Treasurer Jim Chalmers says the changes to the proposed super taxes will make the system fairer for all. Photo: Michelle Kroll.
With the Prime Minister on leave this week, Treasurer Jim Chalmers has been left holding the bag to announce major changes to the Government’s proposed superannuation tax scheme.
Labor’s plan to double the tax on earnings on superannuation above $3 million was taken to the last election. If applied, the new tax would have been applied to just 90,000 people, or about one-half of one per cent of superannuants.
But the plan was criticised because it would not have been indexed to adjust for inflation, which would have caused the tax base to increase over time as more superannuation accounts crossed the $3 million threshold due to inflation. Analysts predict that this version of ‘bracket creep’ would have caused this threshold to drop to a current equivalent of $2 million within 15 years.
For earnings on super balances between $3 million and $10 million, the rate remains 30 per cent, while the rate over $10 million becomes 40 per cent. And despite Mr Chalmers previously predicting future governments would likely take the creep into account and make adjustments, he has now committed to automatically index the threshold from the beginning.
The plan was also criticised because assets held in super funds would have been taxed on their valuation, much like interest, dividends, or a capital gain.
These ‘unrealised’ gains on assets would have been calculated and applied at the end of the tax year instead of when the gain was actually realised, raising concerns of unfairness because a tax is applied to an asset that isn’t providing an income stream.
Mr Chalmers told the media on Monday (13 October) that the cap is now indexed at CPI.
“We have always had in our back pocket this indexation or an indexation like this in order to get it through the parliament,” he said.
“We have also always said to you publicly and privately that we expect future governments would have lifted the old threshold. Here we are indexing that to make that clear.”
In addition, he says the proposed tax on unrealised gains will be scrapped, with only realised gains subject to the tax from 2026. This change is intended to give super funds time to implement the change, although the Treasurer said there was more work to do to finalise this change.
“There is more work to do on the calculation and attribution of the realised gains part of what we are proposing here,” he said.
“We are anticipating that it will be calculated at the fund level and then attributed to members with balances above 3 and $10 million, but we want to be upfront with you and say that we will do a little bit more work on that.”
Further changes will also be made to the Low Income Superannuation Tax Offset (LISTO), a 15 per cent contribution up to a maximum of $500 paid by the government for workers who earn up to $37,000 a year. While the low-income threshold will be raised nearly 18 per cent to $45,000 from 2027, the maximum contribution will increase by more than 60 per cent to $810.
“It means the total number of eligible Australians for the LISTO will become 3.1 million, and by one realistic calculation, it means about an extra $15,000 at retirement,” Mr Chalmers said.
Mr Chalmers said the changes have taken more than two years of feedback into account.
“We have worked through the issues and we found another way to deliver on the same objectives,” he said.
“This means a better deal for low‑income workers and also better targeted concessions for the biggest balances. This will make the superannuation system fairer from top to bottom.
“When it comes to the feedback … the objective there has been to separate the genuine feedback from the usual kind of predictable, partisan feedback that you get from time to time,” he added.
“As Treasurer and as a government, we always try and take feedback seriously.”
He said the changes will mean a drop in revenue of more than $4 billion over the forward estimates, with the bulk of that being due to the delay in implementing them.
“The original proposal would have raised $6.2 billion over the forward estimates,” he said.
“This new package will raise $2 billion over the forward estimates, but a very big chunk of that is actually the one‑year delay.
“And so it will raise a bit less than the original proposal, but it will still make the superannuation system fairer and stronger and more sustainable, and that’s our objective.”
Deputy Opposition Leader Ted O’Brien described the changes as a “humiliating backflip”.
“This is a humiliating moment for the Treasurer who spent two years defending the indefensible – a policy so unfair it united people from all walks of life,” he said in a statement.
“Jim Chalmers has spent years assuring us that there was simply no other way than to tax unrealised gains without indexation, but today he was finally forced to admit that he was wrong.
“Taxing theoretical profits was always a reckless idea, but the Treasurer was determined to take from Australians’ life savings to feed his rapidly deteriorating budget bottom line,” he added.
“Now he is left with a $4.2 billion budget black hole over the forward estimates, and is no doubt cooking up all sorts of new taxes on everyday Australians to fill it.”
Original Article published by Andrew McLaughlin on Region Canberra.
