The election is just days away, and for weeks we have been bombarded with the advantages and disadvantages of the many changes being proposed. In the financial sphere, changes to negative gearing, franking credits, distributions from family trusts and the capital gains tax rules are key issues.
Now I appreciate that people of goodwill may have competing views about which policies would be best for Australia long-term, but in superannuation, Labor is pushing one particular policy that I regard as indefensible. That is the repeal of legislation allowing employees to claim a tax deduction for additional voluntary superannuation contributions.
For many years, superannuation regulations prevented a person 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.
It resulted in the unpopular and complex 10% rule, which was specifically introduced to assist doctors in private practice who did a relatively 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, was sufficient to deny the doctor the right to claim a tax deduction for contributions made from their main source of income.
So the government of the day created the 10% rule, which allowed people such as doctors to claim a tax deduction for their own contributions provided their external income represented no more than 10% of their gross income.
That was bad enough, but the rule also created two classes of citizens: a sole trader could make additional personal contributions and claim a tax deduction, but an employee of a company 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% 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 Turnbull 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, not just those who can salary sacrifice.
Many employees are cash poor and cannot afford to have their fortnightly pay reduced by additional contributions even if the employer does offer salary sacrifice. But they may well be able to save a bit here and there and make an extra contribution at the end of the financial year. One major benefit of doing so would be to get a tax refund, which could be used as a contribution to superannuation in the following year.
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% 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% 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.