A big change is coming to Australia’s super system, and it’s going to help millions of lower-income workers. With a new proposal to increase the low-income super tax offset, many Aussies could see more money flowing into their retirement savings. Here’s why it matters.
What is Listo, and Why Does It Matter?
The low-income super tax offset (Listo) has been around for some time now, but it hasn’t been adjusted in nearly a decade. It’s essentially designed to help those on lower wages save for retirement without getting penalized on their super contributions. The system allows workers to receive a tax refund on their super contributions, ensuring they’re not taxed at a higher rate than their regular income.
Currently, if you earn $37,000 or less annually, you or your employer can contribute to your super, and the government will refund up to $500. It’s not a huge amount, but it certainly helps make a dent in what can be a daunting retirement savings gap for many. The problem, however, is that the threshold hasn’t been adjusted to keep up with inflation or changes in the tax system. As a result, workers earning a bit more, like those making $42,000, are missing out on this benefit.
What’s Changing with the New Proposal?
Under the proposed changes, the eligibility threshold for the Listo will rise to $45,000, aligning it with the second income tax bracket. More importantly, the refund will increase to $810. For the estimated 1.3 million Australians who will benefit, this could mean an average boost of $410 to their super each year, reports The Guardian. Not life-changing, but it certainly adds up over time.
In addition to the higher refund, the Listo adjustments are timed with a reduction in the lowest tax rate, which will drop to 14% in mid-2027. Treasury estimates that by 2027, an extra 770,000 workers will become eligible for Listo, and 490,000 will receive an increased refund. This is a big step forward in helping close the gap between lower and higher earners when it comes to retirement savings.
Why Was This Change Necessary for Workers ?
The Listo has been an issue for years, with advocates pointing out that it hasn’t kept pace with inflation or the rising super contribution rates. As the Super Members Council pointed out, workers like cleaners earning $42,000 get a measly 1% concession on their super contributions, while someone earning $220,000 gets a far more generous 30% concession. This disparity has led to widespread calls for change.
Moreover, with the lowest tax rate dropping to 14% in 2027, many low-income workers were set to face a situation where they were taxed more on their super than on their wages — a kind of perverse penalty for saving for the future. The reforms aim to address this issue and ensure that low-income workers aren’t financially penalized for contributing to their retirement.
The Bigger Picture: Is This Enough?
While the proposed changes are a positive step, some argue that more radical reforms are needed to fix the super system once and for all. Xavier O’Halloran, CEO of Super Consumers Australia, noted that while the changes “nudge the system in a fairer direction,” they don’t go far enough. The super system still offers too many concessions to higher earners, which only exacerbates the inequality in retirement savings.
Ben Phillips, an associate professor at the Australian National University, echoed this sentiment, suggesting that while the Listo changes would add a few thousand dollars to retirement savings, they don’t address the root issues of superannuation taxation. The system still needs to do more to reduce the disparity between the rich and poor when it comes to retirement savings.
