Changes to Australia’s retirement savings system will lift the nation’s pension pool by A$500 billion ($463 billion) by 2035, helping to shape financial services into a key export industry, Australian Prime Minister Kevin Rudd said.
The pension levy paid by employers on behalf of their workers will rise to 12 percent from 9 percent over the next decade, boosting money flowing to the country’s two biggest asset managers, Commonwealth Bank of Australia’s Colonial First State fund management unit and AMP Ltd. The changes are part of the government’s response to a tax review by Treasury Secretary Ken Henry released by Treasurer Wayne Swan in Canberra on May 2.
The measures will “boost private savings by 0.4 percent of GDP,” Rudd said in a speech in Sydney today. “The reforms will also ease long-term pension pressures on the commonwealth budget.”
The Australian Chamber of Commerce and Industry estimates the tax increase will cost A$20 billion to $23.6 billion a year, paid for by Australia’s one million employers and small businesses, Chief Executive Officer Peter Anderson said in an e-mailed statement yesterday.
“The superannuation levy increase is the biggest new taxing measure in the government response,” he said.
“It is not good news for employers,” Partner Paul Motta at BDO Australia, a unit of the world’s fifth-biggest accounting group BDO International, said in an e-mailed statement yesterday. The government was also “wrong” to ignore Henry’s recommendation that the tax on pension fund investment earnings be cut in half to 7.5 percent, he said.
Total assets of Australian pension funds, unit trusts, life insurers and managed funds stood at A$1.34 trillion as of Dec. 31, according to data issued by the Australian Bureau of Statistics on Feb. 25.
“The sheer size of the pool of funds under management means that this country, and this city in particular, becomes a natural take-off point to make Australia a natural financial services hub for wider East Asia,” Rudd said today in reference to Sydney.