Tax to double on superannuation earnings for balances over $3 million

Prime Minister Anthony Albanese has announced tax on superannuation earnings for balances over $3 million will double from 15 per cent to 30 per cent in two years, saying it is difficult to argue that multimillion-dollar accounts are just for retirement.

The announcement followed a week of speculation over potential changes to tax breaks after Treasurer Jim Chalmers revealed a proposed definition for superannuation while noting the concessions were nearing the cost of the aged pension.

Treasurer Jim Chalmers and Prime Minister Anthony Albanese announce the changes on Tuesday.Credit: Alex Ellinghausen

The tax expenditure report, published on Tuesday, found tax breaks on superannuation will be worth more than $50 billion this financial year.

Albanese said the “important reform”, to take effect from July 1, 2025, would bring in about $2 billion in additional tax over four years.

“This proposal does not change the fundamentals of our superannuation system. 99.5 per cent of people with superannuation aren’t affected by this reform,” he said.

“We’re proposing a change that will have an impact on half a per cent of the population. If you knew that there were 17 people who had $100 million in their account. I didn’t. And it’s hard to argue that those levels [are] about actual retirement incomes, which is what superannuation is for.”

Albanese said the changes would be legislated in this term of government.

Chalmers said the government was left with a budgetary mess by the previous government. Those financial pressures would ramp up over the next couple of years, so it was Labor’s job to try to repair the budget.

“What the tax expenditure statement shows is that the cost in revenue forgone from super tax breaks is about $50 billion a year. And that will surpass the cost of the age pension as I’ve said before, by around 2050,” Chalmers said.

The treasurer said Australia had a world-class super system but the growing cost of some of the tax breaks was a flaw.

“For any objective observer, the idea that ordinary working people subsidise incredibly generous tax breaks for people with millions and millions of dollars in superannuation doesn’t stack up,” he said.

The average superannuation balance is $150,000, but about two-thirds of Australians have less than $100,000 in their accounts.

Chalmers stressed that the government was not coming after the super balances of normal Australians.

“We are not trying to diminish anybody’s superannuation balance. As the prime minister said, this is a prospective change that comes in in a couple of years’ time and it’s about future earnings over a certain balance that people have.”

He pointed out that 17 people had more than $100 million in their super accounts, while one person had more than $400 million.

“We don’t begrudge anyone who has made a lot of money or saved a lot of money or takes advantage of the tax breaks that are legitimately available to them. We want to make that clear. If you’ve done well in super, that’s a good thing,” he said.

“If you’ve got millions in super, that’s impressive. Obviously, there will still be tax concessions for you. They just won’t be quite as generous as they were before.”

Chalmers acknowledged there had been a debate over the past week about the super tax concessions – the opposition has accused the government of breaking an election promise, having said it had no intention of making any changes to superannuation.

He noted the Coalition introduced its own changes to tax breaks in 2016, backed by now shadow treasurer Angus Taylor.

“At the time, Angus Taylor said it’s totally inappropriate that someone who’s contributed millions and millions of dollars continues to get those 15 per cent concessions,” he said.

Chalmers said it was up to the Coalition to explain its current position.

“If they want to vote against this change and try and prevent this change, then they can explain to people why they’re not prepared to back energy bill relief for pensioners ... but they are prepared to go to war for the one half of 1 per cent of people with more than $3 million of superannuation in their accounts,” he said.

Chalmers said he had no plans to index the $3 million threshold – meaning the level at which higher tax would be levied would not rise over time.

He said the government expected people to respond to the announcement by adjusting their financial arrangements, but noted the superannuation tax rates were still concessional even with the planned changes.

“So when people go through their own arrangements, some people might take their money out of super, but more likely people compare the 30 per cent headline rate with their marginal tax rate and decide to leave it where it is,” he said.

The highest marginal income tax bracket is currently 45 per cent for people earning more than $180,000.

Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.