The Prime Minister has excluded himself – and other beneficiaries of generous parliamentary pensions – from the new superannuation tax that everyone else must abide by.
The new tax on unrealised super gains requires everyone else to pay immediately they reach the taxable threshold. Not our Albo, who can defer paying it until after he actually retires.
It’s a classic case of politicians creating one rule for themselves and another one for everyone else.
Under the looming new law, everyone with a super balance of over $3m must pay tax on paper profits every year, even if that means having to sell off part of their holdings just to pay the tax bill.
The PM and other beneficiaries of the old fashion parliamentary super scheme are exempt.
They only have to pay it when they actually retire and can receive the money, with a low inflation rate equivalent to the government bond rate.
The opposition has accused the Labor Party of double standards, which is undeniable.
However there are some Liberal MPs still hanging around parliament who also qualify for the old pension scheme and will benefit just as Albo does.
The new super tax has been designed to excuse long-serving politicians like the Prime Minister from having to pay it until they retire.
That includes new Liberal leader Sussan Ley, who entered parliament in 2001, three years before the old parliamentary pension system was abolished for new arrivals by John Howard.
A spokesperson for Treasurer Jim Chalmers used a word salad to try and justify the preferential tax treatment for the PM and other political insiders, but there is no escaping the criticism that Chalmers has written a special rule into the new legislation that looks after his boss.
The new tax goes before parliament when it returns towards the end of July.
Of course the decision not to force holders of parliamentary pensions to pay the on-paper profits tax immediately is a sound one, because they can’t sell down that pension to cover the tax bill in the same way a standard super holder can.
MPs including Albo would be forced to sell other assets to cover the debt, which is a big ask.
But that’s precisely why the new tax is bad policy, and why experts have labeled it ‘flawed’.
Nonetheless, Labor is pressing ahead with it anyway despite concerns from all quarters in recent weeks.
Even former Treasury head Ken Henry and former RBA Governor Philip Lowe have expressed concerns.
Treasurer Jim Chalmers has refused to index the tax, so while few Australians will pay the tax initially, models indicate by the time GenZ reaches retirement age, half of them will be subject to the tax.
While Labor likes to proclaim the new tax will only apply to a small number of tax payers with super accounts that have more than $3m in them, that won’t remain true for long, because the rate at which it applies isn’t indexed, and over time more and more Australians will be forced to pay it.
AMP estimates that by the time Generation Z hits retirement age half of its population will be forced to fork out for the tax unless the $3m threshold is indexed. Labor says it won’t be.
Treasury estimates that it will earn $40 billion from the tax over the next decade, with much of that coming in the latter part of that time frame when many more people will be hit by it.
Criticisms of the new tax go beyond the lack of indexation.
It has also been described as worse for women, because they commonly put less into their super due to time out of the workforce to have children, but live longer than men making them more reliant on that nest-egg.
If a woman’s partner dies first, she will usually get the partner’s super transferred to her account, and if that tips her balance over $3million, the new 30 percent tax will apply on what she’s inherited.
It’s therefore been called a ‘widow tax’ by some tax experts.
Critics say the new tax will be particularly tough on women, and some widows who inherit their partner’s super savings will suddenly be forced to cough up big tax payments.
Farmers and those who use their super to invest in properties will also be hit hard, because those hard assets can’t be sold off in pieces to pay tax. If that on paper value goes down in subsequent years too bad, the tax hit doesn’t change.
While calls for the new tax to be reformed keep growing, so far Labor has given no indication that it will revisit its deep flaws.
The new Senate takes effect from 1 July and Labor has the support of the Greens – who will control the balance of power on their own – to legislate the change.
Don’t expect any push for indexation out of them. Indeed, the Greens want the tax to kick in at $2million and may be able to negotiate that, even if Labor is adamant it will stick by the $3m threshold it took to the election.
