Super wars renewed: Treasurer’s proposed changes spark controversy

When he promised changes to end the Super wars, Treasurer Dr Jim Chalmers should have realised he was actually starting the wars anew.

Now everyone from financial commentators and political opponents are shouting about broken promises and the right of people to spend their superannuation however they wish.

To be fair to the Treasurer, much of this criticism is absolute nonsense and from what we can see of his proposals, they seem to be fairly modest in both scope and impact.

However, that won’t stop a wave of ill-informed or politically generated controversy from engulfing the changes he is trying to make to superannuation to try to rein in the tax concessions that are flowing towards very wealthy Australians with more than $3 million in their superannuation account.

Tax concessions to the wealthy are enormous

To add some context to the size of such tax concessions, they are absolutely enormous.

According to Treasury estimates, the top 1% of income earners are projected to get more than $700,000 in superannuation concessions each over their working lives.

The bottom 10% of workers, by contrast, get just $50,000 of super concessions over their working lives.

When you consider that many super retirees – both wealthy and not so wealthy – die without spending much of their super balance, that is an enormous amount of taxpayer subsidy that is effectively going to support the next generation of very wealthy people.

So much so that the size of the super tax concession – which arises because of the difference between the 15 % super tax rate and much higher personal tax rates – has now grown to $52.6 billion, almost as much as the entire age pension program at $55.3 billion.

Those Australia Institute figures also show how fast the value of the concessions is growing – up from 0.5% of the economy at the turn of the century to a staggering 2% of gross domestic product (GDP) now.

Caps are a good idea, but politically dangerous

Dr Chalmers is absolutely right to target the size of these tax concessions flowing to already very wealthy Australians and his idea of placing a cap on the size of super that will attract a low tax rate is perfectly logical – although the devil will be in the detail, which we are yet to see.

Politically, however, the move to tighten up super tax concessions could be very dangerous, which is probably why Prime Minister Anthony Albanese has only offered limited support to his Treasurer and has said that any super changes will be “small”.

The most likely scenario at this stage seems to be that the proposal will double the tax on super earnings above $3 million to 30%, although the exact design of the changes will be important to see to ensure it doesn’t have a long-term impact on how superannuation works overall.

While Keating was pushing tax cart, Hawke jumped off

Those with long memories might recall a similar situation when then Treasurer Paul Keating was pursuing much more substantial tax reform while Prime Minister Bob Hawke remained less committed.

That allowed Mr Hawke to “jump off’’ the tax cart as the tax debate neared an end and instead support a more modest reform package to take to the Australian people.

It wouldn’t surprise to see a similar tactic repeated should the political attacks on the proposed changes get too much to bear.

Those attacks – some of which run along the lines of “the Government is trying to gets its hands on your super” – are patently false, but that doesn’t mean they won’t be very damaging if they play into pre-conceived notions.

As Dr Chalmers himself put it on Sydney radio station 2GB: “Less than 1% of people have got more than $3 million in their super; the average amount that people have when they’ve got more than $3 million is $5.8 million.”

“And so, I think, well, we should be up for a conversation about whether paying a lot of taxpayer money in concessions for that group is the best use of that money.”

Chalmers doesn’t have Keating’s sales skills

Whether Dr Chalmers can actually convince people of the need to crack down on the more than 10,000 Australians with $5 million or more in their super accounts who receive at least $70,000 a year in tax concessions remains to be seen.

While his academic qualifications in economics dwarf those of Keating, his skill in convincing Australians of the need for change remains largely untested compared to those of arguably the most reformist Labor Treasurer we have seen.

Dr Chalmers will also need to bear in mind more recent history – namely Bill Shorten’s unsuccessful attempt to win the 2019 election, with proposed controversial changes to franking credits largely credited for costing him the election.

Smaller changes might help

Perhaps with this in mind Dr Chalmers is focusing on tightening the superannuation tax breaks on people with more than $3 million in their super accounts.

While a change of that magnitude won’t raise a massive amount of revenue, it will restrict the impact to a much smaller number of people.

Fewer than 1% of people have $3 million in super – although the average amount held by those who hold more than $3 million is almost $6 million – so such a move could increase the fairness of the super system without causing too much electoral damage.

However, Dr Chalmers will need to be very careful to sell the changes well if he wants to avoid too much electoral damage.

Perhaps a chat with Bill Shorten might refresh him on the dangers of losing an economic argument when being pure can be the opposite to being appealing.