The Albanese government’s proposed changes to super tax breaks risks unintentionally burdening half a million Australians, according to a new analysis from a peak industry body.
Last week, Prime Minister Anthony Albanese and Treasurer Jim Chalmers announced a proposal to double the concessional tax rate for super balances exceeding $3 million, from 15% to 30%.
The revised rate, which would apply from July 2025, would not be retrospective, applying only to future earnings.
According to PM Albanese, the changes would impact 0.5% of superannuation accounts, or roughly 80,000 Australians.
The higher concessional tax rate, to be proposed in the October budget, is tipped to contribute $900 million to the bottom line over the forward estimates and approximately $2 billion in the first full year of revenue after the election.
The announcement coincided with the release of the 2022‑23 Tax Expenditures and Insights Statement, which revealed superannuation tax concessions amount to about $50 billion a year — projected to exceed the cost of the Age Pension by 2050.
However, according to the Financial Services Council (FSC), as it stands, the proposed changes would have a far greater impact on taxpayers than initially intended.
The FSC’s analysis of data from the Australian Taxation Office (ATO) found approximately 500,000 superannuation balances could be hit with a 30% concessional tax rate — six times higher than the government’s estimates of 80,000.
To avoid this, FSC chief executive Blake Briggs has called on the Albanese government to index the proposed superannuation balance cap of $3 million.
“If the government does not index the proposed $3 million superannuation balance cap, 500,000 Australian taxpayers will breach the cap in their life and face a 30% earnings tax, including 204,000 Australians under the age of 30,” he observed.
“…Leaving the cap stuck at $3 million will mean that in today’s dollars a 30-year-old will have a real cap of around $1 million, calling into question the intergenerational fairness of an unindexed cap.”
Indexing the cap, he added, would ensure “generational fairness”, providing each generation with the same outcomes and benefits from the superannuation system.
The FSC modelling included the following examples demonstrating the impact of the Labor government’s current proposal:
- A 25-year-old IT professional earning $100,000 with a current superannuation balance of $35,000 would reach the $3 million threshold by the time they retire at age 65.
- A 45-year-old school principal earning $150,000 today with a current superannuation balance of $650,000 would reach the $3 million threshold by the time they retire at age 65.
- A 55-year-old dentist earning $220,000 today with a current superannuation balance of $1,400,000 would reach the $3 million threshold by the time they retire at age 65.
- The FSC’s concerns have been echoed by investment manager Plato, which described the perceived oversight as an “enormous flaw”.
“It is perplexing the Treasurer has indicated this cap will not be indexed over time,” Dr Don Hamon, managing director of Plato Investment Management said.
“Currently the move is expected to impact 80,000 people, or just 0.5% of super accounts with balances of over $3 million in today’s money, however we have inflation currently running at 7.8% which will erode the real value of the $3 million cap over time.
““This means a lot more than 0.5% of superannuation balances will eventually be taxed at 30%.”
SMSF Association poses calculation question
Meanwhile, the SMSF Association has warned the Treasury’s explanation of how the newly proposed concessional tax rate of 30% would be applied is a “mixed blessing”.
CEO Peter Burgess welcomed the move to exempt super funds from calculating earnings attributable to the member’s balance above $3 million, with the ATO to apply a formula to determine the proportion of total earnings subject to additional 15% tax.
“Negative earnings can be carried forward and offset against this tax in future year’s tax liabilities,” he observed.
However, Burgess expressed concern over the proposed inclusion of all notional gains and losses as part of the calculation of an individual’s earnings for debit assessments.
“This essentially means some members will be paying tax on unrealised earnings which is highly unusual,” he warned.
Instead, Burgess noted his preference for a notional earnings calculation mirroring the model used in the excess contributions tax regime.
The Albanese government has committed to consulting with industry stakeholders before tabling the proposed reform in parliament.
Mr Albanese has in the past displayed a different way of negotiation – I’ve got the numbers etc. – so it is hard to keep my scepticism at bay. My concern about tax on unrealised gains is that it will switch the emphasis of superannuation from long term accumulation to locking in capital gains at the end of each financial year. Otherwise the risk of a sharp reversal prior to adding up the tax bill could be devastating for a portfolio with more volatile components. Perhaps this part of the policy is just for show, something a government will not follow through on to make other elements of the policy taste less like ground glass.
So now the majority are now ok with the fact that both Albanese and Chalmers clearly lied about NO changes to super if they won the election.
Just highlights that envy politics are alive and well in Australia.
People are happy for higher taxes as long as they aren’t personally affected and don’t seem to give a rats about the lies.
Another lie by Chalmers is that concessional tax will double but in fact the CGT component will Triple going from 10% to 30%.
The proposal is that notional growth that is unrealised will also be taxed at 30%.
This is outrageous as anyone with a brain knows that capital values can go down as well as up due to market volatility.
What moron in Treasury came up with this and I don’t think the Polly’s even understand what a nightmare this would be to manage.
This is only the tip of the iceberg as Jim is coming after more and more of everyone’s hard earned saving’s.
I think the Government have read Dr Robert Cialdini’s research on how to negotiate an untenable position. Ask for an extreme outcome you don’t really expect to win then get others to feel like they got a win with a less extreme outcome
In 1985, Income Tax Ruling IT2201 had got it right in the application of actuarial mathematical formula to calculate contributions to fund up to Reasonable Benefits Limits. However, there are too many lawyer politicians who do not understand mathematical funding. Since IT2201 was repealed and Treasurer Costello’s 1 July 2007 changes, we now have those with too much in super and those with too little in super … Fixed caps on contributions is Treasury Policy to try to limit tax concessions, which is totally ignorant of the 1926 High Court decision for superannuation to provide an adequate income in retirement. Actuarial calculation of contributions works so the more you have in super, the less you are permitted to contribute. The less you have in super, the more you are allowed to contribute to achieve adequate funding for retirement. Wake up Australia … Secondly, we are a country of immigrants with significant skilled shortages but tax law does not allow immigrants to rollover their preexisting foreign superannuation earned in a G20 taxed regulated country into Australian superannuation (taxed regulated has no advantage), they have to start from the beginning again with contributions caps, which is totally ignorant of actuarial mathematical funding for retirement. Treasury Policy is not actuarial funding smart. However, the sale of Teltra (all public asset) went into the Future Fund to fund the future unfunded retirement obligations for Commonwealth Public Employees and Politicians. That was a selected good funding decision, but we taxpayers on the outside are deprived of (1926) adequate funding while working, paying tax, school fees and other personal liabilities. The Treasurer and the Prime Minister should print IT2201 and reread it once a week to learn actuarial calculated funding. If you never calculate it, you will never get there.
I’m not sure this is a flaw…
By design / stealth (call it what you want) but this is how they change the 15% tax above the TBC to 30%…when the TBC agents to $3,000,000 in the next decade.
In the not to far future the average salary will get to $100,000. Meaning today’s young generation and everyone (the entire super population) thereafter will be caught up in the 30% super tax bracket when they retire. What a money grab! People will avoid putting money into super any way they can.