Budget 2011–12: ‘Stronger Super’ and other reform measures
On 29 May 2009, the Government announced the ‘Review into the governance, efficiency, structure and operation of Australia’s superannuation system’, known as the Super System Review and chaired by Jeremy Cooper (who moved from his role as Deputy Chairman of the Australian Securities and Investment Commission). The Super System Review handed down its final report on 30 June 2010, and the Government delivered its response, ‘Stronger Super’, on 16 December 2010. The 2011–12 Budget includes a number of initiatives recommended by the Super System Review and included in the Government’s ‘Stronger Super’ response.
‘Stronger Super’ initiatives
The Super System Review recommended three major initiatives which were taken up by the Government in its Stronger Super proposals: the creation of a simple, low cost, default superannuation product called MySuper; self managed superannuation fund (SMSF) reform; and a package of superannuation productivity and ease-of-use measures called SuperStream.
According to the Government response to the review, superannuation funds will be able to provide MySuper products from 1 July 2013. The 2011–12 Budget provides $26.2 million over four years to the Australian Prudential Regulation Authority (APRA) and $3.7 million over the same period to the Australian Securities Investment Commission (ASIC) for the introduction of MySuper. In order to offset the cost of creating MySuper, the levy on APRA-regulated superannuation funds will be increased.
The SMSF reforms will be funded through a $30 increase in the SMSF levy (with effect from the 2010–11 income year) and the introduction of SMSF auditor registration fees. The SMSF reforms give the Australian Taxation Office (ATO) greater oversight of the sector, and also tighten legislative standards for certain types of investments. The 2011–12 Budget provides $40.2 million over five years to the ATO and $8.4 million over four years to ASIC in order to implement the SMSF reforms. In an additional capital measure ASIC will receive $2.8 million over 2010–11 and 2011–12 to develop an online registration facility for approved SMSF auditors.
The ATO will also receive $14.6 million over 2010–11 and 2011–12 to develop a business case and detailed design of IT systems to support the SuperStream measures. The Department of Finance will receive $400 000 over six years to undertake a Gateway review of the project. Some measures announced under the SuperStream initiative are included elsewhere in the 2011–12 Budget and are discussed below.
Greater use of tax file numbers
The Government will allow superannuation fund trustees and retirement savings account providers to make greater use of tax file numbers (TFNs). From 1 July 2011 they will be able to use TFNs to locate member accounts, and from 1 January 2012 they will be able to use TFNs to assist the consolidation of multiple member accounts. This is in line with recommendation 9.11 of the Super System Review and was announced as part of the Government’s SuperStream initiative designed to enhance the ‘back office’ of superannuation.
This measure was included in Schedule 3 of Tax Laws Amendment (2011 Measures No. 2) Bill 2011 which was introduced in the House of Representatives on 24 March 2011. It is expected to have a minimal, but unquantifiable, cost to revenue.
Refund of excess concessional contributions
From 2011–12, eligible individuals who make superannuation contributions in excess of their concessional contributions cap may have these contributions refunded and taxed at their marginal tax rate rather than at the effective excess contributions tax rate of 46.5 per cent. This only applies to individuals who have breached the cap for the first time and by less than $10 000 (not indexed). The concessional contributions cap for 2011–12 is $25 000. Employees 50 years or over have a concessional contributions cap of $50 000 in 2011–12.
This measure will reduce taxation revenue by $19.9 million over the forward estimates, and will also cost an additional $15.6 million for the Australian Taxation Office (ATO) to administer.
As part of the 2010 election campaign, the Government announced a three-part package titled ‘Protecting Workers’ Entitlements Package’, one aspect of which was the ‘Securing Super’ initiative. This measure involves ensuring employees are aware of when their superannuation is being paid by requiring superannuation contributions to appear on employee payslips. Also, if regular superannuation payments cease, employees will receive a quarterly notification from their superannuation fund. This is in line with recommendation 9.16 of the Super System Review. This measure has an ongoing negligible impact on revenue.
Superannuation contributions cap for over 50s
This measure changes the way the concessional contribution cap for over 50s is indexed, resulting in a $155 million increase to revenue over the forward estimates. In the 2010–11 Budget, the Government indicated it would double the concessional contribution cap of $25 000 (indexed) for individuals aged 50 or over from 1 July 2012. The 2011–12 Budget changes the cap for over 50s so that it is set at $25 000 higher, rather than double the indexed general cap. This means that when the general concessional contribution cap increases due to indexation, the over 50 cap will increase by the same dollar amount.
Superannuation co-contribution indexation
The Government will decrease expenditure on the superannuation co-contribution by continuing to freeze the income thresholds at their 2010–11 levels for a further year. Under the superannuation co-contribution scheme, the Government currently matches the after-tax superannuation contributions of taxpayers to a maximum value of $1000 for individuals with incomes of up to $31 920. This matched amount is then phased down for individuals with an income of between $31 920 and $61 920. By not indexing these thresholds for three years from 2012–13, the Government will reduce expenditure on this initiative by $75 million.