A federal plan to overhaul superannuation has split the crossbench and divided industry over the $4 billion that could be added to government revenue in the next four years by forcing wealthier workers to pay more tax on retirement funds.
The federal government has sharpened its focus on about 40,000 people with more than $3 million in superannuation to increase tax earnings on the big balances, although Anthony Albanese on Sunday night insisted the changes remained “hypothetical” and no decision had been made.
The options are dividing crossbench MPs as more details emerge, with Rebekha Sharkie saying she was open to the changes and Monique Ryan saying she was happy to examine the proposals, while Zoe Daniel warned there was a “whiff of retrospectivity” to the ideas.
Cabinet ministers are yet to decide the policy but the options are being narrowed to target a relatively small cohort with balances that are much larger than average, amid Coalition claims that all workers should be worried about changes that would break a Labor election promise.
In a sign of the revenue at stake, Grattan Institute economic policy program director Brendan Coates said the government could raise $6.8 billion over four years by making changes to funds with more than $2 million in assets.
Treasurer Jim Chalmers said a $3 million cap was a “good example” of the potential change to be debated in a bid to prevent deeper budget deficits and ensure the nation can fund healthcare, disability care and other services.
“Less than 1 per cent of people have got more than $3 million in their superannuation,” he told Sky News on Sunday.
“Good on them if they do, but less than 1 per cent of people have that.
“But that’s a good example for people to focus the mind on some of these big balances, which are attracting incredibly concessional tax arrangements. We do need to work out whether that’s the best use of taxpayers’ money.”
The government applies a 15 per cent tax on the earnings within super funds, a much lower rate than the income tax it would apply on the usual earnings of wealthier workers, so the leading option for the government is to double that rate to 30 per cent on amounts that exceed a certain threshold, such as $2 million or $3 million.
Industry Super Australia, which represents not-for-profit industry funds, said it was not opposed to a cap but did not have a position on where the threshold should be set.
“Any prudent government would examine super’s tax concessions to assess their fairness and make sure they remain sustainable,” Industry Super Australia chief executive Bernie Dean said.
But the Financial Services Council, which represents big commercial funds, expressed concern about the government’s shift in emphasis.
“The government started the debate at a $5 million cap and have now moved to $3 million and consumers would rightly be nervous whether the cap will impact them,” said council chief Blake Briggs.
Prime Minister Anthony Albanese insisted it was fair to have a debate about super despite his statement that “we have no intention of making any super changes” three weeks before last year’s election.
Asked on the Ten Network on Sunday night why he had said there would not be any changes, Albanese said: “No, I said we had no intention, and we certainly – that’s not the objective here, but people are coming forward with the idea, we’re not shutting down debate.”
Tax changes above the $2 million threshold would affect about 80,000 people while changes above the $3 million figure would only affect 36,000 people, according to estimates from the Grattan Institute that are in line with figures from the Association of Superannuation Funds of Australia.
The association’s latest figures found that men aged from 60 to 64 had a median balance of $358,000 while women the same age had $288,000.
The Greens, independent David Pocock and Tasmanian independents Jacqui Lambie and Tammy Tyrrell have aired support for the idea of curbing tax breaks for the very wealthy, suggesting the changes could pass the parliament.
Pocock is considering the tax revenue that could be raised under the competing thresholds and urged the government to take an “evidence-based approach” to the outcome.
“This is not about compromising people’s retirement savings but about the appropriate level of tax benefit for superannuation once people have millions of dollars in their super account,” he said on Sunday.
“We should be looking for fair and sensible ways to manage our federal budget.”
But One Nation leader Pauline Hanson slammed the idea of changing the tax rates, saying: “People are sick and tired of governments shifting the goalposts with superannuation.”
A split in the crossbench in the lower house has also highlighted the concerns about whether the changes will go too far, with Daniel, the member for Goldstein in Melbourne, warning about sudden changes.
“What the Treasurer is floating has a whiff of retrospectivity about it,” she said.
“Many members of the Goldstein community have invested in superannuation in good faith; many have relatively modest balances, some have large ones.
“I’m open to a discussion about changes to the system if there are unreasonable loopholes, however, my concern is for those in the Goldstein community who have already put their money into superannuation based on the existing rules.”
North Sydney MP Kylea Tink aired concern at the way the “kite-flying” from the government meant greater pressure on people who were saving for retirement as well as dealing with daily pressures with the cost of living.
Tink said she was happy to look at the proposal but was wary of the government’s inclination to target people’s retirement savings.
Sophie Scamps, the member for Mackellar in northern Sydney, said many people had made investment decisions for the long-term in their super, but Australia had to consider ways to repair the federal deficit.
Sharkie, who represents the former Liberal electorate of Mayo in South Australia, said she was open to the $3 million cap and was keen to get a briefing from the treasurer.
“I think it sounds quite reasonable although the devil is in the detail, and I think it is very important the language will not stop people having more than $3 million in their super if it does change the tax rate. And I’m keen to hear from my community if they feel differently.
“If you have more than $3 million in your super, you’re doing OK.”
Kate Chaney, the member for Curtin in Perth, said she was not against capping balances in principle but did not want to pinpoint a threshold for the change.
“If these changes are made, the transition would need to be fairly managed, to ensure that people who’ve planned their affairs according to the current regulations are not adversely impacted,” she said.
The Grattan Institute raised concerns about the $3 million threshold on Sunday on the grounds that a lower cap would raise more revenue and work better in the long term as super balances grew.
“If the government is going to set a stake in the ground it should set it at $2 million,” said Coates.
While a retiree with a $2 million fund might receive an annual income of $100,000 without paying tax, Coates said, a young worker on a $100,000 salary would pay $23,000 in tax.
He said the second concern was that a hard cap on a super fund’s size would be cumbersome because most of those with more than $2 million were self-managed super funds and could have “lumpy” assets like real estate that are hard to manage within a hard cap.
The Grattan Institute favours a change that increases the tax on the earnings within a fund over $2 million and lets people have as much in their funds as they like.
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