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Super changes announced

Treasurer Wayne Swan and Financial services minister Bill Shorten announce changes to the superannuation scheme.

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Australians with more than $2 million in superannuation will lose some tax concessions under changes to the system announced on Friday by Treasurer Wayne Swan.

Treasury estimates that about 16,000 people will be affected by this measure in 2014-15, which represents about 0.4 per cent of Australia's projected 4.1 million retirees in that year.

Super changes: Wayne Swan and Bill Shorten.

Super changes: Wayne Swan and Bill Shorten. Photo: Alex Ellinghausen

Earnings of more than $100,000 a year on superannuation pensions and annuities would no longer be tax free and would instead attract a 15 per cent rate.

Assuming a 5 per cent rate of return, this means this reform will only affect individuals with more than $2 million in their superannuation pensions and annuities.

The government has been under pressure to detail any changes to superannuation planned for the May budget, with ongoing speculation that it would increase taxes for high earners.

The raft of reforms will save about $900 million over the forward estimates period.

Under current arrangements, all earnings on assets supporting income streams (superannuation pensions and annuities) are tax-free, in contrast to earnings in the accumulation phase of superannuation, which are taxed at 15 per cent.

However, Mr Swan announced that from July 1, 2014, future earnings (such as dividends and interest) on assets supporting income streams will be tax free only up to $100,000 a year.

Superannuation Minister Bill Shorten said the government was acutely aware that many people approaching retirement were keen to boost retirement savings beyond the mandatory contribution.

But in other changes announced on Friday, the government abandoned its plan to increase the cap on concessional superannuation contributions to $50,000 for people aged 50 or older with total super balances below $500,000.

Concessional contributions are currently capped at $25,000 a year, limiting the amount that can be added to superannuation accounts before penalty taxes apply.

Instead of increasing it to $50,000 for some people, the government will now lift the cap to $35,000 across the board.

This cap will apply sooner than planned, from July 1, 2013, for people aged 60 and over. It will kick in from mid-2014 for those aged 50 and over, while the general concession cap will reach $35,000 from mid-2018.

These changes to the concessional contributions cap are predicted to save $365 million over the four-year budget cycle - the single highest saving of all the measures outlined on Friday.

Mr Shorten said the government had listened to industry feedback that the original proposal to increase the cap to $50,000 for some people would be ''too clunky''.

''The cost of managing account balances and when they're under half a million or not would present an administrative nightmare,'' Mr Shorten said.

''What it means in the short term is it's a hit to the budget. In the long term depending on how you calibrate it it's a modest saving.''

Not all of the changes may be legislated before the election.

Former prime minister and architect of the superannuation system, Paul Keating, on Friday backed the government's changes to the taxation of super, saying they appeared to strike a ''reasonable balance''.

Mr Keating, who together with ACTU secretary Bill Kelty designed Australia's super system, said that it was ''designed as a retirement income system broadly to augment the age pension''.

''The sustainability of the retirement income system demands that that balance be maintained. The government, by these changes, appears to be striking a reasonable balance,'' he said.

Mr Keating added that the the tenor of the changes corrects by some measure the unsustainably generous tax changes by former treasurer Peter Costello, which dismantled the former Reasonable Benefit Limit's structure in favour of an open-ended tax free regime.

Changes may not be legislated before election

Mr Swan said the government would soon introduce a bill to achieve a previous proposal, announced in last year's budget, to increase the tax on superannuation contributions on those earning salaries of more than $300,000 from 15 per cent to 30 per cent.

He did not commit to legislate all of the changes announced on Friday by the time the Parliament rises ahead of the September 14 election.

''We'll do what we can with these proposals but they'll be going to the election,'' he said.

Mr Swan said there was a disproportionate level of government support that flowed to a select few.

''There is something wrong in the system where working Australians on average wages are providing excessive support to people with millions in their superannuation account,'' he told reporters.

''Why should someone who has millions of dollars in a superannuation account pay no tax on their earnings while someone on $80,000 a year pays a marginal tax rate of 37 cents in the dollar on every additional dollar they earn?''

Mr Swan said the changes addressed that imbalance.

While the government argued the changes were not driven by short-term budget needs, Mr Swan said the decisions would provide a long-term benefit.

He said the change to the asset supporting income stream tax exemption, combined with the the change to the tax on high income earners' superannuation contribution announced in last year's budget, would save $10 billion over the next decade.

But Opposition Leader Tony Abbott has vowed to ''fight ferociously'' to block Labor's latest changes to superannuation.

''It is a raid on people,'' Mr Abbott told reporters in Melbourne on Friday. ''Every time a government raids people's funds, there are shades of Cyprus about it.''

Shadow treasurer Joe Hockey and assistant shadow treasurer Mathias Cormann said the announcement amounted to more promises to raise taxes.

''Labor's confused and chaotic superannuation tax hikes are yet another attack on the retirement savings of all Australians,'' they said in a statement on Friday.

Mr Hockey said the Treasurer had not provided certainty for Australian retirees.

In a bid to allay public scepticism, Mr Swan and Mr Shorten were at pains to point out that the changes would also affect defined benefit funds including those enjoyed by federal politicians.

A Council of Superannuation Custodians will also be set up in an attempt to de-politicise future debates over superannuation policy changes.

The council would assess future policy proposals and present reports to Parliament.

There will be further changes to the handling of lost super accounts. Last year, the federal government announced lost super accounts up to the value of $2000 would be transferred to the Australian Taxation Office, to protect them from being eroded by fees.

The balances would also earn interest equivalent to the consumer price index once they are reclaimed. The balance threshold will be increased to $2500 from December 31, 2015 and $3000 at the end of 2016.

''This means that rather than shrinking, people who are temporarily disconnected from their super, will have it grow by the time that it's found,'' Mr Shorten told reporters.

A 20-year-old with $3000 in an inactive superannuation account will be able to claim about $3400 from the ATO after five years.

Reaction to the changes

Australian Greens leader Christine Milne said the government's retreat from super reform means fixing the mining tax should be the number one priority.

''The government has disconcerted the whole country with their on and off again super reforms. And now they are still failing to say how Australia’s revenue hole will be fixed,'' Senator Milne said.

''The government should focus on those who can afford to pay: the wealthy mining companies who have short changed Australia of up to $100 billion in revenue.

''It is cowardly to continue to let the mining companies off the hook and fail to say where the money is going to come from for our education, health and infrastructure needs.''

COTA Australia welcomed the changes as fair, highlighting the increase in the cap for concessional contributions as recognising a previous request from the organisation.

''We asked for it to be raised to $50,000 but are pleased with the increase to $35,000,'' said chief executive Ian Yates said on Friday.

The Australian Council of Social Service said the changes were ''tinkering'' that is still ''grossly skewed in favour of people on the highest income''.

''This is a drop in the ocean of unfair super tax arrangements that are expected to be valued at $44.8 billion by 2014-15. It is less than half the money the government took away from single parents in the last budget, who are likely to have little hope of securing adequate retirement savings,'' chief executive Cassandra Goldie said.

with AAP

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