Glenda Korporaal – Senior Writer
10 May 2023
It is a tale of the two ends of town when it comes to the superannuation sector’s response to Labor’s second budget.
For a small sector of the population, with assets of more than $3m in their super funds – or approaching that level – the budget confirmed that they will be hit with 30 per cent tax on the increase in value of their funds above $3m from July 1, 2025.
The Self-Managed Super Fund Association, whose members will be most affected by the new tax regime, has called on the federal government to re-open discussions on the proposals to look at the potential impact on small business people, farmers, and others with property assets in their super.
SMSF Association chief executive Peter Burgess argues there has not been enough time for talks with government on the potential unintended consequences of its move and has hit out at the unfairness of taxing members on their super balances above $3m and not actual earnings.
Despite criticisms that yet another measure to crack down on super tax concessions could undermine confidence in system, that the $3m figure is not indexed – extending its application to an increasing number of people over time – and that it amounts to an unprecedented move to tax people on unrealised gains – as opposed to actual earned profits – the budget papers confirm the government has no plans to budge from its original proposal.
Having toughed it out so far with an ambitious tax plan which will mean a rethink of super for middle to upper-income workers, it doesn’t appear the government is going to respond to criticisms by making changes.
The government estimates the proposals will only affect some 80,000 people at the start date, but the lack of indexation of the cap means more will be affected over time. Rainmaker has estimated it could impact 100,000 Australians from its start date and affect some $410bn in savings in super.
It will also apply to people on defined benefit pensions of more than $180,000 a year, which will include politicians on the old pension scheme, including Prime Minister Anthony Albanese.
Those affected or potentially affected will now have to consider whether they need to pull assets out of their fund before the start date. Faced with being hit with a 30 per cent tax rate if the value of their property goes up over time – even if it is unsold – will put many of those affected in an untenable financial position.
The Opposition has pledged to overturn the measure should give it some pre-election fodder to make a pitch to small businesses, farmers and others that the government is not to be trusted on its super promises. But the next election could be held as late as May 2025, which would not give the LNP – were it to be elected and have some measure of control over the Senate – the time to reverse it by the start date of July 1, 2025.
So those affected either have to think about taking money out of their super by the start date, or taking the chance of doing nothing in the hope that a future LNP government could reverse it, backdating any reversal to 2025.
At the other end of town, the super sector celebrated one of the few new initiatives in the budget – the proposed shift to have super payments made with wages and not as much as every 90 days as is the case under the current regime.
The original system whereby employers can delay super payments to as little as every 90 days was introduced to help businesses cope with the payroll challenges of super. But with the business software programs available to the smallest of companies, it is not out of the question for changes to the payroll system to be made to accommodate paying super with wages. Paying super with wages makes it easier for people to check that their super is being paid properly – in the same way they check their wages – and will help reduce the impact of underpayment of super.
It is a measure that will particularly benefit low-income workers, casual workers and those with irregular work patterns who have been the most vulnerable to underpayment of their super entitlements.
Lobby group Industry Super Australia, which has long campaigned for measures to crack down on underpaid super, including those announced in the budget, estimated it could give some workers as much as $50,000 more on retirement.
It argues the underpayment of super has cost members as much as $33bn over the past seven years.
It also welcomed extra funds given to the ATO to crack down on the underpayment of super.
The Association of Superannuation Funds of Australia and other major industry funds also welcomed the moves.
KPMG’s national sector leader, asset and wealth management, Linda Elkins, also expressed the broad relief that this budget did not contain any major new changes to superannuation.
With the industry bracing ahead every budget for what could be another whack at super savings – as Elkins pointed out – the sector “cheered” on Tuesday night when it learned that there were no major changes this time around.
Most Australians with super, who wont be affected by the tax increase on those with funds over $3m, can relax for another budget.
With super experts such as Elkins having geared up for a big day of post-budget analysis on Wednesday, she joked that after this budget they would now be able to get together and have a party.
For most Australians, the super system is still an attractive way to save for retirement.
But for some others, that big sound you will hear in 2024 and the first six months of 2025 could be billions of dollars sucked out of the super system as those affected by the government’s proposals take some hard decisions.