In its submission to Treasury on the Division 296 revised legislation, the SMC said it “broadly supports” and commends the decision to unfreeze the LISTO in the proposed reforms.
“SMC strongly supports the announced changes to align LISTO with changes to both the marginal income tax thresholds and Super Guarantee rate over the past 13 years,” the submission stated.
“It is essential these changes are dynamic and future proof. Futureproofing this reform will deliver certainty on a major equity measure in super.”
It noted that a “substantial level of detail” on the operation of the policy has been deferred to subordinate legislation and stated it is crucial that key stakeholders are also consulted on any draft regulations supporting the bill.
“Australian workers who rely on the LISTO are among the lowest paid – mostly women and young people working casual or part-time jobs. Future-proofing the LISTO changes The Explanatory Memorandum (para. 1.18) flags that ‘when introduced the bill will include an additional schedule giving effect to the government’s announced changes to boost the Low Income Superannuation Tax Offset’,” the submission stated.
“It outlines the change to the current eligibility threshold from $37,000 to $45,000 and states that the maximum LISTO amount will be increased from $500 to $810. However, the Explanatory Memorandum also refers to ‘aligning the LISTO with broader income tax and superannuation settings’.”
It added that it is unclear whether the bill will implement a one-off adjustment to the LISTO amount or whether it would implement a mechanism to permanently align the LISTO settings with future changes to the income tax thresholds and SG rate.
“SMC strongly supports an approach that would address the root cause of the current LISTO shortfall – after 13 years of being frozen – to future-proof the LISTO,” it stated.
The submission put forward two potential mechanisms to do achieve this including pegging LISTO to the relevant tax scales to ensure the eligibility threshold moves with any adjustments to the income tax thresholds, and indexing the LISTO amount and eligibility threshold to an appropriate index to maintain a constant real value of the payments over time.
“Pegging LISTO to the tax scales would align eligibility for the offset with any future changes to income thresholds that address bracket creep. It would require a relatively minor technical amendment to the law and would ensure that LISTO recipients are not disadvantaged by future movements in income tax thresholds,” it stated.
“But by itself, this mechanism alone would not also maintain the real value of LISTO payments over time. That risks the offset’s benefits for low-income Australians again becoming substantially eroded over time.”
It continued that this could mean many low-income Australians once again become ineligible for LISTO if the income tax thresholds fail to keep up with bracket creep.
“Indexing both the LISTO payment amount and the eligibility threshold would be the best way to futureproof LISTO recipients from inflation for recipients of LISTO, and SMC proposes the government adopts this approach,” it stated.
“In concept, applying this approach to LISTO would be consistent with the bill’s proposed indexation arrangements for the thresholds on both the large balance ($3 million) and very large balance ($10 million) accounts, which are indexed to the Consumer Price Index.”
Additionally, it continued, that in practice, it would mean the whole super system moves together in a coherent whole over time, rather than risk future erosion of the value of the fairness deal for the nation’s lowest income earners.
“It would enshrine greater guarantee of fairness at the bottom end of the super system to match a similar commitment for those at the top end. There are also multiple examples of indexation being applied in superannuation, as well as broader tax and social security policy,” it stated.
“Given LISTO and the Div 296 changes have their genesis in the same policy announcement, we strongly advocate for consistency in how the time value of money is treated between both.”
The SMC stated that applying indexation to LISTO would enshrine a stronger fairness guarantee for low-income Australians and secure this decision “for all time” as a powerful legacy.
“Without such indexation, at current projected levels of inflation, SMC estimates that over 30 per cent of the upcoming increase to the maximum LISTO payment would be eroded within five years if the income tax thresholds remain the same and the LISTO amounts are not indexed,” it added.
“And on eligibility for LISTO, SMC modelling shows that after five years, around 445,000 fewer Australians would be eligible for LISTO than if indexation were applied. Around 59 per cent of them are low-income women.”
