Generous tax concessions on superannuation accounts with balances over $3 million will be reduced, returning $2 billion to the budget the government has announced.
Cabinet met on Tuesday morning and passed the changes, which will not take effect until 2025 but which will be legislated this year.
They will return $2 billion to the budget in their first full year.
Under the changes, earnings on super balances above $3 million will have a concessional rate of 30 per cent, up from 15 per cent, bringing them into line with the company tax rate.
“99.5 per cent of people with superannuation are not affected by this reform, under 80,000 will be,” Prime Minister Anthony Albanese said.
Mr Albanese said a recent debate about the sustainability of the superannuation system following a speech by Treasurer Jim Chalmers had identified cases where it was being used to accumulate large balances that were in excess of retirement savings.
“Australians who are having to make tough decisions around the kitchen table expect their government to be prepared to make tough decisions around the cabinet table,” the Prime Minister said.
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Chalmers reveals plans for superannuation
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ATO data shows that the top 100 self-managed superannuation accounts in the fiscal year 2020 controlled $9.7 billion between them; the single largest account had a balance of more than $400 million.
Treasury analysis released on Tuesday showed tax breaks on superannuation are collectively worth up to $50 billion a year and largely flow to high-income earners.
The government said super tax concessions were a priority, despite the burden posed by other concessions and exemptions, such as negative gearing and capital gains tax discounts.
“The 10 biggest tax expenditures are worth more than $150 billion annually – around a third of the top 10 is made up of superannuation tax discounts,” Dr Chalmers said.
The Treasury analysis of tax expenditures shows concessional treatment of super contributions will cost about $25.3 billion in uncollected revenue in 2022/23.
Opposition Leader Peter Dutton has vowed to oppose the changes and said the Coalition would overturn them in government.
“If Mr Dutton chooses to stand up for the individual with $400 million in their account … that’s a matter for him,” Mr Albanese said.
Dr Chalmers said that the policy would help to improve the structural position of the budget.
“If this is about one thing, it’s about responsible economic management,” he said.
“I’m confident that Australians will see this change as modest and reasonable and fair but one which makes a difference to the sustainability and affordability of the superannuation system.”
He said revenue raised by the legislative change would not be redirected into another purpose, but used to improve the structural position of the budget.
“Every dollar that’s spent on a tax break for people with tens of millions of dollars in super is a borrowed dollar that makes the deficit bigger,” he said.
Dr Chalmers said he did not expect the changes would trigger a flight from the super system by those affected by the policy because they would still have earnings taxed at a concessional rate below the income tax rate.
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