Budget Review 2016–17 Index

Kai Swoboda

Superannuation contributions, earnings and benefits are generally concessionally taxed.[1] Arguments to support superannuation tax concessions include compensating people because they are ‘forced’ to save through compulsory superannuation with access limited until retirement age, and to provide incentives for additional savings to reduce reliance on taxpayer support through the age pension.[2]

The 2016–17 Budget makes significant changes to both the rate at which superannuation is taxed and how much money can flow into, or be held in, the concessionally taxed superannuation environment. The main measures and the financial impact of the measures are presented in Table 1. Taken together, these measures are expected to provide additional revenue over the four years to 2019–20 of $3.2 billion.

The key budget measures that relate to superannuation tax concessions can be broadly characterised into three categories: those that limit tax concessions for higher income earners or with high balances; those that support the ‘integrity’ of superannuation tax concessions; and measures that provide for greater flexibility to make additional contributions for those who have been unable to do so.

Table 1    Key superannuation measures included in the 2016–17 Budget and budget impact, by type of measure

Source: Australian Government, Budget measures: budget paper no. 2: 2016–17, pp. 25–29.

The Government has given these measures a broader context by setting out the objective of the superannuation system—as recommended by the Financial System Inquiry—‘to provide income in retirement to substitute or supplement the Age Pension’.[3]

While most of these measures are proposed to commence from 1 July 2017, there is an element of retrospectivity in some of them. For example, the lifetime non-concessional cap will apply to contributions made from 1 July 2007, although payments made over the proposed $500,000 cap would attract no penalty and individuals would not be penalised or have to withdraw contributions if they have already exceeded the cap.[4]

The budget measures that reduce tax concessions for higher income earners and those with high superannuation balances and the measure that provides for a continuation of the existing low income superannuation contribution (LISC) arrangements, are broadly consistent with the Australian Labor Party’s April 2015 superannuation policy announcements and its opposition to the repeal of the LISC during the 44th Parliament.[5] The measure to reduce tax concessions for those earning more than $250,000 also goes part way to meeting the Australian Greens’ proposal to introduce a flat 15% contributions tax discount for all taxpayers with taxable incomes above the tax free threshold, based on the taxpayer’s marginal rate[6]

The existing arrangements with regards to contribution limits generally apply to defined benefit funds. These mainly cover some Commonwealth and state government public servants. For defined benefits funds, however, the assessment of contribution limits is based on notional equivalent contributions so that the contribution limit outcomes for defined benefit fund members are broadly equivalent to those of members of accumulation funds. The Government has indicated that the proposed measures will include specific changes for defined benefit funds that replicate the changed taxation arrangements and contribution arrangements.[7]

In broad terms, superannuation interest groups have generally welcomed the continuation of the LISC (now in the form of the ‘low income superannuation tax offset’ (LISTO)) as well as the measures that provide flexibility in making additional contributions, although some groups are critical about the lowering of contributions caps.[8] Reaction to measures that apply to higher income earners has been mixed, with some groups welcoming the equity implications that flow from some of the changes, while other groups considered that tax changes should have been part of a broader review of the tax system.[9]

A number of the measures will be of assistance to some women in ‘catching up’ on their superannuation contributions (due to interrupted work patterns and generally lower lifetime earnings). These measures are likely to benefit women with higher incomes with women on lower incomes assisted by the LISTO.[10] Of the recommendations of a recent Senate Committee inquiry, the continuation of LISC was the most significant of the Committee’s recommendations adopted by the Government in the 2016–17 Budget.[11]

All online articles accessed May 2016. 

For copyright reasons some linked items are only available to members of Parliament.

© Commonwealth of Australia

Creative Commons

With the exception of the Commonwealth Coat of Arms, and to the extent that copyright subsists in a third party, this publication, its logo and front page design are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia licence.

In essence, you are free to copy and communicate this work in its current form for all non-commercial purposes, as long as you attribute the work to the author and abide by the other licence terms. The work cannot be adapted or modified in any way. Content from this publication should be attributed in the following way: Author(s), Title of publication, Series Name and No, Publisher, Date.

To the extent that copyright subsists in third party quotes it remains with the original owner and permission may be required to reuse the material.

Inquiries regarding the licence and any use of the publication are welcome to webmanager@aph.gov.au.

This work has been prepared to support the work of the Australian Parliament using information available at the time of production. The views expressed do not reflect an official position of the Parliamentary Library, nor do they constitute professional legal opinion.

Any concerns or complaints should be directed to the Parliamentary Librarian. Parliamentary Library staff are available to discuss the contents of publications with Senators and Members and their staff. To access this service, clients may contact the author or the Library‘s Central Entry Point for referral.