Treasurer Jim Chalmers has unveiled a major overhaul of Labor’s controversial superannuation tax plan, after fierce backlash over fears it would punish ordinary Australians with growing nest eggs.
Caving to criticism from retirees, Chalmers announced the Albanese government’s tax on earnings of super balances of more than $3million will be indexed to inflation, and will no longer hit unrealised gains – or gains purely on paper.
However, in an escalation of the controversial policy, earnings on super balances above $10million will be slugged at a higher, 40 per cent rate. Earnings on balances between $3million and $10million will still be taxed at the 30 per cent.
People with less than $3million would still keep paying the normal 15 per cent rate.
Previously, the $3million limit wasn’t tied to inflation, so as wages and prices increased over time, more Australians would have been pushed over that threshold and forced to pay the higher tax.
‘We have always had in our back pocket indexation, or an indexation like this, in order to get it through parliament,’ Chalmers said.
‘For earnings on super balances between $3 and $10m, the rate remains 30 per cent,’ he said.
| PROPOSAL | BEFORE | AFTER |
|---|---|---|
| Thresholds | 30 per cent over $3m | 30 per cent $3m-$10m40 per cent above $10m |
| Unrealised gains | Taxed (even if not sold) | Removed – only realised gains taxed |
| Indexation | Not indexed | Indexed to inflation |
| Low-income offset | $310 | $810 |
Treasurer Jim Chalmers has reworked the federal government’s controversial plan to increase taxes on large superannuation balances, following months of criticism
‘The rate for over $10m becomes 40 per cent. So this is still a concessional tax arrangement, but it’s better targeted.’
The government has also dropped plans to tax unrealised capital gains – a move that had sparked widespread backlash from accountants and retirees.
Unrealised gains are increases in the paper worth of assets that haven’t yet been sold.
So in this case, should a person’s super savings go up on paper, that increased value was classified as an unrealised gain which would be taxed.
Dr Chalmers said the changes would make the super system fairer.
‘As treasurer and as a government we always try to take feedback seriously,’ he told reporters in Canberra on Monday.
‘We always try to find the best way through.
‘We found another way to satisfy the same objectives.
Super accounts with more than $3million will continue to face a 30 per cent tax on earnings but the thresholds will be indexed to inflation
‘It means a fairer superannuation system from top to bottom.’
The government will also increase the low-income super tax offset payment from $500 to $810.
While Labor had floated changes to super taxes two years ago, the proposed legislation has never been introduced into federal parliament due to opposition from the coalition and the Greens.
Dr Chalmers also confirmed on Monday he had met with Greens leader Larissa Waters shortly after cabinet signed off on the changes, suggesting it may seek to rely on the minor party’s support.
Signs that the tax reform may be due for a change emerged last Thursday when a Treasury official confirmed the prime minister’s office had engaged with the department on the plans.
The following day, Prime Minister Anthony Albanese downplayed the rumours, claiming the policy ‘is as it stands’.
On Monday, Dr Chalmers downplayed the change in tact and knocked back a suggestion he had retreated on ‘every single point’.
‘First of all, I don’t accept that because what we’re talking about here is a tax reform in super which makes the system more sustainable – we found another way to do that,’ he told reporters.
‘The prime minister and I have had discussions over recent months about finding another way to satisfy the same objectives and that’s what’s happened here.’
More to come.
