Australians who make big voluntary contributions to their superannuation face losing generous tax breaks as part of a Labor shake up.
Treasurer Jim Chalmers has signalled he wants to scrap laws that allow workers to plunge up to $27,500 into their super each financial year at a low rate of 15 per cent, if they earn up to $250,000.
The current regime means high-income earners on $180,000 are taxed much less than their income tax rate of 45 per cent.
It is also a big saving for those in low and middle income tax brackets, who are taxed at 32.5 per cent between $45,000 and $120,000; and 37 per cent between $120,000 and $180,000.
Australians who make sizeable contributions to their superannuation face losing generous tax concessions with Labor now accused of telling people how to spend their retirement savings (pictured is a stock image)
With gross government debt set to surpass $1trillion next year, Dr Chalmers suggested to a financial forum in Sydney on Monday that he wants to claw back the tax concessions.
Super tax policy: What Jim Chalmers may change
Australians can contribute up to $27,500 into their super and pay a lower, flat concessional rate of 15 per cent.
That covers those earning up to $250,000 based on income plus the pre-tax super contribution.
The concessional, flat rate of 15 per cent on super contributions is much lower than the 45 per cent marginal tax rate for those earning more than $180,000.
Treasurer Jim Chalmers and a consultation paper on superannuation have suggested reviewing these tax concessions.
Former Liberal treasurer Peter Costello had introduced generous tax concessions for super contributions in 2006.
The Australia Institute think tank estimated the super tax concessions cost the budget $52.6billion a year, almost as much as the $55.3billion spent on the aged pension.
‘Right now, we’re on track to spend more on super tax concessions than the age pension by around 2050,’ he said, in an apparent reference to a recent report by a left-leaning think tank, the Australia Institute.
‘I’m not convinced that’s a sustainable way to get to our destination – good retirement incomes for more Australians, now and into the future.’
It comes as Dr Chalmers also flagged new laws that would prevent future governments from letting Australians access their retirement savings early, as occurred during the pandemic, when Treasurer Josh Frydenberg allowed Australians two withdrawals of up to $20,000 from their super funds.
Shadow assistant treasurer Stuart Robert accused Labor of trying to tell Australians what to do with their super.
‘Now suddenly, in the middle of a cost of living crisis, where they want to talk about anything other than the burden on Australian families, the Labor Party has now found an interest and a purpose for super,’ he said.
‘We agree there should be a purpose and it should be about the individual and how the individual uses their money, not how the treasurer wants to use their money for his purposes.’
A government consultation paper released on Monday said superannuation should focus on ‘delivering income’ for retirees rather than ‘minimising tax on wealth accumulation or enabling retirees to leave tax-effective bequests’.
The paper also argued the superannuation system should be be ‘sustainable’ and ‘cost-effective for taxpayers in achieving retirement outcomes’.
‘Beyond a certain level of income, additional government support through tax concessions is not necessary or appropriate,’ it said.
Treasurer Jim Chalmers (pictured with wife Laura) has signalled he wants to undo laws introduced by a former Coalition government in 2006 that now allow workers to deposit up to $27,500 each financial year at a concessional rate of 15 per cent for those earning up to $250,000
Early release super
Australians were able to withdraw $20,000 on their super in two maximum $10,000 instalments in 2020 during the start of the pandemic.
Treasurer Jim Chalmers said the former Coalition government’s policy was ‘disastrous’.
This was the first mass withdrawal of retirement savings since compulsory superannuation debuted in 1992.
Former Liberal prime minister Scott Morrison campaigned ahead of the May 2022 election to allow Australians to access $50,000 of their own super to buy their first home.
Former prime minister Scott Morrison’s Coalition government allowed workers to raid up to $20,000 from their super – via two $10,000 instalments in 2020 – during the early months of the Covid pandemic.
Dr Chalmers called the early release a ‘debacle’ that ‘forced’ Australians ‘to choose between better incomes in retirement or paying their bills’ after $36billion was withdrawn.
‘Never again,’ he said. ‘Our government will take a different approach’.
‘Some of the most disastrous policy proposals we’ve seen in recent years – like allowing billions to be withdrawn from balances during the pandemic –have come about, in part, because our predecessors were navigating the super landscape without a compass.’
The Liberal Party at the last election campaigned to allow Australians to access $50,000 of their super to buy their first home.
It would have allowed first-home buyers to invest up to $50,000 or 40 per cent of their superannuation if they had saved for a deposit of at least five per cent.
Opposition Leader Peter Dutton stood by that policy which Prime Minister Anthony Albanese campaigned against ahead of the May election.
‘We took a great policy to the election,’ he told radio 6PR in Perth on Monday.
Anthony Albanese (centre with girlfriend Jodie Haydon, left, and Australian of the Year Taryn Brumfitt) and Labor also want to change the law to stop future governments allowing early access to super
‘It allows people to access their superannuation to aid in the purchase of their first home.
When you can access your superannuation
For those born before July 1, 1960, it’s 55
The rises to 56 for baby boomers born between July 1, 1960 and June 30, 1961
It’s 57 for those born between July 1, 1961 and June 30, 1962
It’s 58 for those born between July 1, 1962 and June 30, 1963
It’s 59 for those born between July 1, 1963 and June 30, 1964
It’s 60 for anyone born after July 1, 1964
‘When they sell the asset, they’ve got to put the money with the uplift back into superannuation, so you can get a compounding benefit by the time of retirement.
‘That is a perfectly sensible policy. It makes no sense that somebody else is able to use your money to buy themselves a house under Labor’s proposal, but that you can’t use money out of your super, that you’ve put into that fund to help you get started in the housing market.’
Outside of the pandemic, early release super is only allowed in very limited circumstances, including if someone is permanently incapacitated.
This is known as a ‘disability super benefit’.
A super fund must be satisfied someone has a permanent physical or mental medical impairment that is likely to stop this individual from ever working again for a job they were qualified to do.
Compulsory superannuation debuted in 1992 when Paul Keating was Labor prime minister.
While trade union membership has plunged during the past three decades, unions have been active investors with industry super.
The rate of compulsory super is increasing to 11 per cent, up from 10.5 per cent, from July 1, 2023 and is increasing by half a percentage point every year until it reaches 12 per cent in July 2025.
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