The federal government is within sight of a Senate deal to lift taxes on superannuation funds that exceed a new $3 million threshold after it set up a political test on trust and fairness by giving voters the chance to veto the reform at the next election.
Prime Minister Anthony Albanese gained early support for the plan to double the tax on earnings on balances above $3 million out of concern that almost 40 per cent of the tax breaks on super go to people in the top 10 per cent by income.
Treasurer Jim Chalmers and Prime Minister Anthony Albanese during Tuesday’s press conference at Parliament House.Credit:Alex Ellinghausen
But the Coalition accused the prime minister of confusing people saving for their retirement and breaking an election promise because Albanese said last May he had no intention of making any super changes.
“We’re not going to be party to Labor breaking an election promise,” said Coalition treasury spokesman Angus Taylor.
With federal ministers worried about a breach of faith with voters, Albanese emerged from a cabinet meeting on Tuesday to say the change would affect only 80,000 people and would not take effect until 2025.
The move widens the debate on other tax concessions, including negative gearing and capital gains, after Albanese declined to rule out taking other reforms to the next election.
The prime minister cited new figures from Treasury – including the fact that 17 people have more than $100 million each in super – to argue the super tax breaks had to be scaled back.
“Confronted with this information, it will be irresponsible to not take any action whatsoever,” Albanese said, adding that the changes would have no impact on 99.5 per cent of taxpayers.
While the Coalition framed the issue as a breach of trust, Treasurer Jim Chalmers said the tax breaks on super were costing the budget $50 billion a year when the wealthiest workers gained most of the benefits.
“We want to make sure that whatever we provide in the tax system is fair,” he said.
“And I think, for any objective observer, the idea that ordinary working people subsidise incredibly generous tax breaks for people with millions and millions of dollars in superannuation doesn’t stack up.”
Asked if he would look at negative gearing, Chalmers said: “Our focus is superannuation.”
Asked if he would make other changes to super, Albanese said: “There will be no changes, no changes, this term. Even this change, what we are doing is pointing towards 2025.”
Australian Council of Social Service chief Cassandra Goldie called for a tougher look at tax breaks to raise money for essential services.
“ACOSS advocates removal of the unaffordable stage three tax cuts, fundamental reform of wasteful and inequitable tax breaks for superannuation, the removal of negative gearing arrangements and a reduction in capital gains tax concessions for rental housing and other investments,” she said.
The change to the tax rate will be structured to apply on the earnings of superannuation balances that exceed $3 million rather than the 15 per cent rate all others pay.
All people with super funds pay a concessional rate of 15 per cent on the earnings in their funds, but the government plan is to double the rate to 30 per cent on all earnings on balances that exceed $3 million.
Treasury estimates this would affect approximately 80,000 people.
The move will raise $3.2 billion over four years but will build over time, which means gain for the budget will be at least $2 billion a year over time.
Key details are up for negotiation, with Chalmers saying he did not want the $3 million to be indexed to inflation, an approach that would steadily bring more people above the threshold as super balances grow and prices rise.
A Senate deal is within sight to pass the changes into law, with Greens leader Adam Bandt arguing the tax increase could have gone further and criticising the government for not modifying the stage three income tax cuts as well.
“They have come up with a modest proposal to change superannuation tax concessions, but that money isn’t going to find its way into the pockets of everyday people,” he said.
Independent senator David Pocock raised the idea of extending the change to super funds with more than $2 million – an approach backed by the Grattan Institute – to raise more revenue.
“This is a question of fairness and making the budget work hardest for the people who need it most,” he said.
“Having the majority of ordinary taxpayers subsidising tax breaks for a small very wealthy minority doesn’t stack up.”
Jacqui Lambie Network senator Tammy Tyrrell also said she was open to the changes.
“I think it’s great that the government is looking at these changes and I’m open to them,” she said.
“But there’s nothing on paper yet. You wouldn’t buy a car without test-driving it first, would you? I’ll wait until I see what the actual bill looks like before making up my mind.”
One Nation leader Pauline Hanson said the government should “stop shifting the goalposts” and United Australia Party senator Ralph Babet – backed by mining billionaire Clive Palmer at the election – said the government should live within its means rather than lifting taxes.
The policy shift was announced on the same day the government released its updated tax expenditure report which tracks the cost of foregone federal revenue caused by tax concessions.
The various concessions around superannuation will cost the budget $50 billion this financial year, while concessions related to capital gains tax will cost almost $72 billion.
The report, released after the introduction of the Charter of Budget Honesty by then-treasurer Peter Costello in the late 1990s, for the first time revealed how the concessions affected different groups of taxpayers.
The 15 per cent tax rate on superannuation earnings delivered an $1100 benefit to the average male taxpayer compared to $750 for the average woman. Men on above-median incomes enjoy the largest benefit, at $1950, compared to $1390 for women.
The single largest tax concession remains the exclusion of the family home from capital gains tax. Due to the surge in house prices through 2020-21, this has climbed to $48 billion. Men received 61 per cent of the benefit of the CGT discount, at an average rate of $16,100. Women, on average, received $11,970.
By age, the largest share of this benefit went to people 75 or older.
For the first time, the report calculated the cost of the various reductions used by landlords. This year they are expected to reach $24.4 billion.
Other large expenditures include work-related expenses ($9.9 billion), the GST exemption on fresh food ($8.4 billion) and the exemption of NDIS services ($8.1 billion).
The report also notes so-called negative tax expenditures, where governments tax certain goods or services more heavily than others. Customs duty will raise an additional $2.1 billion, the luxury car tax $1.1 billion, and separate excise on low-nicotine cigarettes will raise $890 million.
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