Tax expert warns if Labor's super tax changes fail to get up, chance for broader reform will be quashed

Australia Broadcast Center

28-05-2025

A leading tax expert has warned that if the federal government can't get its proposed changes to tax on superannuation accounts with balances over $3 million into law, it will destroy any chances of bigger tax reform.
"If Labor falters in getting this proposal through, then we have no chance for future further tax reform," Robert Breunig, professor at Australian National University, told The Business.
While the vocal outrage over the changes is now reaching a peak, with daily coverage in some publications, the bill was first introduced to parliament in late 2023.
It would impose an additional tax rate of 15 per cent on superannuation earnings from the portion of an individual's account balance over $3 million at the end of a financial year. That's in addition to the current 15 per cent tax on concessional super contributions.
It has been proposed to come into effect from July 1 but is yet to pass into law.
Professor Breunig, the director of the Tax and Transfer Policy Institute at ANU's Crawford School of Public Policy, said the current superannuation tax breaks are "too generous", largely at the top end of the scale.
"Super is taxed about right for the average person, but it's under-taxed for people with very large balances," he said.
"Superannuation was designed for providing a retirement income for people so that people could have a comfortable retirement," Professor Breunig said, noting that the level of income will look different for different people, but could be in the realm of $100,000 or $200,000, or around 80 per cent of what someone was earning while they were working.
"We've got people amassing now tens of millions of dollars in superannuation, which will generate millions of dollars of annual income for them.
"That's well beyond what we think is reasonably required for retirement."
While the criticism of Labor's policy has been loud in recent weeks, Treasury has said it will only initially affect less than 0.5 per cent of Australians with a super account, or about 80,000 individuals.
"Whenever you do tax reform, you create winners and losers.
"Even if the winners are a large group of people and the losers are a small group of people, the loser's often very squeaky," Professor Breunig told The Business, describing the debate around the super reform as "very vociferous".
One of the arguments raised by opponents of the super tax changes has been the lack of indexation, meaning it will capture a increasing portion of the population as super balances climb with inflation over time.
However, the Grattan Institute's program director of housing and economic security, Brendan Coates, has described the idea it will disproportionately affect younger generations as "simply nonsense".
"Rather than being the biggest losers from the lack of indexation, younger Australians are the biggest beneficiaries," Dr Coates wrote in The Conversation.
"It means more older, wealthier Australians will shoulder some of the burden of budget repair and an ageing population. Otherwise, younger generations would bear this burden alone …
Professor Breunig argued much more significant tax reform is needed to address intergenerational inequality in Australia.
For example, a switch from stamp duty charged on transfers of homes to a land tax, which would tax the growth in the value of property without discouraging the buying and selling of homes.
"I think the other thing we really need to look at is that our system treats very wealthy older individuals as if they are very poor.
"We give the age pension to people who have millions of dollars of assets. We treat them as if have no income. We provide age care to people without asking them to contribute to it.
"I do think we need to look at putting all of people's assets, including the family home, into the age pension means test and into the means test for age care," Professor Breunig said.
"Now, those will not be very popular policies, but they are really the policies that we need to address intergenerational inequity."
He described the super changes as a "really important first step" to opening the door to broader reform.
One of the other aspects of the policy seized upon by its critics is the fact that it will tax unrealised capital gains — that is, it will levy an annual tax of the increased paper value of an asset — for example, property held in a self-managed super fund that is yet to be sold, so the increase in value is yet to be "realised".
On the failed campaign trail, ousted opposition leader Peter Dutton described the move as a "quasi-inheritance tax", while farming groups have said it could create cashflow issues for farmers holding properties in their super funds.
Professor Breunig said people were currently putting assets like farms and properties into super funds as a tax shelter.
"[Superannuation] wasn't set up to be a business vehicle where you have multiple property holdings or farms, or even actual businesses run through them, and the only reason people are doing that is to avoid tax."
He said only taxing actual gains has encouraged people to hold onto assets, giving the example of someone holding multiple properties in an SMSF.
He argued a fair approach would be to allow people to opt in to either paying the tax on unrealised gains annually, or accumulate the tax bill until the assets are sold.
"That's very much what we do with council rates. If you're a pensioner, you don't have a lot of liquid assets and you get your rates bill, you call the council and you say, 'look, I don't have any money to pay this,' [and] they say, 'that's fine, we'll just keep track of what you owe us, we'll index it by inflation and when your house is transferred or sold, we'll then take the tax liability that you owe.'
"So, we could give that to everybody in the system — we could say, 'we're going to tax the unrealised gains, you can pay it now, or we'll keep track of it, and we'll charge you when the property is either transferred or sold.'"
The Grattan Institute's Dr Coates noted that one-fifth of all withdrawals from super are currently via bequests and Treasury expects that to grow to one-third of all withdrawals by 2060.
"Superannuation in Australia was intended to help fund retirements. Instead, it has become a taxpayer-subsidised inheritance scheme," he wrote.
A report from the think tank, released in January, found many retirees are net savers, with their super balances growing for decades after they retire, for fear of outliving their savings.
Grattan's modelling showed that Australians who draw down their super at the minimum rate when they retire will leave the equivalent of 65 per cent of their original super balance unspent by the age of 92.