Like it or not, Anthony Albanese and Jim Chalmers are about to come under substantially more pressure on their plan for unrealised capital gains tax from within and outside their party.
After former ACTU secretary Bill Kelty came out swinging against the unrealised gains tax proposal, Paul Keating laid the groundwork on Monday by noting in a statement that far more Australians would be caught by the tax grab.
One key motivation for Labor to go down this path comes from the industry funds quietly backing the party’s plan because it’s an easy fix.
Apparently it’s too difficult to apply different tax rates on earnings depending on the size of an individual’s superannuation account because the tax on earnings is imposed on the fund, not its individual members.
Economists such as Saul Eslake say that’s not a good enough excuse. Super fund manager AMP knows that’s nonsense, too, because they can work it out based on the individual.
Under a new proposal by former Westpac director of pricing Kerry Gore, super funds wouldn’t even need to get up to pace with such systems. His proposal imposes a flat 20 per cent tax on all superannuation fund earnings.
Before any discounts are considered, the tax revenue is remitted to the Australian Taxation Office by the superfunds and self-managed funds.
The ATO then rebates 5 per cent to those people with less than $3m in their super accounts.
The ATO simply works out who has less than $3m in their accounts and sends the money back to the super account at tax time.
“This modern design also sends a strong policy signal that superannuation is meant to secure retirement savings, not to serve as a tax shelter for wealth accumulation,” Gore told The Australian. “This also resolves the problem that industry super funds can’t calculate different tax rates based on individuals’ total superannuation balances, that many hold multiple accounts, and the tax is only at one rate at the fund level.”
It would also enhance the ATO’s efficiency of tax collections, whereas Labor’s plan would have had added delays and costs across industry because they would have to develop compliant valuations on annual unrealised assets.
Gore’s plan is structured to allow indexation, another characteristic not considered in Labor’s plan and another reason why Labor grandees such as Keating are resisting it.
Gore, who does not have $3m in superannuation or a self-managed super fund, said in his comprehensive 34-page proposal sent to the Prime Minister’s and Treasurer’s offices, that indexation should be considered and his alternative design “supports future indexation”.
Modelling from the Financial Services Council showed that, under four different scenarios of the unrealised gains tax policy, anywhere between 500,000 and 1.8 million Australians in the workforce would be stung by the time they hit retirement.
Pressure is building on Chalmers and Albanese to genuinely show some room for compromise.
Gore’s alternative is similar to former Treasury secretary Ken Henry’s rebate proposal in his Henry tax review, but that recommendation was excluded in key advice provided in 2023 to Albanese and Chalmers.
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