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Labor’s super tax changes receive mixed reaction

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6 minute read

While some have welcomed the changes as a step towards fairness and sustainability in the super system, others have accused the government of shifting the goalposts.

Labor’s plan to double the tax rate paid by Australians with large superannuation balances has received a mixed reaction from super funds, industry bodies, and other groups.

After strongly hinting that a change may be on the cards in recent days, Treasurer Jim Chalmers confirmed on Tuesday that the concessional tax rate applied to future earnings for super balances above $3 million will be 30 per cent from the 2025–26 financial year.

Martin Fahy, chief executive officer (CEO) of the Association of Superannuation Funds of Australia (ASFA), described the super tax changes as “significant” and said that they would require careful assessment.

“ASFA recognises the need for the superannuation system to remain sustainable and equitable over the long term and continue to deliver good retirement outcomes for all Australians,” he said in a statement on Tuesday.

“The measures proposed today are significant. ASFA will need to carefully assess any unintended consequences, and importantly, the extent to which the associated tax savings will be used to address the gender retirement gap and to boost super balances for low-income earners.”

In contrast, Chartered Accountants ANZ (CA ANZ) did not hold back in its assessment of the changes, with the professional body questioning the fairness of a “large attack” on a relatively small number of individuals who it said have followed the rules.

“Investing in superannuation in this country is like trying to shoot a moving target flying in circles over shifting goal posts,” commented CA ANZ superannuation and financial services leader Tony Negline.

“The lead time is good as the changes will come into force after the next federal election, but it is still a major impact proposed on a small number of people who haven’t done anything wrong — they played by the rules and now the rules have changed.”

According to CA ANZ, there are significant questions about the potential unintended consequences that may flow from the government’s super tax changes.

The professional body questioned what would happen to people with multiple accounts, whether the changes would apply to unfunded superannuation, what distortions it might cause over the next three years, what impact it would have on divorce settlements, and how capital gains in super would be taxed under the new policy.

“How can we ask people to invest in super now when you won’t know what rules will apply by the time people will need to access their money?” Mr Negline said.

Meanwhile, Eva Scheerlinck, CEO of the Australian Institute of Superannuation Trustees (AIST), said that the changes marked another important stage in addressing the inequity of tax concessions in super.

“It’s appropriate that people with very high balances like this, which are more than what is needed to fund a comfortable retirement, will pay more tax,” she stated.

“It’s also worth noting that the proposal of 30 per cent tax on earnings is still lower than the highest marginal tax rate, so there is still a tax benefit from the money remaining in super.”

The AIST has suggested that the government should direct the extra savings generated from the measure to address other inequities in the super system such as increasing the low-income superannuation tax offset (LISTO) ceiling to $45,000 a year.

This, the association said, would help to ensure that Australia’s low-income workers are not paying more tax on their super than on their wages.

“Coming just over a week since the government began consultation on legislating an objective for superannuation, this announcement continues the process of improving our $3.4 trillion industry for the benefit of all Australians, regardless of gender, culture, education or socio-economic background,” Ms Scheerlinck concluded.

Details still need to be resolved, says FSC

The Financial Services Council (FSC) acknowledged the certainty provided by the  government’s announcement but noted that important details still needed to be resolved.

“The FSC urges the government to commit to using the revenue raised from the $3 million cap to improve equity in the superannuation system, particularly paying superannuation contributions on the government paid parental leave scheme,” said FSC CEO Blake Briggs.

“The government should go further and rule out more punitive changes to superannuation taxes so consumers can be confident using the superannuation system to save for their retirement.”

Additionally, the FSC pledged to work constructively with Treasury through its consultation process regarding the details that still need to be resolved, including:

  • The long-term impact if the $3 million threshold is not indexed;
  • The interaction with the transfer balance cap;
  • How investment earnings will be calculated;
  • Impacts on consumers in accumulation phase who are unable to adjust their super balances; and
  • How contributions from structured settlements on personal injuries will be treated.

HESTA calls for more action

Industry super fund HESTA, who is among those to have previously called for a $5 million cap, welcomed the changes while urging for more action in the name of fairness and equity.

“While we welcome the decision to cut back super tax concessions for account balances over $3 million as an important sustainability measure, it is critically important that the government acts now to ensure these savings help deliver a fairer and more equitable super system,” said HESTA CEO Debby Blakey.

“We’re calling on the government to prioritise paying super on the Commonwealth parental leave pay scheme and other important equity measures that will help finally close the gender super gap that sees women retire with, on average, about a third less super than their male counterparts.”

Think tank welcomes ‘fairness and sustainability’

The Australia Institute, which previously described the current system as “unsustainable”, said that the changes were a welcome step towards fairness and sustainability.

“The expensive and inequitable tax breaks for multi-million dollar super accounts should have been retired long ago,” commented Australia Institute executive director Richard Denniss.

Dr Denniss noted that the think tank has been publishing research on the unsustainable and inequitable nature of super tax concessions for over 15 years. It recently found that these tax concessions cost more than the entire National Disability Insurance Scheme (NDIS) and are on par with the entire aged pension.

“It was always unfair and unsustainable to provide lucrative tax breaks to multimillionaires while refusing to raise the rate of the aged pension or JobSeeker for people doing it tough,” said Dr Denniss.

“While this is a great first step, more reform is needed to ensure fairness and sustainability in Australia’s retirement income system.”

Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.