Budget Change An Attack On Superannuation Benefits For Lower-paid Workers
The Age
Friday June 27, 2008
OVER the past 10 years, every change to superannuation has either decreased tax on it or improved benefits.
The aim has been to reduce reliance on the age pension by making super the preferred method of retirement income.In this year's budget, the Federal Government introduced a measure that reduces super benefits.A measure the Howard government announced, designed to prevent people avoiding child support payments by salary sacrificing into super, has been broadened to reduce access to various government benefits and the superannuation co-contribution.The measure expands the definition of income to include all salary sacrificed as superannuation contributions. This will result in these amounts being taken into account when assessing child support and entitlement to income support payments for people below age pension age, family assistance, superannuation co-contributions and financial and retirement savings assistance through the tax system.A measure preventing people minimising child support commitments through salary sacrifice was justified. To broaden it to other government benefits, and the super co-contribution, was overkill and could result in reduced amounts being contributed to superannuation by the people who need it the most. The measure had mainly gone unnoticed until the adverse effect on lowly paid charity and not-for-profit workers was publicised.The resulting outcry has forced the Government into a rethink on the measure as it affects this sector.A question from a reader highlighted the effect of the measure on all Australians on low wages.The super co-contribution was introduced to boost the superannuation of lower-paid workers. This is done by the Government paying up to 150% as an extra super contribution when a person makes a personal, non-concessional (after tax) super contribution. To be eligible, a person must earn at least 10% of total income from employment. The maximum co-contribution of $1500 is paid for people who have total income of less than $28,980. It decreases the more a person earns.The reason given for including the super co-contribution in the measure was to attack high-paid employees using salary-sacrifice strategies to gain unfair access to the co-contribution. This may be theoretically possible but rarely happens.A person on $100,000 a year would need to sacrifice about $71,000 of their salary to gain access to the $1500 co-contribution.The fact is this strategy is predominantly used by lower-paid workers, with little or no superannuation, to maximise their superannuation as they near retirement.A working family couple with a husband on $38,000 and the wife on $32,000 only needs to sacrifice about $12,000 between them to gain access to a joint co-contribution of $3000. As a result of this measure, the couple's entitlement to the co-contribution will be reduced to $2400.Why the Government is introducing a measure that hurts its main constituency and reverses the trend of maximising superannuation savings, for an estimated revenue gain of less than $100 million over the next four years, is mystifying.Q. In a recent article you said that wages sacrificed as a super contribution do not get counted in the income test for pensioners. I have now heard that amounts sacrificed as super will be counted by Centrelink. Could you advise on any relevant changes in the last budget?A. What you have been told is correct. If the measure outlined in this year's budget is passed, salary sacrificed as superannuation will affect a person's eligibility for Centrelink benefits. It will not apply to the 2008-09 financial year but is set to start on July 1 next year.Questions can be emailed tomax@taxbiz.com.au
© 2008 The Age