The furore over the superannuation changes in the fossil media is grossly overcooked. The changes only affect the wealthiest. Michael West with the fact-check.
Unless they want Australia to become a total plutocracy, and we are headed that way, Jim Chalmers and the Treasury have to address some of the inequities in the superannuation system.
Ergo the proposal to reverse a generous tax concession for wealthy investors exploiting their SMFSs as a big tax shelter to pass on wealth to their kids.
Bear in mind, the AFR and the Oz – which have been fervently wailing and gnashing their teeth over the Division 296 proposal to lift the tax on super balances of more than $3m (by 15% to 30%) – have failed to point out that there are at least 42 self-managed super funds with more than $100m in them.
That is, big businesses paying very little tax. And at the “poor end” of the spectrum, those with $3m are up for $1500.
Taking the super froth off the top
As super consultant Harry Chemay puts it, “Treasury knows it’s a problem and they have to take some of the froth off the very top”.
Further, in reality, we are talking about cosy super lurks of $6m, not $3m, because most wealthy Australians are married or partnered up and by the time they get into their 50s, their financial advisors have split the balances evenly to protect that $6m.
We are not entirely comfortable with the idea of taxing unrealised gains, and not indexing the changes, but there are arguments for both: one, taxing unrealised gains begins the process of rectifying the unfairness in the system, and two, indexation will come, as do changing tax brackets.
Crocodile tears
Ordinary Australians are not affected at all upfront and a few years down the track indexation can be addressed. The sobbing and blubbering about ordinary Australians from the corporate media is a false narrative, crocodile tears.
Moreover, as Harry Chemay points out, ordinary Australians are effectively taxed on unrealised gains already via their superfund balances. It is built into the unit prices.
Chalmers is being a bit sneaky on the indexation issue. He doesn’t want it indexed right now because it makes his Budget look better in the outer years. Fair enough, it claws back that inequity from people who can most afford to pay their fair share.
We are talking mostly about those couples with their $6m super who don’t have to pay CGT on the family mansion either – and probably have the farm in the fund and the holiday home exploiting the Airbnb tax rort.
Airbnb tax rort: why is the government subsidising holiday landlords?
And bear in mind it was Peter Costello who killed indexation of super wealth back in the day.
Here are the pertinent numbers:
- As at 31 December 2024, the total super system balance was $4.167 trillion, of which APRA-regulated & public sector funds accounted for $3.15 trillion (76%) and SMSFs accounted for $1.02 trillion (24%).
- APRA-regulated funds etc had roughly 16m members (94%), while SMSFs had ~1.1m members (6%).
Chemay: “So effectively, 6% of super members control about a quarter of all the wealth in the super system. Superannuation balances are quite skewed in favour of high-income earners who can use the generous tax rules to their favour.
- In terms of the cost to the taxpayers, the latest Treasury Intergenerational Report (2023) notes that while the cost of the Age Pension is forecast to fall from 2.3% of GDP to 2.0% in 2062-63, the total cost of the retirement income system is forecast to actually forecast to rise. from 4% of GDP to 4.5% of GDP on the back of rising earnings tax concessions.
Chemay: “So this Div 296 tax proposal is an attempt to constrain this longer-term hit to taxpayers by trimming some of the earnings tax concessions, which generally are a result of over-generous contribution and withdrawal rules from 2007 to roughly 2017″.
“It is commonly known that some SMSFs have taken advantage of these generous rules to move substantial wealth into SMSFs.”
So, now their financial advisers will be cooking up new trusts and structures to prevent their “ordinary mums and dads” clients from being “smashed with this heinous great big new tax”.
Forget the cash-splash for the poor, Josh’s Budget giveaway is super for the rich
Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.