These measures will encourage private saving and enhance Australia's retirement income system. Significantly, the measures ensure that encouragement to private saving is delivered fairly and allow individuals to choose the form most suited to their needs.
Australia must increase its national saving to reduce its reliance on borrowing from overseas. The principal plank of this Government's efforts to increase national saving is its commitment to a medium term fiscal strategy: maintaining fiscal underlying balance, on average, over the course of the economic cycle. The fiscal consolidation measures taken by the Government in the 1996-97 and 1997-98 Budgets provide a substantial boost to public sector and national saving.
There is also a clear need to increase private saving and household saving in particular, if we are to achieve a better balance between domestic saving and investment and allow the economy to grow faster. Importantly, with the ageing of our population, there is a need to ensure that Australians save for their own retirement through superannuation. Towards this end, the Government is providing additional tax incentives for members' personal superannuation contributions.
The Government recognises, however, that individuals also need to save for other life cycle needs, such as education, health care, housing and consumer durables. Recent studies have highlighted that a significant proportion of Australians have little or no savings beyond equity in their home and their superannuation savings. The Government's efforts to enhance the efficiency and competitiveness of the financial system will assist private saving, by increasing choice and reducing costs. The Government believes, however, it can and should do more to promote household saving.
Thus a major initiative of the 1997-98 Budget is the introduction of a broadly based savings rebate through the taxation system. The savings rebate will be available to people who make personal (undeducted) member superannuation contributions, and/or who earn net personal income from other savings and investments. It will be available in respect of superannuation contributions and/or income up to an annual cap of $3,000. The rebate will be phased in at a rate of 7.5 per cent from 1 July 1998, rising to 15 per cent from 1 July 1999, resulting in a maximum tax rebate of $225 with respect to the 1998-99 income year and $450 with respect to 1999-2000 and subsequent income years. The savings rebate will assist individuals to save or invest in the form that is most suited to their needs, but is designed to give most encouragement to saving in the form of superannuation.
The savings rebate replaces the former Government's 1995-96 Budget proposal to match compulsory superannuation contributions by employees. The origin of this proposal was in the 'LAW' tax cuts which were withdrawn after the 1993 election. The 1995-96 Budget superannuation measures which involved compulsory deductions from after tax income could not have been implemented as announced. They were highly discriminatory as they provided no benefit to the retired or those otherwise ineligible to contribute to superannuation.
The Government's savings rebate will provide universal encouragement to private saving. It recognises the importance of enhancing superannuation savings, and provides encouragement for individuals who save for other life cycle needs. By applying the savings rebate to a very broad range of saving and investment alternatives, it avoids creating distortions in the financial sector.
The savings rebate provides incentives to household saving in a manner that is consistent with responsible budgeting and the Government's medium term fiscal strategy. The rebate is fully funded.
This Government is committed to a retirement income policy that provides encouragement for individuals to achieve a higher standard of living in retirement than would be possible from the Age Pension alone, but also ensures that all Australians have security and dignity in retirement. This will be achieved by:
In meeting its objectives, the Government will maintain the single rate of Age Pension and other pensions at no less than 25 per cent of Male Total Average Weekly Earnings (MTAWE). The Government is legislating this commitment, with flow-ons to the married rate of all pensions and above minimum rate Family Payment. This is the first Government to commit the Budget in this way and is evidence of the high priority this Government places on ensuring the adequacy of pension payments.
Also consistent with meeting the above objectives, the Government believes there is considerable scope to enhance the operation of the retirement income system, so that it encourages people to save more for their retirement and to use those savings to improve their standard of living in retirement. This can be achieved by making the retirement income system more flexible, providing more choice, and ensuring that superannuation savings are directed towards their intended purpose, namely providing for retirement income. Enhancing the retirement income system along these lines will also enhance Australia's national saving performance.
The Government is therefore proposing further improvement to the retirement income system to provide people with:
In the 1996-97 Budget, the Government announced that from 1 July 1997, people over age 65 and up to age 70 would be able to continue to contribute to a superannuation fund or Retirement Savings Account (RSA), provided they maintain a bona fide link with the paid workforce. In this Budget we have added to this initiative with the introduction of a tax exempt Deferred Pension Bonus to individuals who defer taking an Age Pension.
The Deferred Pension Bonus Plan announced by the Government, fulfils its election commitment and offers people of Age or Service Pension age a positive incentive to defer retirement. A financial bonus of 9.4 per cent of a person's basic pension entitlement will accrue for each year of employment beyond Age or Service Pension age, up to a maximum of 5 years. At current pension rates, the maximum bonus, to be paid as a lump sum on pension take-up, would be $21,251 for a single person, and $35,450 for a couple, in receipt of the maximum rate of pension. Bonuses will begin to accrue from 1 July 1998.