Treasurer defends $4b hit from super tax backdown
An overhaul of a signature Labor tax plan will cost the budget billions, but the treasurer says it shouldn’t be seen in isolation.
Source: Sky News Australia
Federal Treasurer Jim Chalmers says the $4 billion budget hole from an overhaul of the government’s contentious super tax policy will be filled through other measures.
Labor is defending major changes to its planned superannuation tax hike, under which the wealthiest retirees will be slugged with a higher tax rate and there will be more relief for low-income earners.
The government’s now-dumped plan was to double the concessional tax rate on any earnings – including unrealised or “paper” gains – from account balances above $3 million to 30 per cent.
It announced changes on Monday, which will mean the higher rate applies only to realised earnings and the $3 million threshold is indexed to inflation – if Chalmers’ changes pass parliament.
There will be a second tax rate of 40 per cent for earnings from superannuation account balances above $10 million.
Offsetting the extra revenue from the higher tax band, Australians on lower wages will benefit from changes to the Low Income Super Tax Offset, a measure aimed at ensuring workers aren’t taxed more on their super than they are on their wages.
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The overhaul means the Albanese government expects to raise $2 billion extra over the forward estimates – about $4 billion less than anticipated under the ditched plan.
The lost tax revenue is partly because the reforms have been delayed by a year so Labor can iron out the details.
But Chalmers said the policy shouldn’t be seen in isolation and the government had worked hard to improve the budget’s position.
“We’ve already found $100 billion in savings, we’ve delivered two surpluses,” he told ABC radio on Tuesday.
“This is not the only action we’re taking … the budget is in much better nick than what we inherited because of the effort that we’ve put into it.”
Independent economist Saul Eslake said the reduction in tax revenue was a necessary trade-off to improve the policy.
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“Introducing indexation means that the tax will raise less revenue over time, but so be it because that was a bad principle,” he said.
“It encourages the government to look for other ways of raising revenue to bring the budget back into balance, or indeed, to look at things on the spending side.”
Economist Chris Richardson said the 40 per cent tax rate for accounts with more than $10 million would act as a “quasi-cap” on superannuation.
“Super and housing have been the uncapped bits in Australia, if you were very wealthy, those were the two biggest boltholes … Super remains a magnificent bargain, but it’s no longer an open-ended board,” he said.
“It’s not quite saying you can’t have more than $10 million in super. But given there are tax loopholes available in Australia, I’d be surprised if many people were leaving too much more than that there.”
Richardson said the attached change to increase the tax offset for low-earning workers from $310 to $810 “had to happen”.
“It was a ridiculous situation where low-income people … were actually headed for paying more tax on the money that goes into super and than they were for the money that doesn’t,” he said.
Shadow treasurer Ted O’Brien said the changes unveiled on Monday were a “victory for everyday Australians”. He said the previous policy would have been a “massive breach” of tax law.
“They were going to have to pay tax on theoretical profits, profits that didn’t exist, no money in the bank account as a result of any increase in valuation, Jim Chalmers and the government were going to tax them,” O’Brien said.
“That was going to be a massive breach of the tax law in Australia and leave Australians poorer and weaker simply to feed the spending spree on the part of the government.
“I think this is a victory for those everyday Australians, those everyday Australians who are otherwise going to be taxed unfairly by the government. It is first and foremost a victory for them.”
-with AAP
