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Greens policy team investigating alternative to Labor super tax plan

Labor’s controversial super tax plan faces fresh challenges with the Greens investigating an alternative proposal that would raise more money without the need to tax unrealised capital gains.

Greens senator Nick McKim. Picture: Linda Higginson
Greens senator Nick McKim. Picture: Linda Higginson

Labor’s controversial super tax plan faces fresh challenges in the Senate, with the Greens investigating an alternative proposal that would raise more money than the ALP’s plan without the need to tax unrealised capital gains.

The Greens policy team is understood to be studying a new proposal revealed by The Australian this week that sets a 20 per cent tax on superannuation earnings with a 5 per cent rebate and no tax on unrealised gains.

Asked whether the Greens policy team was considering the proposal, the party’s “economic justice” spokesman, Nick McKim, said he did “not plan on giving a running commentary”, and that he looked forward to “constructive discussions” with Jim Chalmers. The Greens hold the balance of power in the Senate and Labor requires their approval for the controversial tax to proceed. Labor wants to introduce a tax on unrealised gains in superannuation accounts with $3m without any indexation. The policy would effect at least 500,000 Australians by the time they reach retirement.

This week Australian Council of Trade Unions secretary Sally McManus followed former ACTU secretary Bill Kelty in raising issues with Labor’s super tax.

Paul Keating also warned that the tax would capture thousands more Australians than the ­Treasurer and Prime Minister first expected.

The Greens have been analysing a new proposal designed by former Westpac director of pricing Kerry Hore which is similar to former Treasury boss Ken Henry’s recommendation in his tax review, which was overlooked by the previous ALP government and Treasury. The proposal focuses on taxing super earnings, not paper gains.

In the Greens’ dissenting report on Labor’s first attempt to push through the controversial super tax changes, the party emphasises that earnings should be made the main target of superannuation tax reform.

“This bill addresses only a slither of one aspect of the components leaking revenue that has turned our superannuation system into a tax shelter. That component is the earnings tax,” the Greens report said.

“Treasury’s latest Tax Expenditure and Insights Statement calculated growth rates of 17.7 per cent over the past three years for capital earnings tax breaks within super, so reining this in is a worthwhile goal.”

The new proposal from Mr Gore would include a flat 20 per cent tax on earnings with a rebate of 5 per cent for anyone with accounts under $3m and does not require taxing unrealised gains. This would raise as much as $1bn more in its first year compared to the $2.3bn Labor expected it to raise. The Parliamentary Budget Office has forecast that more than $40bn would be raised from the tax over the next decade.

Economist Chris Richardson, who has described the Labor proposal as a “flawed bit of sticktape”, said there was “a good case” to raise the super earnings tax to 20 per cent without the discount back to 15 for anyone, as designed in the Gore proposal.

Labor wants the threshold at which the tax begins to be $3m without indexation, but the Greens were pushing for that to be lowered to $2m with indexation. Modelling from the Financial Services Council has shown that lowering the threshold to $2m without indexation would see 1.8 million Australians stung with higher tax during their life.

Given Labor’s tax is not indexed to inflation or an average investment return used elsewhere in the taxation system, as each superannuant’s savings rise then a new cohort would enter the $3m bracket each year and be subject to the higher tax rate.

If the threshold was dropped to $2m without indexation, then people who had $1.875m in their superannuation one year would find themselves with a higher tax rate of up to 30 per cent the following year if their fund delivered a 7.5 per cent return.

Dr Chalmers has said he was not willing to make any changes to the Labor super tax plan.

“We’re not changing the policies we took to the election; we’ve got a mandate for that change,” he said last month in response to whether he was open to changes as part of a broader look at tax reform in his economic reform roundtable.

Business leaders, suburban superannuants, financial advisers and ­academics have criticised Labor’s proposal.

Economist Saul Eslake said that while he thought current superannuation settings were “far too generous” he also thought there were “far better ways to address super and they don’t include unrealised gains”.

Read related topics:Greens

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Original URL: https://www.theaustralian.com.au/nation/politics/greens-policy-team-investigating-alternative-to-labor-super-tax-plan/news-story/feb25fabeb02d9e6085dd250598bb48e