The Albanese government is already facing annual budget deficits for at least the next decade, adding to the annual interest bill on our growing public debt. If weโre going to be spending more on defence and many other things, it will have to raise more in taxes.
How? Well, the nationโs chief executives in the Business Council of Australia helpfully suggest an increase in the GST. But it would be fairer if the government started by reducing the tax concessions and loopholes used mainly by the well-off.
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And that brings us to the massive tax concessions attached to superannuation, which cost the government almost $50 billion a year in lost revenue. The concessions are worth far more per dollar saved to high income-earners than lower earners.
But they also favour the old rather than the young. The old earn more than the young, find it easier to save, and get the benefit from super sooner than the young. Thatโs why, in the governmentโs efforts to collect more tax, fixing the super concessions is a good way to reduce the tax systemโs bias against the young.
Two-thirds of the value of super tax concessions go to the top 20 per cent of income earners. The concessions are intended to ensure people have enough income to live comfortably in retirement, but a fifth of withdrawals from super go as bequests to the superannuantโs children.
Treasury estimates that the share of withdrawals going as bequests will rise to a third by 2060. In other words, the concessions are so great that super has become a taxpayer-subsidised inheritance scheme. Meanwhile, other taxes must be higher to cover the cost of this inheritance scheme.
The change will affect just the top 0.5 per cent of people with super โ only about 80,000 people
Treasurer Jim Chalmers intends to press on with a super tax measure he announced two years ago, but hasnโt yet been passed by the Senate. The plan is to increase the tax rate on super annual earnings for balances exceeding $3 million from 15 per cent to 30 per cent. The tax would apply only to the amount above $3 million.
The change will affect just the top 0.5 per cent of people with super โ only about 80,000 people (including me). It would save the government more than $2 billion a year.
But the people affected by the change โ mainly rich men โ have put up an almighty resistance, portraying the measure as utterly iniquitous and โ would you believe โ unfair to the younger generation. โIโm not opposing this for myself …โ
However, the proposal has had strong support from the Australian Council of Social Service and the Grattan Institute.
The claim that the proposal would harm the young rests on the governmentโs intention not to index the $3 million threshold. If you left it unchanged forever, inflation would eventually cause the higher tax to apply to all the young.
Sorry, this is fanciful. There will be plenty of time to raise the threshold before then. Meanwhile, it will just apply to more, but slightly less-rich, old men (and a very few rich old women).
The other claim is that the extra tax would apply not just to interest and dividend income but also unrealised capital gains. This is true, but not as iniquitous as the protesters claim. It will mainly affect self-managed super funds.
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Itโs a messy way to tax earnings, but itโs difficult to avoid administratively because the existing 15 per cent tax on earnings is imposed on the fund, not its individual members.
Taxing capital gains that havenโt yet been realised may mean the tax has to be covered by money taken from elsewhere, but most people this well-off have plenty of money outside their super funds.
So, donโt believe it. These rich people just donโt want to pay more tax, and, as usual, are hunting around for the best counter-arguments they can find. I can afford to pay it, and so can they.
Ross Gittins is the economics editor.
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