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The initial impression is that it’s targeted at the affluent, but some economists suggest that Labor’s superannuation tax proposal could have a wider effect.
This policy, which is a significant part of the government’s economic agenda, is anticipated to be introduced in parliament soon and is slated to start at the beginning of the upcoming financial year, 1 July.
Individuals with superannuation accounts totaling over $3 million will be subject to an additional 15 percent tax, beyond the current 15 percent tax applied to all super fund members’ earnings.
‘More and more people will be affected’
The 30 per cent tax could directly impact 80,000 people, or less than 0.5 per cent of individuals, by 2025-26, according to the Treasury.
But this number may increase as people add more money to their super accounts.
“The $3 million threshold is set; it won’t be indexed or increased over time unless the government announces that. So over time, more and more people will be affected by the tax,” Shane Oliver, chief economist at AMP, told SBS News.
“If superannuation returns may remain positive and your fund keeps going up in value … more and more people will fall over the threshold and be subject to the tax.
“There are a lot of people who [are] sort of halfway through their career … They could quite easily hit the threshold within the next 10 years if it’s not indexed. And that can have a negative impact.”
Not indexing the $3 million threshold means it won’t increase with inflation.
However, in a recent interview with The Conversation’s Politics podcast, Treasurer Jim Chalmers appeared to indicate the government may choose to raise the threshold.
“There are several instances in the tax system where thresholds aren’t adjusted for inflation, and occasionally governments choose to increase those thresholds. I expect a similar approach will be taken here,” he noted.
‘It could affect average Australians’
When the plan was introduced in 2023, Treasury said that since most super fund members are unaffected, it aims to “avoid imposing significant system and reporting changes that could indirectly affect others”.
But some economists are concerned about the potential impacts of the super tax on the broader economy.
Oliver said the policy “could affect average Australians” while “in theory, there’s no impact on those who have less than $3 million”.
“What could happen, though, is that people who are close to it or are beyond the threshold, might think, well, I better start rearranging my superannuation such that I’m not exposed to this tax,” he said.
“That means I take some … out of the superannuation fund I have, or I put my investments into other parts of the economy.
“So there’s potentially less investment in the broader economy that could adversely affect economic growth and therefore affect living standards in Australia at a time when we actually want to boost economic growth and boost living standards.
“There are all sorts of complications associated with this, which could have unintended consequences for the broader economy.”
In 2021, data from the Australian Taxation Office showed that the average super balances for men and women aged 60 to 64 were $402,838 and $318,203, respectively.
How will the housing market be impacted?
One of the consequences of the super tax, which has been at the centre of the debate, is its potential impact on housing.
The tax will cover unrealised capital gains — meaning people could be taxed each year on the rising paper value of assets like property in a self-managed super fund (SMSF), even if they haven’t sold them.
Nicola Powell, chief of research and economics at Domain, told SBS News this could affect the makeup of property investment.
“It is the first time paper gains have been taxed in this way and not the realised earnings. So in essence, it’s edging into new territories,” she said.
She said that this may lead to SMSFs shifting from the residential market to commercial property, potentially affecting the housing market for both renters and homeowners.
“I think that what it could do is increase the number of homes for sale. It could increase the number of residential property listings and ultimately [lead to] fewer rental listings,” Powell explained.
“The research that’s been done for negative gearing does show that removal of the negative gearing will increase rents, but it will increase home ownership and reduce property prices. But the bigger impact is [that] it does increase rent.
“You could argue that a similar outcome could come from this type of policy, too.”
‘Makes the system a bit fairer’
Oliver said: “There are many Australians who use their self-managed super funds to invest in startups that could be small businesses or business ideas.”
“There’s a concern that with those startups that there might be less money available for start-up capital from SMSF funds.
“I think that the issue is not so much an objection to making the system fairer: Yes. Make it fairer, but do it in a way that doesn’t create lots of complications.”
Amid the criticism, Chalmers has defended Labor’s policy, saying it “will help us fund our priorities, whether it’s Medicare, the tax cuts, and other priorities in budget repair”.
“I know that people have views about it. I know there’s a campaign in a couple of our newspapers about it. But this is all about making sure that it’s still concessional treatment.
“It makes the system a bit fairer and it’s important in terms of the sustainability of the budget.”
