$4bn loss on superannuation tax would hit 200k

More than 200,000 people would lose $4bn each year in super tax concessions under a Grattan Institute plan after Jim Chalmers backed a legislated objective for the system.

Treasurer Jim Chalmers, left, with Prime Minister Anthony Albanese. Picture: Gary Ramage

More than 200,000 wealthy Australians would lose $4bn each year in super tax concessions under a “reasonable” package of measures the Grattan Institute has put forward after Jim Chalmers ignited a national debate by proposing a legislated objective for the superannuation system.

The Treasurer used a speech on Monday to say that a possible objective for super was “to preserve savings and deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.

Dr Chalmers also proposed the potential of super being maximised “including through greater investment in our national priorities, in a way that delivers for members”, triggering a political attack from the Coalition that Labor was abandoning its pledge not to change the super system.

The proposed shake-up is raising concerns in the self-managed super fund sector, which is warning against the imposition of a cap on super balances, arguing it will deter people from making voluntary contributions and erode trust.

Brendan Coates, director of Grattan’s economic policy program, told The Australian two-thirds of the roughly $50bn in annual super tax concessions went to the top 20 per cent of income earners.

He warned the super system had “become more generous over time” and that by 2060, one in three dollars in the system in retirement would go to bequeaths rather than providing retirement income.

Mr Coates proposed a trio of measures that “a government could very reasonably say targets tax breaks which go well beyond the purposes of super and are really about tax planning”.

He said imposing a 30 per cent tax on balances above $2m would affect 80,000 people and save the budget about $1.5bn a year.

Lifting the additional tax on super contributions for individuals whose combined income and contributions are greater than $250,000 from 30 per cent to 35 per cent, and lowering that income threshold to $200,000, would affect about 220,000 high-income earners and save a further $1.1bn, Mr Coates said.

Finally, lowering the cap on annual concessional super contributions from $27,500 to $20,000 would add another $1.6bn each year to the budget bottom line, bringing the total to $4.2bn.

“Most large contributions made by people close to retirement are by those who are already among the wealthiest 20 per cent, and are never going to end up on the Age Pension,” Mr Coates said.

The Self Managed Super Fund Association, which represents the interests of more than 1.2 million people managing their own retirement savings in over 600,000 funds – 20 per cent of which have assets above $2m, according to the Tax Office – argued against a cap on balances, saying it could erode confidence in the system, create further complexity, and create confusion.

Association policy director Peter Burgess said “if we want people to make voluntary contributions to their super they have to have certainty that the rules won’t keep changing”.

Big super lobby groups have thrown their support behind a higher $5m cap on super balances, and ASFA chief executive Martin Fahy told The Australian “we think a $200,000 cut-off at the marginal rate is where the concessions should be set, and it should be part of a broader package”.

“Those individuals … currently getting concessional treatment at 15 per cent would still get some concessional treatment at 30 per cent but not the lower (level),” Dr Fahy said.

“And I think it’s about recognising that for large numbers of Australians on the median salary, which is well below $200,000, that that’s an appropriate level.”

The Coalition on Tuesday dialled up the pressure on the Albanese government to hold to its pre-election commitment not to tinker with the settings on the $3.3 trillion super sector.

Opposition Treasury spokesman Angus Taylor on Tuesday said that leading into the election “Australians were told very clearly that Labor wasn’t going to play around with superannuation”.

“It’s clear the Prime Minister said one thing before the election, and he’s saying something quite different right now,” Mr Taylor told Sky News.

In Port Hedland, Anthony Albanese denied the debate around the sustainability of the super system represented a broken election promise. “We haven’t made any announcements at all,” the Prime Minister said. “The long-term issue of superannuation is something we need to deal with. My government makes no apologies for pointing out what the future looks like in 10, 20 years’ time if there isn’t a debate about change, and we are engaged in that debate, very clearly,” Mr Albanese said.

Former Treasury secretary Bernie Fraser said on Tuesday that super was never meant to be “a tax preferred investment for wealthy people or wealthy retirees”.

But Mr Fraser, a former Reserve Bank governor, said he supported allowing some Australians limited access to super to help buy their first home – an idea the Coalition supports but which has been dismissed by Labor. “I can’t think of a more comforting thought of someone approaching retirement to know they have or will have by that time somewhere to live,” he said.

On Monday, Dr Chalmers warned that the cost of super tax concessions was “unsustainable” over the long term.

ANU tax professor Bob Breunig agreed super tax concessions needed to be reined in, but cautioned “if you’re going to tinker with super settings, think hard about how you’re going to do it as you want those settings to last 20 or 30 years”.

Additional reporting: Glenda Korporaal, ­ Cliona O’Dowd