Chalmers moves super tax debate up a notch
ANALYSIS
The Federal Government’s pitch for reducing the cap for superannuation tax concessions to balances less than $3 million is encapsulated in one sentence in Treasury’s Tax Expenditures and Insights statement – “In 2019–20, 91% of the benefit went to people with above median income, and 30% of the benefit went to people in the top income decile”.
The pitch is then rammed home in the next sentence: “There are fewer recipients in lower income brackets because government payments, for which compulsory superannuation contributions are not required, are the main source of income for a large proportion of individuals in these deciles”.
The Treasurer’s release of the document comes just days after the analysis that Australia’s inflation is being driven not by wage increases, but by company profits.
All of this represents the precursor justification for the Treasurer then committing the Government to introducing the cap on the tax concessionality of superannuation to balances of less than $3 million before the next federal election. Many would suggest that in 2023 $3 million is a comparatively modest amount and that $5million represents a more appropriate figure.
In other words, the document released yesterday by the Treasurer, Jim Chalmers, leaves no one in any doubt that high income earners are the major beneficiaries of the superannuation taxation regime and that the Government intends to inject some balance. But despite today’s breathless headlines it is far from a politically done deal and will be lucky to navigate a factious Senate.
The Treasury document also moves the current debate around superannuation tax concessions from the realms of the political/hypothetical to the Budget preparatory stage and it seems that Chalmers is making no apology for using it to “increase public awareness and inform debate about the fairness and efficiency of the tax system”. It remains to be seen whether Chalmers can convince a delicately balanced Senate to agree with him.
What is more, the Financial Services Council (FSC) is right to ask for the detail necessary to support the Government’s move around the long-term impact if the $3 million is not indexed, the interaction with the transfer balance cap, how investment earnings will be calculated and impacts on consumers in accumulation phase.
But if anyone believes that tinkering with the tax concessionality of superannuation is a sole domain of the Australian Labor Party, they need only look back to 2015 when former Coalition Treasurer, Joe Hockey canvassed reviewing the concessions.
Also worth noting is that Hockey, at the time, was responding to news that the then Labor Opposition was intending a cap of around $1.5 million.
Indeed, Chalmers’ formal statement accompanying release of the document said: “The statement shows superannuation tax breaks are worth about $50 billion a year”.
“It also shows the 10 biggest tax expenditures are worth more than $150 billion annually – around a third of the top ten is made up of superannuation tax discounts.”
“The majority of these super tax breaks go to high income earners. For instance, over 55% of the benefit of superannuation tax breaks on earnings flow to the top 20% of income earners, with 39% going to the top 10% of income earners.”
“The overhauled statement has been expanded to include distributional analysis of large tax expenditures as well as other key elements of the tax system.”
“This allows a comparison of how different groups are affected by these elements of the tax system based on their income, gender and age for individuals, and industry for businesses.”
I have no problem with a Super cap and 30% tax on earning over $3mill per person. i.e. $6 mill a couple.
But on the Tax debate and distribution of taxes, let’s not forget the Age Pension is a massive payout.
For a couple aged 67 given the Full Age Pension, they effective get given Guaranteed Lifetime Annuities that would cost today $339,930 for Mr and $367,150 for Mrs.
Thus the Govt gives a Full Age Pension couple effectively at Age 67 a lump sum of $707,060. Not a bad retirement BDay present is it.
Sure let’s have a debate about Super Taxes but let’s make sure you include both sides of the debate.
I’m questioning the $50bn figure.
I require ‘compensation’ in the form of a more favourable tax rate based on the fact that I cannot access my super for at least another 20+ years.
To suggest that I am receiving a significant benefit based on this appears nonsense.
If I didn’t get the tax benefit, I wouldn’t put the money into super. In fact, I’d probably spend it on things I might enjoy today and potentially increase my access to the Age Pension in the future along the way.
There have been some interesting questions posed regarding the methodology of the $50bn figure and rightly so.
I bet the vast majority of people with greater than $3M in their super have already met a condition of release. They have full, unrestricted, access to their super. They are leaving it there because of highly favourable tax treatment.
The “revenue foregone” methodology is quite bogus. When low tax opportunities close, the money flows to other low tax environments. It doesn’t suddenly generate extra tax revenue at standard marginal rates. Much of the money will be diverted into residential real estate, and housing affordability for younger people will go from bad to worse.
Higher taxes on very high super balances is a good idea. But it should have been accompanied by a reduction to the overly generous concessions and exemptions on residential real estate.