Super honeypot

“One small swing for Swan. One giant blow to mankind.”

If you believe that where’s there’s smoke, there’s fire, superannuation is going to cop a bullet to the head in next week’s Federal Budget. A little bit like Danny Glover revoking “diplomatic immunity” in Lethal Weapon 2.

The low-tax environment that is super could be about to change. Radically for some Australians. And as a result, there’ll be a lot less “super” about superannuation.

Like bees and bears posturing over a full honeypot, it’s looking increasingly like the Federal Government is going to stick its great big paw into the $1.4 trillion super bucket – angering hundreds of thousands of little worker bees – next week.

It’s not a bad analogy. Super is a huge pot of money that the government taxes relatively lightly. And when your budget in troubled, digging deeper into the super pot is an easy way of raising revenue.

The government is hell-bent on “balancing” this budget to keep an election promise. It’s not a promise Labor particularly wants to keep. But they feel obliged to deliver for credibility’s sake.

The smoke? Leaks suggest that the government is considering changing the way that money is taxed going into super. That is, Labor feels that higher-earning Australians don’t pay enough tax on money on its way into super.

And making them pay relatively more seems almost a certainty, starting immediately.

Plenty of individual Australians, in the various parts of their lives that makes them up as a whole taxpayer, are going to feel this budget in their hip pocket. You can’t go from a big deficit to a “balanced” budget without inflicting widespread pain.

But in my opinion, it’s a shame that one of the things that looks like it will be heavily targeted (super) is something that encourages people to plan for their future. Given super’s nature, it would appear the more people use super as part of their financial planning, the harder they are going to be hit in this Budget.

Super makes you look further into the future than whatever sweetener you might get in regards to the carbon tax. Or not.

The government will spin it as putting “fairness” back into the system. And some upcoming changes will, no doubt, do that.

It’s hard to argue the Low Income Superannuation Contribution won’t improve fairness. LISC, previously announced and due to start on July 1, will mean that anyone earning less than $37,000 will have their super contributions tax refunded (essentially worth up to $500).

But another measure that is looking likely is far more sinister. And that is that the low-rate contributions tax (15 per cent) when putting money into super becomes a rebate instead of a flat-rate tax.

What’s the difference? Well, instead of everyone paying a flat rate tax of 15 per cent on their super (concessional) contributions, they would instead pay something closer to their marginal tax rate.

This would essentially be an expansion of LISC. LISC is an admission that some people shouldn’t pay super contributions tax at all, because they don’t earn enough and are, in essence, penalised for putting money into super. Currently, they’re taxed at 15 per cent. LISC will mean that their contributions tax will be rebated in full.

Under the rules to start on July 1, if you earn less than $37,000, you’ll pay no super contributions tax. If you earn more than $37,000, you pay 15 per cent on super contributions. But, it would appear, that’s not fair enough.

Interestingly, the government didn’t refute the leaks. They weren’t denied. They weren’t pooh-poohed. They were simply ignored. And that says volumes.

The real problem is this. Continual changes to superannuation turns people off. Despite the recent negative changes to superannuation, super is still a tax-friendly way to save for retirement that provides incentive.

We’ll have to wait another week to see whether Treasurer Swan revokes super’s taxation semi-immunity. And while the government is likely to make its changes effective from July 1, you have a chance to act now.

If you do give a rat’s about your super, then be ready to act swiftly when the Budget is announced.

You may get a once-off opportunity to make a big tax saving by contributing sooner rather than later.

Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser. bruce@debtman.com.au.