Monique Ryan (Kooyong, Independent) Share this | Hansard source

Recently I spoke in this place about the objectives of superannuation. My belief is that the purpose of superannuation is the provision of an adequate income such that all Australians can be sure of a comfortable standard of living in retirement. In that setting, superannuation can supplement or substitute for the age pension. Preservation, retirement income, equity, sustainability and a dignified retirement should be at the heart of our superannuation policy.

I also recently addressed my concerns that the opposition are waging a war against superannuation by floating a policy to allow Australians early access to superannuation for housing. Flying in the face of good sense and good policy—and the opinion of many respected economists—the conservatives have suggested that allowing Australians to raid their super could improve housing affordability and help first home buyers enter the property market. Under the opposition's proposed scheme to withdraw $50,000 a person, people would need to have superannuation savings of $125,000. That is a sum that the average Australian does not accrue until they're well into their 40s. It begs the question: who is this policy supposed to help?

Many people who are genuinely struggling to buy a home have so little super that allowing them to withdraw it early would make absolutely no difference to them. But, paradoxically, allowing people to withdraw their super for housing would increase the purchasing power of those who have a high income and, often, a relatively high super balance as well. In fact, they're the group who are already most able to buy. Giving them access to faster capital will push up home prices across the board. It'll make it harder for those who are already struggling to get a foothold in the market.

We actually have a useful model for the financial effects of asking young people to raid their super to buy a home and, in effect, sacrifice their future for the present-day aim because help is not otherwise forthcoming from their government. This model is provided by the COVID early release of super scheme, which cost this country more than double the amount forecast by my predecessor as member for Kooyong, Josh Frydenberg. His COVID raid on super has been forecast to cost this country as much as $85 billion by the end of this century. The generation of young people affected by that will face a double whammy—it's a generation with a greater reliance on the age pension, on top of its lower tax revenues from superannuation.

Industry Super Australia has modelled that, for every $1 taken out of super early during COVID, the taxpayer will ultimately pay $2.50 more in age pension costs. That means that all of today's 20-year-olds will pay at least $3,000 more in tax to cover the higher pension bills caused by this scheme. A 30-year-old who withdrew the maximum of $20,000 from their super during the pandemic will be $93,600 worse off at retirement, plus they'll have that extra tax to pay for the age pension.

While the erosion of superannuation balances via an early release scheme is a real and, in my view, damaging policy development for taxpayers in the country, at the other end of the spectrum superannuation has increasingly become a wealth creation opportunity in this country, and today's debate concerns that development. Since the early 1990s, when compulsory superannuation was introduced, there have been increasing concerns over the generosity of the tax concessions that apply to superannuation balances. The current government has determined that those generous concessions should be better targeted and sustainable, and they have attempted to achieve that in the bills under consideration today.

The Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, or the omnibus bill, contains amendments to a variety of acts set out across eight schedules. For the purposes of today's debate, I will focus on schedules 1 and 3. These address the main purpose of the omnibus bill, which is to reduce the tax concessions available to individuals who have a total superannuation balance greater than $3 million.

The Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023 will enact those limits. Specifically, it will impose a tax rate of 30 per cent on superannuation earnings derived from balances of an individual superannuation account that exceeds $3 million in an income year. The Assistant Treasurer and Minister for Financial Services has stated that 99.5 per cent of Australians with a superannuation balance will actually be unaffected by this change. Or, put another way, in the 2025-26 financial year the change should apply to less than 0.5 per cent of all Australians with a superannuation account, which equals about 80,000 people. By the financial year 2027-28, it is expected that the reduction to the tax concession will increase revenue by over $2 billion.

There are two key concerns in relation to these bills; both have been spoken to and will be the subject of amendments introduced in this place by my colleague the member for North Sydney. Briefly, the first concern, which has been raised from a number of quarters, including by many submissions to the Treasury consultation process—including from superannuation funds—was that the $3 million threshold ought to be indexed over time, and I will address that a bit later.

The second concern was that the bill as proposed—and now as introduced—contains a measure that would result in tax being levied and payable on unrealised capital gains. Taxing people on money that they have not yet received is a departure from traditional tax treatment, which in this context presents some significant difficulties. For example, should an investment decline in value after a period of appreciation, it's quite feasible that, over time, any tax paid on the unrealised gains may never actually be offset by a realised investment gain—that is, a person may never actually receive a realised investment gain over the life of their asset, despite having been taxed as if they had. It's been suggested that people will inevitably have to hold cash or highly liquid assets in order to pay that tax on unrealised gains. This would be particularly unfair for farmers and small-business holders who may lack sufficient funds to pay the tax because of the illiquid nature of their assets.

In its submission to the Economics Legislation Committee inquiry, the Financial Advice Association Australia argued that this reform would unfairly target such taxpayers and would discourage investment in illiquid assets. The FAAA submitted that, given the size and nature of illiquid assets such as farms or small businesses, they cannot be easily sold or otherwise liquidated to accommodate a superannuation liability arising under division 296. Further, they suggested that, in the long term, this will force more individuals to divest illiquid assets from their superannuation account and acquire more low-risk liquid assets such as stocks or government bonds.

The 106-page Economics Legislation Committee report into the bills was released last week and has considered these issues in some detail. Many submissions to that committee noted that the bills would help restore the original intent of the superannuation system as a vehicle purely—or, ideally, solely—for retirement savings and that they were therefore a step in the right direction. For those who questioned the fairness of the reforms, it was noted that high-income taxpayers already carry a plurality of the tax burden and support a considerable proportion of government expenditure.

In relation to the indexing of the $3 million threshold, the committee heard that some who were opposed to it, such as ACOSS, believed that the $3 million threshold was too high, given that it captures only a small number of people. In contrast, the Grattan Institute submitted that it did not go far enough and that it not only should not be indexed but should be reduced to $2 million. The Financial Services Council argued that a lack of indexation was 'intergenerationally unfair' and that it failed to provide the superannuation industry and individual account holders with the certainty that they require. The Business Council of Australia similarly objected to the lack of indexation. The inquiry concluded that it was appropriate for the parliament to be responsible for setting the $3 million threshold.

In relation to the taxation of unrealised capital gains, the committee similarly found that, while understanding the views shared by inquiry participants, it believed that, on the balance of evidence, the approach taken in this bill is designed to be applied consistently across all superannuation funds in a sector-neutral way, making it the most appropriate way to reduce compliance burden and costs to funds and their members. The committee found that the provisions of the bills to give taxpayers 84 days to meet their tax liability, as well as the lower than general rate to be applied to unpaid debts, were relevant considerations. Further, while noting that taxation of unrealised capital gains may present difficulties for those with a high proportion of illiquid assets, the committee pointed out that all superannuation trustees have an obligation to keep sufficient liquidity within their account to meet their APRA obligations.

I'm not persuaded that this legislation should provide for indexation of the $3 million threshold in the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 and the related bill. Not all superannuation thresholds are indexed, and the evidence of Treasury was that it would be unusual for a young person today, on an average salary, to be captured by the tax even in 40 years time. Moreover, were this to materially change in the future, it would of course be open to a future parliament to change that threshold.

However, I am not persuaded that the significant complications that will flow from the imposition of taxation on individuals' unrealised gains are reasonable. The significant and ongoing difficulties in managing cash flows and the financial and other pressures that this change will create, particularly for those with illiquid assets such as farms, seem to me to create unfair pressure on taxpayers.

Ultimately, these bills do take important steps towards making the superannuation system more equitable and more aligned with the object of superannuation—that is, a mechanism for retirement savings and not primarily a wealth creation strategy. The fact is that most of the value of these tax concessions does flow to those who have above median incomes. Unaddressed, they will increase over time. That inequity does warrant urgent government attention. Better targeting of tax concessions, now, is a sensible way forward. It is, however, frustrating that this worthwhile move is conflated with a difficult and messy side issue: the taxing of unrealised gains. I call on the government to review this proposal as a matter of urgency. I commend the bill to the House.

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