Super Backdown Fantastic News for Those on Modest Incomes
One of the great things about Treasurer Jim Chalmer’s embarrassing backdown on superannuation tax is the boost it will give to low-income earners.
While most of the controversy around super changes has been around those with $3 million or more and how much tax they will pay, the far more important change that has emerged from the compromise solution is great news for those on the other end of the income scale.
In terms of the number of people affected and the impact on their lives, the changes at the lower end are much more likely to have an enduring effect.
Lots of Lower Income Winners
Up to 45% of the Australian population earn $45,000 a year or less and these changes will see some of them ending up with an extra $15,000 in their super nest egg by the time they retire.
All told, more than 1.3 million people will benefit from the super changes at the lower end of the tax scales while the now indexed $3 million super tax is estimated to hit only 87,000 people and the $10 million plus super tax will only hit around 8000 Australians.
Under the revised arrangements the $3m and $10m thresholds will be indexed for inflation, with the tax on earnings rising to 30% above $3 million and 40% above $10m.
The other major change is that unrealised gains will not be taxed, meaning that those who hold assets such as farmland or start-ups in super will now only incur tax on the increase in value if the asset is sold and cash proceeds are available to settle the tax.
Long Overdue Help for Younger Workers
As you can see, the biggest change that effects the biggest number of people is not the moderation of the tax on very large balances but the long overdue changes for young workers I discussed here.
The changes announced for the low-income tax offset (LISTO), expands the threshold for assistance from those earnings $37,000 or less up to a new threshold of $45,000, while the maximum government payment under LISTO will also increase from $500 to $810 on July 1, 2027.
As Jim Chalmers pointed out: “It will benefit all workers with incomes between $28,000 and $45,000, with an average increase in the LISTO payment of $410,” Chalmers said.
“These workers could receive a potential benefit at retirement of around $15,000 depending on an individual’s income over their career.”
The basic idea behind LISTO is very simple – it is designed to compensate often young workers who would otherwise be paying the 15% earnings tax on their superannuation fund at a higher rate than their pay.
Lack of Indexation Hurt Young Workers
Because LISTO was previously not indexed from when it started in 2017, many young apprentices, tradies, construction and other workers progressively have started to miss out on some early support that would greatly boost their later retirement savings.
Super fund CBUS pushed for changes to LISTO because it had noticed the number of its members receiving the benefit had fallen a lot over the past five years.
That has now changed, with the increased amount of $45,000 a year reflecting the years of lost indexation with the rise in the maximum payment to $810 also making up for lost indexation.
The issue which Cbus has outlined is that with no indexation many workers who are still on quite low effective incomes are missing out on the full benefit of getting LISTO payments over many years.
The changes should put an end to the strange situation in which some workers are forced to pay a 15% tax on their superannuation contributions—a higher rate of tax than they would pay if it was earned outside superannuation.