Wealthy Australians are locked in for thousands of dollars in indexed extra superannuation tax breaks from July 1, while those on average wages are being threatened with losing the promised small increase in the super guarantee (SG).
The cap for annual concessional super contributions is being increased from $25,000 to $27,500, the cap for non-concessional (after tax) contributions is going up from $100,000 to $110,000, and in the richest windfall of the changes, the tax-free transfer balance cap is jumping by $100,000 to $1.7 million.
For those rich enough to have $1.7 million in super (and, yes, Josephine, if you have $1.7 million in super, you’re in the small privileged minority), that $100,000 increase effectively means another $5000 or more in totally tax-free annual income in the pension phase.
Most people would have to earn an extra $7644 – 13 per cent of the average wage – to receive the same after-tax amount.
For someone on the top income tax rate with the spare cash to be able to take advantage of the increase in concessional contributions, that $2500 increase saves $950 a year in tax.
By comparison, someone on the average wage of about $60,000 a year has been promised a 0.5 per cent increase in the SGL on July 1.
That would result in another $255 in their super fund after the contributions tax. (Which is still more than the average worker would receive if they had a 0.5 per cent pay rise instead.)
If the government doesn’t scrap the legislated phased-in increase of the SG to 12 per cent, the full 2.5 per cent rise would be $1275 extra in super on the average wage – not all that much more than the government is giving in the increased tax break for high-income earners able to make use of it.
It pays to be wealthy
By the nature of the progressive income tax system, concessional contributions are worth more for those on the top tax rates than those on lower incomes.
The superannuation system disproportionately benefits the wealthy.
And you qualify as wealthy if you’re capable of taking advantage of the increase in the non-concessionary contribution cap from $100,000 to $110,000.
While there’s no immediate tax break on the extra $10K, it enters one of the best tax havens on Earth, where it compounds with its earnings only being taxed at 15 per cent and then at nothing at all when in the retirement pension phase under the fat $1.7 million cap.
Sure, the increased caps aren’t limited to those on high incomes – anyone can take advantage of them.
Know anyone on average or median wages capable of topping up their SG with a spare $20K, or being able to build a $1.7 million super account? Me neither.
The moral of the story, as always, is that it pays to be wealthy.
The anti-superannuation gang of government backbenchers led (if that’s the right word) by Tim “Franking Credits” Wilson and Andrew “Kill The New Daily” Bragg are devoted to scrapping the SG increase and are trying a number of ruses to do it.
Funny thing though, I haven’t noticed them campaigning to stop increases in the big tax breaks for the well off.
The New Daily is owned by Industry Super Holdings