Super tax concessions are changing
But are they fair?
As we reported last week, there will be a change to how super is taxed for with balances of more than $3 million. The proposed legislation will be scheduled to commence on 1 July 2025.
There has been a lot of highly political debate on this change. The Greens feel the change does not go far enough. Their policy, instead, is to remove all tax concessions for super balances higher than $1.9 million, which is also the new Transfer Balance Cap (from 1 July, 2023).
So there is no guarantee that the Labor Government will get its super legislation through both houses of parliament, as they have promised, before the next Federal Election in 2024.
If the legislation is successfully passed, Peter Dutton has stated that an incoming Coalition Government would repeal it.
That’s the politics of the situation.
A much bigger and more important discussion is how fair these different settings are. Let’s start with the facts of how much retirement income benefits cost the country and who benefits most.
Top level numbers
In the most recent Federal Budget:
- the Age Pension cost $55 billion
- the cost to Treasury for superannuation concessions totalled $52 billion
Projections by The Australia Institute show expenditure on the Age Pension slowing over time, while expenditure on super concessions will rise. The cost of super concessions is predicted to overtake the cost of the Age Pension by 2050 – although this trajectory may now be modified by the new $3 million cap.
Who receives the Age Pension?
As it is means tested, those with assets above the upper threshold are ineligible.
Current disqualifying thresholds (as of March 20, 2023) are:
| Single, homeowner | $634,750 |
| Single, non-homeowner | $859,250 |
| Couple (combined), homeowner | $954,000 |
| Couple (combined), non-homeowner | $1,178,500 |
Who receives the concessions on super?
This is harder to define, but the Guardian recently reported that 55% of super concessions benefit the top 20% of income earners, with 39% of all benefits going to the top 10% of income earners. Additionally, males are favoured, receiving 61% of concessions, while females receive just 39%.
Depending upon your own financial situation, you may have a strong point of view on how equitable this.
Some of our readers have commented that
‘It is an unfair hit on those who had worked hard for their money.’
Meanwhile Australian Council of Social Service (ACOSS) CEO, Cassandra Goldie, stated on behalf of welfare recipients:
‘With one in eight people in Australia living in poverty and many people under financial pressure, the Government is right to reduce unfair tax breaks for the wealthiest in our society. Three million dollars is far more than anyone needs to fund a decent retirement, which should be the goal of superannuation – not tax avoidance or bequests for adult children.’
What’s your position in this debate? Do you agree to a higher tax on earnings in super for those with higher balances? If so, how high? The $3 million due to be legislated by the Labor Government? The 1.9 million suggested by the Greens? Or nothing at all, as is the current position of the coalition?
If you find it hard to understand the different caps on super (transfer balance caps or contribution caps) and other specific contribution and withdrawal rules, we don’t blame you. It can and does get very complex.
Help is at hand, though, in our tailored superannuation advice consultations. Find out how today.
Government should be small and when it’s not, it all gets too hard, too complicated and unfair.
There is no added tax on super above $3 million- there is simply reduced concession on amounts above that threshold. So if you have $3.01 in your super you will pay 30% on earnings from the 0.01 million and retain the present concession on the rest. Is that too hard to bear? I’ll never know, and neither will most people.
A cap of $1.7 million is still reasonble- nobody is threatening your principal, just the “earnings “.
Sorry, should read $3.01 million….
I think it would be useful to see a worked example, which demonstrates exactly how much extra tax will be payable on a super balance of, say $4million earning 8%. My back of the envelope figures suggest that instead of that person’s super balance growing by an extra $272,000 after tax, without allowing for any contributions, it will only grow by $224,000 after tax. Oh dear, don’t you feel sorry for them? Also, this lazy way of describing the change as a tax on super annoys me – it’s not a tax on super, it’s a tax on the earnings of the unused (accumulation) part of super. However, I do think the $3million should be indexed.
well I think the government has struck the right plan as its the only way that maybe get it through the senate and who is it really going to affect not the average superannuate
The problem with low female super balances is that unlike the aged pension couples can’t share or even out their balances except in a small way. Many current retirees have long term marriages where the woman stayed at home to do the best for their kids raising and education while the husband took on onerous hard working high paying jobs. They are both then stuck with living off his super now capped. So it’s 2 people limited by the one cap. The aged pension is the opposite and so should super caps.
If you have $3m in super you’re wealthy and most likely have private advisors.
Taxes fund services we all use.
Long term the country cannot afford concessions to the top of the pile at the expense of the most vulnerable.
As soon as we relatively wealthy Baby Boomers are threatened with having any of our incredibly privileged concessions reduced we claim the sky is falling in and weak governments retreat in fear. I hope this relatively modest impost does not suffer the same fate.
I totally agree with you and believe this is very fair
As soon as governments start fiddling with things like super, and are applauded for this, guess what, more fiddling will come. If someone has worked hard during their life, they deserve the fruits. In a few years time what will 3 mill seem like. look at inflation. The greens want a lower cap. I wonder if they will forgo their government handouts on leaving parliament?????
The government should stop wasting our money, our money, not the governments. They seem to loose sight of this. Lets do things that benefit Australia, instead of doing things which benefit China. You don’t have to look far to see what I am talking about.
I’m confused at this remark as the subsidy provided to all of us through paying no taxes
Thus it is money that belongs to all of us and all of us suffer when there is an unequal system
Let’s be fair. Tax concessions on big balances are not fair, and the proposed amount of $3M is far too high. I would be happy if it was well below $2M to help those most in need. Remember, the pension is a safety net, not a right!
Envy is always a great driver in modern Australia. I am also very concerned about those who sustain their existence on welfare and don’t contribute their fair share towards societies well being during the time in their life when they could have. I’m a firm believer in caring for those who need to be looked after. Just like the rich who it seems don’t pay their fair share of tax, there are too many labeled as worthy of lifelong support by others. I’m not planning on being eligible to receive a pension, I do have concerns over those who don’t really need to receive a pension, but want it as a right.
Arrr, how easily people form (uneducated) opinions based upon “The Politics of Envy” so blatantly used by politicians to cover up their real agenda.
These proposals are a thinly disguised attack on Self Managed Super Funds. The Labor government detests them. Their union mates and the party get no “donations” from SMSFs.
SMSFs are where the high balances are likely to be found. They will be business people who have worked hard to accumulate wealth, have taken risks in business, most likely have employed many workers and contributed to the economy of this Country. Sure $3 million sounds a lot now, but it is not and it is not indexed. The RBL is currently $1.7m and will be $1.9m from July 1st. It won’t take long for many to reach the $3m cap especially if the fund has a business premises which will need to be revalued and then be subject the “Unrealised” Capital Gains tax.
Will the Pollys apply the same rules to their Defined Benefits Pensions – not likely!
It is a stupid and ill thought out policy proposal, typical of Labor! All from a Government which prior to the election said it would not touch Superannuation and would honour the stage 3 tax cuts.
Hopefully it will suffer the same fate as Bowen’s previous attempt on Franking credits.
By the way I have no where near the RBL balance let alone $3m is super.
In the most recent Federal Budget:
the Age Pension cost $55 billion
the cost to Treasury for superannuation concessions totalled $52 billion
The above calculations seem to be a new problem.
when the pension was first implemented there was no superannuation system in place.
there were no superannuation trillions that needed tax concessions.The total cost to government was the cost of the pension not the lost revenue on super.
Now with super the pension payments will be reducing as the super increases.As I see it by having a very large superannuation pool they the are gaining tax as they never would have that amount to tax if there was no super
id like to be a back bencher and get perks that never effect me so out of sight out of mind hey who cares what party ur in .as long as i doze off open my big mouth get kicked out at question time really ,yea toss a coin doesnt matter who u vote for ,feel sorry next generation thanks albo never liked u enjoy the perks u a labor man no better than dutton except dutton looks like a man u mouse albo