Naz Randeria, director of Reliance Auditing Services, has long been an opponent of the $3 million super tax, and says Jim Chalmer’s reluctance to consider raising the GST as indicated in his National Press Club speech on Wednesday in favour of other tax reform strategies is setting the stage for the government to look to taxing other structures within the system.
It was reported in The Australian Financial Review on Friday that higher taxes on family trusts would likely be proposed as a way to help shore up the budget.
Chalmers indicated that there are a few no-go areas regarding tax reform, including inheritance taxes or changing the arrangements for the family home.
“But what I’ve tried to do and what I tried to say in the speech is if we spend all of our time ruling things in or ruling things out, I think that has a corrosive impact on the nature of our national policy debate, and I don’t want to artificially limit the things that people bring to the roundtable discussion,” he said.
Randeria said, in her opinion, the solution isn’t to continue squeezing more out of income tax but rather a smarter, fairer, and more sustainable approach.
“That solution lies in indirect taxation, especially the Goods and Services Tax,” she said.
“There’s only so much you can tax a population, especially when our population growth remains relatively modest. Income tax has its limits. It’s tied to wages, employment levels, and demographic trends. But GST? It’s tied to consumption. It has an ever-expanding base because it’s applied every time someone buys a good or service. It’s a tax on movement, on activity — and that’s what we should be encouraging.”
When questioned about the possibility of raising GST in the tax reform roundtable that is set to be established, the Treasurer said he has “historically” been opposed to the idea.
“I think it’s hard to adequately compensate people and I think often an increase in the GST is spent three or four times over by the time people are finished with all the things they want to try and do with it,” he said.
“I suspect the states will have a view about the GST. It’s not a view I’ve been attracted to historically, but I’m going to try not to get in the process of shooting ideas between now and the round table. My view has not changed on all of the other times that I’ve been asked about it.”
Randeria continued that a broader, higher GST, offset by lower income tax, could be a win-win.
“It’s revenue-positive, economically stimulative, and socially progressive – if implemented with the right support mechanisms for lower-income households. Most importantly, it encourages productivity, not penalises it,” she said.
“What also drives me to support GST reform is the dangerous path we’re heading down with policies like Division 296. This proposed tax on super balances over $3 million is not only administratively complex, but it also undermines trust in our retirement system.
“It discourages people from saving and investing for their future, exactly the kind of long-term behaviour we should be promoting. These sorts of desperate tax grabs are a symptom of a system trying to do too much with too little.”
She added that in 2023, the International Monetary Fund recommended that Australia broaden and increase the GST, highlighting it as a growth-friendly alternative to higher income taxes.
“The rationale is clear.”
“What we need now is courage – courage from policymakers to move beyond populist promises and short-term politics and instead look at long-term prosperity. A shift in tax philosophy from penalising income to taxing consumption, which is the step forward we desperately need.”
Her views are supported by AMP chief economist, Shane Oliver, who said one of the major problems with Australia’s tax system is its reliance on income tax, as opposed to indirect tax like a GST.
“The average OECD country gets 34 per cent of its tax revenue from income tax, either on companies or individuals, whereas in Australia, it’s over 60 per cent; this has big problems,” Oliver said.
“It’s a disincentive for companies to invest, it’s a disincentive for individuals to work, and it also means an increasing burden on younger Australians to fund the retirement needs of an ageing population.”
He said the second issue with the Australian tax system is that it’s highly progressive, and someone paying the top marginal tax rate is earning just two times the average weekly earnings in Australia.
“You go to the US, it’s about six times average weekly earnings before you pay that top marginal tax rate. If you get a career, it’s about 20 times average weekly earnings before you start paying that top rate.”
“The problem with that is it creates a disincentive, again, to work. The only problem [with tax reform] is that politicians don’t want to do it because there’s no votes in it. They don’t want to explain what is a complicated issue.
“It’s quite easy to run scare campaigns. We really need politicians to get out there and tell the Australian population why we fundamentally need tax reform and if we don’t do it, it’s going to cost us in the long term. It’s going to lower economic growth and lower living standards.”
While the taxing of unrealised gains is plainly wrong, I strongly disagree with the assertion that it is administratively complex. The assessment of the tax will be undertaken by the ATO based upon the member data provided by all superannuation funds (not just SMSFs).
The ATO does not have to account for unrealised gains nor does it need to take into account transfers to & from reserves. The tax is simply calculated upon the movement in the member balance after taking into consideration contributions, and pension payments.
Nor do the public offer funds have to change their reporting, which would in my opinion increase administration costs to members the vast majority of whom are not impacted by this tax.
Superannuation is supposed to be for the provisions of retirement benefits, not a low tax wealth accumulation vehicle.
What I believe Naz and others haven’t realised is that Div 296 isn’t a tax to raise money, it is a tax to dissuade people accumulating excess amounts in a taxpayer funded concessioned environment. Chalmers doesn’t want you to pay more tax on your super, he wants you to take it out of super and put it elsewhere. This is why it is unlikely that a similar tax on unrealised gains will extend to trusts, companies and/or individuals. I disagree with the tax on principle; I think it cleaner and easier to have members remove their excess balance over $3million.
He doesn’t want you to take it out, if he did he would change the rules around preservation. The $2.3b included in the budget and the refusal to index clearly shows that dim Jim does want you to pay more tax on your super.
Taxing unrealised gains in super is just the beginning.
Targeting higher balance SMSF was easy. Real reform would mean taxing Trusts at source, or increasing the GST, or changing the CGT concession rules.
If the government were to remove part of the CGT 50% discount on investments and direct the revenue raised to public housing, that would be a reasonable outcome. Even a small reduction….
I personally disagree. The government can’t keep taxing the same people, whether directly or indirectly
The best option, though very unpalatable to a Labor government, is to rein in their expenditure.
As Margaret Thatcher said, along these lines, the issue with socialism is that eventually you run out of other people’s money.
We can’t afford the plethora of social programs that the Labor party keeps introducing, accompanied by the theft and rorting of those initiatives. At the end of the day, the government still requires the taxed citizens to feel aspirational. Otherwise, they will not work, and instead join the far longer line of those that can’t/won’t work.
How many younger people these days refuse to be in the highest tax bracket because of the benefits that they miss out on from handouts, or the extra working hours that they have to work for little gain, because of it placing them in higher tax brackets with fewer benefits to add insult to injury?
Every time the government introduces new taxes, a swathe of people leave the working population. Div 296 is a perfect example, and I am one of those who have finally decided that they just don’t want to work anymore as I don’t want to look back and figure that I should have done this sooner. There is more to life, and the added red tape of this is something that I am very happy to do away with, including the red tape that already surrounds anything to do with running an SMSF. I will have full freedom now to do what I want following liquidation of my assets, included leverage them if I choose to outside of super. So much red tape gone is a matter of days! Happy days.
GST increase????? …. again the pensioners who have paid taxes (at much higher rates) for a lifetime will continue to be taxed to the grave!!!
You have to pay some tax. No tax on pension assets, no tax on the home, even company tax is refund via franking credits. Retirees can live 40 years in retirement. You really think tax paid decades and decades covers even your health care costs these days???
Who should foot the bill, your kids and grandkids?
The answer is always more tax when you lack the capacity to exercise fiscal restraint. NDIS, ever more public servants. They then complain productivity is too low. Government employees by and large (esp bureaucrats) don’t add to productivity, they detract from it. Nothing positive is produced and more and more layers of red tape restrict the private sector which is where the productivity growth can be generated.
Secondly by ruling out housing you are retaining more and more capital in a zero production asset.
No wonder we have problems and with “Dr” Jim we have no solutions either.
Its an extremely scary thought for this man to be ‘given a mandate’ for ‘tax reform’.
His tax reform so far has been unwinding the stage 3 tax cuts (increasing income tax, the complete opposite of what has been identified as to what needs to change here) and then taxing unrealised gains on the nations superannuation savings designed to reduce the reliance on the age pension.
I cant think of someone less qualified to reform taxes.