Super protection in 2018 Federal Budget
Published: 08 May 2018
The 2018 Federal Budget’s 5-step plan (with a dash of super)
There’s a lot of talk about plans – making them and sticking to them – in Scott Morrison’s third Budget. There was a lot in there too about governments ‘living within their means’ and the proposed plan to help reward Australians.
Before launching into the Government’s ‘plan for a stronger economy’, the Treasurer spoke about getting the budget back on track and outlined its 5-step plan as follows:
- Provide tax relief to encourage and reward working Australians
- Keep backing business to invest and create more jobs
- Guarantee the essential services that Australians rely on
- Keep Australians safe
- Ensure the Government lives within its means
Tax relief dominates
Tax relief obviously took centre-stage (who doesn’t love the sound of the words ‘tax relief’?) and is part of the Government’s 7-year plan to achieve ‘lower, fairer and simpler’ taxes.
The new tax system is proposed to be delivered in three steps:
Step 1: Immediate tax relief for low and middle income earners. From 2018–19, the low and middle income tax offset will provide tax relief of up to $530 per year. The benefit is in addition to the existing low income tax offset, and will be assessed after a tax return is lodged. Those earning between $48,000 and $90,000 will get the maximum annual benefit of $530 (approximately 4.4 million Australians). From $90,001 to $125,333 the offset will phase out at a rate of 1.5 cents per dollar, meaning that those people with incomes over $90,000 will still receive a benefit.
Step 2: Protecting against bracket creep. From 1 July 2018, it’s proposed the Government will provide a tax cut of up to $135 per year to around 3 million people by increasing the top threshold of the 32.5% tax bracket from $87,000 to $90,000. This will prevent around 200,000 Australians from paying tax at 37%.
Step 3: Making personal taxes simpler and flatter. This will be achieved by removing the 37% tax bracket completely. By 2024–25, Australians earning more than $41,000 will only pay 32.5 cents in the dollar all the way up to the top marginal tax rate threshold that will be adjusted to $200,000.
What about super?
Thankfully there were no major changes to super legislation and tax rules. There were, however, some interesting super initiatives:
- Opt-in life insurance for members under age 25
To prevent insurance premiums eating into small balances, it’s proposed that life insurance (death cover) be offered on an opt-in basis for:
- members under age 25
- all members with a balance of less than $6,000 and
- members who haven’t received a contribution in 13 months and are inactive.
- Super fund exit fees to be abolished
Designed to actively encourage account consolidation, the proposal suggests scrapping exit fees for members moving between super funds.
- ATO to actively reunite Australians with lost and inactive super
It’s proposed that the Australian Taxation Office be given the capacity to locate and consolidate lost and inactive super accounts for members. The intention is to prevent fee erosion, which typically affects young members, low income earners and seasonal workers.
- Work test exemption
From 1 July 2019, Australians aged 65 to 74 with a total balance below $300,000 will be given more time to increase their retirement savings via a proposed exemption to the superannuation work test, in the first financial year after retirement.
- Pension Work Bonus expanded
Age Pensioners will be able to earn up to $300 a fortnight (was $250) without having their pension payments reduced. It’s also proposed that self-employed individuals will be entitled to the bonus.
- Retirement Income Framework
The Government proposes a framework to simplify and standardise the information on retirement income products. It also proposes that funds be obliged to provide products that allow for retirement longevity.