Superannuation tax changes one step closer to reality
Labour’s long-running bid to increase taxes on wealthy retirement accounts has taken a major step forward, but the Greens still stand in the way.
Finance Minister Jim Chalmers introduced legislation to the House of Representatives on Wednesday morning that, if enacted, would double the tax rate on retirement accounts with balances between $3 million and $10 million to 30 percent.
The tax rate on balances over $10 million will be increased to 40 percent.
Dr Chalmers said pension savings would continue to be taxed at a lower rate compared to income, but the changes would reduce the size of the concession and make the pension savings scheme fairer and more sustainable.
“These changes will retain the general treatment of concessional tax on pensions, but make the system more sustainable by better targeting concessions for the largest balances to help fund more pensions for people with the smallest balances,” he told Parliament.
In its previous term, Labor promised to cut tax breaks for high-income account holders but failed to win coalition or Green backing to pass the bill through the Senate.
In October Chalmers announced tweaks to the original legislation, which initially included only a $3 million threshold and was also implemented by taxing the increase in value of assets that had not yet been sold.
The controversial unrealized capital gains component has been removed from the new law following a backlash from farmers and tax experts who warned self-managed super funds could be forced to sell illiquid assets such as property to fund tax liabilities.
Unlike the first proposal, the thresholds would be indexed to limit the number of people affected by rising tax rates over time.
As high-income account holders are taxed more, low-income workers will also benefit from low-income retirement tax relief.
The offset threshold will be increased from $37,000 to $45,000, matching the top of the second income tax bracket, while the maximum payment will increase to $810.
“Voting against this bill means voting against a fairer super system,” Dr Chalmers said.
Despite dropping the unrealized gains component, the coalition attacked the proposal as a money grab The Greens have not yet supported the changes.
With the Senate unable to reconvene until March 2, the Greens will use negotiations to pressure the government to tax wealthy pensioners more, including lowering thresholds, increasing tax rates or reforming the taxation of unrealized gains.
Balance changes over $3 billion will come into force from July 1 if the legislation passes parliament, while equalization changes will take effect from mid-2027.
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