Superannuation balances above $3 million will be taxed at a higher rate as the Albanese government hunts for opportunities to improve the budget bottom line.
The changes won’t come in for another two years and will apply to about 80,000 people in a move forecast to generate billions in extra tax revenue.
Starting from 2025/26, the concessional tax rate applied to earnings for superannuation accounts with balances above $3 million will be 30 per cent, double the flat rate that currently applies.
Treasurer Jim Chalmers said the “modest adjustment” would mean 99.5 per cent of Australians received the same generous tax breaks as they had previously, while the remainder would get less generous tax breaks.
Any changes will require legislation passing parliament.
The adjustment is expected to generate $2 billion in the first full year and $3.2 billion over five years.
“It’s prospective on future earnings, not retrospective, and doesn’t come in for more than two years,” Dr Chalmers told reporters on Tuesday.
The announcement follows a week of fierce debate about the sustainability and fairness of tax breaks on superannuation contributions and earnings.
Treasury analysis released on Tuesday shows the tax breaks are collectively worth up to $50 billion a year and largely flow to high-income earners.
Dr Chalmers said the revenue would not be redirected into another purpose but would instead be used to improve the structural position of the budget.
“Every dollar that’s spent on a tax break for people with tens of millions of dollars in super is a borrowed dollar that makes the deficit bigger,” he said.
Asked if Australians could be certain there would be no changes to super affecting more than the top 0.5 per cent of account-holders, Prime Minister Anthony Albanese said it was clear the government was focused on those with high balances.
“It’s hard to argue that those levels are about actual retirement incomes, which is what superannuation was for,” he said.
The government said super tax concessions were the priority, despite the burden posed by other measures such as negative gearing and capital gains tax discounts.
“The 10 biggest tax expenditures are worth more than $150 billion annually – around a third of the top 10 is made up of superannuation tax discounts,” Dr Chalmers said.
The Treasury analysis of tax expenditures shows concessional treatment of super contributions will cost about $25.3 billion in uncollected revenue in 2022/23.
In 2019/20, 30 per cent of the benefit went to people who were among the top 10 per cent of income-earners.
Men attracted an average benefit of $1950, compared with a $1390 average benefit for women.
Greens leader Adam Bandt said he would discuss the changes with Labor, but the “modest proposal” ignored other, more responsible budget policies.
“Let’s look at reining in the stage three tax cuts … that’s the kind of change that will make a difference to people, not winding back super tax cuts on one hand only to give the very same people a $9000-a-year tax cut,” he said.
Liberal deputy leader Sussan Ley said it was another broken election promise from Labor following pledges on energy prices, housing costs and workplace relations.
“The prime minister is reneging on promises he made … before the election and legislating commitments he didn’t even mention once,” she said.
Council on the Ageing chief Patricia Sparrow said making the changes after the next election but flagging them now would give people time to assess their impact.
Tony Negline, from Chartered Accountants ANZ, said the shift would have a big impact on a small number of people who had played by the rules.
“Investing in superannuation in this country is like trying to shoot a moving target flying in circles over shifting goal posts,” he said.
(Australian Associated Press)