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The Australian Government has narrowed its focus regarding who will do the heavy lifting when repaying the ever-increasing government debt.
Since the beginning of the pandemic, Australian Government gross debt has increased from $534.4 billion in March 2019 to $894.9 billion as of 28 October 2022. The October 2022–23 budget forecasts further increases in gross debt to $1.159 trillion (43.1% of GDP) by the end of the 2025–26 financial year. (Reference #1)
This is the same year, the newly proposed tax on superannuation earnings for balances over $3 million is proposed to be introduced. The tax on earnings for these accounts is proposed to double from 15% to 30%.
When the Albanese government announced the proposed changes, they said that this will only affect approximately 80,000 or less than 0.50% of those who hold superannuation accounts.
However, Treasurer Jim Chalmers, told the House of Representatives that by 2030 “around 1%” of people would be affected and confirmed that “in 30 years, one in 10 people will be impacted by it”. (Reference #2)
The main reason this will soon affect so many people is because there is no indexation of the superannuation combined balance threshold ($3m) and with the Superannuation Guarantee (SG) increasing to 12% per annum over the next few years, therefore some higher income earners may be affected by only contributing their SG contributions to Superannuation.
This proposed legislation signals the government’s intentions to target wealthy Australians and their retirement nest eggs when looking to repay the Government debt. 30 years may seem like a long time away but so too does retirement for a lot of people, especially if we are supposed to be working for over 45 years.
For those who live overseas, superannuation is often left as is and the balance is retained to compound in the lead up to retirement. Most are not contributing to their Superannuation, or they have started saving for their retirement in other ways offshore.
Legislative risk (and possible future changes) is always a factor that you must take into consideration when preparing a comprehensive financial plan especially if this is for retirement.
The Importance of Diversification
I am a strong believer of having multiple income streams from various asset classes and structures. By doing so, you will reduce the impact of legislative changes affecting your wealth preservation in the future in addition to maximising the tax-free income from these sources.
As an example, do you know how much individual tax you would be liable for on the annual income of the below for someone in their 60s in retirement?
- $18,000 from Australian Rental Property Income
- $20,000 dividends from ASX Listed Shares (100% Fully Franked)
- $75,000 from Superannuation
- $100,000 from Offshore Tax wrap account*
- Total Income: $288K per annum per person (could be over half a million per annum for a couple)
The answer to the above would be ZERO. I call this the “retirement sweet spot” with various “retirement pots” filled so you can draw tax effective income. Not only does a diversification strategy make sense so all your eggs aren’t in one basket, but it also makes sense from a tax effective income stream perspective.
In Summary
When planning for your own retirement it is important that you have a comprehensive plan and look to diversify your wealth across various asset classes and structures. This is amplified with the recent proposed changes to superannuation, and which could be rolled out for other asset classes like negative gearing from property as previously discussed by the existing Australian Government. These would all be a way to help pay for the mounting Australian debt that continues to build.
Jamie Burgmann is a Partner with Select Investors, a Partner Practice of St. James’s Place, and works closely with expatratiates during their Singapore journey and beyond.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.
If you would like to reach out for a complimentary review of your personal financial situation, please email jamie.burgmann@sjpp.asia or +65 91679634 to arrange a consultation.
*On the basis that the offshore tax wrap account has been held for more than 10 years and therefore any withdrawals are not taxable in Australia*
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances. You are advised to seek independent tax advice from suitably qualified professionals before making any decision as to the tax implications of any investment.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.
The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives. Members of the St. James’s Place Partnership in Singapore represent St. James’s Place (Singapore) Private Limited, which is part of the St. James’s Place Wealth Management Group, and it is regulated by the Monetary Authority of Singapore and is a member of the Investment Management Association of Singapore and Association of Financial Advisers (Singapore). Company Registration No. 200406398R. Capital Markets Services Licence No. CMS100851.
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GL7 1FP, United Kingdom. Registered in England Number 02627518.
