The Federal Opposition leader, Mark Latham has caused a stir with his use of a recent Investment and Financial Services Association luncheon to outline the key elements of the superannuation policy the Australian Labor Party will take to the next Federal Election.
Coming just weeks after the treasurer, Peter Costello had outlined the Government’s Retirement Incomes policy, the Opposition policy drew a line in the sand between the two major parties, particularly on the issue of taxation and long-term goals.
The key elements of the ALP’s policy, as expressed by Latham are as follows:
“65 at 65
“Labor’s goal is to give retired Australians a minimum of 65 per cent of their gross income at the age of 65. Put simply: 65 at 65.
“This is not a guarantee of income, but a national goal to guide superannuation policy. Sixty-five per cent of gross pre-retirement income has been widely acknowledged by leading retirement experts and industry organisations as the appropriate level of income necessary to maintain a decent living standard in retirement.
“Because of the different tax treatment of post-retirement incomes, 65 per cent of gross pre-retirement income for low to middle income earners equates to between 70 to 75 per cent of net pre-retirement income. It’s worth even more in real terms once post-
retirement concessions are considered.
“Maintenance of basic age pension at 25 per cent
“Labor will also maintain the basic age pension at 25 per cent of male total average weekly earnings. Indexation, assets and incomes tests, and the access ages for pensions and superannuation will not change. Older Australians have worked hard and paid taxes on the understanding that they were contributing to an age pension and no-one should take that away.
“After 30 to 35 years work, lower income earners will be able to reach 65 at 65 comfortably through a combination of the superannuation guarantee, the age pension and the current limited co-contribution. But as we move up the income scales, people will need to make super contributions above the compulsory 9 per cent to reach the goal of 65 at 65.
“Individuals earning above $30,000 a year need to save an additional one per cent for every $5000 of income they earn. Forty per cent of Australians earning above $40,000 per year already make extra voluntary contributions to their superannuation, but others need to be encouraged to invest more.
“This is why a Labor Government will provide additional incentives for superannuation. We will cut the contributions tax and hold down fees and charges. This is the best way of increasing the pool of superannuation money.
“The current Government has spent more time taxing superannuation than building it up. Superannuation taxes have increased from $1.6 billion in 1996 to $5.6 billion today. This is a major barrier to the 65 at 65 target.
“Reduction in contributions tax
“Labor is committed to reducing the contributions tax by 2 per cent, from the current 15 per cent to 13 per cent over four years. The full funding details will be outlined after the May Budget and prior to the next election. Cutting the contributions tax automatically lifts superannuation savings, while providing an extra incentive for making voluntary contributions.
“Let me give some examples of what this tax cut would mean in practice based on a contribution level of 9 per cent.
“Example 1: Matthew is 20 and earns $40,000 a year over his career. He gets an extra $7128 at retirement.
“Example 2: Jack is 40 and earns $40,000 a year for the rest of his career. He gets an extra $2713 at retirement.
“Example 3: Heather is 40 and earns $60,000 a year for the rest of her career. She gets an extra $4069 at retirement.
“Long-term goal to phase out contributions tax
“Labor’s long-term goal is to phase-out this tax on savings. There are many bad taxes in Canberra but the contributions tax is among the worst. It punishes savings and limits the pool of superannuation investment. It’s a hand-brake on retirement income adequacy and security.
“I want our tax cut to 13 per cent to be the first step towards the phasing out of the contributions tax. Given a budgetary cost of more than $5 billion, this proposal will take time. Some will say that it is too ambitious. But already in my three months as Federal Labor Leader, I have had some success with superannuation reform.”
