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Superannuation: Behind the budget

Every Issue

Cite as: July 2014 88 (07) LIJ, p.79

Despite the tough federal budget there were few surprises for superannuation funds.

In the weeks leading up to the federal budget which included the release of the National Commission of Audit, the Abbott government set up community expectations that this would be a “really tough one”. And in that sense there were few surprises when Treasurer Hockey delivered his first budget speech to Parliament on 13 May.

The extent to which the budgetary burden has been spread right across the Australian community is evident in the following broad tax and spending indicators:

  • government receipts (all taxes) will rise from 23 per cent of GDP (in 2013/14 to 24.9 per cent in 2017/18;
  • government spending will contract from 25.9 per cent of GDP to 24.8 per cent.

And so the budget deficit – according to Treasury’s projections – will fall from close to $50 billion in 2013/14 to $2.8 billion in 2017/18, moving Australia towards a surplus in years following.

With the deluge of information in the budget papers and the many subsequent commentaries, it can be hard to cut through it all and see how individuals and families will be directly affected by income distribution – or redistribution – measures.

At a high level, the main changes are:

  • a 2 per cent deficit tax introduced for three years – a tax on individuals earning more than $180,000;
  • pension age rising to 70 by 2035 and lower rates of indexation for annual pension increases;
  • fuel excise to be indexed from August 2014;
  • tighter means testing of family benefits;
  • paid parental leave – six months at full pay (means tested and capped at $100,000).
  • a $7 co-payment for visits to the family doctor, $5 of which will be allocated into a new medical research fund.

Turning to the superannuation industry, this budget introduced very few changes which were not already on the cards.

Most importantly, there were no changes to the taxation of superannuation benefits, contribution caps or the preservation age. This is welcome given the volume of changes in recent times, however it is possible that the Abbott government will look again at superannuation in the foreseeable future bearing in mind the super system is being indirectly considered by two current reviews – the Financial System Inquiry and the tax white paper.

Key super changes

  • Change to the timing of the increase in the superannuation guarantee (SG) rate to 12 per cent.
  • There will be a further one year delay in the timetable for increasing the SG rate to 12 per cent. The government has announced the SG rate will increase from 9.25 per cent to 9.5 per cent from 1 July 2014 as currently legislated and giving certainty to employers and employees. The rate will be frozen at 9.5 per cent for four years until 30 June 2018, before increasing annually by 0.5 per cent until reaching 12 per cent in 2022 /23.
  • Ability to withdraw excess non-concessional contributions.

On the positive side in the budget is relief from the excess contributions tax. What this means is from 1 July 2014, if a superannuation member exceeds the non-concessional contribution limit, there is now the option of withdrawing the excess amount (plus any earnings) rather than incurring penalty tax.

This is good news from an individual member’s point of view, as previously contributions that exceeded the non-concessional cap were taxed at the top marginal rate.

Finally, the government has confirmed its intention to axe the low income superannuation contribution (LISC) which directly affects people earning less than $37,000 who previously qualified for LISC payments of up to $500.

We will all need to watch and wait for possible further changes to the superannuation industry. Any such changes will lend themselves nicely to a future column.

ANDREW PROEBSTL is chief executive of legalsuper, Australia’s industry super fund for the legal profession. He can be contacted on 03 9602 0101 or via


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