Editorial - Superannuation e-news May 2011

Treasurer Wayne Swan's Federal Budget will be released in the coming days, confirming some and refuting other speculation around a host of issues. Incidentally it's his first as Treasurer in a minority Labor government and as he's done before, he's playing his cards close to his chest. Notwithstanding his claim of having to sharpen his knife and preside over a tough budget, and with an eye on the political cycle; the emergency relief for the recent floods and bushfires, the easing of confidence and discretionary spending since the GFC and the natural disaster and nuclear fallout in Fukushima that have further dented confidence have not diverted his attention from his stated objective of bringing the budget back into surplus in 2012-13.

Claims and counter claims have been made regarding a tightening of government outgoings including arrangements for social security entitlements, achievement of public sector dividends and a need to prepare the economy for what the government argues will be the second phase of the mining boom. The Treasurer has indicated his desire to take steps to ensure that the opportunities arising from the resources boom are spread more evenly through the economy. We would welcome that outcome as it would reduce pressures for skilled labor which may otherwise result in excessive inflationary effects. He has argued for an urgent need for greater workforce participation through new opportunities for those who are currently out of work and particularly mature age workers. However there is no hint of the measures proposed. Success there would have an added benefit of potentially raising the superannuation savings of those mature taxpayers through further contributions and deferrals of superannuation draw downs.

We believe the Treasurer should also take this opportunity to extend the existing pension drawdown relief a further year at least. This would enable self funded retirees who find themselves in a position to increase superannuation savings by foregoing the receipt of current superannuation benefits. This would prolong their retirement savings and reduce future reliance on the public purse.

The Treasurer also indicated his preference for a reduction in the company tax rate, albeit a relatively small 1%, while at pains to convince his skeptics of the merits of an MRRT. He reflected on the massive swings that market prices and exchange rates have had on the bottom line for minerals companies, suggesting the impact of an MRRT in comparison would be miniscule. Such an argument cogent as it might seem is yet to convince many. But as long as a reduction in the company tax rate and an increase in the SG are tied to the MRRT, the Treasurer will need to continue to mount similar arguments if we are to see higher SG rates in the future.