A vast number of Australians after hearing Wayne Swan’s budget speech will think they have escaped the Treasurer’s attacks on higher income earners.
They will be wrong, because the Swan net has been extended over a very wide number of people by changing the definition of income for health fund contributions and by changing the way Australians must save for retirement.
There are two nasty blows on higher income earners in the budget, which will take $740 million from their pockets in 2009-10 and a massive $1.3 billion from their pockets in 2010-11. Almost certainly a large number of these people have also been savaged by the share market fall.
Blow number one: About 170,000 Australians aged over 50 have been investing $100,000 into their superannuation fund as part of a five-year plan introduced by Peter Costello. But now the maximum contribution for those aged over 50 has been reduced to $50,000. Those aged over 50 who do not have large sums in their superannuation will be hit very hard.
Those under 50 have had the maximum amount they can inject into superannuation reduced to $25,000. This is a much deeper change than a simple device to raise money. The great benefits of superannuation are going to be confined to those who saved in former years, because younger people will simply not be able to get the money in. This is a huge change for society.
Blow number two. When you look at the Medicare levy numbers it does not look as though there is a dramatic change. Under the current arrangements, in 2010 a family earning $150,000 and a single person earning $75,000 would have paid no Medicare levy and received a 30 per cent refund on private health insurance if they were aged under 65.
Under the new arrangement, there is a graduated scale, but in essence a single person who earns $120,000 or a family who earns $240,000 will receive no rebate on their private health premiums and if they remain out of a private health fund they will be levied 1.5 per cent of their income.
But the key to the monetary impact of this change is in the definitions. The old income definition for help on private health premiums included fringe benefit tax payments but excluded negative gearing interest payments and superannuation payments over and above the 9 per cent base.
From July 1, additional superannuation and negatively geared interest will be added back to taxable income so an enormous number of people will suddenly find their private medical insurance costs rising by 30 per cent or they will pay a levy of between one and 1.5 per cent.
In 2010-11 the government expects to take $695 million out of people’s pockets and not reduce the level of private health contributions. In effect, executive and entrepreneurial Australia will pay large sums more for medical insurance (and be levied if they punt their health) and will be excluded from superannuation as a meaningful way of saving for retirement.
And if listed companies want to help their employees earning over $60,000 to overcome this difficulty by giving them options over shares at a discount to the market, then the discount will be taxed at the date of issue and not be deferred.
More budget 2009 coverage:
- Budget 2009: Small business tax break boosted from 30% to 50%
- Budget 2009: Exporters get extra funding
- Budget 2009: Do Not Call register expanded
- Budget 2009: $22 billion for infrastructure in budget
- Budget 2009: First home owner grant extended for three months
- Budget 2009: High and middle-income earners hit by changes to private health insurance, super
- Budget 2009: Innovation spending boost, but new R&D tax breaks delayed
- Budget 2009: Key budget measures at a glance
- Budget 2009: Holiday shack attack
- Budget 2009: Funds for textile, clothing and footwear sector