A federal plan to tighten the tax breaks on superannuation is focusing on people with more than $3 million in their retirement funds, in a move that could limit the changes to fewer than 1 per cent of taxpayers.
Treasurer Jim Chalmers said the $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.
Federal treasurer Jim Chalmers.Credit:Oscar Colman
The Grattan Institute and other advocates for change have aired ideas such as applying a higher tax rate on the earnings of funds that exceed a cap such as $2 million or $5 million, a move that would adjust the tax rate without preventing people from having as much as they want in their funds.
Chalmers has expressed concern about funds worth more than $3 million on the grounds that the tax concessions on the big funds come at a cost to all taxpayers but favour wealthier Australians who do not need the help compared to people on low and middle incomes.
“The reason why people are focused on that $3 million figure is because of the example that I gave which is less than one per cent of people have got more than $3 million in their superannuation,” he said on Sunday morning.
“Good on them if they do, but less than one per cent of people have that.”
In a sign that Treasury officials are looking closely at funds with more than $3 million, Chalmers said the average balance for all funds over that benchmark was $6 million – highlighting how Australians on high incomes are amassing large retirement funds that gain significant tax concessions.
“We need to grapple with whether or not, in the context of a budget in structural deficit, how we can continue to make the tax concessions meaningful and generous in superannuation – but recognise that that might not be the most bang for buck we can get for some of these concessions,” he said in an interview on Sky News.
“That’s why people are focused on that number. As I’ve said a couple of times now, we haven’t firmed up a proposal in that regard, we haven’t come to a decision about any of these sorts of things.
“But that’s a good example for people the 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.”
Grattan Institute economic policy program director Brendan Coates has suggested a “high super balance levy” on funds with more than $2 million on top of the standard tax rate of 15 per cent applied on funds of all sizes. Rather than capping the funds, it would subject them to a different tax rate.
“Earnings on balances above that level should be taxed at a rate of at least 30 per cent,” Coates said.
“This would save upwards of $1.7 billion a year, without the need for excess funds to be withdrawn from super. The 80,000 highest-balance accounts hold more than $300 billion in super assets, nearly as much as the two-thirds of Australians with super balances below $100,000.
“People who would be affected will be quick to argue that these changes retrospectively affect superannuation investments.
“But lots of changes affect investments made in the past, and no-one suggests they are retrospective. If I bought shares in a company yesterday, I expect that the future earnings on these assets will be subject to my marginal income tax rate – which may change in future.”
Asked about a reduction in tax concessions on superannuation in the latest Resolve Political Monitor, 34 per cent of voters supported the idea compared with 31 per cent on the same question in late October. But the issue remains divisive and 28 per cent said they opposed such a change in the latest survey, up from 26 per cent in October. The number of undecided voters fell.
Opposition Leader Peter Dutton has accused the government of breaking an election promise because it was planning a change to super tax rates when it told voters last year it had no intention of making any changes.
“If you’ve got a superannuation fund, you should be worried about Labor’s intent here,” Dutton said on Friday.
“The Labor government went to the election promising that there’d be no major changes to superannuation and now they’re talking about major changes to superannuation.”
Chalmers named hospitals, defence, aged care and the National Disability Insurance Scheme as some of the biggest pressures on the federal budget.
The October budget confirmed a $32 billion budget deficit last financial year and forecast a $36.9 billion deficit this year, with no projection for a surplus at any point in the future. Federal debt was $896.7 billion on Friday, according to the Australian Office of Financial Management, reflecting the gross debt needed to fund deficits since 2009, when the global financial crisis ended years of surpluses.
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