Shadow minister for financial services, Pat Conaghan, says the government has been forced into retreat on its controversial superannuation tax plan, after mounting backlash from the Coalition, industry leaders, and everyday Australians outraged by the proposed tax on unrealised gains.
“From day one, we said this tax was unfair, unworkable, and completely out of touch,” he said.
“Our income tax system has never taxed Australians on intangible gains. This would be an Australian first, and not one to be proud of.”
Last week, The Australian Financial Review reported that anonymous sources revealed the government had paused its plans to introduce the $3 million super tax in its current form.
It continued that while no decisions had been made, internal discussions had been held in recent weeks as the Prime Minister’s office took an increased interest in the policy.
Peter Burgess, chief executive of the SMSF Association, told SMSF Adviser the government is “obviously very concerned” about the taxation of unrealised capital gains, and the unintended consequences that flow from that.
“I think the other thing is that the government is trying to position the Labor Party as pro-aspirational, and if it is genuine about that then you can’t get a better example of a tax on aspiration than this tax. It is completely at odds with what it’s trying to achieve in terms of encouraging innovation, productivity and aspiration so, there is little wonder there is growing opposition to this tax from within the Labor party ranks,” he said.
He continued that a tax on unrealised capital gains in a sector, which is a key contributor to venture capital and funding for start-ups, would be detrimental for the government.
Burgess added that there have also been concerns expressed by large APRA funds that would have to change their processes and reporting obligations.
Conaghan said the draft legislation would have created “real hardship” for ordinary Australians who have their small business or their farm in their SMSF.
“Take a farmer who holds land in a self-managed super fund,” he said.
“If the land’s value rises on paper, they could be hit with a tax bill – even during a drought or a loss-making year where they have no real profits. That could mean they have to sell part of the family farm just to pay the tax. How is that fair?”
The minister continued that the Coalition has long warned that taxing unrealised gains would shatter trust in super, which they say is built on long-term savings, clear rules, and certainty.
“Labor’s retreat shows they’re feeling the heat – but this isn’t a policy that just needs some cosmetic fixes. Taxing unrealised gains is fundamentally wrong, and it should be ruled out entirely.”
He also condemned Labor’s refusal to index the threshold, calling it a “slow-motion tax trap” for younger Australians.
“As wages and inflation rise, more and more ordinary workers will be dragged into Labor’s tax net. The people that will be hit hardest are the youngest Australians that are just starting to save for their retirement today. This is tax by stealth on the next generation.”
Conaghan criticised the tax as sending a message that the rules can change at any time, even when you’ve played by the rules for decades.
“You can’t build confidence in retirement by shifting the goalposts every few years.”
“People planned their futures under the rules of the day. Tearing up that deal to plug Chalmers’ budget hole is a betrayal of trust. The Coalition will continue to fight for a super system that rewards saving, respects long-term planning, and protects the trust Australians place in their retirement – not one that penalises aspiration or plays politics with people’s futures.”
Div 296 whingers, take note. The Australian Constitution since 1901 requires each Government to provide old age pensions to every Australian. They do this via social security, or encouraging you to save for your own pension i.e. tax concessions.
Instead of taxing you at up to 47%, they give back up to 32% to you if you will save it until retirement (by paying only 15% on contributions). Then you can invest that money for your lifetime, and the investment earnings are taxed at 15%, instead of up to 47% if you were investing personally.
To boot, if you promise to stay off social security in retirement, they will let you invest $2M per person, that you can invest and grow and you never have to pay tax on the investment income, and can live off as a pension tax free! What a deal!
If you were the Government and you had this Constitutional duty, how much of your potential tax take would you simply “give away” to encourage people to save for retirement?
The only obligation is to give you back enough tax so that you will have a “reasonable” level of retirement income, NOT the level of income in retirement to which YOU have become accustomed.
Again, a reasonable level of retirement income, NOT YOUR accustomed level of income.
That’s the fundamental point Div 296 complainers can’t grasp. As taxpayers, we will fund your retirement to a common level, but no more. If your lifestyle demands more, then invest personally. Our obligation is discharged.
Think of it as a business. How much discount do you allow good customers, before the point that you are just blindly giving away your profits?
If you ever read a Federal Budget, you will see that super tax concessions are shown as an expense against theoretical income tax they would have made without tax concessions. Like anyone doing a budget, reducing expense is always a priority, which is why Governments are always tempted to reduce that “expense”.
Pay Division 296 or reduce your super to a reasonable level as was intended. That’s the message Government is sending. That’s why they don’t care how draconian the proposal is. They don’t like you.
Superannuation is not a bottomless pit of concessionally taxed saving. If you have been contributing blindly on that pretext, then you should have got advice first, or maybe you got bad advice. Either way, you just can’t handle the truth!
What is the cost in all its forms for change and uncertainty, particularly as you age.
How will people who are already receiving a tax-free pension promised to them decades ago vote in the first election after the introduction of any additional tax on their superannuation.
People will mostly vote as they did last time. Sadly, we have become a nation mostly of leaners, not lifters, and Labor is seen as the party most likely to back in the leaners. The Liberals are no chance of winning a federal election this cycle or the next, as they refuse to differentiate themselves sufficiently from Labor and won’t purge themselves of those who are Liberal in name only (LINOs).
As the baby boomers move into retirement (already underway) they will become a huge block of voters who will vote to protect their “after tax” pension.
Sigh of relief for some common sense
Easy fix to this. When a person receives a pension, any income supporting that pension in the fund is not taxable. Make this income taxable at 15% in the fund. This means the super interest would be taxed when in accumulation and pension phase. It is a big white elephant and should be adjusted so the super concession is not so great. Note the person receives a pension that is still not taxable to them, so it does not affect the individual tax position, just the SMSF. This is a much more satisfying change I would think.