Taxing unrealised gains is not ‘sensible centre’ policy

The case against Jim Chalmers’s plan to impose an unrealised capital gains tax on superannuation balances over $3m, without indexation, have been well argued by opponents of the scheme, including industry leaders and economists. The concept of taxing gains before assets are sold and profits realised is wrong in principle and a deterrent to savings and investment in practice. And emerging opposition to the plan from within the Labor Party and the trade union movement should spur Anthony Albanese and the government to insist on a rethink. As impetus builds to include wider taxation reform in the government’s productivity roundtable next month, it is clear the super tax proposal must be overhauled. Company and personal tax rates, the GST, payroll tax and other imposts that act as a brake on productivity will be on the agenda at the roundtable.

A quarter of a century after the Howard government introduced the nation’s last major tax reform, the GST, further reform to promote saving, investment, wealth generation and productivity is essential to encourage investment and growth and reverse the decline in living standards because of flatlining productivity. Fiddling around the edges with the Treasurer’s super tax proposal will not be good enough.

ACTU secretary Sally McManus has raised concerns about it, saying on Tuesday that the tax has “got to be indexed because you’ve got to make sure eventually people don’t end up there”. Her predecessor from decades ago, Bill Kelty, has argued the same point. He went further, condemning the taxing of unrealised capital gains as “bad policy”. “It distorts the effective tax,” he said. “Changes your income flows, and if it was on superannuation generally there would be a revolution about it. It would destroy super … Bad policy is bad policy – for rich or poor.” And as father of compulsory superannuation Paul Keating said in a statement marking the increase of compulsory retirement fund contributions to 12 per cent this week, Labor’s super tax plan will capture thousands more Australians than Dr Chalmers and the Prime Minister first expected. Employment and Workplace Relations Minister Amanda Rishworth on Tuesday said Labor should listen to Mr Keating’s views on the super tax. Assistant Treasurer Daniel Mulino said he would consider an alternative proposal put forward by former Westpac official Kerry Gore that would raise $1bn more than Labor’s policy without taxing unrealised gains. The proposal allows for indexation and a flat 20 per cent tax on all superannuation earnings, with a 5 per cent rebate for people whose accounts are worth less than $3m. Mr Gore will submit the proposal to the roundtable.

Modelling from the Financial Services Council, Matthew Cranston reports, shows that under the unrealised gains tax policy, anywhere between 500,000 and 1.8 million Australians currently in the workforce would be stung by the tax when they reached retirement. As FSC executive director Chaneg Torres told The Australian: “Tax reform offers the most significant opportunity to generate a step change in Australia’s rate of productivity growth.” Because Australia’s business taxes are uncompetitive by OECD standards, broad tax reform – along with labour productivity, cutting red tape and efficient energy policy – should be priorities at the roundtable.

Since the election, Mr Albanese and Dr Chalmers have made productivity growth their main economic objective. In the lead-up to the roundtable, Dr Chalmers has been calling for “collaboration and compromise” from politicians, unions and business ­leaders to secure ­reforms that will lift productivity and produce a sustainable budget. He has promised, commendably, to chair the event from the “sensible centre, not an ideological extreme”. He and participants need to consider that personal taxpayers already are taxed heavily because of bracket creep; the 47 per cent top marginal rate applies from $190,000, just twice the average annual income. On top of that impost, superannuation savers working towards funding their retirements would hardly regard paying tax on unrealised gains as a policy of the “sensible centre”.