Super tax: how Labor botched a raid on the nation’s nest egg
If Labor’s strategy was to put more cracks in public trust, scare baby boomers and give estate planning for the rich and famous a boost, then hats off!
The Albanese government has hit a sour note on superannuation: almost no one is pleased about the proposed changes to an abstruse system. Fiscal realists want proper tax reform, while the Greens and some in Labor yearn to stiff the rich harder and faster; wealthy Australians and the financial advisers who mooch off their nest eggs demand the status quo.
Perhaps only the federal opposition is thrilled, providing it with a pride banner to march under all the way to the next election. It’s also red meat for conservative furies, with the delicious prospect of fighting Labor on “broken promises everywhere”.
Peter Dutton said the opposition was “dead against” the move and promised to repeal it: “We’re not going to stand by and watch Australians attacked.”
At the next election voters will deliver a verdict on what is, on balance, a modest switch to collect $2bn a year by raising the concessional tax on earnings from super balances above $3m to 30 per cent in 2025. To be really generous, you could give Anthony Albanese and Jim Chalmers a frankness credit.
But they get an F for execution, especially on either side of Tuesday’s policy announcement. Nods, winks, kites aloft, loose talk to all points of the compass – it’s not a model for orderly outcomes or winning broad assent. Selling it is getting harder by the day.
If Labor’s strategy was to put more cracks in public trust, scare baby boomers and give estate planning for the rich and famous a boost, then hats off!
But the pivotal issue persists: with pandemic debt, spending on the rise and forever deficits, how can Australia secure fiscal sustainability? Officials are playing down expectations the Treasurer’s second budget on May 9 will shift the needle from a neutral setting. Fiscal repair will be a long, slow slog.
As soon as Treasury’s new and improved distributional analysis of the costliest tax breaks was released, speculation tumbled out about possible measures to extract more revenue beyond super, including changes to capital gains exemptions on the family home, negative gearing and family trusts.
The Prime Minister and Treasurer emphasised this was not a statement of intent or policy, merely a facty conversation starter. Here was a timely snapshot of who wins and loses from $243bn a year in tax concessions.
Treasury provided a handy caveat for interpreting its best guess of the revenue forgone each year to influence behaviours such as saving for retirement or investing in property: “A more complete picture would also consider the lifetime profile of support rather than focusing on a single-year snapshot, as incomes and circumstances are strongly correlated with certain life stages (for example, the Age Pension and Family Tax Benefit).”
Then on Wednesday, storytelling got messy after the Treasurer stonewalled on questions during early morning television interviews about possible changes to the capital gains tax exemption on the family home.
Defcon 3: Get Albo on the air within 15 minutes.
“We are not going to impact the family home, full stop, exclamation mark,” the Prime Minister told ABC Radio National Breakfast’s Patricia Karvelas.
Why not? “It’s a bad idea,” he replied. “I have never heard – in all of the meetings that I’ve been to, Patricia, over the years, and I’ve been to a few of the Labor Party cabinet, caucus, branch meetings – I’ve never heard anyone raise that as a proposition.”
For the first time in a long time, Chalmers looked off his game, and the remote control on the narrative slipped from his grasp. At noon in Canberra, the Treasurer fronted reporters after the release of the December quarter national accounts. A few questions in, Chalmers conceded he should have ruled out that morning doing anything on capital gains tax concessions on the family home, which are estimated to be worth $48bn a year.
“I want the country focused on this choice that we can make to make superannuation more affordable by making the tax concessions in super more sustainable and in the process make the budget more responsible,” he said.
The release of the much anticipated tax expenditures statement was always going to be a risk after Labor’s kite-flying prelude the previous week. Of course, the statement is an exercise in transparency, as required by the Charter of Budget Honesty.
Labor deserves a tick for making it meaningful, even if calculating the cost of tax expenditures is a contested space because they depend on assumptions about how taxpayers will behave when concessions are removed.
More questions on contentious areas were unavoidable. Of the top 10 tax breaks, worth a total of $150bn a year, one-third relate to super. So why limit the policy conversation to a measure that would cover a day’s worth of Canberra’s running costs? Is that the extent of unfairness and unsustainability in the tax system?
Of course not. The looming fiscal morass, as the intergenerational report in the middle of the year will confirm, demands a bigger conversation. But if you parade the data, and you’re prepared to have a fight on a policy that defies the pre-election read-my-lips “no intention of making any super changes”, isn’t it logical to believe other measures are now fair game? Why trumpet the scale of the problem and then meekly walk away? Bizarre, amateur stuff from two blokes who have spent their working lives at the prickly end of power politics.
“We’ve now seen the first change in what, I think, will be many changes in the superannuation and tax space over the term of this government and into the next term of government if they are re-elected,” the Opposition Leader said.
While Labor has ripped off the seal on its cache of political capital, the pile-on has been over the top. Losing perspective in our politics may be de rigueur but it drives out considered debate on policy. There are no long-term winners, no bankable reforms, in this trench warfare.
When Scott Morrison as treasurer introduced caps on tax-free super, true-blue Liberals said it was a strike at the heart of big-A aspiration. Fortunately, Angus Taylor, then a freshly appointed assistant minister, was there to settle nerves in 2016.
“Well, it’s very simple,” Taylor patiently explained to Weekend Sunrise viewers. “We need a fairer superannuation system which has integrity, and this means that those of us who can afford to pay, should be paying our fair share.”
Those crying class war and other atrocities, especially those presenting as alternative stewards, should be offering better solutions rather than “going to war” for the besieged 80,000 of Superannistan.
Let’s get a few things straight. For those with $3m-plus in super, this means an extra $25,000 a year in tax liability, on average. But remember, that also implies a net balance boost of $475,000 on Inquirer’s figuring.
Treasury provides a simple, albeit stylised, example.
Warren is 52 with $4m in superannuation at June 30, 2025. He makes no contributions or withdrawals. By June 30, 2026, his balance rocketed to $4.5m. The extra tax liability for 2025-26 is $24,750. As he has not yet retired, Warren’s super fund will have already forked out $90,000 from investment earnings at the standard concessional rate of 15 per cent (let’s not get fiddly about franking credits and capital gains).
All up, Warren’s super has earned around $590,000 in a year and he has been taxed $115,000 or 19c in the dollar. His nest egg has grown by $475,000 in a single year. Had he earned the same in salary, he would have paid $236,000 in personal income tax or 40c in the dollar. If Warren were in pension phase, he’d be slugged even less.
It’s likely that by 2026 the earnings on the first $1.9m will be tax free, earnings on the next $1.1m taxed at 15 per cent, and earnings on the remainder taxed at a headline 30 per cent.
Finance is more complex than this example. The inclusion of unrealised gains and losses is a radical step; people have lumpy assets, such as property, in self-managed super funds. But SMSFs are already required by regulators to report losses to the Australian Taxation Office.
The new regime is more than two years away, so kinks can be ironed out.
Bottom line: the more a few who have the means pay, the less ordinary workers will have to contribute. Politically, it’s a baby step of redistributing income from the 0.5 per cent unlikely to vote for Labor to the pot of revenue it will need to operate the Canberra of its dreams.
The hard-to-bend upward line on spending reflects an ageing, indebted, demanding and more vulnerable Australia that will be more expensive to run across all levels of government.
Commonwealth Bank economists noted on Wednesday the national accounts revealed “the volume of public spending is exceptionally high and sits 15.5 per cent above its pre-pandemic peak”. But the size of the economy is now only 7.2 per cent larger. “The result is government spending as a share of the economy has risen significantly,” they said.
The credit agencies are paying close attention, especially to the rise in spending on public works, wages and borrowing costs in NSW and Victoria. Fiscal discipline goes awry at election time, no matter which stripe the incumbent. S&P Global said state and territory gross debt had doubled to $540bn across the past three years and was on track to reach $600bn next year, although mining-rich states were in surplus because of fat royalties from iron ore and coal.
“To be clear: fiscal consolidation for the states is still occurring, just at a more leisurely pace than might be expected, given the strong economic hand Australia has been dealt,” S&P’s Martin Foo said.
Albanese and Chalmers have made it clear they are interventionists. It’s the spirit of the times. They appear comfortable driving the double-decker maxi-bus towards “values-based capitalism”.
What this week reveals is that Albanese Labor is not even close to working out how to pay for a big(ger) government, let alone how it will manage the diabolical politics and optics. But if Labor is to trim a deficit stuck at $50bn a year in today’s dollars, it must lean into both spending and taxing.
In public, officials have also suggested “growing the pie” through productivity reforms and reforming government services, which are never without controversy and depend on politicians landing them, will help the budget. At Senate estimates last month, Treasury secretary Steven Kennedy called for “improvements to the cost-effectiveness and productivity of government services and government funded services”. Aged care and the National Disability Insurance Scheme are prime candidates.
“Governments are going to have to make hard decisions about how to either reduce that spending as a proportion of income or raise taxes if they want to run balanced budgets over time,” Kennedy said.
“The focus is on the trajectory of spending, such that it isn’t growing particularly faster than income and hopefully less than overall income over time. Secondly, it is to ensure that the revenue raised that matches that spending is done in the most efficient way. That’s my conception of sensible fiscal consolidation over time.”
Reserve Bank governor Philip Lowe told the hearing the political class needed to refocus on enhancing the supply side, which made the economy more flexible and the job of central banks “much easier”.
“One of the reasons the Australian economy did so well over many decades was that we had a series of reforms that made us more competitive, made the economy more dynamic and that delivered stronger growth,” Lowe said.
Late in the day, Productivity Commission chairman Michael Brennan explained to the Senate how productivity growth in the “non-market sectors”, including government services, was a significant priority. It’s a focus of the 1000-page five-yearly review that is now with Chalmers and is likely to be released this month or next.
Brennan said productivity and productivity growth fed into the budget position in two ways: first, through growth that boosts tax receipts. Second, greater efficiency in the delivery of government services “can play a key role in helping to solve that fiscal challenge without cutting back on the services that the community demands”.
It has been a torrid week for Chalmers. He has the budget grind ahead of him, signal reviews to respond to and a super mess to clean up. Asked this week by a reporter where productivity gains would come from, the Treasurer retreated to safe territory. “It will be all about how we invest in our people so that they can adapt and adopt technology so technology works for people, not against them,” he said.
“Our challenge is in energy and data and digital and making our industrial base deeper and broader. So much of our economic plan is about doing that. And if we get it right, we can get productivity growing again in more meaningful ways because productivity is the secret sauce to growing the economy the right way, where there’s more opportunities for more people.”
No mention of reforming government services, let alone a tax system that encourages saving and investment, economic dynamism or proper pricing of infrastructure.
Labor is facing an electorate, including its most avid supporters, with growing wants and a desire for more activist government. But it lacks the means and a workable plan. A hit on the rich, as justifiable as that may be, is a stopgap. If Albanese and Chalmers can’t find the sweet spot on an elementary tax play, how will they fashion the delicate political and policy trade-offs necessary to build and sustain Labor’s big opportunity society?
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