Nest eggs facing $80,000 cut

The PM has left open the possibility the govt will raid wealthy people's superannuation tax concessions.

Andrew Main asks Clime Investment Management’s John Abernethy how superannuation will go and what the Australian dollar will do in 2013.

Penny Wong has refused to comment on 'gossip' about the government's budget plans for superannuation.

Christmas is a good time to take a look at your nest egg Source: Supplied

HIGH income earners could have their retirement nest eggs slashed by $80,000 as a result of tax hikes being considered by the Gillard Government to buttress the budget bottom line.

Exclusive modelling by the National Centre for Social and Economic Modelling for News Limited reveals a 50 year old earning $180,000 today, and with a typical nest egg for that age and income of $250,000, could expect to watch it grow to $914,000 by aged 67 under current arrangements, assuming they made no additional contributions beyond the compulsory rate.

This would be reduced to $835,000  or $79,000 less - if Labor were to increase the tax rate on super contributions to 30 cents in the dollar, up from 15 cents currently, for people earning above $180,000.

The Gillard Government has already increased the tax rate on super contributions to 30 cents for people earning over $300,000.

There is speculation Labor will extend this measure in the May budget as a key budget savings measure.Prime Minister, Julia Gillard, yesterday failed to rule out a raid on the super of high income earners to boost the tax revenue base as the population ages.

Asked directly if the contributions and earnings of the superannuation funds of high-income earners would be used to pull the budget out of its debt hole, Ms Gillard yesterday would not give a clear answer.

"Any decisions we make will be about the long term interest of the superannuation system," Ms Gillard said yesterday.

"I can assure people superannuation is a Labor creature and we will always nurture it well."

Treasury Secretary Martin Parkinson last year urged the government to cut superannuation tax concessions in the May 14 budget in order to secure its revenue base as the population ages.

However, a key cabinet minister, Craig Emerson, yesterday indicated any tax grab would be directed at very high income earners.

The trade minister said Labor was "not interested in increasing taxation on the everyday working men and women of Australia."

However, "if there is any capacity for, at the very high end, in different areas . . . I'm not saying we could never even look at something like that".

A research fellow at NATSEM, Dr Marcia Keegan, said tax increases on the super of high income earners would be felt hardest by those nearing retirement who had planned to make additional voluntary contributions.

"For some households, an increase in the contributions tax may be the difference between full independence from the age pension at retirement and drawing a small part age pension.

"However, according to Dr Keegan, high income individuals would still have an incentive to salary sacrifice into super, as the 30 per cent tax rate would still be lower than their marginal tax rate of 45 per cent.

Furthermore: "The households affected by these increases are a small minority of high wealth households, and even with a higher contributions tax rate, most would still have enough for a comfortable retirement according to the Association of Superannuation Funds of Australia's standards."

Tony Abbott yesterday said the Coalition would absolutely not make any "adverse unexpected changes" to the superannuation system in his first term if elected as prime minister on September 14.

"I want to say to people that super is safe under the Coalition," he said.

But the Liberal party has previously confirmed it is their policy to reintroduce the 15 per cent tax on superannuation for 3.6 million Australians earning $37,000 and under.

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Banks make $80,000 profit on mortgages

Big Four banks making more profit with mortgages. Source: News Limited

Big Four banks making more profit with mortgages. Source: News Limited

BANKS are making a profit of almost $80,000 on each new mortgage customer over the lifetime of the loan - the highest level in almost a decade - making out-of-cycle reductions in lending rates "inevitable" as competition grows.

Experts said the surge in bank profit levels with the Big Four pocketing more than $25 billion last year has been driven in recent months by a huge lift in the profit margin of millions of Australian's home loans.

And UBS analyst Jonathan Mott yesterday warned of a political backlash if the majors didn't cut rates outside of Reserve Bank movements.

There is a real risk politicians will step-in and regulate the market to ensure consumers get a better deal, he said.

The new research shows the banks are making an annual profit of about $2,640 on the average $300,000 mortgage that is being written - this would represent a profit of $79,200 over the lifetime of a 30-year mortgage.

But Mr Mott said the surge in profits stemming from the mortgage sector is being eroded by the the growing losses being made by the bank's generous term deposit rates - which he expects to continue falling over coming months "Banks are in a purple patch," he said.

"Over the last 12 months a rapid reduction in credit spread and mortgage repricing implies that writing a wholesale funded home loan has never been more profitable. And we believe that if the global economy continues to show signs of stability and growth, debt markets continue to rally (reducing wholesale funding costs) leading to an easing in deposit competition, then the banks will be in a position to begin passing through out-of-cycle rate cuts to mortgage customers."

Since this rate-cutting campaign began in November 2011, the Reserve Bank has lowered the official cash rate by 1.75 percentage points to 3 per cent, equal to the "emergency lows" of the financial crisis.

But over the same period on average the Big Four have dropped their mortgage rates by only 1.36 per cent from a peak of 7.79 per cent to the current standard variable rate of 6.42 per cent.Three smaller banks last week cut mortgage rates outside of the Reserve's cycle for the first time, putting pressure on the major banks to lower the standard variable rates (SVR).

After handing down a another bumper profit result Commonwealth chief executive Ian Narev this month conceded the competitive nature of the Australian mortgage market and the fall in funding costs, meant it was "conceivable'' the big banks might cut lending rates even if the Reserve kept the official rate on hold.

But the Australian Bankers Association yesterday said there have been only two periods in the past 23 years when mortgages rates have been lower than today.ABA chief executive Steven Munchenberg said mortgage rates have fallen significantly in the past five years which should be good news for consumer and business confidence.

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