Super no longer safe as houses

With federal parliament due to resume sitting for two weeks from Monday, the Albanese government must learn the lessons from its badly conceived venture into reform of superannuation and formulate a real plan for the economy. Jim Chalmers has spent a good deal of political capital achieving a reform that will raise little money and that already has shown itself to be loaded with unintended consequences. More work is needed to overcome the perverse impact of taxing unrealised gains. Much time must now be spent working out how to include public service-defined benefit schemes into the higher tax net. But worst of all is the damage that failing to index the tax increase on balances over $3m will do to the whole system of superannuation into the future.

As wealth editor James Kirby wrote on Friday, the terms of investing in the super system are no longer reliable. Older, wealthier Australians will be seeking alternative tax breaks while younger Australians would be misled if a financial adviser were to tell them super was the single best place for savings, Kirby wrote. Labor must work overtime to reassure voters that similarly unguided taxation reform on the run will not be directed towards capital gains tax exemptions on the family home.

The reality is that once set loose, envy politics and class warfare can be hard to put back in the box. Witness the illogical debate over claims that excessive company profits, not imprudent government spending, are responsible for domestic inflation. Most worrying is the fact, as Canberra’s elite spent the week obsessing over a change that represents only a tiny fraction of government revenue, back in the real world there was confirmation by the Australian Bureau of Statistics that annual GDP growth had fallen below 3 per cent. The economy grew 0.5 per cent in the final three months of 2022, weaker than forecast.

Rising interest rates and a 7 per cent higher tax slug for households in the last quarter is starting to bite. Household savings accumulated during the pandemic are being spent. The household savings rate dropped for the fifth consecutive quarter from 7.1 per cent to 4.5 per cent, to the lowest level since September 2017. Meanwhile, first-homebuyer loans fell to a five-year low in January, total building approvals fell by 27.6 per cent that month, and private home loan approvals slumped to their lowest level in a decade.

With the economy slowing and employment starting to soften, but with inflation still high and the Reserve Bank of Australia expected to keep lifting the official cash rate, the outlook is clearly more challenging than a raid on top end superannuation balances will fix. All told, the federal government has a full agenda that faces significant headwinds, particularly with energy policy and the introduction of its cornerstone climate policy, the updated safeguard mechanism. Tweaking tax on super already has unleashed further unrealistic demands from the Greens. For Anthony Albanese and his Treasurer, putting an unnecessary question mark over the government’s competence to deliver major policy and quality reform is not what is needed by the government or taxpayers.