Unions say index super tax hit to protect ordinary workers

The union movement is putting pressure on Treasurer Jim Chalmers to overhaul his plans to lift the tax on superannuation accounts containing more than $3 million, saying the threshold has to move in line with wages or inflation to stop ordinary people being caught in the change.

ACTU secretary Sally McManus used the day on which the superannuation guarantee levy was lifted to 12 per cent to argue what many opponents of Chalmers’ proposal have demanded, that he ensure low- and middle-income Australians are not eventually forced to pay more tax on their super.

ACTU secretary Sally McManus says the $3 million superannuation threshold for Jim Chalmers’ tax changes should be indexed.Credit: Alex Ellinghausen, Penny Stephens

Under the government’s proposal, which has yet to pass the Senate but officially started on July 1, earnings in funds with more than $3 million will be taxed at 30 per cent rather than 15 per cent.

Chalmers has described the move as a “modest” change that will affect about 80,000 wealthy individuals, while raising up to $2.7 billion in its first year of operation.

The $3 million threshold is not to be indexed to wage growth or inflation, prompting criticism that eventually most middle-income earners will be caught in its net. The treasurer has argued that most tax thresholds are not indexed, noting that a future government could increase the $3 million.

McManus told Nine television on Tuesday morning that there was a strong case for the threshold to be indexed.

“I do think it’s got to be indexed because you’ve got to make sure eventually people don’t end up there. But that’s a very long time in the future,” she told the Today program.

“I think that it does need to be indexed though, so I do support what they’re saying about that.”

Her comments followed a statement to this masthead on Monday by former prime minister and the architect of superannuation, Paul Keating, who noted that most workers would eventually reach the $3 million threshold.

“Every young person joining the workforce this year will begin and remain at 12 per cent of superannuation contributions throughout their entire working life,” he said.

“This level of contributions and compound earnings will guarantee personal super accumulations in excess of $3 million at retirement, reducing the call by the age pension on the Australian budget to 2 per cent of GDP in the 2050s.”

Shadow treasurer Ted O’Brien said Keating was “dead right” in noting that over time, “millions of Australians” would be affected by Chalmers’ proposal.

“Labor today, under Anthony Albanese, is turning it into a scheme for revenue collection. This is a blatant tax grab,” he said.

“And the younger you are as an Australian, the higher the chances are that you are going to be stung by Labor’s new super tax. Which is why it’s super big, super bad, and Paul Keating is dead right.”

While the proposal is expected to raise $2.7 billion in its first full year of operation, by not indexing the threshold, the revenue take – and its impact on the federal budget – is expected to grow sharply as more people are affected.

In his pre-election budget, Chalmers forecast cumulative deficits of $152 billion between 2025-26 and 2028-29, with the budget not expected to be back in surplus until the middle of the 2030s. Without the increased revenue expected from the superannuation tax change, the budget remains in the red until the 2040s.

In an exclusive interview with this masthead last month, Chalmers would not be drawn on whether the government would consider any more changes to superannuation.

“First of all, let’s try and bed down the changes that we announced two-and-a-half years ago,” he said.

“I haven’t been considering next steps because I’ve been focused on trying to legislate a modest change that we announced at the beginning of 2023.

“There are views in the community about sustainability of tax concessions there and in other parts of the budget. One hundred per cent of my focus is to try and make the progress that we’ve announced already.”

The Greens in the new Senate, which officially took office on Tuesday, have enough votes to help the government pass its super proposals. They want the threshold to be reduced to $2 million and for that to be indexed to wages growth or inflation.

Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.