Budget leaks suggest $50 billion deficit, changes to excess super cap penalties

Details of the upcoming Federal Budget have already begun to leak, with reports warning the Government’s deficit could reach a higher-than-expected $50 billion due to lower capital gains tax and company receipts.

There are also reports the Government may introduce a range of new measures for superannuation, including scrapping the excess contribution tax which charges as much as 93% on those who put too much money in their accounts.

According to the Australian Financial Review, treasurer Wayne Swan has warned that while the Government is still committed to return the budget to surplus by 2012-13, this year’s figures will be impacted by some economic weakness.

A $50 billion deficit has been predicted in the report, mostly due to low capital gains, income and company tax receipts. The high Australian dollar has also been blamed – it rose to $US1.09 yesterday – while payments to the victims of natural disasters in Queensland are also a factor.

This represents a significant increase from the $41.5 billion deficit figure forecast late last year.

“What a lot of people don’t get – because we came through the recession and the financial crisis as well as we did – is that there is still a hangover of that,” Swan said.

“There are revenue impacts of it, the fact that it has produced the cautious consumer, the wealth and income effects and the fact there are a lot of accumulated losses building up in the system.”

Overall, Swan says there are writedowns from 2008-09 that are still worth $110 billion.

The Government has warned it will take a hard-lined approach to this year’s budget even though the economic seems to be struggling. Swan defends this approach, saying that the high dollar is impacting on profits, coupled with poor conditions in the property sector.

Meanwhile, a separate AFR report indicates the Government may be willing to relax the excess contributions tax on superannuation account holders, who are charged as much as 93% if they contribute more than the annual limit.

Accountants and financial planners have warned for some time that the excess contributions tax is unfair and is often applied to accidental deposits, which occur when account holders breach their contribution limits accidentally. Many argue those who exceed their caps are unaware of the penalties.

The report claims that 100,000 people who paid $180 million in penalties over the past few years may not get any refunds, but that treasury is working on short-term and long-term fixes to the problem.

The report claims an upcoming Government report on the issue may have an impact on the Federal Budget. It also references comments made by assistant treasurer Bill Shorten last month at a conference, when he stated he was personally subject to excess contribution tax and that he was “annoyed”.