Allegra Spender (Wentworth, Independent) Share this | Hansard source

I rise to speak on the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023. There are reasons I was inclined to support the bill, the primary of these being intergenerational inequity in our tax system. This is an issue of grave concern to my community. However, I cannot support the bill in its current form, primarily because of its poor design, particularly the taxing of unrealised gains and the lack of a clawback mechanism for that tax, the lack of indexing and the ambiguity as to whether final salary pensions will be subject to the same conditions. These are issues that my community has raised with me—and continues to raise with me—at the ferry at Rose Bay and at Bronte Beach just in the last week. In the words of a young man who had just come out of the surf, 'Taxing unrealised gains—that's crazy!' The taxing of unrealised gains is, in my mind, the most critical of these objections because of the extremely poor precedent it sets in the tax system and the impact it will have on people. We've just heard from the member for Riverina about the impact on farmers, but it will particularly have an impact on high-growth, high-risk startups and scale-up businesses, many of which are in my electorate.

Let me go through these points one by one. Policies around tax and tax concessions are critical questions for this parliament and for the country. When we consider some of the most difficult issues facing this country—intergenerational inequity, housing, productivity and addressing climate pollution—tax reform is a key solution that needs to be on the table. Intergenerational inequity is a critical issue in itself, and our tax policies are contributing to it. A household headed by someone over the age of 65 grew wealth by around 50 per cent in the last decade or so. A household headed by someone under 35 basically didn't move in its wealth. Our communities are diverging, and they are diverging by age. Despite this, older generations are paying less tax than they did in the past, with only 17 per cent paying income tax versus 27 per cent a generation ago. These are the reasons why looking at superannuation in a tax sense is important. The superannuation system, for all its manifest qualities, does contribute to this intergenerational inequity. I accept the premise that the current tax concessions and the current tax system do not currently support young, working-age people who are facing some of the greatest barriers in building wealth, housing and security—higher barriers than previous generations.

My community agrees with this in large part, in the sense that super balances of many millions should be subject to broader taxes. We reached out to the community to ask them what they thought about this policy, bearing in mind that Wentworth is one of the communities with some of the largest numbers of people who will be directly negatively impacted by this change in policy. About 1,400 people responded. The support for the principle of taxing balances of extremely high superannuation was broadly, and very significantly, held by the community. But there were some very significant and very, very clear caveats, which I will go through, and those caveats are why I cannot support the bill in its current form.

The biggest caveat, the biggest concern people had was around unrealised gains and the lack of clawback for unrealised gains. This will not only have implications for asset rich but cash poor self-managed superannuation holders, particularly in farming communities, which the member for Riverina alluded to, but will have a significant impact on Australia's growth and technology sectors, and I do not believe the government has properly thought about the impact of this policy on those sectors when they designed this policy.

For self-managed superannuation holders, this taxation of unrealised gains introduces a high degree of uncertainty and volatility regarding their annual tax liability. For these Australians, the level of tax is unpredictable and charged annually on the investment, which may not be realised at all or for many years. In their submission, the Self-Managed Superannuation Fund Association estimated that around 14 per cent of affected self-managed super fund holders would experience liquidity stress in meeting the new tax obligations. Objections to this bill have been hand waved by many as only affecting a small number of superannuants. Indeed, the raw numbers are not high, but this argument doesn't consider the outsized impact on the sectors that rely on this type of investment.

Let's talk about early-stage investment and Australia's innovative economy. Australia suffers from a chronic underinvestment in early-stage businesses. Australia's pool of angel and seed level funding per capita is some of the lowest amongst our peers. Even on a per capita basis, our angel and seed funding amounts to 50 per cent of the UK and 35 per cent of the US. We have seen repeatedly that Australia struggles to grow and develop early-stage businesses and often loses those businesses and some of our leading lights and opportunities in the future to overseas. And the challenge is that the taxation of unrealised gains will only exacerbate the challenges faced by entrepreneurs in accessing finance in Australia.

My electorate of Wentworth is home to many of the people involved in both the venture capital space and emerging industries, including clean tech and quantum. Speaking to entrepreneurs and members of the venture capital community, they have been clear that the impact of this bill will be unambiguously negative for those high-growth sectors.

The challenge of early-stage investment and private capital is volatility and risk. An investment could be worth $50,000 in one year, $1 million the next year, and nothing in the following year. These investments are inherently liquid. They are investments that often cannot be sold out for five or 10 years, because the need for these young businesses, these young, productive and growing businesses, to have certainty in terms of access of capital. These businesses can't go onto the ASX, and fewer and fewer of them are. More and more are being held in private hands for longer.

When I talk to the sector they tell me that super funds, and particularly self-managed super funds, are absolutely critical to the start-up and scale-up sector, which is not as strong as anyone would like it to be in this country. Some funds are more than 50 per cent backed by the SMSFs. The great danger of this legislation is that it drives people out of that sector and into assets with lower returns but lower volatility. With private capital in these sorts of sectors, having returned approximately 18 per cent per annum in returns in the last 10 years, and the ASX having returned approximately eight per cent, this is bad both for Australian start-ups but also for Australian superannuants who need their super to fund their retirement. We're seeing more and more private businesses stay private for longer, which, again, will lock broader investors out of this market if we continue to tax things like unrealised gains and make these high-risk but also high-return areas of investment unattractive to investors and, particularly, to superannuants.

This change comes on the back of other forces, particularly a focus now in the superannuation sector on fees rather than on net returns, a fear of changes to the sophisticated investor test and complexity in addressing foreign capital, some of which the government has tried to address, that are pushing back on the startup and scale-up sector. Some people might argue: 'The investments will move out of super. That's no problem. People can invest in these areas outside of super.' But superannuation is the dominant form of capital in this country. We have collectively and decisively said this is where we want people to put their money, and for good reason: so that they can hold it and so that they can fund their own retirement. So the bias towards super in so many different things means that people will continue to hold money in preference in their superannuation funds, but they will no longer want to hold high-risk, high-volatility, illiquid investments in these sorts of funds, particularly when there is any increase in funds which might require tax. If the fund then drops in price, they will not get any of that tax back. They could pay tax on unrealised gains on an asset they cannot sell, and then that asset may no longer be worth anything at all. They've already paid the tax and they will not get that tax back unless their own superannuation balance gets over $3 million again, which it may not.

The night before last the government introduced the Future Made in Australia and made a big push to support emerging industries and great innovative capacity as they are critical to our energy transition and security and to our economic future. I just want to make the point that taxation of unrealised gains will stand in direct contrast to the objectives laid out in the Treasurer's vision, because it's cutting off an important source of private sector funding for the companies and industries of the future, which the government on the other side of the ledger is trying to support. Australia has low productivity right now. We know that. We also know from people like e61 that the most productive firms are young firms. These are firms that are otherwise struggling to access capital and these are the firms that rely on these sorts of funds that the government will have a very significant and negative impact on. I don't think this policy is consistent with a government that is trying to focus on productivity or a government that is trying to focus on building innovation and building the industries of the future.

I have raised this issue with the government and have seen no evidence that the government has actually properly assessed the impact of this change on the startup or scale-up sector. That is why I've put forward an amendment for exactly that focus: I would like the government to assess and to table in this House what the impact is going to be on these sectors and what the government is going to do about it. I urge the government to remove unrealised gains from the measurement of taxable earnings and remove the clawback provision. If they did that, I would then support this bill.

That said, I think there are other issues with this bill. There's a lack of indexation, and so I will be supporting an amendment raised by another member of the crossbench to annually index large superannuation balance thresholds in line with inflation. I do not like this idea of gaining more tax effectively by stealth, and indexation ensures that the tax policies of a government are deliberate rather than things that they hope the public doesn't notice.

The second issue is that, while this is an increase in tax overall, it misses the opportunity to do more from an intergenerational inequity point of view in terms of lowering the taxes for young people or doing something that specifically supports young people in this situation. We know those are the ones who are held back the most at the moment in our current tax system.

The third issue, which I know the coalition has raised significantly, is a question of broken promises. I accept that this policy won't be in place until 2025, after the next election, and I think that is appropriate, but I think we can all urge everyone in politics: try not to make promises that you're not going to keep, because it reduces the confidence that the community has in the words of any member of parliament.

The final issue, which many in my community have raised, is: will public sector final pensions be treated in the same way? There is a concern. Some of those public sector final pensions are extremely generous. I'm sure many people would like to be on them. My community rightly says that, if people who've built up their money in the private sector are going to be treated in this way, it is appropriate for the public sector pensions to be treated in the same way. There's still some ambiguity and uncertainty, as far as I can tell, about whether that is going to take place.

That is why I will not support this bill in its current form, though in principle I agree with what the government intends: trying to shift the tax burden away from young working Australians, which is where we should all be trying to shift the tax burden from.

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