The Government proposal to tax large superannuation balances at a higher rate doesn’t sound unreasonable in principle, depending on the limit chosen and how the tax is calculated. Unfortunately, the Government has chosen a fairly low limit and says it won’t be indexed to inflation.
It has also been enthusiastic in creating a new tax calculation formula that is quite severe. The formula for the extra tax is different to the one used to calculate the current tax on super fund earnings. The new calculation taxes unrealised capital gains.
It is possible to have $10 million or more in super if you are lucky enough to have bought a bunch of shares that grew from ten cents to ten dollars. If you used super to buy a block of farmland or a commercial property thirty years ago, it could also be worth that now too.
The $3 million limit is low. It should be at least $5 million and preferably $10 million. While that amount isn’t necessary to provide a comfortable income, if it was accumulated by the rules with smart investments, the Government is now moving the goalposts, changing the rules during the game.
Currently super balances over $1.7 million are taxed fifteen per cent on income and ten per cent on realised capital gains. If only the income and realised gains earned on the excess assets in the future were taxed at the higher rate that would be reasonable.
The Government’s proposal is much more severe. It plans to tax unrealised gains. The tax will apply just because the value of the super account has increased, even though no investments have been sold.
In the future the value of the super account may fall again. Popular shares sometimes rise from $1 to $30 or $40 and then fall back again to say $10 or even $5. Will the Government provide a tax refund when that happens and the balance no longer exceeds the limit?
It appears the Government sees this as a quick way to hit the rich and raise taxes while offending very few voters, but it contradicts basic principles of fairness.
The Government continues to look for easy targets. It should start addressing difficult issues rather than trying to find quick fixes. For example, the Government continues to deny that its policies have anything to do with causing high inflation, or the resulting interest rate increases.
That is incorrect. Continuing generous spending on welfare is boosting demand and helping push inflation up. The Government could begin by reducing its spending to help balance the Federal Budget. That would reduce consumer spending and inflation, and reduce the need for interest rate increases.