Tax on super earnings over $100K

Written By Unknown on Jumat, 05 April 2013 | 20.01

Deputy Prime Minister and Treasurer, Wayne Swan and Minister for Financial Services and Superannuation Bill Shorten holding a press conference at Parliament House in Canberra. Picture: Smith Kym Source: News Limited

DUMPED cabinet minister Simon Crean has welcomed the government's planned changes to superannuation, after issuing stern warnings to his party against any retrospective reforms.

Labor will raid Australia's superannuation accounts to plug its revenue hole, with earnings over $100,000 to be taxed under a plan unveiled today.

Treasury estimates around 16,000 Australians will be affected by the measure in 2014-15 which represents 0.4 per cent of Australia's projected 4.1 million retirees in that year.

Mr Crean, who was sacked by Julia Gillard from his Regional Australia portfolio after calling for a leadership spill between her and Kevin Rudd last month, said today the reforms were "fair" and "reasonable".

"The package of measures today involving no retrospectivity, and addressing adequacy and sustainability, I welcome," Mr Crean said.

"They are fair, they are reasonable, but they are also building on the great legacy of making superannuation available to all members of the work force," he said of the measures.

"I am very pleased the announcement today clarified and we can get on with a sensible debate and not speculation."

Mr Crean did a series of media interviews in the past week urging the government not to touch the money people had already put into their superannuation savings and said any reforms needed to be about the long term sustainability of the system, not about finding money to plug the government's revenue hole.

While he was happy with the reforms -- the headline of which was a tax grab on the earnings of superannuation assets over $100,000 -- Mr Crean said reform of the sector needed to go further.

"I think in the longer term we should be moving from 12 to 15 per cent," he said of compulsory employer contributions.

Share the anguish of columnist Joe Hildebrand, who painstakingly avoided talking about superannuation... until now.

Mr Crean also urged the government to put the measures to parliament as soon as possible.

"The sooner they can go to the parliament they should go to parliament," he said.

"But the real question is can they be passed? I urge the opposition to get behind these measures and for once give bipartisan support."

Super reforms to hit top earners

Superannuation Minister Bill Shorten and Treasurer Wayne Swan this morning revealed Labor would cap the exemption for earnings on superannuation assets supporting income streams at $100,000 with a concessional tax rate of 15 per cent to apply after that. 

Tony Abbott immediately hit out at the planned reforms describing them as "another broken promise" that would result in less money in the pockets of Australians.

Assuming an annual rate of return of 5 per cent, the changes - set to take effect from July 1 next year - would affect individuals with around $2 million of savings in superannuation.

"We want to make it better, we want to make it fairer and we want to make it stronger," Mr Swan said of the superannuation system.

The measures - which will also hit politicians - will bring in around $900 million in savings for the federal budget over the forward estimates.

Mr Swan said there was "something wrong" with the system that everyday working Australians weren't getting the best deal from superannuation.

Simon Crean has welcomed the government's planned superannuation reforms. Pic. Kym Smith

Mr Shorten said "we want to take superannuation above politics".

"We believe the system should be targeted at everyday earning Australians," he said.

"We all know that concessions can't be open ended.

"Once you've achieved a comfortable level in retirement savings, you probably don't need as much as those who haven't gotten to that point."

He said the changes "were not retrospective".

"Vigilance dictates that we must make these hard changes," Mr Shorten said.

Click on this link for the full announcement details.

People aged 50 and over will also get a boost to the tax free additional contributions they can make from $25,000 to $35,000.

However the measures may not even go to the parliament before the next election.

"We will do what we can in the time available before the next election," Mr Shorten said.

Abbott slams 'raid on retirement savings'

Tony Abbott today said the new measures were"yet another hit on Australian people".

The Opposition Leader said people would ultimately have less money as a result of the flagged changes.

"This is a government that is incompetent and untrustworthy," Mr Abbott said.

"This is a government which is prepared to tax the people to fund own spending.

" On balance this is a $1 billion hit on people's retirement savings. It is a $1 billion hit on savings that belong to the people, not the government."

He said if re-elected there was no guarantee Labor would stop at the measures announced.

"If they get three more years they will go further – it wont stop here," Mr Abbott said, maintaining there would be no adverse, unexpected changes to superannuation under a first term of a Coalition government.

The Liberal National Party's candidate in Kevin Rudd's Brisbane electorate of Griffith, Bill Glasson, today urged the former prime minister to fight against the government's announced superannuation changes.

"We can't allow this financially incompetent Labor government to raid retirement savings as a way of trying to cover up their ever-growing budget black hole," Dr Glasson said.

"The danger is - if Labor can get away with this once, they will try it again after the election. We can't let Labor destroy public confidence in super."

Greens Leader Christine Milne said Labor needed to step up and act on the mining tax after its retreat on superannuation.

"The Government has disconcerted the whole country with their on and off again super reforms. And now they are still failing to say how Australia's revenue hole will be fixed," Senator Milne said.

"Labor is clearly not serious about facing the revenue challenge Australia confronts. Unless that revenue challenge is addressed we will rush headlong into a less caring Australia where the majority will miss out on the public schooling, health care such as Denticare and the public transport infrastructure they deserve.

"The government should focus on those who can afford to pay: the wealthy mining companies who have short changed Australia of up to $100 billion in revenue."

Keating welcomes balancing reforms

Former prime minister Paul Keating welcomed the changes, saying they had struck the right balance.

Mr Keating said the changes corrected what he called unsustainably generous tax changes under Peter Costello which he said dismantled the former Reasonable Benefit Limit's structure in favour of an open ended tax free regime.

He added they also had the effect of modestly limiting the otherwise open concessionality on fund earnings while leaving accumulations untouched, moderating the concessionality without returning to the rigidity of the former RBL structure.

"The changes seemed designed to return to the notion of 'reasonable benefits' for Superannuation without altering the tax treatment of lump sums themselves," Mr Keating said.

"The former Labor Government's Superannuation system was designed as a retirement income system broadly to augment the age pension – it was never designed to make possible the shelter of income for those able to contribute increasing levels of precautionary savings and their associated compound earnings.

"The sustainability of the retirement income system demands that that balance be maintained. The Government, by these changes, appears to be striking a reasonable balance."

Under current arrangements on superannuation, all earnings on assets supporting income streams are tax free in contrast to earnings in the accumulation phase of superannuation which are taxed at 15 per cent.

As part of other changes today Labor will also establish a special Council of Superannuation Custodians to ensure any future changes to the sector are consistent with the agreed Charter of Superannuation Adequacy and Sustainability.

It will work to simplify the design and administration of the higher concessional contributions cap, reform the treatment of concessional contributions in excess of the annual cap, extend normal deeming rules to superannuation account-based income streams, extend concessional tax treatment to deferred lifetime annuities and further reform the arrangements for lost superannuation.

Asked if the changes would help fund the Gonski education reforms and the National Disability Insurance Scheme Mr Swan said it was one of many savings that would help bring back revenue.

"You do create room in the longer term for policy proposals," Mr Swan said.

"There is no magic wand or one area of savings that will instantly change the fact that revenues have come off dramatically."

Speculation over the government's planned raid on superannuation hit fever pitch this week.

The reforms were due to be part of next month's federal budget.

Interest groups split on super reforms

The Association of Superannuation Funds of Australia today welcomed the government's announcement.

The organisation's CEO Pauline Vamos said it would help stop the panic in the community and allow people to better plan for their retirement in an environment of stability and certainty.

"We have been calling on the government to put a stop to the hysteria and consider policies which take a long-term approach to the future sustainability of Australia's superannuation system," Ms Vamos said.

She said there was a lot of complexity in the changes which needed to be considered carefully.

"We will examine these proposed changes in detail to ensure they deliver the best outcomes for the sustainability of the system and a comfortable retirement for all Australians."

The Australian Council of Social Service today expressed disappointment over the announced reforms.

"Whilst we obviously welcome these improvements, the reality is the changes announced today by the federal government amount to a mere tinkering at the edges of a system that is grossly skewed in favour of people on the highest incomes," CEO Cassandra Goldie said.

"Capping tax exemptions on superannuation earnings supporting pensions and annuities at $100,000 will only affect people with super assets of more than $2 million. They will still only pay a rate of 15 per cent tax on their super savings, making savings of just $350 million over the next four years.

"This is a drop in the ocean of unfair super tax arrangements that are expected to be valued at $44.8 billion by 2014-15. It is less than half the money the government took away from single parents in the last Budget, who are likely to have little hope of securing adequate retirement savings."

- with Patrick Lion, Angus Livingston

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