After deciding not to touch the GST and being scared off making any changes to negative gearing and capital gains tax, the Federal government has all but confirmed superannuation is now the target.
Speaking at the Australian Financial Review Business Summit 2016, treasurer Scott Morrison says superannuation was beginning to exceed its role in retirement savings.
"At over $2 trillion the national savings box can be ticked," he said, "It's not an estate planning tool, that's not what we believe superannuation to be."
The changes to super are expected to be announced at or before the May budget, which is scheduled for May 10, but could be brought forward by a week to May 3, depending on the government's plans around an early election.
The government is also expected to announce a legalised definition of the purpose of superannuation. And there I was thinking it was simply a means to save future government's from having to fund every Australian's retirement. The Murray Review defined it as 'to provide income in retirement to substitute or supplement the age pension'.
However, it could also be argued that a proper definition is needed, and superannuation concessions pared back. Particularly with some Australians headed for multi-million dollar super balances, which are likely to be more than enough to support them in retirement. An estimated 2,000 Australians have more than $10 million each in their accounts, with six having more than $100 million.
Experts say that it's still possible to contribute up to $6 million into super over 30 years, and if you include investment returns, balances of much higher than that are possible.
The Australian Financial Review (AFR) believes that the government will target the accumulation phase of super – while Labor has targeted the tax-free status of retirement earnings at the high end.
The AFR says the government is looking at reducing the annual contributions cap from the current $30,000 a year to $20,000. Labor wants to tax all super income over $75,000 at 15%, with under $75,000 tax-free.
Transition-to-retirement pensions which allow people to access a tax-free income stream from their super once they reach their preservation age, and while they are still working, are also likely to be abolished or limited.
The hinted-at changes are likely to save the government billions over the years, but rather than using that to pay down debt, both government's intend to use the savings to increase spending. For the Coalition, it's likely to be individual and company tax cuts, while Labor has pledged to use its proceeds to boost health and education spending.
Foolish takeaway
I have no problem with the government targeting loopholes in the superannuation system. But if they want to encourage people to save for their retirement, reducing the maximum Australians can contribute to super each year sounds like a great way to stop Australians from saving for their retirement.
A lifetime cap sounds like a much better idea, which is what the Association of Superannuation Funds of Australia (ASFA) have proposed.
And while $2 trillion might sound like a lot, it's also less than $100,000 per Australian currently – definitely not enough to see a person through 20 or 30 years of retirement. Most Australians don't have enough super now and have to rely on either a part pension or full pension – which the government still has to fund.
