Kate Chaney (Curtin, Independent) Share this | Hansard source

I understand and support the intention of the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, but there are problems with it that mean I will not be voting for it. I want to outline both why I support its intention and why I can't vote for it in its current form.

Superannuation tax concessions should be fair and reasonable. We need a superannuation framework that allows and incentivises Australians to set themselves up for a dignified retirement and reduced reliance on the age pension. This is not only good for individuals; it's also good for the country. We need tax concessions to encourage contributions to superannuation and to compensate people for locking away their money for a long time. I understand the concern that these concessions are currently being used beyond the purpose of a dignified retirement, as a wealth management tool. When you hear that one person has $544 million in their superannuation account, it's hard to say that that that's what's actually needed for a dignified retirement. I appreciate that, beyond a certain level—and we can debate what that level is—tax concessions on superannuation effectively subsidise wealth accumulation.

There are some things about the structure of this change that I do like. Under the change, the higher tax rate of 30 per cent will be paid only on the proportion of balances that exceed $3 million, so any part of your super balance that's less than $3 million will continue to be taxed at the concessional rate of 15 per cent. The vast majority of people have less then $3 million in their super accounts—even in my relatively wealthy electorate of Curtin, where our average super balance is double the national average. The average super balance is just over $500,000, even in the wealthiest suburb of Cottesloe and Peppermint Grove, and this is a sixth of the $3 million threshold. For balances under $3 million, the effective tax rate paid by retirees is typically closer to seven or eight per cent when you include franking credits and capital gains tax discounts.

It's my view that paying an effective tax rate of seven or eight per cent up to $3 million and a tax rate of 30 per cent for part of your super over $3 million still creates a pretty strong incentive to contribute in the interests of the individual and the country. The proposed change affects only 0.5 per cent of all Australians who have superannuation accounts. I want to be clear that this is a small number of people and they are probably going to be fine, but I have some serious concerns about the structure of the change which makes it impractical and potentially unfair, even if this does affect only a small number of people. As a matter of principle, we need to ensure that changes we make are consistent with commonsense approaches and fairness.

I have four main concerns with the bill, and if these concerns were addressed I would support the bill. They are: taxing unrealised gains; double taxation; not indexing the threshold; and there being no transition period. Taxing unrealised gains will create liquidity issues for taxpayers. It is unreasonable to expect taxpayers to fund a tax liability that relates to the appreciation in value of an asset when they haven't sold the asset and received money with which to pay any tax liability. Even as far back as 1975, the Tax Review Committee, when considering the topic of taxation of capital gains, commented that the impracticality of taxing capital gains as they accrue is universally recognised. The tax can only attempt to deal with realised gains. The taxing of unrealised capital gains leads to unacceptable problems in the periodic valuation of assets and generates severe liquidity difficulties for taxpayers, as well as compliance costs. It would disproportionately impact self-managed super fund holders and those with a large illiquid asset like farmers. Assets fluctuate in value, and an asset that eventually gives rise to no gain may nonetheless have given rise tax liability. The government's proposal would go against these longstanding principles of tax law that only realised capital gains are taxable. It will create an undesirable and inappropriate precedent for future tax proposals. It could also disincentivise investments in long-term assets, instead incentivising a short-term approach to reduced liquidity risk. University of Adelaide analysis showed that 13 per cent of self-managed super fund holders would not have had adequate liquidity to cover this new liability if it had been introduced in 2020.

A more workable alternative to taxing unrealised gains must be found—to defer payment until the asset is sold or to calculate tax based on a self-managed super fund's actual taxable income. I will be supporting amendments to this effect. If this issue is not addressed before the bill passes, it will reflect very poorly on this government's financial nous and willingness to listen to genuine and practical concerns. The intention of the bill can be achieved without taking on this ridiculous impracticality.

My second, and related, concern is that this bill creates a situation where people can be taxed twice. If the paper value of a property increases in one year, under this bill tax is payable on that unrealised gain. If the property is then sold in a future year, capital gains tax will be payable on the actual gain realised, so you pay twice. It seems wrong that this could be the intention of the bill. Even worse, if the paper value of an asset increases and tax is paid on that unrealised gain, and then the value decreases before the asset is sold, it looks like the tax paid on the gain that was never realised cannot be recovered. I've submitted questions to the PBO about this scenario but in this busy budget week haven't yet had this clarified. If this is the effect of the bill, I urge the government to address this unfair situation. Taxing the same gain twice goes against fundamental principles of taxation and would be very disappointing.

The next issue is the lack of indexation of the threshold. Today, $3 million seems like a lot of superannuation, but $3 million in 2064 won't look like it does now. It's been submitted that, for a 30-year-old today, this cap is effectively more like a $1 million cap, in today's dollars, by the time they retire. Indexing these sorts of thresholds allows the intent of a policy to continue into the future, instead of gradually ratcheting down the benefit of superannuation saving over time. Not indexing the $3 million threshold has the potential to embed further intergenerational inequality. Younger people have a hard enough time as it is without being disincentivised to save for their retirement. The same issue arises with indexing almost any threshold, including income tax brackets. Not indexing is a sneaky way of effectively changing the policy year by year. Setting this up properly from the outset would include safeguarding its intention into the future by indexing the threshold.

The last issue relates to transition. I recognise that most people—59,000 of the 80,000 affected nationally—are of retirement age, so they can restructure their financial affairs before the change comes into effect in 2025 if they can find a more tax-effective approach than the new rate of 30 per cent for the proportion of their balance that exceeds $3 million. People have made financial decisions based on the current tax treatment, and they may not have made them had they known that this change was coming. Because superannuation laws lock up people's own money, we need to be extremely cautious about making changes without permitting people to rearrange their affairs accordingly. Any change to superannuation makes the system less predictable and therefore disincentivises people from making voluntary contributions. Allowing a transition period would mean people could change their financial arrangements to prepare for this new set of rules. Everyone should be able to plan their financial affairs in light of the current regulatory environment, rather than being caught out and unable to adjust.

A number of constituents have contacted me with concerns about this change. For example, Michael Travaglione said:

My family and friends are up in arms about the super tax changes—not because it hits super investors (who have saved funds in super for over 50 years) with more tax, but rather because it breaks an existing tax principle in taxing unrealised (or paper) gains (that may NEVER be realized). It will become a fee fest for accountants, lawyers & an army of time wasting valuers/advisers that will further reduce Australian productivity.

I initially told constituents that I would support this change, subject to a number of issues being ironed out as part of the short consultation process. The failure of this government to listen to stakeholders and experts on this issue means we'll end up with an impractical, complicated and unfair version of what could have been a perfectly acceptable policy.

I have no problem with putting a cap on superannuation tax breaks above a certain level, but it has to be practical and fair. I'm disappointed that these issues have not been resolved through the consultation process, so as a result I will be supporting appropriate amendments, and, if they're not accepted, I will not be supporting this bill.

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