Kylea Tink (North Sydney, Independent) Share this | Hansard source

Thank you. Dealing with each of these in turn, firstly, the lack of indexation on the large balance threshold amount means that over time this measure will impact many more ordinary Australians who have done nothing more than they are required to do under law in terms of meeting their superannuation payments. The government has told us that from the 2025 financial year the concessional tax rate applied to future earnings for balances above $3 million will apply to around 80,000 people. But modelling by the Financial Services Council shows us that if the cap remains unindexed then the true number of people impacted in their lifetime will be closer to half a million, including more than 200,000 Australians under the age of 30.

One of the purposes of indexing the superannuation cap would be to ensure that each generation receives the same benefits and outcomes from the system. The example provided by Financial Services Council is I think particularly powerful. According to them, a 25-year-old IT professional earning $100,000 and with a current superannuation balance of $35,000 should reach the $3 million threshold by the time they retire at 65. They would then fall foul of this new legislation, having done nothing more than what was required of them during their working life. How can this be considered fair? I don't understand why the government has to this point in time rejected the calls of many to introduce indexation on this legislation. And I fear that the omission is deliberate and that the government is indeed seeking to claw back more tax over time while claiming that their initial policy affects just a few. As it stands, the lack of indexation is also incongruent with our current accepted tax principles. Everything else in our super system is indexed: contribution limits, the transfer balance cap, and lump sum benefits. So why would the large superannuation balance threshold not be similarly indexed? When I talk to people in my community about this bill, even those who support it wholeheartedly see the lack of indexation as absurd.

Secondly, the taxation of unrealised capital gains means people will be taxed on money they may never see. This is deeply problematic and a significant and concerning departure from most of the income tax regime, where taxes are assessed only on actual, realised gains. It also violates generally accepted tax principles across most OECD countries, where capital gains tax applies only on realisation. Concerningly, there are no refunds available for tax already paid when earnings turn to the negative. Sure, there would be loss to carry forward against future taxes, but that's of no use for people who take their money out of super to cover the cash shortfall.

I note that while many of the people impacted by the reform proposed in this legislation likely use a self-managed super fund structure, it's not only that cohort that will be affected. In fact, members of APRA regulated funds with large account balances will face potentially more significant consequences due to their lesser control over the timing of realising capital gains.

There are further issues with the calculation basis for earnings on balances in excess of $3 million. They include that, as it currently stands, gains made on assets held for over 12 months are subject to a reduced tax rate compared to assets disposed of within 12 months of application. Meanwhile, investment losses are not refundable and can only be used to offset future gains.

Thirdly, those with defined benefit superannuation funds will also have their annual pension added to the balance of their super, likely pushing them up and over the $3 million threshold. This includes the pensions payable to retired judges, their widows, widowers and spouses. Indeed, retired judges of federal courts have recently said that they're particularly concerned about this outcome as they do not control any capital amount upon which the proposed tax on their pension may be notionally calculated.

Finally, self-managed super fund owners with illiquid assets such as property are likely to face difficulties under this bill, as taxing unrealised gains assumes investors have the necessary cash reserves to cover any tax liability. This is obviously not always the case. This proposed legislation then offers no redress for individuals impacted by genuine liquidity issues, such as an option to pay their liability through a deferred debt account. This will be particularly disruptive to small businesses and farmers, with many of them currently holding their business premises or farm in their super fund.

The additional tax applied to unrealised capital gains within the superannuation fund, as proposed by this legislation, will mean some small business owners and farmers will struggle to pay their annual tax bill on land assets without selling the land itself. Indeed, according to recent research by the University of Adelaide, over 10 per cent of self-managed super fund members affected by this reform would not have had sufficient liquidity in their fund to cover the tax liability if this bill had been introduced on 1 July 2020. The solution is not just as simple as selling these assets. Considerations including transaction costs, market timing and macroeconomic factors make selling illiquid assets far from easy; not to mention the fact that holding them in super in the first place is all about the income they may generate upon retirement. You can't have income from something you no longer own.

Ultimately, this government has displayed little appetite for true community engagement around this legislation, and certainly has not appeared to be interested in considering any of the alternative design models presented. Ultimately, the alternative designs were sensible, appropriate, well-designed and would have significantly improved this legislation. Yet the government has chosen to ignore them and not engage in any meaningful way to come to a more sustainable and reasonable position. This brings me back to my initial concern that, despite all the rhetoric around this reform, this agenda is not just about taxing the rich. It's about trying to shut down the self-managed super fund option.

Ultimately, there are substantial issues in this legislation that should concern far more Australians than those that are just unfortunate enough to be deemed wealthy by this government. The people who will be affected by these issues have done nothing wrong. They haven't engaged in dodgy tax practices or aggressive tax planning. They have, however, made long-term choices between superannuation and other options, based on the reasonable assumption that the restrictions placed on accessing super represent the trade-off for long-term tax concessions. They've complied with the superannuation rules to date and have been told for decades to hold any assets they don't need until retirement in their super. Now these people will be adversely affected.

The people of North Sydney agree the super system should not be used to avoid paying tax. Currently, the system provides concessional tax arrangements for the accumulation of retirement savings, but reforms to make the super system more sustainable and equitable must be sensible and measured. The bill before us is not sensible and it is not measured. I'm left wondering: are we shaping into a conversation around the taxing of unrealised gains in other asset classes including our own homes?

I do not believe I can vote in favour of this legislation as long as it contains this power.

In closing, I'd like to move the amendments as circulated in my name. This reform can and could work, but it will not work in its current form.

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