Room for equity in a tight Federal Budget

The Federal Treasurer, Joe Hockey, has committed to a tight Budget but that should not preclude a reassessment of the LISC in the same context as pausing the rise in the Superannuation Guarantee. 

The processes which go to the formulation of the May Federal Budget are well-advanced and the messages emanating from the office of the Treasurer, Joe Hockey, make it abundantly clear that there will be few, if any, tax concessions or hand-outs as the Government seeks to reduce the deficit. 

It therefore goes without saying that the Government will not be delivering on higher concessional contribution caps or any other acts of generosity capable of attracting people to focus more seriously on lifting their superannuation balances.

Those sorts of initiatives are more likely to appear in the Budget immediately preceding the next Federal Election. 

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But, as a number of pre-Budget submissions from key industry organisations have made clear, the Government’s focus on bringing the Budget back into the black should not distract it from addressing issues of sensible social equality such as the Low Income Superannuation Contribution (LISC).

In particular, the Treasurer should consider the very sensible suggestion of the Financial Services Council (FSC) - that the LISC should be paused rather than abolished. 

The FSC’s submission calls for the LISC to be retained but payments paused for two years in line with the delay in the superannuation guarantee (SG).

The FSC’s suggestion is both sensible and equitable in circumstances where the intended recipients of the LISC - low income earners (those earning $37,000 a year or less) - became the unwitting victims of the former Labor Government’s folly in tying the delivery of a superannuation benefit to a politically-disputed tax, the Minerals Resource Rent Tax (MRRT). 

While in Opposition the Coalition vowed to repeal the MRRT and made clear that the LISC represented collateral damage in that exercise. It did not, however, similarly abandon the rise in the superannuation guarantee to 12 per cent, choosing instead to extend the time-table for the SG rise.

It therefore makes good sense for the Government to revisit the LISC not only on equity grounds but on the basis that it represents an initiative which will help alleviate pressure on the Federal Budget in years to come by helping to build superannuation balances of lower income earners. Pausing LISC payments for two years represents a vastly better option than simply abolishing the initiative. 

What both sides of Australian politics need to acknowledge is that with the exception of some bi-partisanship on lifting the superannuation guarantee to 12 per cent, the ball has been dropped in terms of addressing the challenge of longevity and the objective of greater retirement incomes self-sufficiency.

The call, also contained in the FSC’s pre-Budget submission, for the completion of another Intergenerational Report in 2014 deserves the support of the entire financial services industry because it will assist in placing some genuine context around the policy development which must come out of the forthcoming Financial Systems Review.

The last Intergenerational Report was produced by the Treasury in 2010 and with a change in economic fortunes - not to mention a change in Government - it is clearly time for the Treasury to embark on another such exercise. 

The longevity and consequent social welfare challenges which are confronting Australia need to be re-examined, and a further Intergenerational Report is the most appropriate vehicle to initiate this process.