‘Quasi-cap’ could help create a fairer super system
Low-paid workers appear to be the big winners of pension arrangements that include a “quasi-cap” on tax deductions for those with large balances.
While the government’s pushback against more radical changes, including taxing unrealized capital gains, has made headlines, independent economists are fans of the changes they say “must happen”.
Finance Minister Jim Chalmers has proposed taxing accounts worth more than $3 million at 30 percent, while accounts worth more than $10 million should be taxed at 40 percent.
Both thresholds will be tied to inflation and will ensure low-income Australians are not caught out by tax changes over the years as incomes rise.
Economist Chris Richardson said the 40 per cent tax rate would act as a “quasi-cap” on retirement, with 80,000 super accounts holding more than $3 million and currently paying the standard 15 per cent concessionary rate.
“Super and housing were the no-caps in Australia; if you were very rich, those were the two biggest bolt holes… super remains a fantastic bargain, but it’s no longer an open-ended board,” he told AAP.
“That doesn’t exactly mean you can’t retire with more than $10 million, but given that there are tax loopholes in Australia, I’m surprised a lot of people leave a lot more than that there.”
Mr Richardson said a further change to increase the pension tax offset for low-income workers from $310 to $810 “must happen”.
“It was a travesty that low-income people ended up paying more tax on money that actually went into their retirement funds and was locked up for decades than on money that didn’t,” he said.
Dr Chalmers explained that the changes would generate $2 billion in revenue, according to forward estimates; this figure was up from $6.2 billion in the original proposal.
But much of this was down to the decision to delay the changes until July 2026, he said.
Economist Saul Eslake said less revenue was a necessary offset, given his opposition to taxing unrealized gains and not indexing thresholds to inflation.
“Introducing indexation means the tax will raise less revenue over time, but so be it because it was a bad principle,” he told AAP.
“It encourages the government to look at other ways to raise revenue to bring the budget back into balance, or even look at things on the spending side.”
The Association of Australian Superannuation Funds’ peak body said the proposed changes created a fairer system overall.
“It is vital that the super system is fair and sustainable, and the changes proposed by the treasurer are important moves in achieving these goals,” CEO Mary Delahunty said. he said.
