Wealthy targeted in superannuation changes Treasurer Wayne Swan and Superannuation Minister Bill Shorten prepare to unveil proposed super reforms. Picture: Kym Smith Source: The Australian RETIREES would have superannuation income over $100,000 taxed at 15 per cent under long-awaited proposals announced by the Gillard government today. Labor said the change, to apply from July 1 next year, would only apply to Australians with a current superannuation balance of about $2 million or more. But the proposed reforms will not be legislated before the election, raising doubts over the prospect of any part of the package being put into place. The government has also proposed lifting the annual cap for concessional tax treatment of contributions from $25,000 to $35,000 from July 1 next year for Australians aged 50 and over. The proposed new higher cap would apply from July 1 this year for Australians aged 60-plus. Under current arrangements, all earnings on assets supporting income streams are tax-free, in contrast to earnings in the accumulation phase of superannuation, which are taxed at 15 per cent. The announcement today, by Treasurer Wayne Swan and Superannuation Minister Bill Shorten, follows weeks of uncertainty over Labor's planned rule changes. Mr Shorten said Labor was implementing "targeted, commonsense and overdue reforms to ensure sustainability and fairness in the superannuation system." The total package is forecast to contribute about $900 million to the federal budget over the forward estimates. The imposition of the new 15 per cent tax on earnings over $100,000 in the retirement phase will save $350 million over the forward estimates. The $100,000 threshold for taxation of superannuation income will be indexed. Treasury estimates that around 16,000 individuals will be affected by this measure in 2014-15, which represents around 0.4 per cent of Australia's projected 4.1 million retirees in that year. The government had previously briefed journalists that its changes would target the top 1-2 per cent of earners. The taxation of superannuation earnings will apply to defined benefit schemes, such as those covering politicians, as well as defined contributions funds held by ordinary Australians. In a further change, Australians who exceed the annual contributions cap will no longer have excess contributions taxed at the top marginal tax rate. Instead they will be able to withdraw excess contributions and have them taxed at their usual personal tax rate. The government will make superannuation income streams subject to normal deeming rules for the purposes of the aged pension income test from July 1, 2015. Labor also wants to change lost superannuation arrangements, with inactive accounts with balances up to $3000 to be transferred to the Australian Tax Office, up from $2000, from July 1, 2016. This would protect superannuation savings from being eroded by taxes and charges. It has also proposed a council of superannuation guardians, which would ensure future superannuation changes were consistent with an agreed charter of superannuation principles. Mr Shorten said the council would put superannuation "above politics." Mr Swan said there was currently a disproportionate level of government support in the superannuation system at the top end. "There is something wrong in the system when working Australians on average wages are providing excessive support for people with millions in the superannuation accounts," he said. Mr Swan said the proposed changes would be taken to the September 14 election, as the legislative agenda was already full. Tony Abbott said the government was raiding people's retirement savings to fund its own excessive spending. This is a $1 billion hit on people's retirement savings. It's a $1 billion hit on savings that belong to people, not the government," he said. You just can't trust this government to stop anywhere. If it gets away with this, it'll think it can get away with more. If it comes for you today, it'll come for your neighbour tomorrow. He accused the government of breaking a promise not to tax the superannuation withdrawals. However, the government wants to tax superannuation income over $100,000 a year, not withdrawals. The Association of Superannuation Funds of Australia welcomed the government's decision to end the community panic over its plans. "We have been calling on the government to put a stop to the hysteria and consider policies which take a long-term approach to the future sustainability of Australia's superannuation system," ASFA chief Pauline Vamos said. We have consistently said that with an ageing population, there need to be adjustments made to ensure we meet the demands this will place on government budgets in the future. Ms Vamos a number of the changes were complex and would need to be considered carefully.