On Friday morning, Prime Minister Anthony Albanese visited the Governor-General and kicked off the federal election, now set for 3 May.
Promises are always thrown around in the weeks before an election and you would be hard pressed to find a government that hasn’t subsequently broken a couple of them.
For the SMSF sector, it’s a promise made during the last election campaign that is still causing headaches.
Three years ago, Albanese was clear that Labor had “no intention” to make changes to super.
When the $3 million super tax – now known as division 296 – was announced in early 2023, there was widespread outcry over this broken promise.
Walking back the earlier statements, the PM said it was merely a “modest change” to improve the sustainability of the super system.
Since this point, the government has sought to downplay the gravity of the changes – moving the tax on earnings for super balances above $3 million from the current 15 per cent to 30 per cent – arguing that it wouldn’t have an impact on the core of superannuation.
There are certainly arguments in favour of reducing the tax concessions for high balances.
The super system is, by design, a very friendly tax environment compared with most other structures, aiming to alleviate the burden of pension payments through self-funded retirement savings.
Having the broader population effectively subsidising a tiny minority that is at the extremely high end of balances is, to the government’s point, not the reason for which superannuation was created.
Had the tax been set up in a more reasonable way, there’s little doubt it would have sailed through both houses rather than getting stonewalled in the Senate.
Instead, the government has stubbornly refused to budge on taxing unrealised capital gains or even indexing the threshold.
The budget delivered last week made it clear the tax would remain and become an election issue.
For its part, the Coalition has been steadfastly against the tax hike, going as far as to promise to repeal div 296 if it had somehow managed to pass prior to the election being called.
Then there’s the prospect of a minority government, which would make even non-controversial measures difficult to get over the line, let alone contentious ones like the super tax.
It hasn’t been all doom and gloom for the SMSF sector during Albanese’s term as PM, with the recent legacy pension moves finding unanimous support and the NALE/I legislation finally seeing movement, even if it is still highly flawed.
It’s always dangerous to boil an election down to a single issue, but Labor could go a long way to appeasing SMSF professionals if it bit the bullet and conceded some ground, regardless of the hit to the budget bottom line.
Surely getting some of the tax revenue is better than refusing to budge an inch and getting none of it?
The issue is Kerry is the precedent it sets. It will be foolish to let this slide and think the taxation of unrealised gains won’t appear somewhere else in the taxation system creating far worse tax implications. Plus it is treasury setting an ideological position rather than good tax policy.
give it a chance, I’m sure it will in time affect enough funds to be of considerable concern to the SMSF sector.
Might be a lot easier to stop it now, however, than try to repeal it when thoroughly embedded and the whole future hopes of both party’s budget plans are dependent upon it in a few short years time.
Hi Kerry.
Its because it is unjust and egregious, ill-thought out and will create even more of a schmozzle for the superannuation system. It should never have been introduced in its current form and to accept this, being an SMSF Advisory body would be inept and a dereliction of responsibility. If the SMSF Advisory body accepts this, then who will take a stand? In my personal experience, Labor MPs have been totally unhelpful when approached by currently affected individuals.
And way back in the early 1990s when I calculated how much I needed saved in retirement, it was only $300k. Fast forward, with the same living expenses, I now need well over $3m and fortunately, as I recalculated what I needed every several years to account for inflation, I was able to keep sight of my goal and I made it.
I can almost assure you that in 30 years time $3m will be the new $300k. The Treasurer and Treasury have insisted that the threshold is staying in place with this legislation.
My retired friend who cleans a couple of cars a month for extra WAM over the pension, has just seen his living expenses per month go up $400 with just several dollars increase in his fortnightly pension. He is beside himself.
That’s why the SMSF Advisory body is spending so much time on this. They need to help financial advisors help their clients and what better way ATM than protecting them from greedy politicians who can’t wait to just make a new law to legally get their filthy hands on your clients life-savings.
Sorry Kerry. Someone needs to take a stand because currently the Labor government is listening to no-one – not affected individuals all the way through to respected organisations like the SMSFA. If nothing else, at the end of the day, even if all of this is for naught, it will show just how dictatorial the current government is. if so, hopefully they go down in history as hell bent on braking a world-class superannuation scheme, being both the fathers of superannuation and the slayers of superannuation – full circle and then there may be no need for an SMSFA… I hope not.
Woops – a big error there. I found my paperwork from the early 90s. I had needed the equivalent of $3m in real terms when I anticipated retiring (which I calculated was 2 years ago, but is now) which was not far off the mark with combined funds between the two of us, so $6m all up. So we ended up with a bit more with not being able to sell the business and working still. Which is just as well as with the spike in inflation and cost of living in the last 4 years, we actually need more to continue with our current lifestyle. It sounds a lot but we sacrificed because we did not want to compromise when we got here.
Unless that $3m threshold is tied to cpi, $3m will be worth so much less as time goes on.
Back in 1993 we needed $100k combined income for our lifestyle. Now we need closer to $400k. That’s the difference of cpi.
This should be an exercise that school kids are taught and encouraged to recalculate every 3 to 5 years on changed circumstances. Without keeping sight of the goal, it can get away from you very quickly.
The above sheds to highlight the ineptitude of the Grattan Institute the Treasury Department and Treasurer himself, Labor generally, Greens without a doubt and the Taxation Institute.
Still, taxing paper profits is the stuff of air heads.
Lastly, its not superannuation concessions that lead to inequity in the system – it boils down to lack of education, interest, will/sacrifice and understanding from the get-go of every worker.
Why is SMSF Adviser wasting so much time fighting this? What % of funds have over $3m in 1 members balance? 1% or 2%, it’s not worth this much energy. I agree it’s a terrible tax on unrealised gains but it doesn’t effect enough funds to be of a concern to the SMSF sector.