So, today’s Budget day. What does that mean? It is the day when the Government announces its intentions for revenue raising (taxes and other charges) and expenditure for the forthcoming year. Many of the announcements made tonight (at 7.30pm AEST) impact everyday Australians, so we’ve identified five rumoured or leaked announcements that will be relevant to most people in terms of their personal wealth. We’ll follow up in coming days with more concrete observations and information. These are merely our preliminary reactions to the media coverage.
Here are five key speculations and leaks we’ll be keenly watching in order to update you in the next day or so. The devil will be in the detail...
Capping super contributions
What is it? The current concessional caps of $30,000 for people below 50 and $35,000 for people 50 and older are considered by industry groups to be too low for people to be able to put away enough money to be self-sufficient for their retirement. They have come down from levels of $50,000 and $100,000 a year a few years. Yet, in this budget, there is speculation the caps could be lowered again.
Why we care… The core of our retirement system is about securing retirement incomes without burdening younger generations with the costs of a growing age pension system. Yellow Brick Road wants to see Australian families incentivised to invest in their retirement future and build adequate savings.
Limits to transition-to-retirement (TTR)
What is it? Transition-to-retirement is a government policy launched in 2007 that has allowed Australians to balance the benefits of both working and using their super, without totally losing the advantages of either. The nature of TTR allows flexibility in work-retirement arrangements. While media reports in the lead up to the budget say there is evidence the rules are being used as a way for older workers continuing to work full-time to pay less tax on their income, we are fans of TTR here at Yellow Brick Road. There are pre-budget rumours the Government will raise the age of TTR 56 to 60. The government could also tighten the regulations by allowing the TTR arrangements to apply only for people moving from full-time to part-time work.
Why we care… TTR is a flexible, individual-driven system, it allows you to customise your retirement strategy, getting there with less tax and a bigger super balance. We think it’s a system that allows people to set themselves up for retirement the way they want to. So we’d like to see it stay largely as it is.
Super top-ups for mums and low income-earners
What is it? Women could be given the ability to top-up their own super once they return to the workforce after raising children, and this could also apply to people who had missed long periods of work due to sickness or injury. Those people could receive direct super top-ups from the government to help save for retirement, using money made from reducing superannuation tax concessions for high-income earners.
Why we care… We would applaud an initiative to fund super ‘top ups’, particularly for women who spend less time at work due to family commitments. Currently 70 per cent of pensioners are women and super balances across the board are far lower for women than men. Any initiative that helps more Australians prepare for financial independence in retirement is welcomed by Yellow Brick Road. On average, men approaching retirement and aged between 55 and 64 have about $320,000 in super, while women will only have $180,000.
Fixing tax bracket-creep
What is it? It is expected the Government will make changes to middle-income tax brackets to fend off bracket creep impacting thousands of workers over the next couple of years. Prime Minister Malcolm Turnbull has promised today’s budget will aim to make the tax system fairer and more sustainable.
Why we care… If “bracket creep” is not addressed, it would see many workers paying up to $2000 a year more in tax by 2018-19. Plus, roughly 20 per cent of the 300,000 workers who earn more than $80,000 but less than $85,000 are women and many have experienced bracket creep thanks to wage inflation. This move by the Government to stop earners in the 80,001 threshold from paying 37c to the dollar, and instead pay 32.5c, will see an extra couple of hundred dollars in the pockets of those workers.
Removal of tax concessions
What is it? We’re hearing that the government may well consider paring back superannuation tax concessions for high-income earners by lowering the 30 per cent tax on concessional contributions to $180,000 from $300,000, and helping those on low incomes.
Why we care… We think this idea is flawed. While low income earners, women and contractors often have balances too low to self-fund their retirements, these people will not be helped by limiting tax breaks to wealthy people. Changes we would applaud would be measures to get more people to a level of adequate savings, rather than just cutting tax concessions. What we should be doing is incentivising more Australians to take financial advice and make a plan for retirement. But people can’t plan for their retirement if the rules are constantly changing.