Labor’s backflip on super tax breaks

The Albanese government will target $42bn in ­annual super tax breaks, in a backflip in the policy Labor took to voters at last May’s election.

Treasurer Jim Chalmers says ‘we’re on track to spend more on super tax concessions than the age pension by around 2050’. Picture: Gary Ramage

The Albanese government will target Australians’ $42bn in ­annual super tax breaks to ensure the retirement system delivers on the proposed legislative objective of being “sustainable” and “equitable”, in a backflip in the policy Labor took to voters at last May’s election.

Jim Chalmers made it clear in leading into the poll that the then opposition had abandoned plans to fiddle with the tax treatment of workers’ retirement savings, following Labor’s traumatic loss to Scott Morrison in 2019, which was blamed on an overly ambitious program of tax hikes.

But in a speech on Monday, the Treasurer made it clear he ­intended to start a “conversation” on how to rein in tax breaks that cost the budget $42bn a year and which experts say favour wealthier Australians.

“When I think about how best we can use the budget to support Australians towards a better ­retirement – one fact stands out,” Dr Chalmers said.

“Right now, we’re on track to spend more on super tax concessions than the age pension by around 2050. I’m not convinced that’s a sustainable way to get to our destination: good retirement incomes for more Australians, now and into the future.

“While our immediate focus is consulting on the objective of super, that can’t be the end of the conversation about super’s sustainable future.”

The Treasurer’s speech coincided with the release of a consultation paper to enshrine in law a purpose for super, which Dr Chalmers said was needed to prevent politicians “raiding” super savings, “like allowing billions to be withdrawn from balances during the pandemic” under the former government’s emergency Covid-19 early release scheme.

The government’s proposal was that “the objective of superannuation is to preserve savings and deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.

While industry groups representing the $3.3 trillion sector such as the Association of Superannuation Funds of Australia and Industry Super Australia welcomed the move, Peter Dutton warned the objective was “code for more taxation”.

“When you hear Jim Chalmers talk about wanting to redesign the market and when you hear about him talking about superannuation, it’s all code for more tax,” the Opposition Leader said.

“In the May budget, I suspect we’ll see more and more taxes at a time when Australians can ­afford it less and less. That’s ­always the price of the tax-and-spend approach of Mr Albanese and Mr Chalmers has been on display, and I suspect you’ll see it in May as well.”

As Coalition members continued to make the case for limited access to super for first-home buyers, independent senator Jacqui Lambie told Sky News: “If people are stuck during their lifetime people should be able to ­access their super.

“It’s not as black and white as Jim Chalmers would like to think it is. And if people are coming into tough times over the next few years and we need to give them a hand, and give them 10 or 15 per cent of their super to keep them going, we need to look at this properly.

“I don’t think tightening those (emergency access) rules right now if we are going into recession is going to be very helpful.”

Brendan Coates, director of the Grattan Institute’s economic policy program, said if the government was “serious about these objectives of equity and sustainability, then some fairly serious reforms to tax breaks will be needed to align with this purpose”.

Financial Services Council chief executive Blake Briggs said the Treasurer “should be applauded for aiming to build public support for a legislated objective for the superannuation system, especially because he has flagged this will guide a government-led debate on raising taxes on retirement savings and this must be fair for older Australians”.

“The government must consult widely to make sure that older Australians who have worked hard and saved for their own retirement are treated fairly and do not have the rules changed on them late in life,” Mr Briggs said.

“Consumers want a simple definition that has a singular focus on their retirement – consumer testing for the Financial Services Council has made it clear the public does not want their superannuation to be redirected towards unrelated issues like ­nation building or home buying.”

Jeremy Cooper, a former deputy chairman of the Australian Securities & Investments Commission who led a sweeping review into the superannuation system under the Gillard government, said legislating an objective for super was “worth doing”, and that he liked the “shape” of the current proposal.

But Mr Cooper warned against wholesale changes that risked breaking the “bargain” made with Australians when they were forced to lock away their savings for decades.

“Super is always going to change, but for it to be tipped on its head when your halfway through that is destabilising,” he said. Mr Cooper said a legislated objective would have “little teeth” to limit decisions of future governments.

“The proposal is not a universal panacea, things can always be justified by the circumstances,” he said.