With the Federal election looming, the question now is which political party will deliver this desired surplus? However, the real question Australians should be asking is, “At what cost will a surplus be delivered and how can it impact me?”
A surplus will only be gained through budget cuts and taxes, but what Australians will politicians put in the firing line?
Up until December last year, Treasurer Wayne Swan had been resolutely committed to delivering a surplus. But, Mr Swan had to admit that delivering a surplus in the May budget was unlikely due to a lack of revenue.
“Obviously, dramatically lower tax revenue now makes it unlikely that there will be a surplus in 2012-13,” he said.
This was a smack in the face for Labor, having forecast a budget surplus of $1.1 billion for the full year 2012-13 when it delivered the Mid-Year Fiscal and Economic Outlook.
So now, this issue of a surplus is back on the political agenda, and voters seem to have faith in Joe Hockey’s ability to deliver one.
It seems the one way to ensure they come good on this promise is by taking the money from Australian’s superannuation accounts. That’s right – to create a budget surplus, politicians would be willing to take your personal surplus, your retirement fund, away through increased tax.
The superannuation industry have successfully campaigned for an increase in the compulsory super rate (9% to 12% over seven years, ending in July 2019) and this seems to have left both the Liberal Party and the Labor Party rubbing their heads in glee at the thought of all that cash.
In February, Tony Abbott confirmed plans to axe a super tax break worth up to $500 a year for 3.6 million low-income earners. While Mr Abbott pledged that there would be “no unexpected changes that are detrimental to people’s superannuation” if elected, the axing of super concessions for people who really need it paints a different picture.
Finance Minister Penny Wong yesterday refused to rule out axing superannuation tax concessions in the upcoming May Budget.
In a move that reeks of hypocrisy, Mr Abbott responded by telling the government to leave super alone. He told reporters in Minchinbury, in Western Sydney, that with less than 50 days to the coming budget, the government needs to get its $300 billion worth of debt under control. But, he says this has to happen through cutting what he calls “unnecessary government spending” and not by raiding people’s superannuation savings. Mr Abbott has a fair point, but is he raising it because he cares about the super savings of the average Australian? Or is it because he wants to be the one to do it if he wins the election in September?
Axing super tax concessions would completely go against what Labor stands for, especially considering Labor is the party that set up compulsory superannuation under the Keating government in 1992.
Sacked cabinet minister, Simon Crean has warned that raising taxes on super would trash this legacy.
“You can’t be taxing people’s surpluses built up in a super fund to pay for our surplus,” he told The Financial Review.
While Mr Abbott has indicated he’ll be going after the lower income earners, the Labor Party indicated in February that they will look to make changes that will impact the top 10 per cent of earners. Treasury and the ACTU have said tax concessions should be cut back to introduce greater equity to the system. Ministers were being urged in February to embrace the changes, with the ACTU arguing that the top 10 per cent of income earners receive one-third of the tax benefits under current rules.
Superannuation is generally taxed in two stages:
– Contributions: taxed at 15% as long as payments into the fund don’t exceed $25 000 a year;
– Earnings on fund assets: taxed at 15%
Withdrawals after retirement are now tax-free due to changes made by former treasurer Peter Costello in 2006.
The issue of the surplus is understandable. Everyone likes knowing they have a little cash spare for a bad day, and this did come in handy during the GFC. But is the need for a budget surplus so important that we are willing to risk our super funds for it?
Superannuation needs to be on the agenda for the election and voters need to decide what’s more important: a budget surplus or a fairly taxed superannuation scheme.