Simon Benson – Political Editor
5 May 2023
More than two million young Australians earning an average wage throughout their working life could be hit with a future super tax under the government’s plans by exceeding the target threshold of $3m in their super balances before the age of retirement.
Analysis of Treasury modelling suggests that the Albanese government’s super tax plan to double the concessional tax rate on large super balances will disproportionately target younger Australians in the future, based on modelling provided to the Treasurer’s office in March. According to documents obtained under Freedom of Information, Treasury advised Jim Chalmers’ office that, based on its own assumptions, a 20-year-old today earning an average wage throughout their career would have a super balance of more than $3m by the time they reached their early 60s.
Opposition analysis of Australian Bureau of Statistics and tax office data based on the Treasury modelling suggests that this would impact 2.05 million Australians currently aged under 25.
The Treasury modelling confirms that the younger generation are more likely to be affected by the changes in the future than the majority of today’s older generations who would not reach the threshold by retirement.
The government claims that less than 1 per cent of superannuation accounts have balances of more than $3m. The Treasurer’s office on Thursday did not reject the analysis showing that two million young Australians could be hit by the future super tax hike, with a spokesman for Dr Chalmers saying Labor’s changes had received “deep and broad support from the Australian public”.
The proposed tax increase, which doesn’t come into effect until 2025, would see the concessional tax rate doubled from 15 per cent to 30 per cent on balances of more than $3m. The government has also ruled out indexing the $3m threshold.
Dr Chalmers has consistently defended the tax hike, claiming it is a “modest” change and will only affect wealthy superannuation funds, with his office telling The Australian it was a “modest and sensible change that helps clean up some of the mess the former government left behind”.
The tax increase is forecast to generate almost $2bn in revenue and provide structural relief to the budget over the longer term. Treasury has estimated the shake-up to affect about 80,000 people when it is introduced in 2025-26 and has forecast that, in 30 years, the top 10 per cent of earners would be captured upon retirement.
A briefing document provided by the assistant secretary of Treasury’s tax and transfer division, Adam Hawkins, to the Treasurer’s office on March 3 following the announcement of the policy, contained several cameos on which age groups would likely be captured by the changes and acknowledges the impact on younger workers while claiming the threshold was “very generous”.
“A 20-year-old today who earns an average wage throughout their career (around $90,000 in 2023), is projected to have a superannuation balance that exceeds $3 million in their early 60s,” one cameo revealed.
“That same individual is projected to have wages that exceed the top marginal tax bracket ($200,000) in their early 40s.”
On the other hand, a 20-year-old today who earned half the average wage throughout their career (around $45,000 in 2023), was not projected to have a super balance that exceeded the balance before retirement.
The Treasury note, provided as a briefing document for the Treasurer during question time, and released to the opposition under FOI on April 24, says the average wage was defined as being roughly 15 per cent higher than the median wage. “This means someone earning an average wage is earning more than 50 per cent of the population,” the document says.
It went on to clarify that older workers on average wages would not be captured by the tax change, which the government has relied on to bolster its argument that only wealthier individuals would be affected.
A second cameo modelling a 35-year-old today with a superannuation balance of $75,000, who would earn an average wage throughout their career was “not projected to have a superannuation balance that exceeds $3m before they retire”.
The same applied to a 50-year- old with a superannuation balance of $200,000 also earning an average wage throughout their career, which again was defined as $90,000 in 2023.
The document cited Grattan Institute analysis that projected that only the top 10 per cent of earners would retire with superannuation balances of around $3m or more in 30 years’ time.
In the expectation that questions would be asked over whether younger people would be captured by the tax changes if the threshold wasn’t indexed, the document said: “The $3m threshold is very generous. It can provide far more than what is needed to fund a comfortable retirement. This aims to provide structural savings to the budget over time.”
The Coalition, which had originally cast the tax hike as a broken promise by Labor not to touch super, has now labelled it as a future tax on young Australians.
Opposition treasury spokesman Angus Taylor said today’s youth would “pay the price of Labor’s reckless spending”.
“The idea that this policy change will only affect the super wealthy is complete nonsense,” Mr Taylor said. “These are hardworking Australian people in admirable and essential professions who are getting out there, having a crack and doing their bit for the economy.”
“This is a tax on young Australians’ future in order to pay for Labor’s pet projects today.
“Treasury’s own analysis shows that Labor’s doubling of tax on super will mean for the first time, young Australians will face higher taxes on their super than the generation before them.
“The government has been misleading Australia and it is time for the Treasurer to come clean and confirm exactly how many people will lose out under these changes.”
A spokesman for Dr Chalmers said that “three times more Australians retiring in 30 years’ time will be affected by the Coalition’s 2017 super change compared to our proposal.”
“All their hypocrisy and hyperventilating is to distract from the fact that the Liberals want to add to their trillion dollars of debt to fund bigger tax breaks for people who already have tens of millions in super.”
The Coalition lowered the income threshold for additional contributions tax for high income earners (Division 293) to $250,000 from 1 July 2017. This level was not indexed. On introduction, the Coalition’s change was estimated to impact 160,000 people in 2017-18.