Savings and Investment

The government would like us to save more money, and as a result there have been several initiatives over the last twenty years to try and gain this result. Some of the policies that you should be aware of are:

Superannuation

In the early 1990s, then treasurer Mr Paul Keating introduced compulsory superannuation for all Australian workers. Basically, this is an extra payment, on top of your wage, that employers invest on your behalf every time you earn a wage. It was started at 3%, but today the rate has climbed to 9%. In other words, if you earn $50,000 each year, your employer must invest $4,500 on your behalf. This money is invested by a superannuation fund, and is held in trust until your eventual retirement from the workforce. More recently, changes to the taxation laws in regards to superannuation have encouraged people to make their own contributions, in addition to those made by their employers.

Income Tax Cuts

In recent years, the government has attempted to reduce the income tax burden on Australia’s workforce. This was made possible due to the changes to the overall structure of the taxation system which were enacted between 2000 and 2006. With a lower taxation burden, consumers and businesses were able to save more money. If the savings ratio stays constant, but your disposable income increases due to lower tax rates, it follows that the actual amount that you will be saving will increase.

Fiscal Consolidation

There have been significant changes to the way in which the federal government works with the annual budget. In the past, an increase in spending could be funded by taking from the domestic savings pool. This would reduce the supply of money, and put upward pressure on interest rates. More recently, both sides of government have committed to running surplus budgets when possible. This means that they will add to national savings, rather than using up the money which is there.

Changes to Bank Taxes

For many years, Australians were effectively penalised for saving their money. This was because they would pay government charges (referred to as the “financial institutions duty”) based on how much money was in their account. The more money they saved, the more they paid. This tax was abolished in 2001. Similarly, consumers used to be taxed on any money that they earned from their savings. Interest received from a bank account, no matter how little, was subject to income tax. Today, the first $1,000 earned from your savings is tax free, thanks to the savings rebate which was introduced in 1997.

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