Abbott to keep carbon tax compo
Tony Abbott pledges to keep payments to households compensating for the carbon price if elected, despite dumping the carbon price itself.PT2M27S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-2jpz2 620 349 May 17, 2013
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Accepting the bulk of Wayne Swan's budget cuts will only get Tony Abbott and Joe Hockey so far.
Within their first term, if elected, they will have to confront the one enormous and growing budget cost Swan has barely tackled.
The cost to tax of the staged increase in compulsory superannuation contributions from 9 per cent of salary to 12 per cent was to have been funded by the mining tax.
Now scarcely functioning (and set to be abolished by the Coalition), the mining tax will raise just $200 million this year and $5.5 billion over five years if it survives.
By contrast, the existing super tax concessions cost $32 billion per year, according to the Treasury figure in the budget.
That figure is disputed by some in the super industry but what is not disputed is that it is set to grow.
The budget papers show it climbing to an astonishing $50 billion per year by 2016-17, an increase of 60 per cent. By then, super tax concessions would cost more than the pension ($48.5 billion) and more than family tax benefits and Medicare combined ($21 billion and $23.6 billion).
And the ramping up of the costs will have only begun. The first increase in compulsory super contributions, from 9 per cent of salary to 9.25 per cent, happens in July. It will be funded by employers, most probably out of wage increases they would have otherwise paid.
The cost to the budget is that those contributions will be taxed at only 15 per cent, instead of the standard rate for wage increases.
For middle-earners subject to the Medicare levy, the standard rate is 34 per cent.
The first increase in compulsory super will be followed by a second, to 9.5 per cent in July 2014. The increases won't stop until July 2019, when the lightly taxed total reaches 12 per cent of salary. Only then will the budget cost level off.
The government hasn't said how much compulsory super will cost the budget by the end of the decade but if it asked, Treasury would answer.
It will fall to Abbott and Hockey to wind back the cost - as indeed was promised in Abbott's budget reply.
The simplest solution, suggested by Melbourne University tax expert John Freebairn, is for employers to deduct tax from super contributions at pay-as-you-go rates, just as they do for wages. The earnings of super funds and the payouts could be untaxed, for even greater simplicity. It's a bold solution that should be easy to sell.