government announced it would lower the threshold to $250,000, to take effect from July 1, 2017.

But Labor says that should be dropped further to $200,000.

After a brawl with backbenchers, the government scrapped its original proposal for a $500,000 lifetime limit on after-tax contributions, backdated to 2007.

The measure was replaced with an annual limit of $100,000. The better off were winners in that change.

Moreover, there is still a chance to stash money in the tax-advantaged super environment before the change kicks in.

The existing $180,000 annual non-concessional cap will remain in place until next June, as will the bring-forward rule allowing up to $540,000.

Labor wants the threshold lowered to $75,000 a year.

Precise figures for how many people would be affected by this measure were not released.

However, PBO says 0.2 per cent of taxpayers make contributions of between $50,000 and $99,999 a year.

Structural features

Their average taxable income is $97,000 a year and their median superannuation balance is $439,000.

Meanwhile, analysis by the Australian National University has found the government’s super policies are only “very marginally beneficial to women”.

The same goes for Labor’s most recent initiatives, according to the ANU’s Tax and Transfer Policy Institute

“There are structural features of superannuation tax concessions which make the whole system very beneficial to men, particularly upper-income men,” the institute says in a submission to the government on the third and final tranche of draft legislation.

“Having now had the opportunity to review the three tranches of legislation, it is apparent that the superannuation package does very little to address the gender inequities in the superannuation system.”

The institute’s director, Professor Miranda Stewart, said the low income super tax offset was of most assistance to women.

“One specific reform measure … that would benefit women would be to require superannuation contributions on parental leave,” she said.