Super top-ups a looming casualty of Labor’s tax grab

CFS Super CEO Kelly Power warns Labor’s planned superannuation tax will erode confidence in the broader system and lead to worse retirement outcomes for ordinary Australians.

Kelly Power, CEO of CFS Super, has warned on the broader impact of Labor’s planned tax on large superannuation balances.

One of the nation’s largest super funds has issued a stark warning on Labor’s planned super tax grab, saying it will extend far beyond the wealthy as ordinary Australians lose faith in the system and shun super top-ups, leading to worse retirement outcomes.

Federal Treasurer Jim Chalmers plans to tax super balances above $3m, including unrealised capital gains, or paper profits, as the government looks to raise billions of dollars in revenue. Labor expects the new tax will see an estimated $40bn collected over the next decade.

Kelly Power, chief executive of the $116bn retail super fund giant Colonial First State, said the lack of indexation and the taxing of unrealised gains were problematic, but said the bigger issue with the government’s plan was its impact on confidence in the broader system. “It erodes confidence in the system. It affects people’s confidence in putting additional contributions into their super, and that will have a meaningful impact when they retire. (We should be) encouraging savings through the superannuation system,” Ms Power said in an interview with The Australian.

“This tinkering doesn’t help and it absolutely affects confidence. People want to know if you put money in now that it’s going to be treated in a certain way. This is their life’s savings.”

The treasurer has sought to reassure most workers by saying the new tax will apply to only a fraction of the population – 80,000 of the wealthiest Australians in the super system. But with no plans for it to be indexed, more and more super savers will be hit in the years ahead.

“The government took this policy to the election, and they won convincingly. So I’m not surprised that they’re standing behind it. What is problematic is how it’s structured, in terms of the lack of indexation and the tax treatment on unrealised capital gains,” Ms Power said.

Initially, only a small number of CFS members will be affected by the new tax but this would grow in time if it is not indexed in some way, she said. Even more members will be hit by the tax if the Greens get their way and force the government to lower the threshold to their desired $2m.

Federal Treasurer Jim Chalmers holds a press conference at Parliament House in Canberra. Picture: NewsWire / Martin Ollman

Ms Power joins other super funds, high-profile investors and businesses in hitting out against the proposed tax.

Some of the country’s largest super funds, including Australian Retirement Trust and AustralianSuper, are believed to be lobbying the government to scrap parts of the tax, including the lack of indexation, to avoid a broader cohort of Australians being hit in the coming years.

High-profile fund manager David Paradice this week warned that taxing unrealised gains on higher super balances would make super an unattractive investment for many Australians and would not raise the revenue the government expects.

SMSF Association chief executive Peter Burgess warned self-managed funds would be hit much harder by Labor’s super tax than the larger funds. Of the estimated 80,000 people to be initially captured by the Treasurer’s tax, around 50,000 will hold their super savings SMSFs.

Treasury wants a consistent approach across all funds, and because large funds are not able to track actual taxable earnings, they’ve reverted to this calculation methodology and SMSFs will pay the price for it,” Mr Burgess said.

“With the larger funds, any capital gain is spread across thousands of members (or more), whereas in an SMSF, if you have a property in your fund, which typically has one or two members, and it goes up in value, then that capital gain is attributable to just those one or two members. Because of the asset mix of SMSFs, they get hit harder by a tax on unrealised capital gains.”

As she warned on the impact of the looming super tax, Ms Power urged the government to push ahead with legislative changes on financial advice, saying these reforms were now even more important as savers with higher balances look to navigate the planned tax grab.

“People are going to need help in structuring and managing the way that they face into this, so advice will just be more and more important in that scenario,” she said.

After legislating the first tranche of its Delivering Better Financial Outcomes reforms last year, the government split the second tranche into two parts and has been consulting with industry in recent months. New assistant treasurer Daniel Mulino is understood to be meeting with various stakeholders in the coming days as he reviews his portfolio and considers where to put his attention in his first months in the job.