The purpose of superannuation, according to the Treasury is “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”
Superannuation is not meant to be a tax haven for wealthy individuals. But significant tax advantages in super are being enjoyed by more and more Australians.
The latest figures from the Australian Tax Office show that 11 more Australians – now 28 in total – have super balances of more than $100 million.
The 2020-2021 data also shows there are now 135 people with more than $50 million stashed in their super accounts – an increase of 107.
The average super balance for Australian men aged 60 to 64 is $322,200 and for women of the same age it is $246,900. The average balance across all ages increased from $150,000 in 2019-20 to $170,000 in 2020-21, according to the ATO.
The latest figures add fuel to the government’s bid to change the way super is taxed. But only for very wealthy Australians.
The government has proposed a limit on superannuation tax concessions for balances of more than $3 million. But there’s a problem – it will need the support of the crossbench to pass the legislation as the Opposition says it will oppose the reforms. The Greens are not yet onside.
The proposal seeks to tax earnings on $3 million-plus accounts at 30 per cent rather than the usual 15 per cent. Treasurer Jim Chalmers says that will raise about $2 billion a year with a scheduled start date of July 2025.
Dr Chalmers forecast that the change would apply only to about 80,000 people when it came into effect and would not alter the amounts of money people can put into super.
“It applies to future earnings – it’s not retrospective,” he said.
He has challenged the Coalition to either support “this modest and sensible change” or nominate where else to find billions of dollars to fund budget improvements.
“Labor’s highest priority is targeted cost-of-living relief in a more responsible budget,” he said. “Australians are making hard choices around the kitchen table, and it’s important that the government does the same thing around the cabinet table.”
Fighting the draft legislation
Opposition leader Peter Dutton says the proposal is a broken election promise as then Opposition leader Anthony Albanese had promised no changes to super.
“We’re absolutely dead against it, and we will repeal it,” Mr Dutton has said. “The figure of $3 million is not indexed so in 10 or 15 years’ time there will be tens of thousands, if not hundreds of thousands, of Australians who will be affected by this.”
The Self-Managed Super Fund Association is another who is “bitterly disappointed” with the draft legislation.
Chief executive Peter Burgess said the new regime of taxing unrealised gains, was a “dangerous precedent” for future tax reform.
“While the association doesn’t support super members with excessively large balances receiving generous super tax concessions, taxing unrealised gains is not the answer,” he said.
“It will give rise to many unintended consequences, defies long-standing principles of our tax system, and will result in outcomes inconsistent with the stated objective of this new tax.”
The draft legislation is open for consultation until 18 October.
Super tax costs vs Age Pension
Writing for The Conversation, professorial fellow at the University of Canberra Michelle Grattan says expenditure on age and service pensions is projected to fall from about 2.3 per cent of GDP in 2022-23 to 2 per cent in the early 2060s.
“On the other hand, superannuation tax concessions are projected to rise substantially as a proportion of GDP – from about 1.9 per cent in 2022-23 to 2.4 per cent in 2062-63.
These tax concessions are projected to overtake spending on the Age Pension in the 2040s.”
Perhaps savings from the additional tax on big super balances could fuel an increase to the base rate of the Age Pension.
Do you support the government’s aim to tax super earnings on balances in excess of $3m? Share your thoughts in the comments section below.