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Be warned, super is ripe for the skimming

Super tax breaks ... higher earners will be hit hardest.

Super tax breaks ... higher earners will be hit hardest. Photo: Louie Douvis

Worried about putting money into superannuation because you don't reckon the government can keep its hands off it?

This government is planning to prove you right by cutting some of the tax breaks on super to achieve its promised surplus in next month's budget. While the final shape of the cuts isn't known, there are a few things you can count on.

If consumers can't get certainty from super they will take their money elsewhere. 

First, the cuts will be packaged to look like they're making the system more equitable rather than raiding the cookie jar. So higher earners will be hit hardest. Again.

There's no arguing higher earners get a good deal from super. Concessional super contributions are taxed at 15 per cent instead of your marginal rate, so someone on the 45 per cent tax rate saves more than someone paying 30 per cent.

But by capping super contributions, the government has already limited the benefits to higher earners and made the system more equitable. According to the Association of Superannuation Funds of Australia, almost 90 per cent of tax concessions on super contributions in 2010 went to those on less than the top marginal tax rate.

Just this year the government legislated a new rebate for lower earners to improve equity even further. But any cuts will be sold as slugging the rich.

Having just legislated an increase in compulsory super contributions to 12 per cent, the government will also be wary of accusations it is giving with one hand and taking with the other.

So voluntary savings such as the popular co-contribution (which has already been slashed) will almost certainly be in the firing line. Plans to allow the over-50s to contribute up to $50,000 if their account is worth less than $500,000 (compared with $25,000 for everyone else) could also be affected.

Other measures reportedly under consideration include lifting the super fund earnings tax rate and further freezing various thresholds for super entitlements.

But it is the blow this will deal to confidence in super that will have the biggest long-term impact.

Most people, quite simply, are fed up with governments tinkering with super. Many are questioning whether super is worth it

If consumers can't get certainty from super they will take their money elsewhere.

Promoters of negatively geared investment property must be rubbing their hands in anticipation.

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