Facing a big structural budget deficit and spending pressures, the Treasurer’s latest tax is part of his plan to target revenue.
The latest super tax change suggests Chalmers favours picking off individual tax breaks, rather than pursuing a major package of reforms involving trade-offs for everyone.
This is a deliberate design feature by Chalmers to raise more revenue and fill the long-term structural budget deficit. It is not an unintended consequence. Chalmers has left the issue for a future government to consider. “The $3 million threshold before tax rates increase on earnings, is more than sufficient for an adequate retirement for most people for many years to come.”
That would have raised a lot more revenue for the government and avoided taxing paper profits on capital gains for people with balances over $3 million The shock move was done to reduce compliance for major industry and retail funds, which didn’t want to impose the costs on other members below the $3 million cap. Moreover, the big funds don’t know the total super holdings of members, who can have multiple APRA-regulated and self-managed fund accounts.
The dilemma for Chalmers is that if unrealised gains are not taxed, the change will not raise as much revenue as he hoped. It likely explains the gap between the $2.3 billion Treasury forecasts to raise annually and the Grattan Institute’s original estimate of $1 billion before the unrealised gain feature was announced.
People with assets above $3 million currently face a 10 per cent CGT in their super fund and may decide to sell out and incur this tax and shift assets to other structures like trusts and companies. The government will be able to claim mission accomplished on excessive $100 million super funds because people are likely to liquidate their SMSF.
Breunig proposes a tax on all personal savings and investments in the range of 10 per cent to 15 per cent and a 0.1 per cent tax on all land. “That’s hard and big ticket reform,” he says.The risk for the Albanese government is that the noise around the super tax changes will make it more reluctant to take on bigger reform challenges in the years ahead.
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