Another year, another budget. The federal budget may not be delivered until May, but lobby groups are already preparing their submissions and it won't be long before the public debate about what should, and what shouldn't be included in the much-awaited document gets underway.
With the Turnbull government having curbed some of the most generous superannuation tax concessions in the 2016 budget, this year it will face pressure to do more to help low income earners. Given that any move to help the less well off will inevitably put further pressure on the public balance sheet, those who are proposing them would do well to suggest a few accompanying savings.
One lobby group calling for greater support for low income earners – but as yet not accompanied by major savings measures – is the Australian Institute of Superannuation Trustees, which makes the valid point that the tax offset on super contributions, introduced in the 2016 budget, still leaves a large slice of the workforce at a disadvantage.
The low income superannuation tax offset, or LISTO, is paid on pre-tax contributions up to a ceiling of $500. Anyone earning less than $37,000 a year receives the offset in full to make sure they do not pay more tax on super contributions than they would on their income.
While individuals earning less than $37,000 do not pay more tax on super contributions than they otherwise would as a result of the LISTO, they are not gaining anything, or at least not much, by way of a tax benefit. Workers earning more than $37,000 are rewarded for delaying consumption because any money they inject into super attracts a 15 per cent contributions tax, considerably below their marginal rate of either 32.5 per cent, 37 per cent or 45 per cent, excluding the Medicare levy.
AIST is calling for the LISTO to be doubled for people earning less than the tax-free threshold, or $18,000, thereby giving them a comparable benefit to individuals in higher income brackets. "This would provide low income Australians with further incentives to save. Unlike those on higher income tax brackets, Australians on lower income tax brackets are not compensated by the tax system for deferring consumption," AIST, which represents industry super funds, says.
Another issue that AIST tackles in its budget submission is the age pension age, which has all but evaporated since the Conservative government controversially tightened access to the public pension and reduced entitlements for about 300,000 retirees who receive a part pension. The new criteria were introduced in January amid a union-backed automated telephone campaign designed to generate community anger and have been criticised by community groups and policy experts.
Meanwhile, the proposal on the table, and which was acknowledged in the 2016 budget papers, to gradually increase the age at which individuals can receive the age pension until they are 70, lurks somewhere in the background. This correspondent has suggested in the past that the age pension age should be tied to life expectancy in an attempt to depoliticise the issue. AIST is calling on Treasurer Scott Morrison to rule out a move to 70 altogether.
Under the current rules, the age pension will gradually increase to 67 in 2023, up from 65, with the first incremental rise due to take place on July 1, when the age will increase to 65.5 years.
AIST will no doubt receive a lot of support for its recommendation from ageing Australians, but there is no urgency for Mr Morrison to act on this now, given the chances of the government trying to push ahead with the policy of raising the age to 70 this side of the next election are remote. It has far more pressing items on its agenda, such as governance and the distribution of default super.
AIST has some other sensible suggestions, such as removing the low income threshold for super contributions, removing age-based rules for contributions and forcing companies to pay compulsory super on paid parental leave.
The challenge, of course, is that all these require money from somewhere and Mr Morrison may not readily be able to rob Peter to pay Paul this May.
