Treasurer Jim Chalmers has started a promised “serious conversation” about funding government services – and a fight.
The government’s move to return $2 billion to the budget by reducing the tax breaks given to the wealthiest Australians was seized on by the Opposition on Tuesday – after the Treasurer dared them to do so.
“If they are prepared to go to war for the one-half of 1 per cent of people with more than $3 million of superannuation in their accounts, they can explain that to the Australian people,” Dr Chalmers said.
About 80,000 people will be affected by the policy that will bring the tax treatment of earnings in superannuation accounts with balances over $3 million into line with the company tax rate.
“We’ve seen the Prime Minister and the Treasurer walking away from their commitment to not add taxes to superannuation,” shadow treasurer Angus Taylor said.
Tuesday’s announcement came a week after the Treasurer gave a speech raising questions about the sustainability of the $3 trillion superannuation system last week, and an ensuing debate about its use by the ultra wealthy for tax minimisation purposes not connected to retirement.
In 2005, only 151 Australian superannuation accounts had balances over $10 million: just over a decade later that number had exploded to 1839.
The 100 largest self-managed superannuation accounts in the country controlled more than $9.7 billion in 2020.
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Tax concessions halved for super accounts with over $3m
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Structural deficit
Dr Chalmers said the money raised from lifting the concessions would help fill a hole at the centre of the nation’s finances known as the structural deficit, or the widening gap between how much money the government spends on services and how much it collects.
“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,” Dr Chalmers said.
“As well as the cost of servicing a trillion dollars of debt, Australia also faces fast-rising expenditure in areas such as health, the NDIS, aged care and defence. We have begun the hard yards of repairing the nation’s finances.”
At the same time as the policy release, Dr Chalmers released a Treasury document outlining the value of current tax breaks.
The juxtaposition invited speculation it might have been a list of options for taking on the rest of a structural deficit that amounts to 2 per cent of GDP and has been growing for years.
Current tax breaks
The Treasury tax update revealed that the value of the 10 biggest tax concessions in Australia stands at $150 billion.
Superannuation tax discounts account for nearly one-third, the document reveals.
More than 55 per cent of their benefit flows to the top 20 per cent of income earners, and 39 per cent goes to the top 10 per cent.
Men also collect $1000 a year more than women from the concessions.
Other tax breaks listed include $18.6 billion removed from the tax take via rental deductions, a category of tax write-off that includes the costs of maintaining a property.
A whopping $23 billion is forgone by the Australian Taxation Office to give a capital gains tax exemption to individuals and trusts holding assets for more than 12 months.
Stage three tax cuts
In October, Dr Chalmers handed down a budget that came after the government had flirted with the idea of dumping the Morrison government’s stage three tax cuts that will eventually remove $20 billion a year from the budget and benefit the wealthy.
“I’m hoping that the Australian people are up for a serious conversation about how we pay for the services that they need and deserve, and have a right to expect,” he said.
Preparations for the next budget, due in May, are under way.
The Greens’ Senator Nick McKim called for the government to repeal the stage three cuts on Tuesday, describing them as the “elephant in the room”.
Another key vote to enable the government to pass its superannuation changes if the Coalition votes against them was more welcoming.
“Millions of dollars of superannuation is so out of reach for the average Australian. These are the kinds of sensible things that we should be doing,” Senator David Pocock said.
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