Savers were due to receive a 50 per cent tax discount on up to $1,000 of interest, including interest earned on deposits, bonds, debentures and annuities, however the cut did not make it into Swan’s Big Budget.

According to RaboDirect, the lack of a tax break, coupled with the fact that deposit rates are falling, could act as a disincentive for Aussies to save.

RaboDirect’s Executive General Manager of Australia and New Zealand, Greg McAweeney, said:

“It is very disappointing that the Government has failed to deliver on the promise of a tax-break for savers, which had been on the cards for two years now. The 5.7 million depositors that were set to benefit from the discount have been short changed.  Australians have been doing the right thing by reducing their personal indebtedness in times of economic uncertainty and let’s not forget the losses people suffered in their superannuation holdings.

“Times are still very uncertain – you only need to look at falling deposit rates and turbulent global equity markets to see this – and savers and investors should be given incentives to build their wealth by saving.  Aussies should be encouraged to do the right thing to balance their household budget, not be turned off doing this.

“Apparently the government thought the savings tax scheme was too complex but it doesn’t seem fair that consumers are disadvantaged for doing the right thing. Any income that comes from interest on savings, bonds or annuities will be treated as the least favourable asset class when it comes to tax time. That doesn’t spell encouragement for savers.

“In the past few years we have certainly been saving more but unfortunately people are still putting the bulk of their money into the wrong accounts. As a result, RaboDirect has found Aussies are missing out on more than $4 billion in unpaid interest a year by keeping their surplus savings in low-interest bearing accounts.”

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“Government Revenue is down and confidence is down and the last thing the Government should be doing is tinkering with the superannuation system, leading to further loss of confidence and trust.

”Superannuation is not a cash cow to be milked to meet deficits. And the notion of ”robbing Peter to pay Paul” is short term thinking, leading to an environment that is not conducive to enabling the average superannuation investor to understand, and take an active role, in their retirement
planning.

“Superannuation is a long term strategy and the system needs to be stable and consistent – not a moving feast in response to budget and political pressures.

“Confidence in the system has seen it grow to approximately $1.3 trillion in assets and become the fourth largest private pension market in the world. The compulsory nature of the Superannuation Guarantee, the legislated increase in mandated contributions and the tax advantaged options with respect to member contributions, make the Australian Superannuation system a strong and robust industry” said Mr Klipin.

“The increase in mandated contributions from 9 – 12% is a bold move, and well supported by the AFA, but the Government now needs to ensure that the incentives are attractive to all income levels and life stages.

“The Government should be encouraging people to fund their own retirement and incentives which do this long term will lessen the drain on the public purse. The deferral of higher contribution caps for the over 50s and the increase in tax on concessional contributions for higher income earners are hitting the very people who are in a position to focus on ensuring adequate retirement savings and, as we know from history and the super surcharge, the administrative burden will be high.

“Australians want, and need, certainty and confidence in their super. They want certainty in the rules and the ability to forward plan.

“Employers also want certainty and the ability to deliver a true workplace benefit to their employees – not just meet a legal requirement.”

Mr Klipin stressed that “The need for long term planning can’t be emphasised strongly enough. If superannuation and retirement planning for consumers is a long term strategy, then so must be the Government’s treatment of the environment.

“Finally, we come back to what is critical in underpinning confidence by consumers, and that is quality financial advice – the right long term strategy, the right investment, the right insurance cover.”

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And this is what the Government has done.

The Budget is projected to be in surplus to the tune of $1.5bn – wafer thin but still a surplus. The main issues relate to the economic impact: is returning a surplus good or bad for the economy and what does it mean for interest rates? To read the full report, click here.

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It’s always important to remember that it is just a budget, the same that any household or company would prepare. Assumptions are made; forecasts are taken.

Click here to see CommSec’s latest Budget 2012 presentation.

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It’s always important to remember that it is just a budget, the same that any household or company would prepare. Assumptions are made; forecasts are taken.

For instance the first forecast for the 2011/12 budget outcome was made in May 2008 and a surplus of $18.9 billion was projected. By May 2009 that estimate had blown out to a deficit of $44.5 billion. The deficit for the twelve months to March was just above $38 billion and the latest estimates project a deficit near $44 billion for the current financial year.

But at the end of the day most people want to know what’s in it for them. It doesn’t matter whether you are a student, pensioner or CEO of a major company.

So we have decided to make this analysis different.

Sure, there are the usual tables, graphs, facts and figures. But we reckon that there are only three questions most people want answered and that’s where we will be concentrating:

• Did the Government get it right?
• What does it mean for Australia?
• Who are the winners and losers?

To read CommSec’s budget analysis, click here.

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The main issue is revenue as a slower economy is drying up tax receipts. In terms of the Department of Finance profile, revenue is currently around $2 billion short of where it needed to be for March 2012, while expenses are also short by $0.4 billion. Underlying cash receipts are around $3.1 billion short according to the profile while underlying cash payments are over by $700 million.

The CommSec Budget Ready Reckoner assumes a “no change” situation: The Government is assumed to meet its budget forecast this year, there are no changes to economic assumptions (parameters) and we assume the forecasts in the Mid Year Budget review. On this basis revenues (largely taxes) would need to rise by 11.3% and expenses (spending) would need to fall 0.1% to achieve a surplus.

To see the CommSec Budget Ready Reckoner and read the full report, click here.

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