The Federal Treasurer, Peter Costello, delivered on superannuation industry expectations last month, using his tenth Federal Budget to abolish the superannuation surcharge.
Both the Association of SuperannuationFunds of Australia (ASFA) and the Investment and Financial Services Association (IFSA) had called on the Government to use the Budget and its majority in both houses of the Parliament to wind back the surcharge, but the Treasurer went a step further with complete abolition.
In doing so he said the measure would save taxpayers in the order of $2.5 billion over the next four years.
The measure was immediately welcomed by ASFA which said that it would benefit over one million people
“The abolition of the surcharge is a positive step that will remove many inequities, reduce ‘dead weight’ administration costs, and lead to more adequate retirement incomes,” ASFA’s director of Policy and Research Dr Michaela Anderson said.
She said that for a person currently on the highest surcharge rate, its abolition would lead to a retirement lump sum 10 per cent higher than it would otherwise have been.
The initiative was also welcomed by chief economist with Tyndall, Ross Gustafson, who said it represented a real step forward, and by the chief economist with BT Funds Management, Tracey McNaughton, who said it represented a positive step towards reform.
IFSA welcomed the Budget as great news for retirement savings.
“The abolition of the super surcharge is a responsible retirement savings initiative and was the centrepiece of the 2005 pre-budget submission IFSA put to the Treasurer”, said IFSA deputy chief executive officer John O’Shaughnessy.
“This measure effectively moves tax cuts into long-term savings. Research conducted for IFSA by Lateral Economics has found that the super surcharge was targeting around 200,000 of the wrong people. IFSA applauds the announcement to abolish the tax.
“Australians aged in their 50s, with small super account balances were being hit with the surcharge. It didn’t make sense to keep a tax that hit people desperately saving for their retirement in the last few years of their working lives,” he said.
Mercer principal David Knox said the abolition of the surcharge was welcome but warned that its administrative implications would be with superannuation funds for a number of years moving forward.
He said the change in the tax scales was also likely to give rise to people reassessing their positions, particularly with respect to salary packaging and fringe benefits tax.
