The great flaw in Jim Chalmers’ superannuation raid is that higher taxes will apply to more and more Australians every year because he will not adjust the $3 million threshold above which higher taxes will apply.
With inflation running at eight per cent, $3 million will soon not be what it is today. Labor’s new tax is not a tax on the rich, it is a tax on young Australians because many of them will need $3 million (or even more) by the time they retire.
The Government’s proposal is to double the tax rate for those with superannuation balances of $3 million or more. The Government claims that this will impact fewer than 0.5 per cent of Australians. But that is just for today.
Some quick sums show that many more will be impacted if the $3 million threshold stays fixed.
Take a 30-year-old today with a $200,000 superannuation balance. Assuming that person earns $100,000 a year, and makes average returns on their superannuation, this person will have a superannuation balance of more than $3 million by the time they are 62 years old. This is the power of compound interest.
Does the government think that someone on $100,000 a year is rich? The average full time wage is now $94,000.
This young, average earning Australian now faces a much tougher retirement than before Labor’s tax raid this week. Say upon retirement at 65, this Australian plans to have their superannuation provide for them for another 20 years. Thanks to Labor’s tax changes they will now have $50,000 a year less to provide for themselves in retirement. Over their lifetime, they will pay $700,000 more in superannuation taxes.
Younger Australians are facing a much poorer and harsher retirement if Labor’s tax changes are not stopped. This hit to young Australians is an even greater insult given the breach of trust it represents. Before the last election the now Prime Minister said that he had “no intention of making any super changes.” His decision to double superannuation tax rates, less than a year after the election, is a massive broken promise.
But worse than destroying trust in politicians, this broken promise destroys trust in the superannuation system. Why would Australians put their money into superannuation if they cannot trust governments not to raid it in the future?
Once you put money in superannuation it is stuck there until you retire. Governments have you by the proverbials because you cannot just take your money out of it.
Every bit of tinkering governments do with superannuation makes people more uneasy about putting money into it.
And that will mean that more Australians end up with not enough in superannuation for retirement, pushing them onto the pension and worsening the very budgetary situation Labor’s superannuation tax changes are meant to rectify.
The Government could help restore some trust by making one simple change. Index the threshold of $3 million to inflation. That way young, average income earning Australians would never pay these higher taxes.
The fact that the Government is refusing to do this shows they have a hidden agenda which is nothing to do about taxing the rich.
With inflation at eight per cent, the Government’s new plans will hit many more Australians than the 0.5 per cent claimed. Inflation is the Government’s best friend because it pushes more and more Australians into higher tax thresholds without them becoming any richer.
We could stop this bracket creep by indexing all tax thresholds to inflation so that government has as much incentive to get inflation down as the rest of us see our grocery bills going up on a daily basis.
The announced changes do nothing to help people struggling with the cost of living today but perhaps they could if we take the opportunity to index all kinds of tax thresholds and ensure that average Australians do not end up paying tax rates meant for the rich.
Matt Canavan is a Liberal Nationals senator