Jim Chalmers said the government’s proposed definition for super was uncontroversial.Alex Ellinghausen
On Monday,the government released a consultation paper that sketched Chalmers’ objectives in the broadest of strokes. Chiefly,he wants to legislate a formal goal for super that will provide clarity to the industry,governments and the millions of Australians with retirement savings. He intends to make super more “equitable and sustainable”,guarantee contributions are used for retirement savings and potentially co-operate with funds to back projects identified as “national economic priorities”.
Parsing the paper and subsequent remarks by both,it has since become clearer that at least two areas will be in sharp focus. Firstly,the scale of generous tax concessions,which can be exploited by the wealthy and punch a significant hole in the federal budget;and,secondly,schemes introduced by previous governments that allowed early withdrawal of savings.
“Right now,we’re on track to spend more on super tax concessions than the age pension by around 2050,” Chalmers said on Monday. “I’m not convinced that’s a sustainable way to get to our destination:good retirement incomes for more Australians,now and into the future.”
Concessional tax rates for super are designed to offer ordinary workers encouragement to make additional contributions in addition to those made by their employer,and to help them grow their savings once in a retirement fund. However,the tax benefits can also make superannuation an effective vehicle for the better-off to build generational wealth – what the Grattan Institute’s Brendan Coates describes as a “taxpayer-funded inheritance scheme”.
Even the,commissioned by then-treasurer Josh Frydenberg,noted that “people with very large superannuation balances can receive very large superannuation earnings tax concessions” and speculated that “large balances are held in the superannuation system mainly as a tax-minimisation strategy,separate to any retirement income goals”.
Calls have resultantly grown louder to limit balances eligible for concessional rates and to tax those investment earnings that currently attract no tax at all (in retirement accounts currently under $1.7 million,set to rise by $200,000 to $1.9 million in July).
Some,including funds themselves,are pushing for a tax threshold of $5 million. This would affect relatively few Australians – about 11,000,all of whom we imagine could afford to wear the tax implications – and would,according to estimates,save the budget somewhere around $1 billion:a relative trifle.
Alternately,Grattan’s Coates has suggested raising the tax on superannuation earnings on balances of more than $2 million from 15 to 30 per cent,which would raise an additional $1.5 billion a year. “A government that introduced a higher tax rate on super above $2 million,I think that is very politically feasible,”. “Because,by definition,you’re not affecting the more than 99 per cent of Australians that have less than $2 million in super.”
If Chalmers can thread the needle,thresholds could prove relatively uncontroversial,depending on how many Australians they ultimately end up impacting. He may also consider lowering the pre-tax contributions cap and abolishing catch-up concessional contributions,which might be relatively unlamented.
Imposing a tax on earnings within pension accounts would be a harder sell,given it would directly affect retirees depending on their super for income. It would generate a substantial $6 billion for the budget,according to some estimates,and may be reasonably argued as fair:why should retirees pay zero tax on earnings when everybody else gets slugged? But Chalmers would risk a divisive campaign such as the one mounted against Labor’s ill-fated 2019 election promise to wind back the scale of franking credits.
How much resistance the government would face to blocking early withdrawals,such as for the Morrison government’s home-buyer scheme,is unknown. Again,though,there is a strong argument that favours pigeonholing super purely for retirement and not allowing it to further devolve into a government-assisted multipurpose savings fund.
Clearly,there are good reasons to tweak the rules governing super,to close unintended loopholes and,pragmatically,to retrieve funds that could be better spent combating the housing crisis,cost of living pressures and the imperative to lift defence spending against the backdrop of deteriorating regional security. This masthead encourages Chalmers to push forward with this work. Yet he must not rush into this lightly. Whatever changes he hopes to make,he must listen,build a consensus and bring all Australians along – for this is,ultimately,our hard-earned at stake.
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