80,000 now, but how many if $3m super cap not indexed?
Plato Investment Management managing director, Don Hamon has joined the chorus of investment voices pointing to the Government’s failure to signal indexation of its proposed $3 million superannuation cap.
According to Hamon the absence of indexing represents “an enormous flaw’ in the Government’s proposal while calling for some Treasury forecasting around how many people may eventually be impacted.
“It is perplexing the Treasurer has indicated this cap will not be indexed over time,” Hamon said.
“Currently the move is expected to impact 80,000 people, or just 0.5% of super accounts with balances of over $3 million in today’s money, however we have inflation currently running at 7.8% which will erode the real value of the $3 million cap over time.
“This means a lot more than 0.5% of superannuation balances will eventually be taxed at 30%,” he said.
“How many people in the superannuation system today will be impacted by this cap at some time in their superannuation journey?
“You only need to do some basic math – if inflation ran at 4% per annum for the next 30 years, and remember inflation is currently 7.8%, a $3m cap would be equivalent to just $925,000 in today’s dollars.
“Inflation will mean that many, many more individuals will be hit by this cap in the future if it is not indexed to inflation. I think voters need to know how many people will be impacted in say 30 years’ time, not just how many are impacted now.
“The other big question for the majority of retirees and even those nearing retirement is – what other changes is this Government likely to make next?”
It’s a sly way to increase tax on many peoples super over time.
Chalmers & Treasury know that.
Chalmers is smug about it and knows that bugger all Boomers will pay the tax in 2025 but way more Gen X & Y will by 2050.
Using the same “most people will ultimately be affected beause it’s not indexed” argument, most people will be on the top marginal tax rate of 47% before long too. There are plenty of other thresholds that are adjusted sporadically rather than being automatically indexed. Not indexing a threshold doesn’t mean it’s set in stone forever. As a supposed finance professional, Hamson does himself no credit by fanning the flames of this hysteria. It undermines confidence in Plato more broadly. Is Plato another one of these fund managers moving away from the professional advice sphere, and going down the road of tawdry retail style promotion to SMSF trustees?
There is a simple, and far more equitable solution. Tie the higher super tax rate to the TBC. It is indexed, and will soon be $1.9M.
The Grattan Institute has argued the higher tax rate should kick in at $2M rather than $3M to achieve reasonable social equity outcomes. $1.9M is near enough.