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Super and the Budget: what you should be watching out for

retirement nest egg super superannuation federal budget

After a busy few years of regulatory change, the 2018-19 Federal Budget is shaping up to continue the trend, as yet another important policy intersection for the superannuation and pensions system.

While the details of the budget are a closely held secret until announced on Tuesday night, there are some things that we do know about the superannuation-related policy announcements.

What we know

In the shadow of the banking royal commission, the government has announced plans to increase the severity of criminal and civil penalties for those convicted of, 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 that 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 the government that the current policy of gradual increases to the superannuation guarantee (SG) from 9.5% in 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 the 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 SG $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 of 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 in the budget.

There has been some suggestion that further housing affordability-related measures involving the superannuation system will be included. There may also be prospective restrictions on the use of limited recourse borrowing arrangements by SMSFs.

Personal and corporate income taxation rates

Reductions in the marginal taxation rates for corporations and individuals are also likely to be announced.

This will impact super 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 that are unlikely to feature but 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 have also been calls for low-income earners to receive additional government contribution support, and for the lost and inactive account threshold to be reduced  from $6000 to $2000.

It’s always important to remember that many of the economic policy announcements in the budget require legislation.

However, it does set the policy tone for the next year.

Written by Jonathan Steffanoni

Jonathan Steffanoni

Jonathan Steffanoni is a principal consultant of legal and risk at QMV.

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