Pre 2018-19 Commonwealth Budget - what might be in store for the superannuation system?
After a busy few years of regulatory change, the 2018-19 Commonwealth budget is shaping up to continue the trend as yet another important policy intersection for the Australian superannuation and pensions system.
While the details of the budget are a closely held secret until the evening Tuesday 8 May 2018, there are some things which we do know about the superannuation related policy announcements.
What we know
In the shadow of the ongoing Royal Commission, the Minister has announced plans to increase the severity of criminal and civil penalties for those convicted or found responsible for corporate and financial misconduct. Coupled with increases in regulatory powers and resources, these reforms are intended to act as a general deterrent to conduct which is illegal and inconsistent with community expectations.
The maximum size of self-managed superannuation fund (SMSF) membership will be advanced from four to six, and transfer in requests will be able to be initiated using the SuperStream (Superannuation Transaction Network) infrastructure. This may be relevant for both SMSF trustees and the strategic business planning of trustees of large superannuation funds as a reduced barrier to portability.
What to watch out for!
There have been indications from government that the current policy of gradual increases to the superannuation guarantee from 2021 to 12% in 2025 may be deferred further or even abandoned completely. The budget policy announcements should provide some clarity on this important question. Watch for a polarised and heated public debate on the merit of such a change if one is proposed.
A move to postpone or abandon increases to SG could be framed as a move to put more money in workers take home pay. However, the reality is more nuanced, with the relationship between SG rates and worker salary depending on the wording of the employment contract, timing of wage negotiation, and whether modern awards operate to protect minimum wage levels.
Growth in the gig economy and single worker businesses may see policy changes related to self employed, independent contractors and dependent contractors as a means of protecting the coverage of mandatory SG employer contributions.
The superannuation guarantee $450 minimum threshold may also be in the crosshairs as a means of ensuring coverage for low income workers, with advances in technology making the administration costs for employers mostly redundant.
We may also see moves to allow victims of domestic violence to satisfy a condition or release to enable access to some benefits. There have been suggestions that refinements to improving the operation of family law in superannuation and contribution splitting may be the subject of announcements on budget night.
There has been some suggestion that there may be further housing affordability related measures involving the superannuation system will be included in the budget. There may also be prospective restrictions on the use of Limited Recourse Borrowing Arrangements (LRBAs) by SMSFs.
Personal and corporate income taxation rates
Reductions in the marginal taxation rates for corporations and individuals are also likely to be announced as part of the budget policy. This will impact superannuation funds, both in terms of payment administration where personal income tax is withheld, and fund accounting in relation to corporate tax and fund investments.
What might surprise
There are also some policy initiatives which are unlikely to feature on Tuesday night, however could surprise. Open banking and the Consumer Data Right might be extended from Banking to include superannuation and pension funds, however this may not come onto the agenda until after open banking is operational. There has also been calls for low income earners to receive additional government contribution support, and for the lost and inactive account threshold to be reduced back from $6,000 to $2,000.
It’s always important the remember that many of the economic policy announcements in the Commonwealth Budget require legislation. The budget does set the policy tone for the next year though.
Jonathan Steffanoni - Principal Consultant, Legal and Risk
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