What happened yesterday?

The Federal Government yesterday announced its response to ‘Australia’s Future Tax System Review’ lead by Treasury Secretary Ken Henry. This was the first wave of reforms recommended by the review which was commissioned to simplify Australia’s tax system.

This first announcement focuses on superannuation and company tax and will be followed by further measures. The Government has touted the changes, including raising the super guarantee to 12%, as the biggest since the introduction of compulsory super for Australian workers in 1992.

When will this happen?

The changes will be phased in over seven years from 2013 to allow time for them to be factored into wage negotiations.

Henry Tax Review Graph

How does it affect me?

About 8.4 million Australians will benefit from the changes. A 30 year old on average weekly earnings of around $1200 a week (ABS Nov2009), will have saved an extra $108,000 by the time they retire, according to government estimates.

In addition, the 3.5 million Australians on less than $37,000p/a will receive a $500 contribution from the Government, which will effectively cancel out the tax that they would have paid on their super. The changes will cost taxpayers $2.4 billion over the next four years.

How does it affect me image

What is the aim of these changes?

The changes to the super scheme are aimed at increasing the savings of working Australians to improve the standard of living in retirement. They will also reduce the burden on public funds through the age pension. The Treasurer estimates that the changes will add $85 billion to super savings over the next 10 years. He said that these measures will ‘give savers more certainty than introducing new tax measures’ (Financial Review), and will force employers to help wage and salary earners to save more.