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

by leave—I move amendments (1) to (3) as circulated in my name together:

(1) Schedule 1, item 15, page 10 (after line 17), after section 296-40, insert:

296-42 Large superannuation balance threshold

The large superannuation balance threshold is:

(a) for the 2025-26 financial year—$3 million; or

(b) for a later financial year—the amount worked out by indexing annually the amount mentioned in paragraph (a).

Note 1: Subdivision 960-M shows how to index amounts. However, annual indexation does not necessarily increase the amount of the cap (see section 960-285).

Note 2: The rounding amount for indexation is $100,000 (see subsection 960-285(7)).

(2) Schedule 1, page 28 (after line 10), after item 17, insert:

17A Section 960-265 (after table item 10A)

Insert:

17B Paragraph 960-285(3)(a)

After "paragraph (b)", insert "or (c)".

17C At the end of subsection 960-285(3)

Add:

; or (c) if the amount is mentioned in item 10B in section 960-265—the amount for the 2025-2026 financial year.

17D Subsection 960-285(5) (paragraph (a) of the definition of base quarter )

After "paragraph (b)", insert "or (c)".

17E Subsection 960-285(5) (at the end of the definition of base quarter )

Add:

; or (c) if the amount is mentioned in item 10B in section 960-265—the quarter ending on 31 December 2024.

17F Subsection 960-285(7) (cell at table item 3, column 1)

Repeal the cell, substitute:

(3) Schedule 1, item 18, page 29 (line 27), omit "means $3 million", substitute "has the meaning given by section 296-42".

The amendments I'm moving today would ensure that the large superannuation balance threshold is indexed annually, in line with the consumer price index. As it stands, the $3 million large superannuation balance threshold, established in the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill of 2023, is not indexed, leaving the decision of when and if to lift the threshold to a future government at some unknown time. This is simply not consistent with sound long-term superannuation taxation policy. It does not provide sufficient certainty to those with money in super or the super industry, and, if left unaddressed, it will create intergenerational inequities.

From the outset, experts and commentators have been almost universally critical of this lack of indexation. Indeed, during the consultation process on this legislation, AustralianSuper wrote:

Indexation of the threshold at which the measure applies would lead to greater certainty and promote stability and confidence in the system.

The National Farmers Federation said:

Given the long-term nature of superannuation and rising inflation, the $3 million value will increasingly capture a greater share of Australian farming assets. As such, the NFF recommends indexing the cap to inflation or the Consumer Price Index.

The Tax Institute, the Business Council of Australia and the Institute of Financial Professionals Australia, just to name a few, also all recommended that the proposed $3 million threshold be indexed.

Closer to home, when I talk to people in my community about this bill, even those who wholeheartedly support the intent of it, they see the lack of indexation on large super balances as absurd. Without indexation, the threshold does not currently account for inflation, and, therefore, reform most certainly will impact more and more ordinary Australians over time.

The Treasurer has said that from 2025, the concessional tax rate applied to future earnings for balances above $3 million is expected to apply to around 80,000 people. However, alternate modelling by the Financial Services Council puts that figure closer to half a million Australians if the cap remains unindexed. The number of people impacted in their lifetime would include more than 200,000 Australians under the age of 30.

The lack of indexation is out of step with current accepted tax principles, with most other elements of our super system being indexed, from contribution limits to the transfer balance cap and lump-sum benefits. Leaving the cap at $3 million without indexing it will mean people in my generation will have an entirely different and relatively higher threshold to that of my children, with the real value of the threshold likely falling to $2 million, due to inflation, by around 2040. Take the example of a current 30-year-old. By the time they retire at the age of 65, the real value of the cap will have fallen to $1.3 million, assuming inflation of just 2½ per cent. If inflation is higher, say four per cent, the real value would actually be $760,000—quite the departure from a $3 million cap.

Ultimately, my electorate of North Sydney and many individuals and stakeholders across this country broadly support the intent and principle of this bill—that is, to rein back generous tax breaks for super balances that are beyond what is currently deemed necessary to fund a comfortable retirement. However, in its current form, and without indexation, this legislation leaves many deeply concerned. The large superannuation balance threshold should be indexed to keep pace with inflation, to avoid bracket creep and to ensure greater intergenerational fairness. This amendment does just that. It is sensible, it is simple, it is practical and it is in line with current taxation law. I commend the amendment to the government.

Stephen Jones (Whitlam, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

I thank the member for North Sydney for her ongoing and good-faith engagement on this issue and on a range of other issues around the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023. I know that she's bringing the propositions that she's bringing in good faith and that they reflect representations that have been made to her by members of her community. We won't be supporting the amendments, and I'd just like to point out, in very brief terms, why.

Firstly, a matter of context: the average balance on retirement today is somewhere between $150,000 and $200,000. That's a long way south of the $3 million threshold that has been set in the bill before the House. It's for that reason that we're confident that less than 0.5 per cent of all fund members will be caught by the new provision—about 80,000 people, on introduction—and we don't see any significant shift in that in the near term.

It is of course the norm within the taxation system that we do not index tax thresholds. For example, we don't index personal income tax thresholds. Indeed, the previous government didn't index the division 293 tax threshold when it introduced those changes about a decade ago. It is of course open to a future government to decide to lift the threshold, and a future government would make that decision in the context of all the other fiscal pressures that are bearing upon a government at that point in time.

It's a modest change. It's a change that won't impact more than 99.5 per cent of all taxpayers. And let us not forget the objective of this. It's about ensuring that the taxation arrangements in relation to superannuation—which are generous—are sustainable over time. Even at the higher threshold of 30 per cent, for that portion of a fund over $3 million, that is still an incredibly concessional rate of taxation. So, we think the bill strikes the right balance in ensuring that people are encouraged to save for their retirement. It puts no cap on the amount of money people can have within their superannuation account. If they want to have more than $3 million in their superannuation they can do so, but there will be a higher rate of taxation on that part of the balance over $3 million—still a very generous tax concession for that portion of the fund balance over $3 million. I fully expect that the very small number of Australians who are caught by this will continue to decide to invest their money through the superannuation system because of those generous taxation concessions.

For these reasons, while I accept that the arguments are put in good faith by the member for North Sydney, the government won't be accepting the amendments.

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

Thank you for your commentary, Minister. I would like to put to you that this has broadly been advocated for across a number of organisations. I take what you're saying—that it's not standard practice for taxation brackets to be indexed—but it is certainly true that in most other elements of the super law they are indexed, whether it's what you can take out or what you can put in.

I think the thing that is very concerning to many people is that the potential impact here is for those who have self-managed super funds, particularly farmers and small-business owners who may have assets other than cash in their self-managed super fund. What assurances can you give to people who have taken the initiative and set up a self-managed super fund that this reform is not directly targeted at them, trying to force them back into commercial superannuation systems?

Stephen Jones (Whitlam, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

I thank the member for her question and I stand by the comments I've made in relation to the norms within the taxation system at large. The rules are sector neutral. They give no preference to whether a fund is a regulated superannuation entity or is regulated by the tax office, being a self-managed superannuation fund. I fully expect that following the passage of these laws people will make decisions on whether they control their own superannuation investments through a self-managed superannuation fund or they go through a regulated superannuation entity based on their own time, need, expertise and personal circumstances. From the government's point of view, this is sector neutral and it is absolutely driven by ensuring that we have a sustainable set of taxation concession arrangements in the superannuation systems. And I repeat: even if somebody has more than $3 million within their superannuation fund, the high rate of taxation on that proportion of their superannuation savings over $3 million will still be incredibly concessionally taxed.

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

I rise to speak to the House in support of the amendment moved by the member for North Sydney and in anticipation of the amendment about to be moved by my colleague the member for Wentworth. I'd like to make the point that the compulsory superannuation scheme that was introduced into this country in 1992 is extraordinary, and I'm sure that the Minister for Financial Services will agree that, in representing the fourth-largest pool of retirement assets globally, what we have in Australia is an incredibly important superannuation system. It means that generations of Australians can finish their working lives knowing that they will be financially secure in retirement. Despite the fact that a doubling of Australians who qualify for the age pension is expected by 2060, we do not expect that the amount of money that this country will have to put towards aged and service pensions is going to increase in the next 40 years, because of the value and the size of our superannuation system.

There have been so many policy failures in this country in recent years, and young Australians are facing the cost of climate change amelioration. They're facing an incredibly challenging energy transition. They have a housing system and, to some extent, a taxation system which could be said to be stacked against them. But they will be protected by this superannuation system from the cost of caring for our ageing population.

But the trade-off for Australians putting away their money and forgoing the immediate access to their earnings has always been the preferential tax treatment of money that has been placed in super in this country. If we want Australians to commit to super, if we want them to commit to their futures and if we want all of those who pay tax or receive benefits in this country to benefit as they should from the superannuation system, we have to respect its premises and its provisions and we shouldn't be chipping away at it or devaluing it.

The Treasurer has already told us that the superannuation concessions need to be better targeted and sustainable, and the main purpose of the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 is to reduce those concessions to those people with a superannuation balance of more than $3 million. As the minister has said, at this point the change in provisions is only going to apply to 0.5 per cent of Australians, but the reality is that a 25-year-old who today is earning $100,000, with a super balance of $35,000, will reach the $3 million threshold by the time that they turn 65. So this is a question which is much more pertinent to young Australians than it is to older people like those in this House at this point in time. Many people in my electorate of Kooyong will be disproportionately affected by this legislation because they have very high super balances. Having said that, most understand that the tax concessions that are built into super have a cost. There is broad support in my electorate for the principle of taxing very high super balances, but it is an extraordinary and disappointing decision that the $3 million threshold will not be indexed. I agree with the member for North Sydney: indexation is an accepted principle for government payments. It is commonly applied. It's applied to contribution limits, to the transfer balance cap and to lump sum benefits. It should be applied to the superannuation balance threshold, and I think it's a bit disingenuous and cynical that the government has decided not to do this at this point in time.

I support the member for North Sydney's amendment to prevent the taxation of unrealised capital gains. This is a departure from the traditional treatment in this country and in other OECD countries in which capital gains tax applies only on realisation. The precedent that this sets is chilling, and it's particularly concerning for small businesses, farmers and venture capital funds. So I support the amendment that the member for Wentworth is about to move for a formal assessment of the potential impact of this legislation on the startup and scale-up sectors.

Australians need certainty in their financial decision-making, and they need to be able to protect their capital. They put their money into superannuation with trust, on the basis that it is the best vehicle for long-term savings for self-funded retirement. But that might no longer be the case under this legislation. Many of those who face additional taxes under this legislation may well make a judgement as to whether or not they should keep their large superannuation balance in the system or invest it in some other way. If they do that, it will be to the cost of the system and to all the other Australians who trust in superannuation. If we really value super, we have to support it, not discourage it.

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

I rise in support of the amendment moved by the member for North Sydney, and that is in the context of the rest of this legislation. This legislation is going to tax unrealised gains in super, which I think is bad policy. It is bad tax policy, but it is particularly bad and particularly damaging, I am concerned to see, potentially, for the venture and startup and scale-up sector. In this case, because of that combination of taxing unrealised gains and not indexing the balance, I think that we will increasingly drive money away from risk assets such as ventures, which are volatile in their returns and in their evaluations, and that makes this a problematic situation.

To tax unrealised gains and then, at the same time, not index them means that I expect to see—based on all the evidence I have had from members of the technology sector and the venture sector—money going out of self-managed super, which is a really important source of capital for the venture sector. That is of enormous concern for me, as Australia is looking down a productivity hole and we know that young, growing firms are the most important sources of productivity that our economy has. That is why I rise in support of the member for North Sydney's amendment.

Milton Dick (Speaker) Share this | Link to this | Hansard source

The question is that the amendments moved by the honourable member for North Sydney be agreed to.

Luke Howarth (Petrie, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

by leave—I move amendments (1) to (4) as circulated in my name together:

(1) Clause 2, page 2 (table items 2 and 3), omit the table items.

(2) Schedule 1, page 4 (line 1) to page 51 (line 25), omit the Schedule.

(3) Schedule 2, page 52 (line 1) to page 55 (line 24), omit the Schedule.

(4) Schedule 3, page 56 (line 1) to page 57 (line 6), omit the Schedule.

These amendments omit schedules 1 to 3 from the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023. These schedules would impose the new divisional 296 tax on superannuation accounts. We are moving these amendments to hold the government to account. To everyone who's going to be affected by these changes throughout Australia: we are moving these amendments for you because this is a broken promise, pure and simple. The Albanese Labor government said they would not be changing super. They promised there would be no changes. This is a major change, particularly for people who have higher balances, because the tax is doubling. That is a major change if you are doubling the tax and you said before the election that there wouldn't be major changes. Now they're doubling the tax. That is a major change. This new super tax sends the message that the Albanese Labor government wants some Australians to pay more. This is at a time when Australians are struggling under persistent inflation, a GDP per capita recession, a record increase in interest rates and soaring energy prices.

Government proposals 1 to 3 have some key flaws. One, as I said before, is that it is a broken promise, and it comes off the back of not just no changes to super but also no changes at all to the stage 3 income tax cuts, which also affected this group of people considerably. Another flaw is that it isn't indexed.

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

Hang on!

Luke Howarth (Petrie, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I heard the member for North Sydney—I don't control the tactics here, but I was giving you a few 'hear, hears'. This means that young Australians will pay more. Analysis from the Treasury has shown that a 20-year-old today earning the average wage over their lifetime will pay higher taxes under this scheme, meaning that up to two million Australians could be captured by the time they retire. The minister opposite said it's only on high balances, but the reality is that this will impact a lot of Australians. The minister opposite was saying that the average balance is $150,000 to $200,000 at the moment, but in the future, of course, we know that $3 million, when someone retires in 45 years time, is going to be worth a lot less than what it is today.

It shouldn't be up to future governments to make all these changes. The government and the minister, whether it's this minister or any other minister in the Albanese government, deserve to get this legislation right. It shouldn't be up to future governments. I accept that not every government puts in policy that we always agree with. I mean, the minister opposite mentioned divisional 293 before—once again, not indexed; it probably should have been. It's wrong because, at the end of the day, he'll be getting less in his super account than a backbencher will right now, because he's taxed at 30 per cent rather than 15 per cent.

The other thing is that this taxes unrealised capital gains. I know the member for Wentworth mentioned this, and it's true. It means that retirees, superannuants, farmers, and small and family business owners will be hit the hardest and may have to sell assets all because there has been a capital gain. I could go to anyone in Australia, people in the gallery or anyone else, regardless of what they earn, and ask, 'Do you think that there should be a tax on unrealised capital gains?' I could say to people in the gallery: 'You bought a house for $500,000. It's now worth $800,000. You haven't sold it yet, but the government wants tax on $300,000 because that's your capital gain.' That is what this Albanese government is doing to Australians right now with this bill, and we in the coalition oppose it. I'd ask people who are listening around the place, is that a major change to super? I think it is.

We oppose the whole bill—the Leader of the Opposition has said that—based on what the government said. But I can tell you two things, even when I talk to people who are affected by this: a tax on unrealised capital gains is wrong and it needs to be indexed. Of course, the doubling of the taxation is a big issue. The minister said before that people have the pension. The reality is that we want people to save in their retirement so that they are self-funded. (Time expired)

Stephen Jones (Whitlam, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

I feel wry amusement listening to the shadow minister argue in favour of a proposition that he just voted against a few moments earlier. The shadow minister calls into question the government's contribution and commitment to superannuation. It was Labor that established the system of universal superannuation in this country, and it is a roaring success. Every day we work to strengthen it, deepen it and improve it. Over the term of our government we've increased the contribution from 10 per cent, and it will go to 12 per cent by July next year. That means that people entering the workplace today will have thousands and thousands of dollars more in their superannuation account than they would have had the coalition had its way and axed those increases in the superannuation guarantee levy.

We've introduced superannuation on paid parental leave, which means that, from next year, women who are leaving the workforce temporarily to look after their child will gain contribution of superannuation on that government funded paid parental leave. It should have happened decades ago, and it's happening as a result of the contribution of this government. It means that that person in retirement will be up to $4,000 better off because of this change. We're introducing payday super, and this is meaningful because too many workers are not getting the superannuation that they are owed. It means that the estimated $4 billion in unpaid superannuation that is occurring every year will be paid on payday, and there will be more money in a worker's superannuation account. Nobody can doubt the commitment of the Albanese Labor government to ensuring that we strengthen and protect our superannuation system.

The change is modest. It will affect less than 0.5 per cent of taxpayers—around 80,000 superannuation fund members with balances of in excess of $3 million. We've heard a lot of noise from the coalition about budget discipline and the need for budget discipline, but the simple fact of the matter is this: we inherited a budget in tatters. It was the biggest debt and the biggest deficit that this country has ever seen. Over the first two years, we turned those big Liberal Party debts and deficits into Labor government surpluses. Over $80 billion worth of savings have been found to pay down their debt and to get the budget back into a sustainable position. They promised it for nine years and didn't deliver it. We've delivered it in our first two budgets.

But you can't do that by just saying it; you can only do that by making the tough decisions. We want to be able to spend more on defence. We want to ensure that our health system is sustainable. We want to ensure that our aged-care system is sustainable. We want to ensure that the National Disability Insurance Scheme is still here in decades to come. To guarantee those things, you've got to ensure you are taking the tough, disciplined and difficult decisions. This modest change to our taxation arrangements will still mean that those 0.5 per cent of taxpayers will have an incredibly concessional taxation arrangement on that proportion of their superannuation fund over $3 million. It will still be concessionally taxed, but not at the same concessional taxation rate. This is a modest change, making our system more sustainable and adding to our efforts to ensure that we can get some fiscal discipline our budget back into shape. For these reasons, we will be opposing the coalition's amendments.

Luke Howarth (Petrie, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I hear the minister opposite. There was a whole lot of information there that probably wasn't relevant to the bill. I'll keep in mind in relation to debt that, when I was elected in 2013, the country was $300 billion in debt thanks to the Rudd-Gillard-Rudd years. There's this line about it being coalition debt, but that's a fact. I wish you were investing in defence, because defence industry around the country tell me that you're not. We support super. The coalition always supports super. We supported the Paid Parental Leave scheme as well.

The minister opposite says that this strengthens super. How does this strengthen super when you're taxing more? Whether it's 0.5 per cent or not, this is a doubling of taxation. It's not indexed, and it's unrealised capital gains, as I explained before. So how does doubling the rate support super, and shouldn't we be celebrating people that have actually put money away for retirement, because it takes people off welfare? The aged-care pension is there for people that need it. For people who have a small amount of super and are on a part pension, that's good, but why would we attack anyone that is completely self-funded or has put money away? The reality is that, for people on high incomes, particularly in the electorates of some of the independents that have spoken—there are not so many in my electorate, but there are some, I must say—that money won't be going into the system like it was previously. Most people with very, very high incomes in super were at a time when the Howard government was around, and the Keating government was around, and pretty well unlimited amounts of super could be put in.

As I mentioned before, you're now capped at $25,000 last year, and I think this year it's is $27,500. You're capped at what you can put in. Once you've got I think over $500,000, you can't catch up on previous years anyway, so $27,500 thousand a year is not a lot. That's particularly if people are wanting to buy a home and pay off their home, which is harder for young people now, with people studying longer. Now people don't finish studying until they're 25 or 24. They're getting married later, so they're probably enjoying life a little bit, then they're buying a home. By the time they think about salary sacrificing and putting into super, they might be 40 years of age, and by then they might have $500,000, but, under the changes that this parliament has made in the time that I've been here, you can only put in $27,500 a year if you have over 500 grand. If you do get up there and have managed to save, they're doubling the rate.

Let's say you get lucky and actually buy property or something, particularly if you have a self-managed super fund, like you are saying, and that property's value triples. It's not like you have any more cash flow, but this government will make you sell the property to pay the tax because of their unrealised capital gains. That is wrong. The minister can hardly stand up here with a straight face and say that the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill is strengthening super, because it's not. It's not strengthening super, and it's not better targeted. It's targeted at people that they think won't vote for them and will vote teal, Liberal or National. That's the reality. What we should be doing as parliamentarians is looking after all Australians, being honest and keeping our word. If the Prime Minister says before the election there will be no changes to super, how can they come in here with a straight face and make all these changes, particularly around unrealised capital gains, that have never been done before in this country? Even the Greens might support this one. I don't know. Maybe they won't; maybe I'm going a bit too far. It might be a long bow. But the reality is that this is wrong, and it doesn't matter how much the minister gets up. It's not the right thing to do. You weren't honest with the Australian people before the last election, and we're going to put it on record.

Milton Dick (Speaker) Share this | Link to this | Hansard source

The question before the House is that the opposition amendments moved by the honourable member for Petrie be agreed to.

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

by leave—I move amendments (1) to (4) on the sheet revised 28 May 2024, as circulated in my name, together:

(1) Page 3 (after line 8), after clause 3, insert:

4 Review of Schedule 1

(1) The Minister must cause an independent review of Schedule 1 to be conducted as soon as practicable after this Act receives the Royal Assent.

(2) The review must include a review of the impact, or potential impact, of Schedule 1 on the startup and high-growth sector.

(3) The persons who conduct the review must:

(a) consult with the public in conducting the review; and

(b) give the Minister a written report of the review in sufficient time to enable the Minister to comply with subsection (4).

(4) The Minister must cause a copy of the report of the review to be tabled in each House of the Parliament before 1 July 2025.

(2) Schedule 1, item 15, page 7 (line 11), before "The object", insert "(1)".

(3) Schedule 1, item 15, page 7 (after line 14), at the end of section 296-5, add:

(2) The Parliament intends that the approach in this Division of taxing unrealised gains is not to be used in the design or policy considerations of future amendments of this Act.

(4) Schedule 1, item 15, page 21 (after line 10), at the end of section 296-205, add:

Deferring when tax is payable

(3) Despite subsection (1), your *assessed Division 296 tax for the income year is due and payable at the end of the later day applying under the scheme mentioned in subsection (4) if, under the scheme:

(a) you choose for the scheme to apply for the income year; and

(b) you satisfy the conditions for the scheme to apply for the income year.

(4) The regulations must prescribe a scheme that allows entities to defer their *assessed Division 296 tax for an income year if the conditions provided for in the scheme are met.

(5) Without limiting subsection (4), the scheme must provide for:

(a) the length of the deferral, which must be for at least 5 years; and

(b) how an entity may choose for the scheme to apply for an income year; and

(c) any conditions that must be met for the scheme to so apply; and

(d) whether tax payable under the scheme can be paid in instalments; and

(e) whether a separate choice needs to be made, and conditions need to be met again, for each income year that an entity wishes the scheme to apply.

I am sympathetic to the government's objective of considering the taxation treatment of super and particularly about balancing the taxation of younger and older Australians more equitably. I note with real concern the increasing burden that the taxation system in its current form is placing on younger Australians. For example, I note that the share of income tax paid by older Australians has gone from 27 per cent to 17 per cent in one generation. I note that young Australians are not getting ahead in the way that previous generations did. I note that from 2004 to 2016 the average wealth of households of Australians over the age of 65 grew by 50 per cent while the average wealth of households under the age of 35 did not move. This change in the distribution of wealth and opportunity between generations does not bode well for our country and does not bode well for the opportunities that every single one of us wants to offer our children.

So I do think we need to consider the tax system more broadly, and, as I think many in this House know, I have long advocated for tax reform, including considering the tax system within the superannuation system. However, I am deeply opposed to the taxation of unrealised gains, which is why I'm putting forward a number of amendments. While I'm open to considering taxing large balances of super, I think the taxation of unrealised gains is extremely problematic. I'm also concerned that this increase in tax that the government is proposing is not being used to actually reduce tax burden, which is what it should be doing—reducing tax burden on young workers, because that is where that rebalancing should be.

Let me explain some of the concerns I have in relation to the taxation of unrealised gains. The first is on principle, which is that this is not money that anybody has. So, why the government should tax it is beyond me. As a principle of taxation, it is extremely problematic. I'm also concerned about how this plays out in practice, and I'm going to focus particularly on the venture and technology sector, which is a big part of my community and a sector that I'm really concerned about. Australia has lower investment in venture than other countries. We have about a third of the rate of investment in young, growing firms—venture capital—than the US, and about half that of the UK. We have a productivity hole. We know we need to grow it, and we know that young, growing firms drive productivity in this country.

So, we should be doing everything we can to support these companies. My biggest concern with this bill is that, according to the Tech Council, around 25 per cent of money that goes into venture comes out of self-managed super funds. Now, venture is volatile, and it is illiquid. Therefore, if we are going to be taxing unrealised gains on venture firms, which are both volatile and illiquid, there is a real danger that people in self-managed super funds are just going to move that money out of venture and into other areas—maybe the listed index. They are going to miss out from a returns point of view, and we as a country will also miss out, from the point of view of not having that investment in venture firms that is critical to future growth and productivity. That is my major concern with this issue and, frankly, I have not seen evidence that the government has engaged properly with the venture sector and with the technology sector to understand the impact of this legislation on those young and growing firms.

My amendments cover three elements of this. Firstly, I'm recognising that if you make an investment there's a very short period in which you're meant to pay this tax on unrealised gains. I've already noted that for venture, but it is also the case for land and for farms and businesses. You can't sell them on a dime. Therefore, one of my amendments is to ensure that a longer period is allowed for payment of this tax—over five years. That is a minimum requirement and I think a reasonable one.

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

I rise to speak in support of the amendments moved by the member for Wentworth, and I want to thank her and her team for doing the work to try to find a way through what is a truly concerning, unprecedented move by this government. To be clear, I believe that the intent of the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 warrants investigation. But to see the taxation of unrealised gains included in this legislation should send a shiver down the spine of not only every Australian but potentially every global citizen, because this is globally unprecedented. Nowhere else in the world do they tax unrealised gains.

What are the implications of this? It means, particularly for people in the rural sector and the small-business sector, that if they own assets that are fluctuating within their superannuation balance and one year the value of those assets goes up then, even though that will not will be in true cash terms, this government will have the right to approach those people and have them pay cash to the ATO, and the ATO doesn't take an IOU note.

In the subsequent year—let's say it's a farm, and you hit drought and your land price drops, and you fall back under the $3 million mark—you don't get a rebate from the government for the money you paid the previous year. But you have lost cash somewhere. So, from the minute this legislation was tabled, this really egregious change in taxation policy in this country was flagged with alarm by many key stakeholders. I have had lots of conversations with the member for Wentworth, the assistant minister, and other members of the crossbench who have tried to appeal to the government to please drop this unprecedented reform. Yet—it's extraordinary—the government hasn't been prepared to negotiate in this space and to recognise not only the potentially immediate damage to our superannuation system but also the potential damage to Australians' confidence, when they hold assets, that the government isn't going to adopt this as a standard practice across everything we hold.

People have asked me, 'If this is now included in super, what does that mean for my home in the future?' So, I would say to the minister, I think the member for Wentworth and her team have done an excellent job in providing you with a way to frame this and to give Australians greater certainty. While I would prefer to see this measure completely removed, this is what's being offered, in the interest of compromise, and I commend it to the minister and his team. I'll be interested to see why the minister says the government won't take it up.

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

In continuation of my previous remarks, I'd like to thank the member for North Sydney for her support of these amendments. As I described earlier, the amendments that I have put forward are, firstly, around allowing a greater time period in which to pay, given that people are being taxed on unrealised gains. Because these gains are unrealised, they relate to assets that have not been sold, or realised, and people may not have the cash to pay this. We should not be forcing people, or pushing people, to be paying tax on income that they haven't earned in a time period that is unreasonable—currently at 84 days.

My second amendment speaks to my concern about the impact on the venture sector and whether the government has adequately assessed that. I have put in my amendment that a review should be done on the impact of this sort of change on the venture and technology sector in particular.

Finally, I'm also calling for this legislation to acknowledge, and to try and give some confidence to, the people the member for North Sydney identified, by saying that this is not going to set a precedent for taxing unrealised gains in other parts of the economy. Frankly, these aren't the amendments I would like to pass. There are other amendments I would have loved to pass. Unfortunately, because this is an appropriation bill, I am unable to put forward the amendments that I would have put forward, but I do believe they should be considered.

Frankly, all this talk on unrealised gains is for superannuants who can calculate their actual earnings to pay their taxation on actual earnings. From my understanding, that would capture 80 per cent of the people that this bill is meant to address. So 80 per cent of the 80,000 people who would initially be affected by this would be able to pay tax on their actual earnings, and the 20 per cent who are in major funds would have to pay tax on unrealised gains. Then, it would be up to the funds to provide the right tax information so that, in the future, people perhaps would not have to pay tax on unrealised gains. I think that is an appropriate opportunity for the government to look at. From my understanding, just because APRA funds can't calculate gains that are realised funds versus unrealised funds, why should self-managed super funds be penalised for the technical incapacity of the other funds? I don't think that's a fair challenge. This change would make a huge difference to the self-managed super funds who are, by and large, the larger holders of these sorts of assets and the larger investors, particularly in the venture sector.

Failing that opportunity, there should've at least been a clawback mechanism to acknowledge that this is a proxy measure and that people may be overpaying their tax liability, because, as we all know, the value of assets goes up and down, particularly if you're in venture assets, where, for instance, the asset might be worth $50,000 one year and have a valuation of $2 million the next year. By the third year, it might be worth zero. A clawback mechanism would ensure that if you did have to pay tax at a valuation that you would never be able to realise then you could get the tax back. Again, that is a precedent we have in many other parts of our tax system, and it should be in this part of the tax system as well. I think these are some of the things that should have been in the legislation. These were alternative options for the government had it wanted to pursue what is a reasonable goal and do it in a way that is not so detrimental and not so distorting of our tax system.

I would like to ask the government a couple of key questions, via the minister. The first question to the minister is really around why the government chose to exclude people who can calculate their actual earnings—their realised gains versus their unrealised gains. Why did you choose to tax everybody on unrealised gains, when some people can actually calculate their realised gains?

The second question I really want to get an answer to is: what has the government done to understand the impact on the technology and venture sector, which is such an important part of our productivity and the economy. Those are two questions I would appreciate the minister's advice on.

Zali Steggall (Warringah, Independent) Share this | Link to this | Hansard source

I'd like to commend and strongly support the amendments and the words shared by the member for Wentworth and the member for North Sydney. But I'd also like to bring another element of concern around this insistence—dogmatic, I would say—of the government on taxing unrealised gains. As has been highlighted, there are incredible concerns when it comes to venture capital in the tech sector and, as the member for North Sydney highlighted, when it comes to large properties and farms in regional Australia and how they will be impacted with fluctuating values and the impact of taxing unrealised gains.

The other area of concern I have is in relation to rents. We know we are in a housing crisis with rental levels that are unaffordable and rising. We also know that a high number of rental properties are held in self-managed super funds. With a housing market that is rapidly rising, with values going through the roof, it is very likely that a high number of properties will be caught by the taxation of these unrealised gains. These properties are not being sold, but self-managed super funds are going to incur a tax in relation to the increased values attached to these properties. What is likely to result from this policy is an increase in rents. The minister says part of the government's ambition in looking at superannuation taxation is addressing intergenerational inequity, but you may be creating the very instrument that will make a crisis even worse. What's really disappointing is the unwillingness to compromise—to be more realistic about this and do it more incrementally.

The amendment put forward by the member for Wentworth provides for a deferral, an opportunity to see if there is fluctuation of unrealised gains from one year to the next, so that there can be better management from a cash flow point of view. It's also to make sure that people can have confidence in the system. Australians now have some $3½ trillion invested in super. It's a system that is highly regarded around the world, despite long political battles between the two major parties—and I'm sure that, as we head towards another election, we will have yet more political footballs around what uses superannuation can be put to and how it should be taxed. I am firmly of the belief that Australians should be comfortable and secure in their twilight years, still living a great life, and it is essential for them to have trust and confidence in the super system to be able to do that. People 's super plans are based on rules already in place for decades. We know that these are long-term investments. Changes like this one, especially in relation to the taxation of unrealised gains, are incredibly disruptive and, I think, will have a much greater negative impact than is contemplated by the government, the minister and, I would suggest, the advisers standing behind this.

That the government is not even willing to have a prompt review to look at the unintended consequences is incredibly concerning. I've had a huge amount of consultation in the electorate. Many people have reached out with concerns about the implications. Many are open to looking at the question of superannuation taxation and ensuring intergenerational equity. There's no difficulty with that. But what the government is proposing here, in its unwillingness to contemplate the negative consequences, is incredibly disappointing. It shows a dogmatic approach to legislation that is very counterproductive to confidence in the system.

I look forward to hearing the minister's response to the member for Wentworth's questions. What we do need to see is a sensible approach to this to make sure we have legislation that does not undermine the system. We don't want to see the forced sale of assets to cover tax on gains never realised. We don't want to see fire sales of liquid assets for uncalculated tax liabilities, with adverse consequences for investment planning. And obviously there's also the question of overtaxation and another layer of cost, change and complexity in a system that is already too often a political football.

I urge the government to rethink its approach: consider these amendments, come to the table and make this a more sensible piece of legislation.

Stephen Jones (Whitlam, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

I thank all honourable members for their contribution to the debate, and I again thank the member for Wentworth for her engagement on this issue. I know she has thought deeply about this and other issues that we've engaged on around the taxation system. I don't intend to go through all of the things that I've said in response to previous amendments in other debates, out of respect for the patience of the House and all the members here. I will just address a few things.

I know the member for Wentworth has been passionate in her advocacy for tax reform in this country, and we agree we need tax reform. Indeed, that's why we introduced changes to the personal income tax regime in this country. The average Australian taxpayer is paying $38 a week less tax today as a result of the changes that we introduced into parliament in the first quarter of this year. They're about $1,900 per annum better off as a result of that.

This is a modest change to the taxation arrangement on superannuation funds. I repeat that, even at the 30 per cent rate, for those funds with earnings above $3 million it's still an incredibly concessional tax rate. We fully predict that, either individually or upon advice, those people with fund balances in excess of $3 million will continue to keep their money in superannuation, because every piece of advice they'll receive will say it's a better taxation arrangement that they're going to get outside superannuation.

I'll also address some of the other headlines. It is simply not true that unrealised capital gains aren't taxed anywhere in the world. It's not even true in Australia. There are a whole range of taxes that apply. Whether it's land tax, the taxation arrangement on APRA regulated funds, stock-in-trade arrangements on businesses—there's a whole range of taxes that currently apply, in Australia and elsewhere around the world, to unrealised capital gains. I simply make that point.

Thirdly, we've listened to and thought deeply about the liquidity issues that members have raised. They're generally raised in relation to lumpy assets, like real estate. The examples that are generally brought forward are commercial real estate inside a self-managed super fund or a farm. The simple fact of the matter is that these assets are earning money. If it's a commercial property, it's earning rent. If it's a tenanted property in the residential real estate market, it's earning rent. If it's a farm, it's earning income. That income is available to cover any liability that may be incurred as a result of these new arrangements. Other, non-fund income is also available to meet the liability.

It is also a feature of the arrangements that have been put in place in this bill that a capital loss can be brought forward. A loss made in one year can be offset against a gain made in a subsequent year. I repeat: it's a modest change. I don't seek to discount the genuinely felt and well-advocated positions that have been put by members of this House. We've thought through them all.

I know the member raised the review. I've had a look at this. I don't think a review which is to be tabled in parliament which would commence almost immediately after the implementation of the bill is going to be an effective tool to get to the issue that the member is seeking to deal with. There will be a post-implementation review, and it will be required to be completed prior to 1 July 2027. That's a time after which you'll have had two cycles—two taxation years will have passed—and it will be able to look at the issues of concern.

Just briefly, I have also looked at the issue in relation to venture capital and startups, and I've met with the member for Wentworth and some of her constituents. I was concerned that this would be an issue at scale. On the data available to me, it's not. Less than three per cent of the total assets, and that is the very top end of funds, would be invested in these classes of assets—that is, if you were to include all debt securities, all unlisted shares and all loans in that class of assets. Clearly that's not true either. So at the very top end it's three per cent of those types of assets. I don't think it is going to have the impact that the member is concerned it will, but I am absolutely confident and would commit that a review conducted of these arrangements would look at and deal with that issue.

Milton Dick (Speaker) Share this | Link to this | Hansard source

The question before the House is that the detailed amendments moved by the honourable member for Wentworth be agreed to.

Milton Dick (Speaker) Share this | Link to this | Hansard source

The question before the House is that the bill be agreed to.