Super budget scraps surcharge

More than a million consumers will be better off and a major administration load has been lifted from the superannuation industry after Treasurer Peter Costello’s surprise decision to scrap the hugely unpopular superannuation surcharge in last week’s Budget.

Costello, who introduced the surcharge in 1996 but has had recent attempts to wind it back frustrated by opposition in the Senate, said the Government would legislate to abolish the charge altogether from July 1 this year when it gains full control of the Senate.

The move, which would cost the Government $2.5 billion over the next four years, had been taken to “avoid a situation where compliance and administrative costs would become disproportionate to collections” if the surcharge continued to be phased down rather than scrapped, Budget documents state.

Industry figures suggest 10 per cent of the Government’s take from the surcharge is used to administer the tax. Estimates predict that if the surcharge rate was dropped to 7.5 per cent, as previously mooted by the Government, up to 30 per cent of the tax would be eaten up by the cost of collecting it.

The highly unpopular surcharge was introduced by the Government as a levy on the super savings of high income earners. But to avoid having to label it a tax, the Government levied the surcharge on superannuation funds rather than individual taxpayers, creating a huge administrative load on funds, which had to identify which of their members were eligible.

Many lower income earners who made large one-off payments to superannuation as they approached retirement were also often inadvertently caught in the surcharge net.

While the Government had previously announced its intention to reduce the surcharge from its current 12.5 per cent, the decision to abolish its completely came as a surprise, but has been roundly applauded.

The Association of Superannuation Funds of Australia (ASFA) estimated up to one million consumers would be better off under the policy. Principal researcher Ross Clare said the association would continue to push for a removal of other taxes on superannuation funds, such as the 15 per cent contributions tax, but said the decision to scrap the surcharge would be widely supported.

“Something on the contributions tax would have been nice but the surcharge removal was a positive. And that it is been abolished all in one go is pretty good,” Clare said.

Investment and Financial Services Association deputy chief executive John O’Shaughnessy said some 200,000 of the “wrong people” were paying the surcharge.

“It was a tax that caused collateral damage to some 200,000 Australians,” he said.