Australian Opposition Looks At Pension Tax Changes

by Mary Swire, Tax-News.com, Hong Kong

16 August 2010

Joe Hockey, the Australian Liberal party’s shadow treasurer, has confirmed that a future coalition government would not raise the guaranteed superannuation rate, but would look partly to tax changes to produce increased savings for retirement.

The Labor government has already confirmed that it will go ahead with a rise in the guaranteed superannuation rate from the current 9% to 12% and the provision of a new superannuation concession for lower income earners. The government’s contribution to those changes would be financed by using part of the funds arising out of its new mining taxes.

Hockey, with the opposition having already completely rejected the government’s new mining tax proposals, has had to reaffirm that a future coalition government would also reject any increase to the superannuation guarantee.

While he recognized that it will be necessary to produce an increase in the pool of retirement savings so as to provide reasonable pensions for Australia’s population in the future, he suggested that there were better ways of making that change – particularly by examining the tax proposals made in the Henry tax review.

The Henry review proposed that the existing tax on superannuation contributions in the funds should be abolished. In replacement, to distribute concessions more equitably between low-and high-income earners, employer superannuation contributions should be treated as income in the hands of the taxpayer, taxed at marginal personal income tax rates and then receive a flat-rate refundable tax offset.

The tax offset would be provided for all superannuation contributions up to an annual cap of AUD25,000 (USD22,200), which would be indexed. The offset would be set so the majority of taxpayers did not pay more than 15% tax on their contributions. In addition, the rate of tax on superannuation fund earnings should be halved to 7.5%, and superannuation funds would retain their access to imputation credits.

Hockey did not elucidate on whether the opposition accepted all or some of the Henry review’s proposals, but only said that they would rather increase pension savings through growing the economy and by means of changes in the tax system.

While he said that companies, particularly small businesses, are worried by the increased costs to them arising out of any hike in the superannuation guarantee, other parties, particularly those in the pension industry, are similarly concerned that the retirement savings gap will remain wide open until the guarantee is increased significantly.

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