Most of Australia’s top earners still far from being hit by new super tax

Labor is defending its new super tax as the latest figures from the ATO reveal most taxpayers, even among the country’s top earners, are far from bumping up against the $3 million threshold.

Data from the Australian Taxation Office, published last week, shows that among the 833,000 people earning $180,001 a year or more in the 2022-23 financial year, the median super account balance was just over $315,000.

Treasurer Jim Chalmers has maintained the change to Australia’s $4.1 trillion dollar sector would affect only one in 200 Australians.Credit: Bryan Cook

That means most Australians, even those in the top 5 per cent of income earners, would not be affected by the new super tax set to be put to parliament in coming months.

Prime Minister Anthony Albanese on Friday defended the change in an event hosted by Sky News and The Australian in Sydney. “We went to an election on it, and as we have said, half a per cent of the population are impacted.”

One of Labor’s key policies, the additional 15 per cent tax will apply to superannuation funds with balances of more than $3 million. Specifically, investment returns (including interest, dividends and capital gains) earned on any amount above this threshold will be taxed at 30 per cent rather than 15 per cent.

Shadow treasurer Ted O’Brien said last month that the Coalition would oppose the change, and that Labor would have to walk away from taxing unrealised capital gains and at least be “compromising on indexation”.

Treasurer Jim Chalmers has maintained the change to Australia’s $4.1 trillion sector would still provide for a discounted tax rate on superannuation earnings and affect only one in 200 Australians. But former prime minister Paul Keating has warned it will affect far more people than the government is claiming and Assistant Treasurer Daniel Mulino said in May that the threshold would be met by 1.2 million people over the next 30 years.

Keating said earlier this week that young Australians just joining the workforce – and therefore set to have 12 per cent of their earnings funnelled by their employers into superannuation throughout their working life – would all reach the $3 million threshold by retirement.

Known as the super guarantee, this rate has gradually climbed from 9 per cent in 2013 to 12 per cent, beginning this month, meaning younger workers will be contributing a larger slice of their income to their super over a longer period.

Chalmers has said Labor’s legislation would not increase the $3 million threshold in line with inflation, meaning more people would be pushed past the cap in decades to come, and by which time that amount will not be worth as much in real terms.

Australian Council of Trade Unions secretary Sally McManus told Channel Nine’s Today program this week that it would be “a very long time into the future” before the average worker would be affected by the $3 million cap. McManus also said the threshold has “got to be indexed” to make sure most people do not end up being hit by the new tax rate.

Calculations based on the latest ATO data, for example, suggest a surgeon – the highest income occupation in 2022-23 – earning the job’s average salary of about $470,000 a year, and contributing 12 per cent to a super fund (returning an average of 5 per cent), would still have to work about 22 years to accumulate $3 million in superannuation. That includes an assumption that their wages grow at 3.5 per cent a year.

Under the same assumptions, an individual earning $180,000 would have to work 34 years before reaching the $3 million cap, and a person earning the median salary of $62,000 in 2022-23 would have to work five decades.

The data from the Tax Office shows the median super account balance for those earning more than $180,001 grew from nearly $304,000 in 2021-22 to just over $315,000 in 2022-23, while the overall median balance climbed from $57,900 to $60,000.

Grattan Institute Housing and Economics Security program director Joey Moloney, meanwhile, says that in 30 years’ time, the $3 million threshold will still hit only the top 10 per cent of income earners, and the threshold – like ones for personal income tax – is likely to change under future governments even without indexation.

“There are people forecasting 30-, 40-plus years into the future as if this threshold will never change,” Moloney said. “That strikes me as a very bold assumption because there’ll be 10 electoral cycles in between that.”

Moloney also noted that 85 per cent of those with super balances over $3 million are aged over 60 and the super tax change would reduce the pressure on younger Australians because older, wealthier Australians would shoulder more of the burden of budget repair and the ageing population.

Latest data from the ATO shows men aged 60 to 64 and women aged 70 to 74 have the biggest median super balances, at just under $225,000, with both seeing a drop-off in the size of their nest eggs after 75.

Men in the ACT, Western Australia and South Australia had the highest median super balances in 2022-23, while among women, median super balances were highest in the ACT, South Australia and Tasmania.

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