Dude, where's my co-contribution?

Federal Labor Treasurer Wayne Swan

Those on the know would have recognised a thinly-veiled flaw in last night's federal budget. This being that the government's co-contribution scheme (where the government matches some of the cash you put into super voluntarily), from 01 July 08, treats salary sacrifice contributions as assessable income.

Why is this a problem? It will significantly affect the ability to bridge the retirement savings gap for many Australians and flies in the face of Labor’s supposed calls for an increase in the Superannuation Guarantee for exactly the opposite reason. SS will also be treated as income for many other government payments such as child-support and family assistance payments.

What does the government say? It claims that this change resolves an inconsistency in the treatment of ‘non-wage’ remuneration in the income tax and transfer system that allows individuals and families to access more government support payments than would be possible if their salary sacrificed contributions were paid as salary or wage income.

However, using salary sacrifice contributions to increase the ability to access the Government Co-Contribution greatly assists those in the accumulation phase earning less than the Government Co-contribution upper threshold of $58,980 to bridge their retirement savings gap by using both non-concessional and concessional contributions (salary sacrifice) to enhance net contributions to super. Thus this policy is a net loss for the so-called "battlers" that the budget is supposed to benefit.

This isn't to say that there are no positive points to this year's federal budget, but what would be the point in promoting those? The problem lies in the details.

Over and out.