Swan Seeks Budget Savings From $1.6 Trillion Pension ProgramIain McDonald and Narayanan Somasundaram
Treasurer Wayne Swan announced plans to curb tax concessions for wealthy Australians saving for their retirement amid government efforts to plug a budget deficit and make the A$1.5 trillion ($1.6 trillion) pension system more sustainable.
Earnings over A$100,000 a year for retirees from superannuation assets will now be taxed at 15 percent, Swan told reporters in Canberra today. The changes will affect 20,000 people and save about A$900 million over four years, he said.
“Australians are living longer and in this context the superannuation system needs to be fair and it needs to be sustainable,” Swan said in an e-mailed statement.
Prime Minister Julia Gillard is seeking to plug revenue shortfalls amid weakening tax receipts as the government prepares for a pre-election budget due May 14. The government says the current pension savings system unfairly benefits wealthier Australians due to tax concessions and is unsustainable amid an aging population.
Opposition leader Tony Abbott said that if his coalition wins government at elections due Sept. 14 it would not adopt the changes. “We don’t support this new tax on superannuation,” he told reporters in Melbourne. “This is a A$1 billion hit on people’s retirement savings.”
Australia’s retirement savings system is the fourth biggest pool of funds under management globally. Total superannuation assets grew 14.6 percent to A$1.51 trillion in the December quarter of 2012 from a year earlier, the Australian Prudential Regulatory Authority said in February.
Tax concessions on superannuation were estimated at A$32 billion in fiscal 2013, according to the government’s 2011 Tax Expenditure Statement.
Swan also said that from July 1, the government will allow Australians aged over 60 to contribute as much as A$35,000 to their pension fund each year at a reduced tax rate. This concession will extend to people aged 50 and over from July 2014, the statement said.
Challenger Ltd., which sells retirement income products, rose as much as 6.9 percent following the announcement and was 4.2 percent higher at A$3.94 at 1:49 p.m. in Sydney.
The announcement follows weeks of speculation that the government would make more widespread tax changes to superannuation, generating criticism from the opposition and within the governing Labor party.
“What we’re also saying today is that all the scary stuff you have heard - it’s wrong,” said Bill Shorten, minister for employment and superannuation.
The Association of Superannuation Funds of Australia said the announcement would community concern over the future of their pension savings.
“We have consistently said that with an aging population, there need to be adjustments made to ensure we meet the demands this will place on government budgets in the future,” ASFA Chief Executive Officer Pauline Vamos said in an e-mailed statement.
Support for Labor slipped 6 points to 42 percent on a two-party preferred basis, while the opposition’s rose 6 to 58 percent, the biggest gap in almost a year, a Newspoll survey showed last month.
Employers currently contribute 9 percent of workers’ salaries to superannuation funds and the government has said that this levy will rise gradually to 12 percent by 2019, beginning with an increase to 9.25 percent on July 1.
By 2050, for every 10 Australians in retirement there will be 27 in work, down from 50, Shorten told Parliament in 2011 when he introduced legislation enacting the contribution increase.
Swan late last year abandoned a pledge to return the budget to surplus this fiscal year, damaging the government’s economic credibility. The budget fell a further A$4.6 billion into deficit in the first four weeks of 2013, taking the total shortfall to A$26.8 billion for the first seven months of the financial year, according to Treasury figures released by the government March 15.