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High income earners are the main beneficiaries of the proposed changes to Super

Reducing the Superannuation Surcharge percentage

Comment – Only helps the rich. In 2001/2002 only those on adjusted taxable incomes above $85,242 get surcharged and the maximum surcharge only applies to those above $103,507. The surcharge is a very inefficient tax to collect and some of the cost burden is spread onto other super members. Reducing the surcharge makes it even more complicated. The surcharge should either be left alone or abolished. However abolishing it would be of greater benefit to the rich. 

The ALP propose reducing the contributions tax (which we all pay) instead. This is much fairer than reducing the surcharge. They suggest reducing the contributions tax from 15% to 13% for everyone OR reducing it to 11.5% for those over 40. The 2nd of these suggestions would be more expensive to implement and less fair. A better solution would be to abolish the up front tax and shift it to the point at which the benefit is taken (like most other countries).

A reduction in the tax rate on excessive ETPs From 1 July 2002

Comment – The tax imposed on the excessive amount of an eligible termination payment (whether from an employer or from a Superannuation fund) will be capped at 48.5%. The excessive amount is the part of the payment that exceeds the individual reasonable benefit limit (currently, $529,373 for lump sum payments and twice that where more than half is taken as a complying pension). At present, excessive amounts may be taxed at rates higher than 48.5%, particularly for high income earners on the superannuation surcharge. The main winners from this are high income earners.

A co-contribution scheme for lower income earners 
People earning up to $20,000 a year can invest up to $1,000 a year into super from July 1 and have it matched by a government contribution of the same amount. Those earning up to $32,500 can get a part co-contribution, with the government's share reduced by 8¢ for each dollar earned above $20,000. 

Comment – Since the election they have made this promise more restrictive. Now the limits include reportable fringe benefits and the benefit is restricted to those who already receive super from their employer. Contributions that attract the co-contribution will not be tax deductible. Few people under these limits can afford to make contributions unless they have a spouse on a high income in which case it doesn’t really help the target group of low income earners.

From 1 July 2002, recipients of the Baby Bonus who would not otherwise be able to contribute to superannuation, will be eligible to contribute to a superannuation fund

Comment – Obviously the baby bonus wasn’t just meant to be for those who couldn’t afford to have children. This proposal advantages those who are better off. See the ‘white picket fence’ comments in the next section. The ‘baby bonus’ is a refund to mothers who leave the workforce after the birth of their first child the tax paid on their income in the year before the birth of the child. The bonus will be paid from 1 July 2002 for first children born on or after 1 July 2001. The repayment of tax will occur over a five-year period (depending on how long your stay out of the paid workforce), with the maximum payable being $12,500 in total, corresponding to tax on an income of $52,666. Low-income earners and mothers who were not in the workforce are guaranteed a minimum annual credit of $500. The tax refund is not means tested against the income of the partner of the mother, but will be reduced if the mother returns to work within five years of the birth of the child. Recipients of the Baby Bonus will be allowed to contribute the Baby Bonus to superannuation even if they have never been in the workforce. 

Permit splitting of superannuation contributions in accumulation funds by couples 
You will be able to make future super contributions (from 2003) to your spouse if they have an accumulation account (eg FSS but not SASS nor SSS). Each partner will then have their own Reasonable Benefit Limit (RBL) the amount of concessionally taxed super that you can get. Surcharge liability will remain with the principal earner.

Comment –   It is common for women in heterosexual relationships to have insufficient super if they have had time outside of paid employment. The proposal allows couples where the principle earner might otherwise exceed their own RBL to put their money into their spouses account. Income splitting arrangements tend to be of more benfit to those who are better off and in this case it helps John Howard’s 1950s white picket fence family. Mums are meant to be at home earning their baby bonus while dads go off to work.

Parents and other relations can contribute superannuation on behalf of children of up to $3,000 over 3 years

Comment – This is novel because until now Superannuation has been linked with employment. There is no tax advantage for you in making contributions for your children. However your children will benefit from the impact of compound interest. Putting a small amount in early saves having to put in a much larger amount later in life.

Requirement for quarterly Super Guarantee contributions 

Comment – 1st proposed by unions this change ensures that you lose no more than a quarter of a year’s super if your company goes belly up – not a big issue for the public sector. However the government has done something sneaky that will disadvantage casual employees who work for different employers each month. Previously an employer had to pay super guarantee for any employee that they paid more than $450 a month. Now they only have to pay it if they pay more than $1,350 a quarter. Although this is the same amount per month it disadvantages casuals who may earn more than $450 in a particular month but less than $1,350 per quarter from any one employer. 

In theory this should not be a problem in the NSW public sector because FSS requires ALL employees to be paid compulsory employer contributions regardless of how much they earn per month/quarter. Unfortunately not all agencies know this. To help stop the casualisation of the workforce you can check to see that your agency is not getting casuals on the cheap. The PSA could do more to publicise the fact that staff who receive less than $450 per month (or $1,350 a quarter under the proposed changes) are still entitled to employer contributions.

Allowing temporary residents to access their superannuation benefits after departing Australia from 1 July 2002

Comment – Mainly designed for short term executives from overseas. This measure will also benefit the backpackers who seem to be occupying more and more temporary positions in the public sector. They will have a choice of paying full tax to get their super or preserving it within the concessionally taxed environment till retirement like the rest of us.

Employers must notify employees of the amount and destination of compulsory contributions

Comment – This was another union suggestion. Check your payslip. If your agency doesn’t already comply then take this up via your Joint Consultative Committee.

$28.7 million budgeted for a ‘choice of funds’ information campaign 

Comment – This is an extraordinarily large amount of money for what is essentially a propaganda exercise. This initiative is driven by the Coalition’s ideological hatred of the not for profit industry schemes which have equal employer and union representation. The Coalition wants to boost the fortunes of their mates in the financial institutions who run retail super schemes (with higher fees and commissions). NSW public sector employees are already permitted to have their super guarantee contributions directed to their fund of choice. The legislation is unlikely to get through the Senate unless the Coalition sweet-talks the Democrats.

Continuing super contributions to age 75

Comment - However, you will not be eligible for a tax deduction on your contributions and employers will not be required to make compulsory super contributions for workers over 70.

Want to know more?
Check the Super sections of the budget papers:
Revenue Measure (where they save $)
Expenditure Measures (where they spend $)

The information in this article is not financial advice.

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Other Super Stories 

2002 Negative Returns

2002 Changes to Super

Super Wins for Casuals

Super & Labour Standards  

UK Super Activism

Super Redistributes Wealth

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Did you know?
Did you know that it was an official from another union that won our super members the right to be covered by the ACTU’s Call Centre Code? The Fire Brigade Employees' Union's Simon Flynn secured the win for staff in the Superannuation Administration Corporation (now trading under the name Pillar). 

Simon was quoted in Workers Online as saying “I don't see why other union reps on state boards can't do the same". We agree.

Did you know?
Did you know that the PSA’s General Secretary is a Trustee of First State Super (FSS). When was the last time you heard him report on what your retirement funds are being used for?

The Progressive PSA brings together rank and file trade union activists in the Public Service Association of New South Wales and the CPSU (SPSF Branch). 

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