The Albanese government proposes to tax people on gains from any assets kept in their superannuation accounts, beginning with those with a balance of $3 million or more, without indexation.
Industry superannuation funds, self-managed funds, investors, business leaders, and even ex-trade unionists have asked Labor to remove the unrealised component of the tax and modify the concession tax rates on contributions and earnings.
For example, Aware Super joined AustralianSuper and the Australian Retirement Trust in calling on the government to automatically index the $3 million tax threshold each year in line with inflation.
Former union leader Bill Kelty, considered one of the architects of compulsory superannuation, is said to be strongly in favour of the $3 million threshold being indexed to inflation and against the idea of taxing unrealised gains.
Wesfarmers CEO Rob Scott is also opposed to the idea of taxing unrealised gains.
The most important pushback came from former RBA governor Philip Lowe and former Treasury secretary Ken Henry.
Lowe called on Labor to reconsider the policy.
“I am a supporter of good public policy design, but I am not convinced this is an example of it”, Lowe told The Australian.
“We should be exploring other ways to adjust the concessional tax rates on high super balances”.
Ken Henry, who led the Henry Tax Review in 2010, was perplexed that Labor simply did not adopt the Review’s recommendations to make the superannuation system fairer and more sustainable.
“It’s understandable the government would want a more equitable tax treatment of superannuation but to do that you do not need to tax unrealised capital gains”, Henry said.
“There are other options and these are outlined in our review from 15 years ago”.
In particular, the Henry Tax Review recommended replacing the 15% flat tax on superannuation contributions and earnings with a flat 15% deduction from one’s marginal tax rate.
As explained in The Australian:
“If a superannuant’s income was $220,000 then for every $1 contributed, the superannuant would be taxed their marginal tax rate (47%) less 15%, giving them a super contributions tax of 32%”.
“If a poorer superannuant earning $30,000 contributed then they would be taxed their marginal tax rate (18%) less 15%, giving them a super contributions tax of just 3%”.
This one simple policy would make superannuation taxes progressive and more equitable and would also save the federal budget billions in lost revenue.
The Albanese government should dump its proposed unrealised superannuation tax and replace it with this simple superannuation reform.
