Labor’s superannuation policy change is sensible in these difficult fiscal times

With the Albanese government recently announcing that it will increase tax earnings from superannuation balances over $3 million from 15 to 30 per cent from 2025-2026, estimated to affect around 80,000 people and raise $2 billion in the first year, the policy is sensible at a time when Australia may need considerable fiscal reform.

As superannuation tax concessions on contributions and earnings are currently worth around $48 billion for the 2022-23 year according to the recent Tax Expenditures and Insights Statement, a figure not far behind the amount paid to the aged pension and far higher than spending for aged care, something is going to have to give if Australia is to meet a variety of policy needs without an ongoing reliance upon more public debt.

But how a government adopts sensible reform is important and should not alienate key players as being unfair, as suggested by Labor’s approach which is far more balanced than recommended by the far left.

While Labor’s limit for a 15 per cent taxation rate on earnings at $3 million is lower than the $5 million urged by most superannuation industry bodies, the Greens called for the limit to be set at $1.9 million, that the policy come in force from 1 July this year, and that Labor’s proposed 30 per cent taxation be raised to the full income tax rate on such accounts instead of any concessional rate.

The Parliamentary Budget Office indicates that the Greens' policy would affect around 210,000 people and raise $54.6 billion over the next decade.

But Labor’s policy is fair, albeit the $3 million amount may have to be indexed to inflation over time in line with tax-free super balances on retirement which is due to increase from $1.7 million to $1.9 million in July this year as it is indexed to inflation in increments of $100,000.

Despites the rumblings of the Coalition leadership, most Australians support the policy with a survey of 6830 Australians by CoreData Research on March 2 finding two-thirds support for the reform, despite most acknowledging that Labor had promised before the last election not to alter superannuation arrangements.   

Given Treasury’s estimate that just 10 per cent of Australians would be affected by 2050, Alex Dunnin (Rainmaker Group) estimates that reaching the $3 million cap would require someone to be earning $200,000 a year by age 25 within an assumption he or she is receiving super contributions at 12 per cent per year, earnings are 5 per cent per year for the next 42 years and 1 per cent is paid in fees).

Labor’s policy gives dissatisfied Australians plenty of time to restructure their financial planning, albeit the 30 per cent tax rate on excess amounts is still a pretty good rate when compared to other options with high-income earners currently paying a 45 per cent income tax rate plus the Medicare levy.

But doing nothing would have been a poor option for Labor in light of the evidence which showed the many large super accounts had benefited greatly from successive governments allowing large annual contributions of non-concessional contributions as high as $1 million which go beyond the concessional compulsory contributions (currently limited to $27,500 a year).

With the Australian Taxation Office recently reporting that Australia’s 100 largest self-managed super funds had a total $9.7 billion of assets, including one super account with $401 million in assets, wealthy Australians have benefited greatly from a 15 per cent tax rate on earnings with many ultimately using superannuation as a taxpayer-funded inheritance scheme.

There is indeed something clearly wrong when benefits far exceed a decent retirement amount through favourable taxation concessions in a superannuation scheme that is supposed to help Australians save enough for a decent retirement and reduce the nation’s reliance on the pension at a time when Australia’s population is ageing.