Treasurer Joe Hockey last week released draft legislation outlining a repeal of the MRRT, as well as linked budget measures including the low income super contribution (LISC) and increase to the superannuation guarantee, although the Coalition did stick with the increase to 12 per cent following a two-year pause in the increases.
“We are at a point in time when Australians are recognising we must do everything to build retirement savings in the super system and reduce the pressure on future funding of the age pension,” ISA stated.
“In particular, with ISA’s commitment to ensuring that our system of superannuation tax must be sustainable and fair, the LISC addresses a fundamental inequity in our system, without which low income earners actually pay more tax on their super contributions than on their take home pay.”
Abolishing the LISC will mean one in three working Australians will lose access to any tax break on their mandatory contributions, according to ISA, which it said could result in a $30,000 hit to the final retirement savings of a low income earner.
ISA said between 1.5 million and 2 million industry super fund members benefit from the LISC, around two thirds of whom are women. Given that the average woman currently retires with around 43 per cent less in retirement savings than men, it is “critical” that the government finds a way for the LISC to be retained, ISA said.
It noted the cost of the LISC had been “more than fully funded” from a redistribution of tax concessions within the super system itself in recent years, in line with the broad recommendations of the Henry Review. “Nevertheless, ISA will engage with industry and with the government to identify other cost savings that might enable this critical rebate to be retained,” ISA stated.
ISA was also critical of the proposed two-year pause in the phased increase of the super guarantee to 12 per cent, which it said will result in a cumulative impact of around $40 billion less in super savings in the system over the next seven years.
“This will be felt by individual members and the broader economy that will be looking to super to help underpin investment to sustain the next wave of growth. To ensure long-term sustainability of our retirement incomes system and economic growth, it is vital there is no further delay in increasing the SG,” ISA stated.
