What began as a relatively straightforward and welcomed story early in the day about the Government allegedly deciding to defer this highly controversial and deeply flawed tax until after the election, quickly descended to a confusing and, to be blunt, frustrating message from Parliamentarians about guillotine motions and the Government’s commitment to passing this tax either in the current session or next February.
But by the end of the day what became evident, to me at least, is that it is highly unlikely this tax will be passed in the current sitting week and, assuming the election is not called beforehand, its passage during the scheduled February 2025 sitting days also seems improbable.
In my view, and I stress this is my take on recent parliamentary conversations – as I suspect only Treasurer Jim Chalmers and his office really know – this bill is now nothing more than a “zombie” measure. That is, while the Government may have no real intention of passing this measure, they maintain the facade of commitment to preserve the projected revenue on their books and sustain the illusion that it remains an active policy.
There have been some subtle clues – like the rumours the bill would be rushed through via a guillotine motion by the end of the week, despite no consultations with the Senate crossbench. Similarly, suggestions the Bill could be passed during the February 2025 Senate sitting days seems at odds with the considerable reservations voiced by the crossbench. Concerns about the design of this tax appear insurmountable without a substantial overhaul of the bill.
I may be wrong. Indeed, it may be just wishful thinking on my part, but the fact that this measure, which we have consistently argued is deeply flawed, has been reduced to a zombie measure is a testament to what can be achieved when we all work together. Should this Bill be finally defeated, it will mark a significant victory for all our members and serve as undeniable recognition of our growing influence in Canberra.
If the Government intends to take this measure to the next election, the considerable backlash it has attracted makes it a formidable challenge to secure voter support without significant amendments. Similarly, expecting what many anticipate will be a more hostile Lower House after the election, to support a tax riddled with unintended consequences and inequitable outcomes would be an equally daunting task.
Dare I say it, and yes, it is only my view, Division 296 in its current form has little chance of surviving. Zombie, indeed.
The new Division 296 tax bill, while aimed at addressing wealth inequality, inadvertently places an undue burden on many ordinary, compliant taxpayers, eroding confidence in long-term financial planning. The impact of the levy on superannuation balances exceeding $3 million is particularly concerning. To mitigate this unintended consequence, a supplementary bill should be introduced allowing individuals with superannuation balances above this threshold to withdraw the excess amount as a lump sum prior to the Division 296 levy’s implementation, irrespective of their retirement age. This pre-emptive withdrawal option would provide a fairer and less punitive approach, fostering greater acceptance of the legislation and reducing the immediate financial strain on affected individuals. Such a measure would address the disproportionate impact of the bill while still achieving its broader objective of addressing wealth inequality.
The issue with this Division 296 proposal though even if it allows for early withdrawal of assets as a form of mitigation, is the taxing unrealised capital gains. There is no mitigation for this, as it is just plain wrong.
Thanks Peter for the effort you have put into this.
My view is that, perhaps the industry needs to be on the front foot and start sewing the seeds of alternatives to garner more tax from super – front-run what seems the inevitability of new tax for super (whilst there has been little comment, as it seems a bit of a yawn, the Objective of Super bill did pass last Thursday so, presumably is now the doctrine for all that follows!). Part of the Div 296 bill design was purportedly to ensure simplistic and “sector neutrality”. Both deeply flawed objectives that were not able to be realised. However, if the industry takes that as an objective, it would seem logical to look at the system as it it and generate suggestions from the existing structure (contribution, accumulation, benefit, stages of superannuation lifecycle). In a nutshell, any suggestions have to have a minimal impact on APRA funds as it it too costly etc to engineer major reworks. So the attractiveness of increasing Fund Level tax is probably not going to float. Contributions for “higher income” folks is captured by Div 293 so that leaves the benefit stage. Would be hard politically to re-introduce tax on end benefits but so long as there are suitable tax offsets to minimise for “lower income” folks, the system is able to manage this without too much disruption. Perhaps it could be modernised that, rather than all benefit payments being reportable via a personal tax return, only those of people with a TSB above a level. The ATO has this info and can monitor non-compliance and issue determinations etc. (As I indicated, ideas generation only, not an absolute!)
In my view, the industry should not just be takers of policy design, but also lead where it has the vision to want to be in a good bargaining position.
When superannuation was set up for everyday Australians, it was decided to tax the funds as they entered the fund (albeit it at a concessional rate of 15% – to encourage savings I might add) and during accumulation of funds, and not tax the at the end of the life cycle of the fund. My understanding is that taxes are applied either at the incoming phase (which captures growth as well) or the withdrawal phase, not both. It would need to be grandfathered.
Also, if the top 10% pay a whopping 46% of income tax revenue already, it makes sense that these same 10% get the most benefit of the superannuation concessions (around 40% as I understand it). Given this ratio, the higher taxed are still paying more that what is their fair share.
We need to be careful about what seeds we are sowing in order to “garner more tax from super”. Superannuation savings are life-time savings that are often saved at great sacrifice. Why should superannuants with larger funds be taxed even more than they currently are. They will likely be self-sufficient and likely still paying tax in retirement, towards the pensions of other Australians.
I am starting to see comments made by less well-off Australians who are now lamenting that they wish that they had saved more. The concessions were the whole point in encouraging savings, and people often made considered judgements to save more rather than spend.
Superannuation does not belong to the government. It is not there for their easy pickings. Governments simply need to function as those superannuants did – cut or minimise (flagrant) spending, invest in legitimate assets that are likely to rise in value over time, and save for a rainy day as those days will sure come. This is the secret.
As Margaret Thatcher said – the problem with socialism is that you eventually run out of other people’s money. The government keeps living beyond its means and keeps selling income producing assets for non-income producing purposes and they literally are now coming after hard-working aspiring Australians’ life-times savings.
The government has an easy solution already but they do not want to upset the APRA funds. And the issue with that solution is that hard-working aspiring Australians would no longer use superannuation as a means of forced savings, as they would use structures outside of superannuation with full access to funds at almost any time. There would be absolutely no incentive to use the superannuation system for savings outside of what is compulsory.
When you have lumpy assets in SMSF, like property, it takes time to sell and take out lump sum to reduce your total super balance.
The fear that Div 296 is coming would have forced many trustees to sell and withdraw. Hence, in a way, this bill may have achieved what it was intended for.
Peter, thank you again for your tireless efforts to stop this proposal going anywhere. I do hope that your current view proves to be correct.
In the meantime, we are still living somewhat in fear and indecisiveness over our lifetime’s savings.
I am selling my business in order that I can retire to be ready for whatever eventuates. This sorry saga has helped me to at least make that decision instead of “keeping on”, and I have been able to think about my future outside of my business. In that way, it has been a blessing.
I also learned much about retirement and superannuation assets that I did not know about, another positive from this.
It would be great to have some certainty at least but so far then, no news is good news?
Here hping that nothing eventuates at the 11th hour before Christmas, which is a common thing for the Senate.