The stage two tax cuts will leave more than 700,000 low-income women worse off if tax arrangements for superannuation remain unchanged.

Research from Industry Super Australia (ISA) reveals that 1.2 million low-income workers, of whom 60 per cent are women, will be paying more tax on their superannuation than on their incomes if there is no change to the Low Income Superannuation Tax Offset [LISTO].

LISTO currently pays low-income workers up to $500 a year to ensure the tax rate on the compulsory contributions that employers put into their super is not higher than the amount of income tax they pay.

But stage two of the Morrison government’s income tax cuts will raise the upper limit for the 19 per cent tax bracket from $37,000 to $45,000, without changing the LISTO.

That will leave the 1.2 million low-income earners, of whom 705,000 are women, paying 11.3 per cent tax on their income once the tax-free threshold of $18,200 is accounted for.

Meanwhile, they will be paying 15 per cent on their super – which means they will have no incentive to save a little extra for retirement.

ISA said if the LISTO payment was boosted to a maximum of $640, then the old balance would be restored and super would not be taxed at more than wages.

ISA and Women in Super (WIS) have also called for LISTO to be increased in line with the legislated hikes to the superannuation guarantee, which are due to begin next July.

An immediate boost to LISTO would significantly benefit younger women’s retirements, the ISA research found.

“More than 200,000 women under 30 would get the super boost, providing vital early career contributions that make the biggest difference to the final nest egg,” ISA said in a statement.

“The changes could lead to a 30-year-old woman earning $40,000 being up to $56,170 better off at retirement.”

Women would get $291 million of the super tax refunds from an increased LISTO, and “the proposal would provide $488 million in super tax breaks to those earning less than $45,000,” ISA said.

“It would be a much-needed super boost after women [withdrew] about $14 billion from super under the government’s early release scheme.”

ISA analysis showed that a quarter of females making early withdrawals under the scheme effectively drained their entire balances.

“On average women are still retiring with almost half the amount of super than men. This proposal will put more money into women’s super-balances early in life – going someway to bridge the gender pay gap that unfortunately persists in retirement,” said ISA CEO Bernie Dean.

The group’s research found that many women become eligible for LISTO at about the same time they leave the workforce or reduce hours to raise children. And about a third of all new recipients of the proposed LISTO increase would be women in their 20s and 30s.

ISA said this was also about the same time the super savings gap started to widen – with the average super balance gap of women doubling from 15 per cent less than men at aged 30 to about 30 per cent less once a woman reached her 40s.

Young women need the help

“The LISTO is important to ensure lower income earners receive some tax relief for saving for retirement,” said WIS chair Catherine Wood.

“It can never match the $10,000 plus annual tax break received by high income earners, and the government should at least maintain the integrity of the provision which impacts over half the female workforce.”

“Young women on lower incomes have had to access their superannuation to get them through the pandemic,” she said.

“The least the government can do is to keep the LISTO relevant.”

Nicky Hutley, partner with Deloitte Access Economics, said the government would be under pressure to boost LISTO.

“It would be a pretty poor look not to do it; especially with all the publicity about the lack of measures to help women in the budget,” she said.

“We have a pink recession and a blue budget.”

The New Daily is owned by Industry Super Holdings