Industry fund Hostplus says Labor should have consulted more extensively on super tax

Industry fund Hostplus says Labor should have consulted more extensively on unrealised capital gains, while business groups gear up for roundtable tax reforms.

From left: Treasurer Jim Chalmers, Hostplus chief executive David Elia, and chairman Damien Frawley.

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The chair and chief executive of Australia’s third largest industry superannuation fund, Hostplus, which has 1.8 million members, say there has not been adequate consultation on Labor’s super tax plan and that an unrealised gains tax needs to be reconsidered.

The first major criticism of the plan from industry super comes as Jim Chalmers prepares an economic reform roundtable next month, at which several of the ­invitees have already spoken out against the tax, which the Greens also expect will be raised at the meeting as part of addressing intergenerational super inequalities.

While business has raised some concerns there could be a repeat of the “preordained” 2022 summit dominated by unions, The Australian understands outcomes – including full expensing of assets, reform on environmental approvals, and capital gains tax – are candidates for genuine consensus.

Labor’s plan for an unrealised capital gains tax on superannuation accounts, starting with $3m without indexation, has faced broad opposition from company chief executives as well as Labor luminaries such as Bill Kelty, along with economists, small business leaders and farmers.

Hostplus chairman Damien Frawley, whose fellow board members include former United Workers Union state secretary Gary Bullock and former prime minister Kevin Rudd’s daughter, Jessica Rudd, said the new tax on super was “part of the puzzle to help fix the revenue holes” but there needed to be broader input before trying to push the plan through parliament.

“More consultation could well have landed us all in a better place than taxing unrealised capital gains,” he told The Australian.

“It seems to be a very punitive outcome. It could easily be seen as a disincentive for members to invest in productive, high-­quality and even nation-building opportunities.

“Broader consultation is key to getting the right outcomes for all constituents, today and in the ­future. Indexation and or rebates need to be considered as part of a fairer structure,” Mr Frawley said.

The Treasurer has previously said “nobody could propose to us a better way of making this calculation” and the only alternatives would impose costs on those with less than $3m in their accounts.

However, there are such alternative super tax proposals, which are also similar to former Treasury boss Ken Henry’s recommendation in his tax review, which was overlooked by the previous ALP government and Treasury, and have not been considered as part of the consultation on the new tax plan. Mr Henry, who will attend Dr Chalmers economic reform roundtable on August 19, spoke out against the unrealised gains tax in May, saying that while it was understandable the government would want a more equitable tax treatment of superannuation “you do not need to tax unrealised capital gains”.

Mr Frawley said he thought Labor’s super tax plan “feels like a tax structure that is saying “don’t invest with aspiration because if you are successful, we will tax you before you know if that investment has made you money or not”.

Mr Frawley was supported in his view by Hostplus chief executive David Elia, who said more ­robust consultation was required.

Treasurer Jim Chalmers shares a laugh with Deputy Prime Minister as Federal Parliament returned on Tuesday Picture: NewsWire / Martin Ollman

“Proposed policy settings like this require deep consultation with industry and stakeholders. In this case, a more collaborative approach might have led to a better balance between the government’s revenue objectives and the need to maintain certainty and fairness in the system,” Mr Elia said. “I’d certainly support further dialogue on how best to achieve the policy aims without unintended consequences.”

Mr Elia said there were similarities between unrealised capital gains and land taxes, and there would be problems with it.

“There’s no question that Australia needs to ensure its tax system is fit for purpose, particularly as our economy evolves and new challenges emerge. I can understand how taxing unrealised gains is, by its nature, problematic – it introduces significant volatility and complexity into long-term investment strategies,” Mr Elia said.

“The concept is not new and is readily applied to the approach adopted to levy land taxes and council rates,” he added.

Hostplus, which manages $130bn in funds, said it was concerned the tax settings would ­affect more people over time.

The views are similar to the those of the Self Managed Super Fund Association, which as of Tuesday had not been invited to the economic reform roundtable.

Concerns have been raised that the tax will end up affecting far more people than the original estimate of 87,000. The Financial Services Council predicts more than 500,000 people will be hit by the tax before they retire.

The Parliamentary Budget Office expects the Labor tax plan will reap more than $40bn in tax revenue over the next decade.

Dr Chalmers’ roundtable has specifically called for tax proposals that are revenue neutral or positive, with some consideration for policies that might boost economic growth and tax revenue in the medium to longer term.

The Australian understands strategic tax incentives such as unlimited asset writeoffs for smaller and medium sized companies could be agreed to, especially if they involve renewable energy.

Commonwealth Bank, whose chief executive Matt Comyn will attend the roundtable, recently argued that corporate tax cuts were not essential, putting it on a unity ticket with the ACTU but at odds with the Business Council of Australia, the Australian Chamber of Commerce and Industry and the Council of Small Business Organisations Australia.

“We do not believe that lowering the company tax rate should be a priority,” the bank said. “We believe there are other priorities which should lead the productivity reform agenda. Targeted interventions to encourage greater investment could be considered, potentially funded by reducing concessions which apply to non-productive parts of the economy.”

A group of 28 peak bodies representing small, medium and large businesses, universities and the investment community will lodge its submission to the roundtable ­before entries close on Friday.