The issue: Budget 2009/10

The issue

This year’s Federal Budget - described by Australian treasurer Wayne Swan as a “budget for a nation tested in the fire of economic adversity” – has several long-term implications for serious wealth creators.

Announcing the budget, Swan noted that there were two different paths the government could take in the face of diminished revenues.

“You can balance the budget by dramatically pushing up taxes and slashing and burning vital services in key areas like health, leading to a deeper and longer recession and higher unemployment,” he said. “Or you can offset a temporary collapse in revenue with a program of responsible borrowing that also provides for the stimulus the economy needs when private sector investment is in retreat. This is the course the Government has adopted.”

Among other headline grabbing figures and deficits there were a number of changes to superannuation, pension and taxation regulations that will require investors and businesses to rethink their long-term strategies.

Super planning

According to the Investment and Financial Services Association, the reduction in salary sacrifice concessional contribution caps has shifted the goal posts for older Australian workers.

The association’s deputy chief executive John O’Shaughnessy said the key to retirement planning was being able to plan effectively and with certainty.

“Cutting the contribution caps so severely is a disappointing decision, primarily because a reduction in the contribution caps penalises older Australians who haven’t had the chance to accrue large super balances, either due to their age or due to time spent away from the workforce to raise a family,” he said.

“Most of the people affected have not had the benefit of a saving system with compulsory super guarantee contributions for their entire working life and certainly not too many years at today’s rate of 9%.”

But Australian Institute of Superannuation Trustees chief executive Fiona Reynolds argued that the initiatives would make the system more equitable for low income earners and others.

“During the difficult economic times we are now experiencing it’s only fair that the more generous benefits enjoyed by high income earners are re-balanced against the needs of Australia’s less well-off citizens,” she said.

“While not agreeing with all the measures we see this budget as taking several important steps in putting the system on a more sustainable footing.”

Working longer

Australian workers will also be asked to work longer under the new regulations, with the pension age being increased to 67 from 2023.

Combined Pensioners and Superannuants Association policy co-ordinator Charmaine Crowe said the raise was “unacceptable”.

“Raising the age-pension age… will only increase poverty among people aged over 65 when it comes into effect,” Crowe added. “The average retirement age in the OECD is 65 and the savings achieved by raising the age that one can access the age pension is questionable.”

However Committee for Economic Development of Australia chief executive David Byers argues that the increase reflected the way the world is changing.

“CEDA welcomes this first move towards a system that responds to changing realities and alters the preconception about when you are ‘too old’ to work,” he said.

Keep it simple Swan

While the government has made a commitment to making the taxation system simpler and more transparent through the Henry Review, for some this budget is seen as a step in the wrong direction.

According to  Taxation Institute of Australia president Joan Roberts “a number of the provisions that were introduced actually come with a loss of simplicity”.

“We have more tests applied in some areas, for example in private health,” she explained. “Also lot of the integrity measures have some difficulties associated with them… in particular the employee share schemes – it just makes the scheme unworkable. It is destroying something that was probably a good feature of our tax system.”

Other areas that have been made more complex include the employment income exemptions for people working overseas and non-commercial loan rules, Roberts continued. “Whether some of these measures can be seen as temporary measures in response to the global economic climate remains to be seen,” she concluded.