Home' Superfunds : Superfunds December 2013 Contents Superfunds December 2013
For those in the second tax bracket, which
currently has a marginal rate of 19 cents in the
dollar, there is only a very small tax difference
between the tax payable if all taken as salary
and that payable on a combination of salary and
Superannuation Guarantee (SG) contributions. For
a member on $37,000 they will only pay $214
less tax on salary and SG contributions, compared
to salary alone.
That said, there are other mechanisms that
also contribute to the equity of government
assistance for retirement income. The means test
arrangements for the Age Pension mean that
those with low superannuation account balances
receive more Age Pension than those with
relatively high account balances. As a result, the
amount of government assistance for retirement
incomes is broadly equal across the income scales.
Those with relatively high superannuation account
balances receive more tax concessions but not
much in the way of an Age Pension entitlement.
However, as noted above, there is an issue
regarding the fairness of tax treatment for
those on incomes of less than $37,000, given
that a flat rate of tax applies to superannuation
contributions. At the very least, individuals on
a zero marginal tax rate should not be required
to pay tax at a higher rate on their concessional
For such taxpayers, every single dollar of
concessional contributions is taxed at
15 per cent in the fund from the first dollar,
as opposed to zero tax payable on incomes up
to $18,200 and then 19 per cent on only that
income which is in excess of $18,200 up to
$37,000 (which is where the LISC cuts out).
The number of individuals who would
be affected by the abolition of the LISC is
considerable. The LISC currently benefits 3.6
million Australians on low and modest incomes,
including 2.1 million women.
For a person earning just $37,000 a year,
aged 30 and retiring aged 65, if the LISC applied
over their working life it would boost their
superannuation balance, in today’s dollars, by
around 20 per cent, from $200,000 to $240,000.
According to the recently released Australian
Bureau of Statistics figures for 2011-12, the
average person on $30,000 a year only has
around $138,000 in superannuation at the age
$30,000 a year, the average superannuation
balance is only $36,000.
Again, there are differences in the average
balances for men and women, particularly for
younger women in age groups where they may
have recently spent time out of the paid labour
force due to family responsibilities. Women are
far more likely than men to have incomes around
$30,000 a year. The average woman on $30,000
a year has around $33,000 in superannuation in
the age group 40 to 44.
It appears that the main reason for the
proposed abolition is that the revenue was
associated with the MRRT, rather than anything
inherently wrong in the design of the measure.
If this is the case, then consideration should be
given to other possible revenue measures.
Some might argue that the Superannuation Co-
contribution is sufficient to address the inequity of
low income earners paying too much tax on their
concessional contributions. However, the Co-
contribution only applies in regard to voluntary,
non-concessional contributions made as a
discretionary spend from after tax income.
Only around one million individuals qualify for it
each year, with a substantial proportion of those
qualifying having incomes over $37,000 given
that the income cut-off for the Co-contribution
is higher. ASFA considers that while the Co-
contribution serves a purpose in encouraging
voluntary contributions as a matter of equity,
building confidence and ensuring that low income
earners can top up their age pensions adequately
requires the LISC to be maintained.
In the superannuation portfolio some hard
decisions might need to be made if the LISC is to
be retained. A starting point in such conversations
might be what to do with Co-contribution. The
conversations in the weeks and possibly months
ahead should be interesting.
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