Savers and retirees can be pleased that last week’s Federal Budget didn’t contain any major changes to superannuation or investment rules. There are some small adjustments and benefits but the main focus is on income tax cuts.
The Opposition responded with an offer of even bigger tax cuts for low earners but no cuts for high earners. There is much debate about tax rates but few commentators look at the actual tax each person pays.
The Opposition says the government’s proposals aren’t fair because a person on $45,000 per year will pay the same rate of tax as a person earning $180,000 per year. On the current tax scale the $45,000 person pays $5,847 in tax. The person earning $180,000 pays $54,232 tax, nearly $50,000 more.
The high income person earns four times more but pays over nine times more tax. Both parties plan to reduce the lower earner’s tax further, the Opposition by more. When payments such as Family Tax Benefits and Child Care Rebates are added in many lower earners pay no net tax at all.
Changes that affect savers and retirees include a lift in the income allowed in the Work Bonus Scheme. People over pension age and still working can currently earn $250 per fortnight from work without any pension reduction.
That will increase to $300 from July 2019. Self-employed people will be able to use the scheme for the first time, subject to a personal exertion test to exclude passive income.
From July 2019 recent retirees with super balances below $300,000 will be able to contribute extra to super in the year after they finish work. This will benefit a very small number of people.
The government plans to eliminate automatic life and disability insurance cover from the super fund accounts of people under 25, those with small balances (below $6,000), and inactive accounts. A small number of these people will die or become permanently disabled.
They will no longer receive an insurance payout. Most people under 25 don’t have any other cover. If they die it won’t cost the government, but if they are permanently disabled it will – Disability Support Pensions for many years to come.
Insurance actuaries also say that if all the under 25s are taken out of the lives-insured pool the cost of cover for everyone else will need to rise by at least 10 per cent.
From July 2019 the maximum number of members in a self-managed super fund will increase from four to six. Most younger retirees aren’t inclined to include their children in their fund as they prefer to make their own decisions. However in later years allowing their children in will be very helpful.