The tax rate on earnings from superannuation balances above $3 million will double to 30% from 2025-26.
The pre-budget decision – approved by the government’s expenditure review committee on Monday and ticked by the cabinet on Tuesday morning – cuts off what was becoming a potentially damaging debate for the government.
The timing of its implementation – not until the next parliamentary term – also seeks to neutralise the “broken promise” argument. Prime Minister Anthony Albanese said before the 2022 election that Labor had no intention of changing superannuation arrangements.
“No superannuation tax change proposed by the government will take effect this term of parliament,” Treasurer Jim Chalmers said on Tuesday.
But the government will introduce legislation for the measure “as soon as practicable”.
The decision was announced by Albanese and Chalmers at a news conference.
At present earnings from superannuation in the accumulation phase are taxed at up to 15%.
The Treasury’s statement of “tax expenditures”, also released on Tuesday, shows super tax breaks make up a third of the more than $150 billion annual total of the top ten tax expenditures.
Chalmers pointed out the majority of the about $50 billion in super tax breaks go to high income earners.
The tax change will bring $900 million over the forward estimates, $2.3 billion in its first full year, and $3.2 billion over five years.
What the government terms “a modest adjustment” is not retrospective – it applies to future earnings.
The government said the change would only affect 0.5% of those with superannuation accounts – some 80,000 people. These people will continue to have the current 15% rate on earnings from the $3 million below the threshold. The change does not limit the size of account balances.
Chalmers said the threshold would not be indexed, meaning that in time, more super accounts would be drawn into paying the 30% rate.
The treasurer said the measure was to improve “the structural position of the budget” – it was not about using the money for another purpose.
Chalmers said the “Tax Expenditures and Insights Statement” showed more than 55% of the benefit of superannuation tax breaks on earnings went “to the top 20% of income earners, with 39% going to the top 10% of income earners”.
A “tax expenditure” is where certain taxpayers or activities receive special treatment. They include, for example, concessional rates, discounts, exemptions and rebates.
Read more: Word from The Hill: Albanese at the National Press Club, Aston byelection, Super battles
The statement is required under the Charter of Budget Honesty, which dates from the days of then treasurer Peter Costello.
The latest statement includes a distributional analysis of large tax expenditures which shows a breakdown by income, gender and age.
In 2019-20 91% of the benefit of the concessional tax on superannuation contributions went to people with above median income, and 30% to those in the top income decile, the statement said.
“People in higher taxable income deciles receive a larger share of the benefit due to making larger contributions and paying higher marginal rates of tax, which makes the flat 15% rate of tax on superannuation contributions more concessional.”
Men received an average benefit of $1950; women an average benefit of $1390. This reflected men on average having higher incomes, making larger contributions, and facing higher income tax rates.
People with above median income received 82% of the benefit from the concessional tax on superannuation earnings; those in the top income decile received 39%. Men received an average benefit of $1100, and women $750.
Shadow treasurer Angus Taylor said the super decision broke a promise. “This is the Labor party that says one thing before an election and does something very different afterwards,” he said.
“When the Labor party runs out of money, it comes after yours.”
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Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
This article was originally published on The Conversation. Read the original article.