The Turnbull Government has caved to pressure from the Coalition right and the Labor Party and dumped the $500,000 cap on non-concessional contributions. From The AFR:
In a compromise to be put to the party room for approval on Thursday, sources said the $500,000 cap backdated to 2007 had been removed and replaced by a mechanism in which people would be able to make both concessional and non-concessional contributions until the cap of $1.6 million in a super retirement account was reached. There will be a yearly cap of $100,000 on non-concessional contributions until the $1.6 million is reached.
Pathetic. As noted by the Grattan Institute’s recent report, this backdown will overwhelmingly benefit the Coalition’s wealthy constituents:
…all the evidence shows that very few middle-income earners, and even fewer women, make large catch-up contributions to their super funds:
…In reality, after-tax contributions do little to increase retirement savings. Instead most people who make after-tax contributions already have large super balances and typically contribute from existing pools of savings in order to minimise their tax (Figure 7).
Only 1 per cent of taxpayers have total super account balances of more than $1 million, yet this tiny cohort makes a quarter of all post-tax contributions…
Advertisement
That said, there are at least some offsets, with the Coalition also removing its plan to abolish the work test for super contributions, according to The AFR:
Dumping the $500,000 lifetime cap would cost the budget $550 million in revenue over four years.
To recoup this, sources said the government had scrapped a proposal to remove restrictions such as minimum work requirements on people aged between 65 and 74 wishing to make voluntary contributions to their super.
As noted by Grattan, the work test is essential to minimise tax planning:
Advertisement
The 2016 Budget also proposed removing the work test, a change that would allow more people aged over 65 to contribute to super even if they are not working and saving for their retirement…
This change is undesirable because it does not serve the purpose of superannuation. Removing the work test for older Australians will do little to support genuine retirement savings, but will turbocharge tax planning for wealthy retirees…
I have said it before and I will say it again: the superannuation fiasco highlights the dysfunctionality of the Coalition.
A properly functioning party would have agreed on a reform package before taking it to both the May Budget and the Federal Election, not announcing it first then arguing about it and watering it down later.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
