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3 Mar 2023 - Hedge Clippings | 03 March 2023



Hedge Clippings | 03 March 2023

Last week's Hedge Clippings warned readers to beware of politicians with a hand in one's pocket. This week, let's double down on that, and just make it "beware politicians".

Of course in this specific case, we're referring to the Treasurer, Dr. Chalmers, and PM Anthony Albanese, and their changes to the taxation of superannuation balances above $3 million, although it applies pretty universally to the lot of them (politicians that is, not super balances). However, specifically, everything Chalmers and Albo have said and done on this has either been smart, sneaky, or maybe a bit of both, depending where you're coming from.

Where do we start? Let's go back a year to when both were in election (aka "don't scare the horses") mode when they were at pains to assure voters there would be no changes to superannuation. How to overcome that little obstacle?  Delay the introduction of the changes until July 2025, beyond the current parliamentary term. Sneaky or smart? You be the judge.

Then there's Jim Chalmers saying just a couple of weeks ago that "we need to have a conversation about super's sustainable future." Lo and behold, just a week or so later it's set in stone, and it wasn't so much a "conversation" as an edict. Much like the "conversations" yours truly was invited to have many years ago in the headmaster's study, when there was only going to be one, or normally six, painful outcomes. Either Chalmers had been doing more than writing his 6,000 word essay over his Christmas holiday, or he's suddenly had an epiphany of the taxation kind.  

Leaving the politics and weasel words aside, let's take a look at the policy itself: It's hard to argue that those with more income shouldn't, or are unable, to pay a greater proportion of it in tax. But Chalmers' plan doesn't hit those with high income from their super accounts, it is triggered based on the value of a member's balance, but taxed on the earnings - plus those earnings include un-realised gains.

As far as the overall benefit to the budget's bottom line, Treasury's modeling indicates that there is over $250 billion a year in taxation concessions from a variety of sources, including negative gearing, franking credits, and CGT, of which super accounts for around $45 billion. Of that $45 billion, $23.3 billion is made up of concessional tax rates on contributions, and $21.5 billion from concessions on earnings. Increasing the tax on earnings from 15% to 30% on balances over $3 million will raise $2 billion a year.

The government doesn't seem to have thought this through - although they've certainly thought about the politics.  There's outcry and opposition enough, even though less than 1% of the population are impacted in an effort to claw back $2 billion from the overall concession pool of $250 billion. Think of the response if negative gearing ($24.4bn), CGT on a main residence ($48bn), CGT on assets held for more than 12 months ($23.7bn), or franking credits ($17.2bn) had been in their sights. Of course, Bill Shorten discovered the response to any changes to franking credits in 2019 by ignoring the fact that there are 3.1 million direct recipients from that source.

It's pretty easy to sell the policy to the 99.5% of the population theoretically not impacted by it, as long as that's an accurate estimate, as clever Jim has deferred indexation of the $3 million until it is someone else's problem. (Meanwhile, the FSC has estimated that up to six times as many workers will be affected over time.)

And while the critics have Chalmers and Albanese in their sights, let's not forget that successive governments have tinkered with the taxation of super ever since it was introduced by Paul Keating way back when.

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