Needed tax reform is sacrificed in attack on wealth
The Albanese government’s proposed superannuation tax is fundamentally flawed in principle and appallingly designed in practice – little more than a thinly disguised effort to raise revenue to support the government’s spending agenda. Earnings on superannuation balances above $3m would be taxed at 30 per cent, double the current 15 per cent. The tax would not only apply to realised gains but also unrealised gains. To make matters worse, the $3m threshold would not be indexed to inflation, effectively introducing bracket creep into the system.
While much discussion has focused on the implications for defined contribution superannuation accounts, there has been far less attention paid to defined benefit schemes, which are common among former public servants, judges and politicians. Unlike defined contribution accounts, where balances are determined by contributions and earnings, defined benefit superannuation does not have a balance in the traditional sense. Instead, it provides a guaranteed income stream, often linked to an individual’s final salary. These benefits typically do not run out and are frequently indexed to inflation. In many cases, they can be partially transferred to a spouse after death.
A 2021 analysis by the Commonwealth Superannuation Corporation revealed 41,000 retired federal public servants were receiving pensions above $75,000. The average net present value of these pensions was estimated at $3.4m, placing this group squarely within the scope of the new tax. This figure excluded military personnel, politicians, judges and former governors-general. Given recent inflation, these values are likely higher now, meaning more individuals will fall under the new tax threshold. For politicians, judges and senior public servants who are members of defined benefit schemes and yet to retire, including Anthony Albanese and Opposition Leader Sussan Ley, any liability under the proposed policy will be deferred, effectively functioning as an interest-free loan repayable upon retirement.
This deferment privilege will not extend to retirees already receiving defined benefit pensions, nor to Australians with defined contribution accounts, who may be forced to sell assets to cover taxes on unrealised gains. Equally perversely, those granted liability deferral will face a substantial lump-sum tax bill upon retirement.
The government appears to be following a breadcrumb trail left by Treasury, which regularly publishes a Tax Expenditures Statement, which estimates the amount of tax revenue “lost” because certain tax rates are below a hypothetical benchmark. This statement is as much a perversion of language as it is of accounting whereby taxes not collected are defined as expenditures. The 2023 statement claimed because super contributions and earnings are taxed at a concessional rate rather than at marginal income tax rates, this results in an annual revenue “loss” of $45bn, labelled a tax expenditure. This tax change was announced, perhaps not uncoincidentally, on the same day the statement was released.
Is it any surprise Australians are paying historically high levels of tax when Treasury, perhaps better described as the Department of Revenue, seems focused not on driving productivity or efficient resource allocation, but on maximising revenue? Rather than undertaking meaningful economic reform, the government is opting for a flawed and punitive policy that will undermine public confidence in long-term saving and investment. This measure will act as a disincentive to entrepreneurship and capital formation, stifling investment in emerging and innovative enterprises. Taxing unrealised gains – that is, increases in asset value on paper – is a dangerous, unprecedented step.
It marks a fundamental shift in the treatment of wealth and sets a troubling precedent for future taxation of other assets, potentially including the family home. This change also undermines the longstanding administrative simplicity of superannuation taxation, introducing the need for regular and costly asset valuations.
Dimitri Burshtein is a principal at Eminence Advisory.
Colour, courage and a sharp tongue – the Stone Age is a bygone era
John Stone was a formidable secretary of Treasury. He offered unvarnished assessments of treasurers he worked with, from Billy Snedden, Frank Crean and Jim Cairns to Bill Hayden, John Howard and Paul Keating.
Why does the left wage war against the poor?
There is really a left-wing assault against the poor, evident in a thousand policy areas and big ideas that are bad ideas. Winning one election well does not remotely guarantee policy success.