Treasurer Jim Chalmers 'pouring cold water on investment' with Labor's proposed unrealised gains tax, Geoff Wilson warns
Mr Chalmers on Wednesday vowed a boost to Australia's productivity and deliver major tax reform in a speech to the National Press Club.
His promise drew criticism from Wilson Asset Management founder Geoff Wilson, who lambasted Labor's plans to alter how large superannuation funds are taxed - which includes targeting unrealised capital gains.
"You can't say the economy lacks dynamism and innovation, then introduce a tax that penalises long-term investment and risk-taking,' Mr Wilson told SkyNews.com.au.
'Taxing unrealised gains in superannuation does the opposite of what's needed — it punishes prudence, discourages capital formation and undermines confidence in the rules of the game.
'The Treasurer admits we need more innovation — while taxing the very gains that fund it.
'You can't light a fire under the economy by pouring cold water on investment."
A common criticism of the plan to tax unrealised gains on assets – including properties and shares – above the threshold in super funds is the impact it will have on small businesses.
Many small business owners put assets in their self-managed super funds (SMSF), but under Labor's plan those above the threshold would be forced to pay tax on paper gains.
Similarly, some investors use their SMSF as a low tax investment vehicle for startup businesses.
Wilson Asset Management sent a note to shareholders warning if the tax were applied to a company like US$40b design platform Canva, which achieved its massive valuation after 18 funding rounds, the company would have failed.
'Under taxing of unrealised gains every funding round would require tax to be paid on a hypothetical valuation,' the report reads.
'Most startups operate with negative cashflow and when capital is raised it is to fund growth, not to provide liquidity to investors.
'Therefore, there is no liquidity to pay tax on an unrealised gain.'
Labor's changes to super accounts $3m will also not be indexed and capture more and more Australians over time.
AMP's chief economist Shane Oliver said the lack of indexing across the tax system, including under Labor's proposed super tax changes, was something the government needed to change.
'We should be looking at removing areas where, as far as possible, we're not indexing,' Mr Oliver told SkyNews.com.au.
'The ideal should be indexing things, not leaving more parts of the tax system unindexed and at the behest of what future governments might do.'
The government insists its super change affects only the top 0.5 per cent of accounts, however, modelling from AMP deputy chief economist Diana Mousina suggests otherwise.
'An average 22-year-old today, who's earning average full-time earnings, will hit the cap when they get to about 62 years old on my analysis,' Ms Mousina told Sky News.
'So that's before they actually reach retirement.'
She warned the government's failure to index the $3 million cap means growing numbers of Australians will eventually be drawn into the tax net.
'My estimates were actually, I think, understating the amount of people that will hit the cap because I used quite low return assumptions,' Ms Mousina said.
She also flagged broader economic distortions that may result from the policy as people try to find a way around the taxes.
'If people know that their super is going to be hit, then inheritances will go elsewhere,' she said.
'More people will probably go to purchase a home, which has implications for home prices in the future.
'So people will find a way around this system to try and reduce their taxable income as much as possible.'
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The concept relates to Baby Boomers passing down their wealth to their offspring, in what is believed to be around a whopping $3.5 trillion in shares, property, cash and other assets by 2050, according to the Australian Government's Productivity Commission. But what many people don't realise is not everyone will be gifted an inheritance and if they are, it will probably be a lot lower than they think - but experts say there are good reasons why. "An inheritance is still a rare event," Terry Rawnsley said KPMG Urban Economist. "They don't have a sense of the relativities across the rest of society." Read more from The Senior: Mr Rawnsley told The Senior that Baby Boomers are "running down their wealth" in later years, leaving less money to leave their family. "The average inheritance - it's only about $125,000," he said. "The top most wealthiest families, they're the ones having the big ticket inheritances, while everyone else is having a more modest one." 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He also said wealthy people with the most amount to give will likely to give it to their children who are also typically rich - so there won't be a great equalising wealth event - just a changing of the guard. Mr Rawnsley said Baby Boomers are living longer and are using their savings to pay for living expenses or aged care, ending up with not "much at all" - which is then typically needed to be shared by more than one person. "If you think about the quintessential million-dollar house in the middle ring suburbs [12-25 km from a CBD], even that's getting chopped up between two or three kids, which brings that average down," he said. Mr Rawnsley said many Aussies are also unaware of the cost involved with aged care and it's "just not on their radar". "When older people do end up in aged care, it might be a pretty quick transaction," he said. "So it might be, 'Grandma's going pretty well. Oh, she's had a fall. She's now kind of in need of that more intensive care. We need to get her into a home. Oh, wow, it's three-quarters of a million dollar surety." Mr Rawnsley recommends parents and children talk earlier about expenses later in life, including the "fairly hefty amounts to secure an aged care bed". From January 1 2025 aged care providers can now charge a whopping $750,000 a room in their facility for new residents - up from $550,000 - without needing approval from the Independent Health and Aged Care Pricing Authority (IHACPA), according to the Department of Health, Disability and Ageing. The staggering amount is a deposit, or Refundable Accommodation Deposit (RAD), that people pay when entering a nursing home and when they leave, they or their family is refunded the balance that was not used. Even though not every aged home will charge the new amount, RADs are generally very steep. 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"The structure insofar as how much you will have to pay out of your own pocket, whether you are a pensioner, part pensioner, or self-funded retiree, is going to dramatically increase," he said. Mr Grice said inheritance is also a "myth" because not everyone will get one, as not every parent has something to pass down. The media talking about the Great Wealth Transfer can normalise inheritance, leading people to believe it is a "given" rather than a privilege not everyone gets, which has the potential to lead to financial elder abuse. "The narrative is not helpful in terms of creating a generational divide," he said. Share your thoughts in the comments below, or send a Letter to the Editor by CLICKING HERE.
