The election is getting close, and we are being bombarded with competing policies. Now I appreciate that people of goodwill may have diverse views these policies, but Labor is pushing two which are indefensible. The repeal of the legislation which allows people to make catch up super contributions to make up for time out of the workforce, and stopping employees claiming a tax deduction for voluntary superannuation contributions.
Let's think about catch up contributions first. It is well accepted that women tend to have less superannuation than men, partly because they often take time out of the workforce to have children and raise a family. As a result, there could be years when no superannuation contributions are made for them. The superannuation system as it stood did not help them because there are annual limits on contributions.
Almost two years ago, on the recommendation of the industry, the government took steps to rectify the situation and allowed employees to make catch up contributions to help their superannuation recover from the time no contributions were made while they were out of the workforce. Labor wants to stop that.
Until recently people have been prohibited from claiming a tax deduction for additional personal concessional contributions if an employer was contributing for them. There was no logic to it, and nobody has ever been able to tell me the reasoning behind it.
The result was the complex 10 per cent rule, which was introduced to assist doctors in private practice who did a small amount of work outside the practice. As the rules stood then, even a small payment from a hospital, from which superannuation had been deducted, denied the doctor the right to claim a tax deduction for contributions made from their main source of income.
So the government created the 10 per cent rule, which allowed people to claim a tax deduction for their own contributions provided their external income represented no more than 10 per cent of their gross income.
The system became inequitable. A sole trader could make additional personal contributions and claim a tax deduction, but their employees could not. There was a loophole if their employer was prepared to offer salary sacrifice, enabling their employees to contribute part of their gross pay as an additional superannuation contribution.
Even if you were one of the lucky employees with access to salary sacrifice, you could still find yourself with problems. Some unscrupulous employers took the opportunity to treat the extra salary sacrifice contributions as part of their 9.5 per cent compulsory superannuation obligation, conning their employees by reducing their compulsory contribution.
But generally, the outcome was that employees of companies that offered salary sacrifice were better off than those working for businesses where it was not offered.
Finally, thanks to the Coalition government, all taxpayers were given equality. From 1 July 2017 everybody has had the opportunity to make additional superannuation contributions up to the concessional limit of $25,000 a year (including employer contributions) and claim a tax deduction.
Now Labor, despite always rattling on about inequality, and claiming to be the champion of women, is threatening to reverse this long overdue and essential changes to the rules. They want to bring back the 10 per cent rule, and revert to a system in which certain privileged employees got an effective tax deduction through salary sacrifice while less fortunate ones missed out. Where is the logic in that?
Maybe there's a hint on the Labor website, which points out that only 2.3 per cent of taxpayers made $25,000 or more of concessional contributions in 2012-13. But that's not relevant. The new rules allowing all employees to make concessional contributions only took effect from July 2017. Before then, most employees were prohibited from making additional tax-deductible contributions - so of course there were very few extra deductible contributions! It's a flawed proposal, based on flawed logic.
- Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. firstname.lastname@example.org