A Liberal senator has warned that Labor’s planned taxes on high superannuation balances could eventually impact over 500,000 Australians—a number impacting six times more individuals than what the government has claimed.
Prime Minister Anthony Albanese this week unveiled his plan to double taxes on super accounts with more than $3 million (US$2.03 million) from 15 percent to 30 percent, with the changes to come into effect from mid-2025, around the time when Australia has another federal election.
However, Treasurer Jim Chalmers has said he does not plan to index the $3 million cap.
Labor described it as a “modest” and necessary change to support the government’s spending, which is estimated to increase Australia’s debt to $36.9 billion (US$24.97 billion), or 1.5 percent of the nation’s GDP in 2022-23. The tax proposal is forecast to raise $2 billion to fill in some of the budget holes.
The government has said that the tax change would currently only affect the wealthiest 0.5 percent of Australians, or 80,000 people.
Liberal senator Andrew Bragg said that if the tax threshold is not indexed then by retirement age, “over half a million people will be hit by this creeping tax.”
“Raising taxes is the last thing they should be doing and I just think it sends the wrong message to people that the government will pull the rug from underneath you,” he told Sky News on March 5.
“If the change was going to go ahead, it would be better if it was indexed.”
How Many Will New Tax Actually Impact?
Indexation would allow the $3 million cap to be adjusted for the effects of inflation, cost of living, or input prices over time.
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 3 percent. At 4 percent inflation, the 25-year-old with $624,867 currently invested in super would be affected by Labor’s tax proposal without having to contribute any further investments to their super.
CEO of the Financial Services Council Blake Briggs said in a press release that an unindexed superannuation cap “calls into question the intergenerational fairness.”
“Caps in the superannuation system are indexed to ensure generational fairness, so that each generation gets the same outcomes and benefits from the superannuation system.”
“500,000 impacted Australians is over six times the current government estimates, which only takes into account balances that are currently over $3 million.”
Meanwhile, costings from the Parliamentary Budget Office forecasted that the new super tax would impact 210,000 Australians and claw back $54.6 billion to the budget bottom line over the next decade.
The new tax proposal comes despite Labor previously promising during the election that it would make no major changes to super funds.
Chalmers, however, defended the superannuation tax, saying that the change would be for if Labor gets reelected for a second term in 2025.
“Our job is to take the challenges in the budget seriously, to take the challenges in the economy seriously, to take the right decisions and to recognise the right path is not always the path of least political resistance,” he told reporters in Brisbane on Sunday.
A spokeswoman for the treasurer told AFR on March 3 that, “The $3 million threshold before tax rates increase on earnings, is more than sufficient for an adequate retirement for most people for many years to come,” and that “there’s nothing stopping a future government of either political persuasion deciding to lift the $3 million threshold.”
The Epoch Times has reached out to Opposition Leader Peter Dutton for comment on how the Coalition would approach the budget.
Neil Angus, a former Liberal MP in Victoria, argued in a recent commentary for The Epoch Times that the federal Labor government is “looking at the budget problem from the wrong direction—rather than looking at how to increase taxes, they should be looking at expenditure.”
“Many Australians can readily identify examples of excess or irresponsible federal government expenditure, For example, the regular cost blowouts on major infrastructure projects,” he wrote.
Will Labor Pursue Tax on Unrealised Capital Gains?
The Labor government has yet to clarify whether the new superannuation tax would be calculated based on unrealised capital gains.
Introducing an unrealised capital gains tax would mean taxing people for any increase in their asset value even if it hasn’t been sold.
In an interview on Friday, Deputy Prime Minister Richard Marles, when asked three times, couldn’t provide a clear answer as to whether this would be the case.
“The government hasn’t been upfront with people as to how it will work on unrealised gains and they haven’t been upfront about whether it will apply to their five Cabinet minister who are on Defined Benefits scheme,” Bragg told Sky News.
In the United States, President Joe Biden has proposed a income taxation approach that would tax households worth more than $100 million for unrealised capital gains as part of his “Billionaire Minimum Income Tax.”
In the United States, President Joe Biden has proposed a income taxation approach as part of his “Billionaire Minimum Income Tax” that would tax households worth more than $100 million for their unrealised capital gains.
The tax hike—which was previously proposed by Senate Democrats in 2021 and Biden himself in his 2022 White House budget draft but failed both times to get enough support—would levy a 20 percent minimum tax on “total income,” which includes regular earnings and both realised and unrealised gains.
Centrists like Sen. Joe Manchin (D-W.Va.) opposed the policy, saying it would generally discourage activity that supports economic growth in the private sector like saving and investing in new ventures.