The big news this week has been around Labor’s capitulation on key aspects of its proposed extra tax on the tens of thousands of Australians with massive super balances.
That’s meant another policy announcement has flown more under the radar, despite the fact that it will affect millions more workers.
That announcement was the change to the low-income super tax offset.
What is Listo?
The low-income super tax offset, or Listo, as it’s known, is designed to boost the super balances of workers on low incomes.
It’s also there to make sure that Australians don’t pay more tax on their super contributions than they do on their wages.
The deal is people get a 15% concessional tax rate on the money they put into their retirement savings, in return for not being able to touch it until they reach retirement age.
At the moment, if you earn $37,000 or less a year and you or your employer pay super on your behalf, then the tax office refunds up to $500 to your super account.
Without the Listo, somebody earning $15,000 a year would not pay income tax on their wages, but would pay 15% on their super contributions.
With Listo, that $270 in super contributions tax is refunded to your super account.
Will the super changes affect me?
Under the updated better targeted super concessions bill, the $37,000 Listo threshold will be increased to $45,000 to match the second income tax bracket.
The refund will also be increased to up to $810.
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The introduction of the updated Listo is timed to coincide with the reduction in the lowest tax rate to 14% in mid-2027.
Treasury estimates that in 2027-28 an extra 770,000 people will be eligible for Listo, and 490,000 will get a higher payment.
Treasury also estimates 1.3 million Australians will benefit from changes, bringing the total number of people eligible for the low-income super tax offset to 3.1 million.
That’s compared to just 90,000 affected by the proposed extra tax on earnings from balances over $3m.
So why are they increasing the Listo?
The problem is that the low-income super tax offset hasn’t changed in eight years.
That’s led to millions of people missing out on the tax benefits they deserve, according to the Super Members Council (SMC, the lobby group for industry super funds).
The payment cap of $500 is based on a 9% super guarantee rate, against the current rate of 12%.
Similarly, the eligibility threshold of $37,000 has not been increased since the second income tax bracket was lifted to $45,000 in 2020-21.
No wonder, then, that the super industry has long lobbied for a change to Listo.
They have pointed out that a cleaner earning $42,000 a year only gets a 1% concession on their super contributions, while a boss on $220,000 gets a 30% concession.
The situation was about to get worse when Labor’s next income tax cut starts in mid-2027, when the lowest tax rate would drop to 14% (so below the 15% super rate).
The SMC has calculated that would have meant one in four workers would be paying a higher tax rate on their super than on their wages.
“Workers will be financially penalised for putting aside savings for their future – the opposite of what was intended,” the Super Members Council said.
Why haven’t we been talking about Listo before now?
Treasury estimates that those affected by the boosted Listo will get an average extra $410, and could end up retiring with an extra $15,000 in the super accounts (that’s after accounting for inflation).
It will cost the budget $430m in its first full year, compared to about $2bn raised from lifting the tax rate on earnings on balances over $3m.
Xavier O’Halloran, the chief executive of Super Consumers Australia, says the super system needs more than tweaks.
“These changes nudge the system in a fairer direction. But they don’t address the root problem,” O’Halloran says.
“The system still gives too big a leg-up in the form of tax concessions to people who don’t need it to live a comfortable retirement.”
Ben Phillips, an associate professor at the Australian National University, agrees.
The Listo changes “might mean a few extra thousand dollars in retirement, which is not to be sneezed at,” Philips says.
“It’s a good thing to do as it tidies up an issue with the tax system.
“But I would also argue we could do more with super taxation. If we want better age pensions in the future, better services and a better NDIS, then it’s disappointing we haven’t done better to increase tax on super.”
