Labor Government looking at increasing the tax on Superannuation

Unless you can’t read or don’t watch any TV news there is no way that you could not be aware that the Labor Federal Government is looking at what options it might pursue in relation to increasing the tax paid on superannuation.

A lot of people may not realise it but when (in Australia) money is paid into your superannuation fund (or funds) the government gets 15 percent as tax. So if you earn $100,000 per year and thereby your compulsory 9 percent superannuation input was $9,000 you would have paid $1,350 to the government and actually only had $7,650 added to your superannuation capital.

For people who put in top-up lump sum amounts, they are also taxed at 15 percent (by and large with some changes here and there if they put in really large top-up amounts).

So what the government seems to be considering is increasing this superannuation input taxation.

The basic problem is that the government needs heaps of money really fast. The official deficit is something like $20 billion and the actual gross deficit is well over $100 billion. The government made some massive miscalculations on how much money they would be making in the later half of 2012 and now into 2013. But the problem is they have already spent and committed the money back in FY11 and FY12 before they actually had any of it.

So the plan with superannuation, at this stage, seems to be to introduced stepped input taxation with the first step up from 15 to 17.5 percent hitting people who earn over $160,000 per annum, and the second step up to 20 percent hitting people who earn over $220,000. Or perhaps remove the 17.5 percent step and just have15 percent up to incomes of $220,000 and then 20 percent after that.

But this is all still very speculative and obviously the various superannuation bodies are seriously against this. It is likely to make the very rich more cautious about putting in additional top-up funds because they are going to be taxed at 20 percent.

However, somehow the government has to get more income and they need it fast. They have made some serious errors in forecasting income due to the lack of returns from the carbon tax plus the massive unforseen drop in taxes and royalties from mining due to the drop in resource prices.

Another quick and easy option they have is to increase income taxes or, to put it another way, wind back the income tax reductions they gave us three years ago. I bet this option comes up in the next month or two as we head towards the May budget.