Saturday, April 28, 2012

Government Wimps Out and Makes Super More Complicated

So the government will increase the superannuation contributions tax to 30% but only for people who earn more than $300k per year. This is said to reduce the budget deficit by $1 billion. But if there are only 128,000 people earning more than $300k per year the total is:

128,000*$25,000*.15 = $480 million

To get to $1 billion you either have to assume that they are all over 50 with less than $500k in super in their accounts, or use 30% by mistake in the calculation. So everyone from $180k to $300k per year in income will get a 30% concession and those of us earning between $80k and $180k will get a 23% concession. But those earning more than $300k only a 15% concession. Of course, this doesn't make a lot of sense and makes super more complex. It would make much more sense to abolish the concessional tax on contributions and if that is too severe an increase in tax also cut the rate on superannuation earnings a little. This would make the system much simpler by getting rid of the distinction between concessional and non-concessional contributions, salary sacrificing etc. Of course, Labor is still hoping that public servants and maybe some others earning between $80k and $300k a year will still vote for them. So they haven't raised their tax.

5 comments: said...

It usually turns out that the leaked (by government) rumours about the bad things in the budget are oversimplified. In this case I won't be surprised if the actual budget change is simply to change the concessional super tax rate to become the marginal tax rate - 15% for everyone...

This would equate to a 30% 'consessional' tax rate on super contributions for those in the top tax rate (45% for those earning over $180K pa), and would not affect those earning average wage or below.

But it would mean a 'slight' increase in the concessional tax rate applied to super contributions for those in the 37% bracket - from 15% to 22%.

We won't really know until budget night, and even then not until reading through the budget papers to find out the fine details and more obscure implications of the changes.

Darren said...

This is ridiculous. Does the govt really think that by 'evening the playing field' it'll encourage more into super. I'm afraid all it'll do is encourage people like me who have studied hard to get on the boundary of marginal tax rates to not put any more money into super. The concessional caps are enough of an impost. At the moment I'd put whatever I could afford in super because it is a good vehicle for saving tax efficiently. Unlike many other countries such as the UK, we already pay marginal rates on cash savings, have no capital gains tax free threshold, and no tax free style accounts like ISA's (other than first home saver accounts), so this is simply a poor attempt at vote winning, and a poor attempt at trying to create a surplus that is unncessary. It doesn't add any long term benefit to the economy.

Why not target negative gearing first that, for existing homes at least adds no value to the economy at all.

mOOm said...

This is just about getting a surplus (which I think is actually a good idea as it will force the RBA to cut interest rates and let the dollar fall) while annoying as few voters as possible. I doubt there are are many swinging voters earning more than $300k. Enoughwealth is right, the measure actually released could be different to this depending on the media/poll reaction.

Darren said...

The RBA only manipulates its interest rate with respect to inflation. This has been its repeated mandate for many years, since Costello became Treasurer and has been reconfirmed by Swan.
Out of interest, how do you think creating a surplus in this way will cause a rise in inflation? It goes without saying, the RBA doesn't target a dollar value.
Yes, I agree somewhat with you and EW, it seems the govt might have tempered their plan to slug all those in highest tax rate, instead limiting it to over $300k. Polls will not swing postive based on any budget decision, no matter how radical and positive the decision is itself.

mOOm said...

Depressing the economy by raising taxes and cutting spending will allow the RBA to cut interest rates. Well they look like making a start on it on Tuesday.