The opposition has claimed that Labor’s super changes are an “attack on middle Australia” and will affect “hundreds of thousands” of Australians over time.
Since scaremongering is common any time the government fiddles with revenue measures – especially superannuation – we’ve sorted the fact from speculative fiction.
What is the change?
Currently, earnings from superannuation in the accumulation phase are taxed at a rate of up to 15%. This will continue for all superannuation accounts with balances below $3m.
From 1 July 2025, the tax rate applied to future earnings for balances above $3m will be 30%. People with large balances will continue to benefit from more generous tax breaks on earnings from the $3m below the threshold.
Who will be affected?
According to the government, less than 80,000 people will be affected by the change, because 99.5% of super accounts have less than $3m.
Will the proportion of people affected increase over time?
Likely, yes.
On Wednesday the opposition leader, Peter Dutton, warned that “in 10 or 15 years’ time, there will be tens of thousands if not hundreds of thousands of Australians who will be affected by this”.
That’s because the $3m threshold is not indexed, meaning it will not rise with inflation. In effect, the value of $3m declines over time. As pay packets and asset prices increase and as compulsory employer contributions into super reach 12% of earnings by 2025, more people may reach the static $3m mark.
The treasurer, Jim Chalmers, told reporters in Canberra this was “a key part of the design”. “We want to make superannuation more sustainable over time.”
In the medium to long term, the proportion of Australians affected (currently just 0.5%) will increase.
But, as Chalmers noted on Wednesday, it’s open to a future government to legislate to restore indexation and explain how it’ll pay for it.
How much will this raise?
The measure will raise $900m over the next four years and $3.2bn over the next five years. On Wednesday, Chalmers declined to give a 10-year figure.
Will people withdraw from super?
On Tuesday Chalmers was asked about unintended consequences, including if people could withdraw from super to invest in housing instead.
Chalmers conceded that people may change their behaviour in response to the change, but noted “concessions in the tax system will still be there for people with large balances, but they will be slightly less concessional”.
“Some people might take their money out of super, but more likely, people compare the 30% headline rate with their marginal tax rate and decide to leave it where it is.”
Will ‘middle Australia’ be hit?
The shadow treasurer, Angus Taylor, has described the super policy as an “attack on middle Australia”.
The average superannuation balance is about $150,000. The average balance for people aged 60 to 64 is $324,525. So at the moment, the “middle” is nowhere near $3m.
According to the Association of Superannuation Funds of Australia’s retirement standard, those wanting a “comfortable retirement” should aim by the age of 67 to have $640,000 in super for a couple and $545,000 for a single.
According to the government’s MoneySmart calculator a person earning the average annual salary of $94,000 for their entire working life from the age 21 to 67, with 12% super contributions from their employer, can expect to retire with about $724,000.
To get a super balance of $3m, you would have needed to earn $200,000 from ages 21 to 67, with 12% employer contributions and an extra $30,000 a year of voluntary contributions.
Who has $3m in super?
The shadow finance minister, Jane Hume, has given some plausible examples of those who could be affected: people who sold a family business and reinvested in super, older Australians who downsized from a large family home and people who made additional contributions.
But, as you can see from the worked example above, those would have to be some pretty big additional contributions over a long period of time.
Financial advisers have suggested construction workers, farmers, doctors, lawyers, senior executives and self-funded retirees could be hit.
The Grattan Institute economic policy program director, Brendan Coates, said the cohort had “substantial assets” outside of their super funds, the Australian reported.
Some media reports have seized on distributional analysis contained in the tax expenditure statement, which noted 39% of the tax breaks on super earnings go to the top 10% of income earners.
The Australian noted people earning as little as $130,000 are in the top 10% of income earners. As the worked example above shows, a person earning $130,000 a year will be unlikely to reach $3m over their working life. Also, as Chalmers has noted, the expenditure statement is not a statement of policy or intent.
