Editorial - Superannuation e-news August 2011

The government’s proposed carbon pollution abatement arrangement will be directed at the 500 companies that are viewed as the largest polluters in the economy. From the next financial year it is proposed that these companies will be taxed at a rate of $23 per tonne for carbon emissions, an impost that will presumably be passed on to customers and the rest of the economy. The carbon price will rise gradually, being indexed until 2015 when the abatement process gets transformed into a carbon trading system intended to include a measure of the cost of pollution in the cost of economic activity. The theory behind this is that it will create a mechanism to send appropriate price signals to the market place for the allocation of resources, recognizing in some way the cost of pollution.

The community is clearly divided on this issue. Based on the official figures released by Treasury and the view that low income individuals would pay the largest proportional cost of the measures the government has embarked on a proposal to compensate those least able to afford this additional cost that can be attributed to the scheme. This will take the form of a revamp of the tax scales for incomes up to $80,000 and assistance for retirees both Age and most self funded, and low income taxpayers. The tax free threshold will be more than trebled to over $18,000. However the next marginal tax rate will rise from 15% to 19% and the current 30% rate will rise to 32.5% and then 33%. The low income tax offset will be drastically reduced while the threshold for the full offset will be increased from $30,000 to $37,000. The government’s headline releases suggest that two thirds of households can expect some compensation with significant numbers getting more than the expected increased costs which will be incurred. There is no publicly available information to fully test the accuracy of these amounts.

The impact on self funded retirees and those who commence transition to retirement pensions with salary sacrifice arrangements put in place to improve their overall positions will be different depending on their individual circumstances and the tax free component of the superannuation income stream for those in the age 55 to less than 60 age bracket. Those on high incomes will tend to face the same marginal tax rates as previously. However for those who are on mid level incomes they will face a slightly higher tax impost due to the increase in tax rates from 30% to 33% while for those on lower incomes the impact is likely to be slightly more advantageous.