Labor’s superannuation tax change would hit one in 10 Australians who are retiring in 30 years and will be calculated based on unrealised capital gain, the Finance Minister has revealed.
The centre-left government previously described its decision to double the tax on super accounts over $3 million, from 15 percent to 30 percent, as a “modest” move to boost the government’s budget bottom line. Treasurer Jim Chalmers said the tax, which is not indexed, would only affect 0.5 percent of the population or 80,000 people.
However, the latest estimate revealed the number of people captured by the new tax over time is more than 10 times higher than what Labor have disclosed, leading to criticism from the opposition about the lack of transparency.
Labor Finance Minister Katy Gallagher revealed the treasury’s new modelling during Senate question time on March 6.
“In 30 years, Treasury projects that roughly only the top 10 percent of earners will retire with superannuation balances around $3 million (US$1.975 million) or more.”
The Finance Minister further confirmed that Labor would pursue tax on unrealised capital gains, meaning people would be taxed for any increase in their asset value even if it hasn’t been sold.
“The simplest and least-cost approach is to apply the tax on the growth of an individual’s balance over the year. This approach, recommended by Treasury, includes assessing unrealised capital gains,” Gallagher said.
“Alternative approaches would be very costly for super funds, which would come at the expense of all members, not just those with high balances.”
But she defended the super tax increase, saying it was made “in response to having to deal with the budget repair that is required from the economic vandalism of [the Coalition’s] decade in government.”
Liberals Fired Back
Shadow Assistant Minister to the Opposition Leader James McGrath accused the government of being “shifty” and of considering people’s super accounts as “money that Labor can go and raid.”“No one I spoke to has $3 million in their super account, and they probably never will, but they say to the people who do: ‘Good on you. You worked hard for it. Good on you, mate. Get out there. I’m pretty happy for you,’” he told the Senate.
“Labor are saying to people out there who’ve worked hard, ‘We’re going to tax you.’
“What other promises are they going to break? They know that Labor will decrease the threshold. If the threshold is set at $3 million, at the next budget it will be $2½ million. Then it will be $2 million and suddenly all of your super accounts will fall into Labor’s trap.”
Liberal Senator Jane Hume urged Labor to commit to “not hitting Australians with more taxes on their super, and to rule out any new taxes on the family home, negatively geared assets, trusts and retirees’ incomes.”
The sentiment was echoed by National Senator Matt Canavan, who called the latest estimate “Labor’s secret modelling”.
Unindexed Cap
Shadow Assistant Minister for Climate Change and Energy Hollie Hughes noted it is concerning that Labor has ruled out the indexation of the $3 million.“We know what houses cost 20 years ago versus what they cost today. We know what inflation is as of this very moment. We know what’s happening with the CPI. We know that $3 million today will not be the same as $3 million in 20 or 30 years time,” she told the Senate.
“For every Australian out there embarking on their career, starting their working life now, by the time they get to retirement age in 40 or 50 years, they very well may have $3 million plus in superannuation. As this will not be indexed, we know that Labor will continue to come for their money. We need to remember that this is the Australian people’s money”.
According to modelling released by the Financial Services Council on March 3, an unindexed $3 million cap at maturation would affect the superannuation savings of 204,000 Australians under the age of 30 and 322,071 people aged over 30 by the time they reach retirement age assuming 2.5 percent inflation per year.
For example, a 25-year-old IT professional earning $100,000 each year with a current super balance of $35,000 would breach the $3 million cap by the time they retire at age 65 if they continued only with minimum super contributions.
The super cap translated for a 25-year-old today—meaning that their super would be worth $3 million in 40 years without any additional contributions—would be $919,671, assuming an inflation rate of three percent.
