A bid to increase taxes on wealthy Australians’ superannuation has been paved with good intentions, but there are warnings it may create unfair outcomes.

The federal government is hoping to pass a bill to impose a 15 per cent tax on super balances higher than $3 million, which would affect about one in every 200 savers, according to the Australia Institute.

Some have complained it would force Australians to move their assets, such as small businesses and farms, out of their super.

Independent economist Saul Eslake does not have much sympathy for them.

“That’s not what bloody super is for,” Mr Eslake told AAP.

“Super has become a vehicle for rich people to avoid tax and it’s become a subsidy for bequests, not retirement income.

“I support the government’s objective … however, I think the government is going about it the wrong way.”

The bill would tax unrealised gains, which is the growth in the value of an investment before it is sold.

Mr Eslake branded it “unfair”, as it means people would be taxed even if they had not earned income.

Treasurer Jim Chalmers insists calculating unrealised gains is not unique and says no one has proposed a better way of making this calculation after almost three years of consultation.

Some have called the proposal a tax on wealth. Mr Eslake is not opposed to this, but questions why it is being imposed on superannuation and not on housing.

“This will encourage people – particularly rich people – to put more money into owner-occupied housing, which is completely exempt from tax,” he said.

“It’s enough of a tax shelter as it is.”

The government’s decision not to index the $3 million threshold has also been a sore spot for critics.

While the proposal may only affect 0.5 per cent of Australian savers, the lack of indexation means many more could be taxed in the coming years.

Dr Chalmers anticipates the government could raise the threshold in the future.

The superannuation tax was first proposed in 2023 and could be one of Labor’s first bills to pass after its landslide election win.

“Just because they’ve got a mandate, doesn’t mean it’s right,” Mr Eslake said.

The economist has suggested that anyone with more than a certain amount – say $3 million – in their super should not get any concessions on future contributions and would have to pay the marginal tax rate on contributions and income generated.

Alternatively, super contributions and earnings could be taxed at a person’s marginal rate minus 15 percentage points rather than a flat 15 per cent, meaning those in the top tax rate would pay 30 per cent, Mr Eslake proposed.

Liberal senator Andrew Bragg acknowledged steps to improve the tax system were worth consideration, but warned Labor’s bill would “destroy superannuation as the preferred savings vehicle in Australia, particularly for millennials and Gen Zs”.

Kat Wong
(Australian Associated Press)