Tax cut mooted for Aussie super funds

CANBERRA - The Australian Government could scrap a A$3.3 billion ($3.6 billion) tax on retirement funds under a plan flagged by Finance Minister Nick Minchin.

He said there was a strong case for cutting the 15 per cent tax on superannuation contributions, which would benefit workers without the risk of overheating the economy, as might happen with income tax cuts.

In a speech to the Young Liberal Movement Federal Convention in Sydney, Minchin warned that further income tax cuts could boost consumer spending and might force the central bank to raise interest rates to keep inflation in check.

"There is, however, a very obvious way to reduce taxation without unduly stimulating the economy and putting upward pressure on interest rates, and that is to look at how we tax savings as opposed to spending or income," he said.

The Reserve Bank of Australia last raised interest rates in March, to 5.5 per cent, concerned that a tight labour market would lead to wage inflation. There have been solid wage gains since, but they have yet to reach a pace associated with higher interest rates.

Treasurer Peter Costello is due to hand down his 10th Budget on May 10. A Government mid-year Budget review released last month forecast an underlying cash surplus of A$11.5 billion for the year to June 30, up from May's A$8.9 billion forecast.

Minchin said the superannuation industry estimated that cutting the tax on pension contributions, which was introduced by Labor Prime Minister Paul Keating in 1988, could mean the average worker was up to A$30 a week better off in retirement.

Prime Minister John Howard's conservative Liberal/National coalition Government ousted Keating's Administration in 1996.

- REUTERS