Indexing Labor’s super tax hike would benefit more than 430,000 Australians by retirement

There are fears more than 430,000 Australians will be slugged with Labor’s controversial super tax. Here’s how you could be hit.

More than 430,000 Australians would avoid being hit with Labor’s higher super tax at retirement if the $3 million threshold was indexed in line with inflation, new analysis has found.

Without indexation about half a million people — including about 204,000 workers currently under the aged of 30 — would be end up paying a higher concessional tax rate by the time they were 65-years-old, according to figures produced by the Financial Services Council (FSC).

Financial Services Council CEO Blake Briggs says Labor must reconsider the contentious elements of its super tax plan.

The FSC has estimated only about 64,365 Australians would be impacted by the tax hike at retirement age if the $3m threshold was indexed at 2.5 per cent a year.

Labor is being urged to take a more “constructive and consultative approach” on the two most controversial elements of its plan — the lack of indexation and the capturing of “unrealised gains” paper profits on non-cash assets like shares or property.

The Greens have pushed for the threshold to be lowered to $2m and indexed, which the FSC has found would capture about 201,219 Australians by the time they retired.

FSC chief Blake Briggs said Labor risked “undermining confidence” in the retirement system with its “contentious” tax proposal.

“The government will set the tone for how it intends to govern in its second term by deciding whether to listen to broad consumer, industry and economists’ feedback on how the current design of its superannuation tax is unfair to future generations of Australians,” he said.

Economist Saul Eslake says taxing unrealised gains is not fair on principle.

Independent economist Saul Eslake said he supported reducing the generosity of tax concessions to super for people with big balances, but argued Labor was “going about it the wrong way”.

“Taxing unrealised gains, I just think that’s wrong on principle,” he said.

Mr Eslake said ditching the unrealised gains element in favour of other measures like further reducing the concessional tax rate for extremely high super accounts was one possible “better way” for the government to achieve its aim.

Labor needs either the Greens or Coalition support in the Senate to pass its plan to lift the concessional tax rate from 15 per cent to 30 per cent for people with balances of $3m or more.

Greens Senator Nick McKim says he will negotiate with Labor on the bill. Picture: Linda Higginson

Coalition finance spokesman James Paterson says there will be no opposition deal with Labor. Picture: Jason Edwards / NewsWire

Newly reappointed Greens treasury spokesman Nick McKim said he looked forward to talks with Treasurer Jim Chalmers to “make sure the legislation is as strong and fair as it can be”.

“The Greens want to ensure that very wealthy Australians pay their fair share of tax, so that governments can do more to support people who need it.”

Mr Chalmers has rejected criticism of the lack of indexation, arguing it was unrealistic to assume a future government wouldn’t choose to adjust the $3m threshold.

Treasurer Jim Chalmers has defended Labor’s tax plan. .Picture: NewsWire / Martin Ollman

He has also said Labor provided “years of opportunities” for people to suggest alternatives for calculating the unrealised gains components, and “nobody has been able to come up with one”.

“The unrealised gains calculation was recommended to us by Treasury,” he said.

Coalition finance spokesman James Paterson said on Thursday he believed the prospect of Labor doing a deal with the Coalition was “so faint and so remote” it wasn’t really worth worrying about”.

“It’s unsurprising to me that they have now preferred to do a deal with their unofficial coalition partners, the Greens, because we were not in the business of helping a Labor government raise taxes,” he said.

Originally published as Indexing Labor’s super tax hike would benefit more than 430,000 Australians by retirement