Budget 2014

Superannuation doesn't appear prominently in the headlines about this year's Budget. The announcements as they relate to superannuation and retirement are tweaks rather than major shifts.  

Any major policy change in this area lies at some future point, possibly arising from the findings of the Murray Inquiry into the Financial System, see comments here and the Inquiry's webpage for its terms of reference. 

The first budget of the Abbott government has been handed down to start the "repair" of the budget imbalance brought about by government spending more than the tax intake since the GFC.  Treasurer Hockey has spoken since his 2012 speech in London that "the Age of entitlement is over", that the young need to "learn or earn".  The clear implication is that all Australians need to share in the repair job.  High income earner's "repair levy" for three years of tax at 49% for amounts over $180K, wages freeze for politicians, 16500 job cuts for public servants, cuts to health and education, the introduction of co-payments for medicare & pharmaceutical costs and generally a more stringent range of tests for eligibility for middle class welfare such as family tax benefits and child care benefits evidence these values of the need to prepare the nation for an ageing population with a greater drain on the public purse.

The Budget announcements for self funded retirees to know include:-

• An individual's superannuation pension will be included in the income test for pension eligibility but not the family home (as was recommended by the Commission of Audit);
• Age pensions will be indexed to CPI rather than wages from 2017 and the upper and lower thresholds for the age pension eligibility will be fixed for 3 years from 2017 (which may lead to a lowering of benefits payable for some);
• The Commonwealth Seniors Health Care Card thresholds will be indexed from 20 September 2014;
• The annual non-concessional contribution cap will go up to $180,000 from 2014-15, up from $150,000. The bring-forward rule will permit a one-off non-concessional contribution of up to $450,000 over three years, or $540,000 over three years from 2014-15;
• Non-concessional super contributions made from 1 July 2013 that exceed the cap may be withdrawn (plus earnings on the excess) without penalty (with tax payable at the individual's marginal tax rate rather than the current 47%, which had been planned to move up to 49%);
• The time frame for increasing the Superannuation Guarantee contribution rate to 12% will be taken out to 2022, compared with the former ALP government's initial timing of 2019;
• Eligibility for the age pension will be increased to 70 from 67, effective 2035 (relevant to those born after 1965).

Overall, these tweaks fall within the language of building a narrative of short-term pain for long-term gain.  We think the last word on the topic of entitlement as it relates to superannuation concessions is a long way from having been uttered.

Hockey & Sinodinos clear the tax backlog

couriermail.com.au

The Commonwealth government announced on 6 November 2013 that it would "scrap" a series of tax proposals introduced under the previous Labor government, including planned changes to the fringe benefits tax and moves to raise taxes on earnings from superannuation pension funds which it described as "unworkable".  Treasurer Hockey and Assistant Treasurer Sinodinos said this was the result of an audit of 96 unlegislated and unresolved tax and superannuation reforms dating back to 2001. Four of those proposals were dealt with by the coalition's plan to repeal the carbon and mining taxes, leaving a total of 92 proposals.

Key points:

• government will keep 18 of 92 unlegislated tax proposals
• remainder to be either dumped, amended or reviewed, a cost of $3.1b to the budget
• cap on self-education expenses dumped
• low-income superannuation tax offset linked to mining tax scrapped
• fringe benefits changes for car industry dumped
• government keeping Labor's tobacco excise increase, raising $5.3b for budget

SMSF trustees have welcomed the government’s decision to scrap the cap on tax-free income streams in retirement.

The Association of Superannuation Funds of Australia said dropping the mooted 15 per cent tax on annual superannuation earnings above $100,000 removed uncertainly around the retirement savings system. Critics noted that the decision to scrap this tax along with the Low Income-earners Super Contribution (LISC) unfairly targets Australia's lowest earners see for example the views of Industry Superannuation Association here.

Generally, commentators suggest that a wider review of tax is needed and that it must be tied to a national productivity agenda - see for example the comments from Stephen Martin of CEDA: VIDEO: CEDA's Professor Stephen Martin speaks with ABC News Breakfast (ABC News) 

The Institute of Chartered Accountants Australia today welcomed the government’s decision not to proceed with the $2,000 cap on the tax deductibility of self-education expenses.  Chief Executive Officer Lee White said today’s announcement was a win for common sense.  “The government must be congratulated for having the foresight to see that this was bad policy.  Education is the key to our economic prosperity and this cap would have hurt our productivity down the track,” he said.

The Institute said the government’s announcement related to companies looking to establish offshore subsidiaries is welcomed.  “The decision not to proceed with the repeal of interest deductions for companies borrowing to expand offshore will help make Australia an attractive place for international business,” Mr White said.

The government has indicated its intention to resolve all policies relating to the tax backlog by 1 December 2013 for inclusion in the Mid-Year Economic and Fiscal Outlook, with a view to legislation passing by 1 July 2014.  

Treasurer Hockey also announced that a tax White Paper would be commissioned such that proposed changes would be taken to an election.