Labor’s tax plan risks $25bn exodus from super funds

Up to $25bn could be withdrawn from super funds this year as people race to reduce their balances below a $2m threshold the Greens require in exchange for supporting Labor’s new tax on unrealised capital gains.

Treasurer Jim Chalmers on Wednesday. Picture: NewsWire / David Crosling

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Up to $25bn could be withdrawn from self-managed superannuation funds this year as people race to reduce their account balances below a $2m threshold that the Greens require in exchange for supporting Labor’s new tax on unrealised capital gains.

Geoff Wilson, the architect of the Coalition’s successful attack on Labor’s franking-credits policy at the 2019 election, said he had been fielding calls from clients about shifting money out of self-managed funds and said the opposition was now missing a golden opportunity to unseat a first-term government by not attacking Labor’s unrealised capital gains tax.

Senior Liberal sources defended the lack of campaigning on the issue, saying most seats where superannuants were panicking were where teals had come to power and had not voiced their constituents concerns.

Fund managers such as Mr Wilson said on Wednesday clients were asking whether they should redirect funds from super into the property market, raising fears the tax on unrealised capital gains will only fuel higher property prices and worsen affordability.

“I think there has been a misunderstanding by the Coalition of how brutal this unrealised capital gains tax policy will be on the economy,” Mr Wilson said.

“Labor should be losing the election on this issue. Shareholders are calling me, very concerned about the taxing of unrealised gains. Taxing profits you may never make by Labor is definitely the sleeper in this election.”

Angus Taylor and Peter Dutton. Picture: NewsWire / Nikki Short

Wilson estimates that, given 9 per cent of self-managed super funds contain balances of $2m or more, with about 44 per cent of those in retirement phase, there could be 24,500 funds looking to withdraw up to $1m in fear of Labor’s unrealised capital gains tax. Paul, an 82-year-old doctor, said he was taking money out now regardless of whether Labor had the numbers in the Senate to pass the bill to tax unrealised capital gains in super funds.

“I am going to pull money out of my super and the obvious place to put it is to give money to each of my grandchildren to buy a house,” he said. “It's terribly unfair to tax unrealised capital gains.”

Economists have repeatedly warned that boosting demand for housing would only further worsen the affordability problem where house prices are now eight times household income, up from six times just five years ago.

CoreLogic figures show Australians take a record number 10.6 years to save for a 20 per cent ­deposit, assuming a household can save 15 per cent of their of their income per year.

Aside from fuelling house prices, superannuants are livid that unrealised gains they make on ­investments such as start-up companies will be taxed.

Under Labor’s plan, if super_annuants make a loss on such a company the tax they paid on earlier gains will not be refundable. Labor wants to lift the tax rate on superannuation accounts worth $3m, but the Greens are pushing for that to be lowered even further to $2m.

Labor may agree if there is a hung parliament and it has not ruled out bargaining with the Greens. Labor would also likely need other independents to help pass the legislation.

The Coalition has not landed a punch on Labor around the ­unrealised capital gains tax during this election campaign.

Senior Liberal sources said campaigning on the issue had been focused on electorates where the issue mattered most such as Goldstein in Melbourne, formerly held by Liberal Tim Wilson and now teal Zoe Daniel. On Wednesday Ms Daniel said she would ­bargain with Labor to introduce a tax on superannuation earnings but was against unrealised capital gains. “My position on the proposal is unchanged, regardless of suggestions by others to change the $3 million threshold,” she said.

“My key issue with the overall proposal to tax super balances above $3m is the fact that it may tax unrealised capital gains.”

“I would be open to the legislation if this issue is resolved.

Tim Wilson, the Liberal candidate for Goldstein, said if he were a member of parliament he would have started a campaign similar to that of 2019 to stop the unrealised capital gains tax.

“As the MP who led the charge against Labor’s retiree tax in 2019, I would have led the charge against Labor’s tax on unrealised capital gains,” Mr Wilson said.

“The only way to stop it is to elect people who want to stop insane tax proposals like taxes on unsold assets. The teals haven’t even ruled out supporting it as part of a bigger tax package after the election”.

On Wednesday, opposition Treasury spokesman Angus Taylor made a passing mention on ­unrealised capital gains telling Jim Chalmers in their last debate that “you want to raise taxes on unrealised capital gains on Australia’s superannuation. You’re going after it again”.

Peter Dutton said in Tuesday night’s leaders debate: “The Prime Minister has already committed to taxing an unrealised capital gain. So, this will give an insight into where Labor is going.”

As polls show Labor leading the Coalition on a two-party preferred basis, 52 to 48 per cent, the legislation looks increasingly likely to pass and push superannuants into different structures and assets.

Superannuation expert at Keystone Advice, Matthew Collins said some superannuants would simply withdraw superannuation and place it into personal income where they would be taxed less.

“People don’t want to be paying 30 per cent on gains that aren’t really there. That's what is getting on their goat. This has really been hitting home in the last few weeks,” Mr Collins said.