It was Jim Chalmers’ superannuation reform but it is Anthony Albanese’s reform of the reform that we’re getting. Michael Pascoe reckons it sums up the Albanese Government’s risk-adverse incrementalism.
If anyone was still hoping for significant economic reform to improve Australia’s outlook, to realise this nation’s enormous potential, that hope was buried on Monday when Treasurer Chalmers announced Prime Minister Albanese’s reformed superannuation reform.
One step forward, one step back, one to the side.
OK, maybe that’s a little harsh. Try a step and a half-shuffle forward, one back and one to the side.
The end result is not much more than a fiddle around the edges of our mighty superannuation resource, trimming a fraction of the great inequity of a superannuation scheme that devotes its greatest generosity to the wealthy who are in no need of further assistance to be wealthier.
The step forward is ditching the tax on unrealised gains.
The impact of grabbing a slice of unrealised gains was attractive on an equity basis as something of a de facto wealth tax. I have no sympathy for the bleating of people using super as a wealth preservation strategy for a major asset, contrary to the rules for super. (Cue the alleged farmer.) But it was wrong in principle. The ends were not good enough to justify the means.
Caving into super lobby
The step back is caving in to the lobby demanding the indexation of the $3 million threshold for a partial reduction in the overly generous superannuation tax break. That means it will only ever be a small number of people who will have their massive tax break reduced to merely extremely good.
We don’t index income tax, so what should be so precious about the super tax break for the wealthy, particularly when it would remain a very good deal anyway?
If it is to be indexed, the Greens’ call for the starting point of $2 million makes more sense. Left without indexing, the pain/pleasure point for the extra tax was be reached in time and adjusted at that time, as it is for other taxes.
The half-shuffle to compensate a little for that backdown is the introduction of a higher rate again, 40 per cent, on earnings of individuals’ superfunds holding more than $10 million.
Better than a Caribbean tax haven
The superannuation scheme’s generosity was never intended to extend to anyone with that much tucked away in a tax haven. (And make no mistake, our superannuation system is the best tax haven going for the wealthy, better than anything on offer in the Caribbean.)
And then there’s the step to the side, the tiny increase in the LISTO, alias the Low Income Super Tax Offset. That has been blandly reported as a nice government increasing the offset from a maximum of $500 to $810 and lifting the upper taxable income limit for receiving it to $45,000 so that low-income individuals don’t pay a higher rate of tax on super contributions than they do on their marginal income dollar.
That’s on contributions into super. Too bad about the earnings in those meagre super funds. They’re being taxed at 15 per cent, the same rate as those with $3 million stashed.
What it all means is that we maintain unequal taxation incentives to lock away money in superannuation.
Incremental Albo
For someone with a taxable income of $200,000 a year, there remains a 30 per cent discount on tax paid on super contributions and earnings compared with their ordinary income. For average workers, it’s a 15 per cent tax break. For some low-income workers, it is no break at all and some super earnings are taxed more than any savings outside super.
And that’s before getting to the truly ridiculous part of seriously rich people in the “pension” phase paying no tax on their super hoarding.
Might the government have tried to really fix the distortions of the Howard/Costello rorting? Nah, too hard. Would have been bad press.
A rational universal discount of 15 per cent on the individual’s marginal tax rate would be fair for all. But that would take vastly more ticker than incremental Albo has shown.
So we retain an iniquitous system favouring the rich. Which will surprise nobody.
Michael Pascoe is an independent journalist and commentator with five decades of experience here and abroad in print, broadcast and online journalism. His book, The Summertime of Our Dreams, is published by Ultimo Press.