With the government mulling over a tax increase on superannuation earnings for the wealthy in the May budget and the opposition wading in with their own plans for those on lower incomes we can smell a class war. Things are hotting up for this year’s election as politicians play out this little class war in the parliamentary battle ground but we want to take a look at how it affects taxpayers in the real world.

Changes on the table

The Prime Minister, Julia Gillard has backed down on plans that could have seen many wealthy over 60s being taxed on withdrawals from their super fund. The opposition attack would probably have been too relentless and going forward with this particular tax plan could have been a political bridge too far.

However the government is reportedly considering a tax raid on super for the very wealthy. This type of tax is more opaque than a withdrawal tax and is likely to only involve a small percentage of earners right at the top of the pile. What concerns most people is any move that could signal the start of a more concerted tax incursion on long protected and hard earned super. After all, Labor has form in this area after already lifting tax on super contributions for those earning over $300,000 last year.

We are a nation justifiably protective of our retirement coffers and moves from both sides of the political divide could be threatening the way we retire and enjoy this time of life. According to the Financial Services Council’s budget submission the next 8 years could see taxes to super grow by 200% up to $18 billion from a current $8-$12 billion. Your accountants and financial advisors will be watching with avid interest as they start to decipher the potential changes to come and how they can help you avoid a tax storm on your savings.

Lower income earners at risk too

While the government set their sights on the wealthy end of town, the Coalition is considering getting rid of a tax break on super for over 3.5 million low income earners. This is not great news for many tax payers who are struggling with debt and staying afloat. Not only is it an uphill battle to overcome debt it then seems harsh to be facing a new tax on hard earned super. It is not just the very low income earners who are finding that debt is a problem. Australian household debt as a percentage of disposable income has been stuck at 150 per cent for five years – this is the highest in the world. It’s unsettling to think that 20 years ago this was hovering at 50 per cent and that interest paid as a percentage of income has doubled in the past 20 years. In an ideal world middle and lower income earners should be receiving help and guidance on dealing with this personal debt crisis rather than facing a raid on their retirement savings. Ironically, people who are seeking legal aid in increasing numbers for credit and debt issues are locked out of receiving any free legal advice because of tough means testing according to LegalAid NSW.

Watch super become an election theme and plan ahead

With both main parties talking about changes to super you would do well to be aware of which changes could be around the corner after the election. The government proposals are based on a certain amount of speculation, but you never know what may be in store for Australian taxpayers if Labor receives any kind of mandate as they have been eyeing up super since Rudd came into power.

We are still hoping that super remains untouched for the foreseeable future. We aren’t the only ones. John Brogden, Financial Services Council chief executive is calling both parties to hold off on negative changes to super for at least the next three years “If superannuation becomes a political issue, no one wins. The industry has strongly supported sensible reforms to the system, but we’ve had enough.”

Protecting super and relieving our tax burdens is even more crucial than ever, especially with new research from the Association of Superannuation Funds of Australia showing that for the first time a retired couple would need over $56,000 a year for a comfortable lifestyle. 

Mr Taxman comment:

Superannuation is apparently one of the four industries that influence Australia.  It is a $14 Trillion industry which equates to 104% of Australia's GDP.  Yet little is known about super, especially SMSFs which represent one-third of the industry.  The Cooper Review revealed lots of recommendations and the lack of superannuation research motivated me to do a PhD on "the cost, asset allocation, investment perfromance and audit attributes of Australian superannuation funds."  I hope you will enjoy my findings at the end of the year.

In all the years that I have been an accountant, the one thing that has been constant about superannuation in Australia is change. So once again I expect there to be changes made to super this coming Federal Budget and in the build-up to the election.  In fact I am going to an ICAA luncheon on Wednesday (27 Feb 2013) where I expect the Minister for Superannuation, Mr Bill Shorten, to announce some super fund changes.  So long as any adjustments bring with it a grandfathering provision (that is, the rules do not apply for those in super funds before the announcement date) then I will be relatively happy.

For what it is worth, I would make one tax change to super.  And a simple one at that.  I think I might write that one up next week ... well if I can find the time to!