Latest news with #taxchanges
News.com.au
3 days ago
- Business
- News.com.au
‘Like winning lotto': $300,000-a-year public servant pensions under fire in super tax battle
Would a 90-year-old need a half-a-million-dollar per year pension to live on? As debate swirls around Labor's controversial superannuation tax changes, critics have set their sights on lucrative taxpayer-funded lifetime pensions paid to former high-ranking public servants and politicians which can stretch into hundreds of thousands of dollars per year. Politicians who entered parliament before the October 2004 election, including Prime Minister Anthony Albanese and opposition leader Sussan Ley, are still accruing benefits under the Public Sector Superannuation Scheme (PSS), a defined benefit scheme which pays out an annual pension — indexed to inflation and calculated by a formula including the member's average salary and years of service — when the member leaves office or retires at 55. 'It's like winning lotto,' said veteran fund manager John Abernethy, founder and chairman of Clime Investment Management. 'These guys are giving themselves lotto wins and then complain about paying tax on the income.' Treasurer Jim Chalmers' proposed tax changes, known as Division 296, would double the rate from 15 per cent to 30 per cent for superannuation balances over $3 million and, most controversially, include unrealised gains on earnings on assets held by funds such as shares, farms and property. Labor first announced the crackdown on tax concessions for very large super balances in 2023, but the legislation was blocked by the previous Senate. The changes look likely to become law as a deal with the Greens looms. Only around 80,000 Australians, or 0.5 per cent of the population, currently have super balances above $3 million, but industry groups have warned that if the threshold is not indexed to inflation it could eventually capture the majority of Gen Zs entering the workforce today. The measure is expected to initially claw back $2.7 billion a year and nearly $40 billion over a decade. 'What we need to do is make sure that our superannuation system is fair,' Prime Minister Anthony Albanese said this week. 'That is what we are setting out to do.' Division 296 will also be applied to defined benefit pensions to ensure 'commensurate treatment' as high-balance super funds — although unlike super account holders, those eligible will be able to defer the payments until they retire. Interest will be charged annually on the deferred tax liability at the 10-year bond rate, currently at around 4.5 per cent. Treasury estimates that 10,000 members with defined benefit interests will be impacted by the new tax in 2025-26, 'representing approximately 1 per cent of the total population with DB interests'. The Australian Council for Public Sector Retiree Organisations (ACPSRO), which represents more than 700,000 retired public servants, has flagged a possible challenge to the new law, arguing it's unfair. ASCPRO notes that unfunded pensions, which do not receive the 'generous and open-ended taxation concessions' available under regular superannuation, are already subject to normal income tax. Recipients who will be captured by the $3 million threshold are already paying a marginal tax rate of 45 per cent on that income, and Division 296 will likely take their marginal tax rate to 60 per cent, according to ASCPRO. 'I'm not stepping away from the fact that these are very wealthy people at the top of the public service — either retired High Court judges, Commonwealth department secretaries, deputy secretaries — it's a very small percentage but it's the principle of the thing,' said ASCPRO president John Pauley. 'Nowhere has the government explained to defined benefit pensioners how they're benefiting from tax concessions at present and therefore why it's fair, just and equitable for this additional tax impost to be paid on top of the tax they're already paying.' A person in an accumulation scheme who would be affected by the tax has the option of moving their assets out of super into another tax-effective vehicle such as a family trust, Mr Pauley argues, whereas those receiving defined benefit pensions have no such option. 'You're at the mercy of the government of the day,' he said. ASCPRO also takes issue with deferred interest being slugged on future pension payments. 'There is zero asset sitting behind these schemes — if you're unfortunate enough to get run over by a car two years into your pension there is nothing there [to leave to beneficiaries],' Mr Pauley said. 'This is the ultimate self-licking ice cream for the government. They are wanting to make people pay tax, not on unrealised capital gains, they're wanting people to pay tax on a hypothetical gain on an asset which doesn't exist, either during the accumulation phase or during the pension.' Mr Pauley estimated that for the roughly one million households receiving defined benefit pensions, the average was only in the range of $50,000. 'Teachers, nurses, police officers, members of the Defence Force, the bureaucrats who do the day-to-day work of government,' he said. 'Yes there's a few who are on very high incomes who have access to a defined benefit pension, [but] this wasn't something that is optional for them. When you signed up to work with the public sector it was a part of your workplace contract.' Mr Abernethy, however, argues any overhaul of super concessions should also include going back to the drawing board on the $166 billion unfunded liability 'black hole', which has continued to blow out beyond forecasts as existing members continue to accrue benefits prior to retirement. 'Just pay out the bloody benefits today and cap it at $3 million, if the government is saying $3 million is more than you should have in super,' he said. 'How about we have a come-to-God moment and say, 'If your net present value of your future pension is $10 million, I'm sorry, $3 million is more than enough. It's a windfall, guys, now you've got to look after yourself.' It would save the taxpayer a fortune.' He added that '[if someone says] that requires a complete renegotiation of what people thought they were entitled to — yes it does, come in spinner!' 'That's exactly what you're doing in super,' he said. 'Current taxpayers weren't even alive when these pensions were set. We've got $240 billion in the Future Fund, if that's not enough to clean out this liability and get rid of it then we better know now.' He suggested complaints about paying additional tax on defined benefit pensions were an apples-to-oranges comparison. 'Imagine I come up to you on the street, I don't know who you are, and promise to pay you $100 a year indexed for the rest of your life,' he said. 'Then in five years I say, 'Look, mate, I'm only going to give you $90.' Am I going to get angry? I didn't contribute to it, you're just taking $10 off my cashflow.' Mr Abernethy, in an op-ed last month, outlined what he saw as the 'diabolical issues' with defined benefits. He cited the example of a high-profile former politician, senior ADF officer or High Court judge in their early 70s who receives a $300,000 defined benefit pension this year. Assuming 3 per cent indexation, Mr Abernethy pointed out that at 75 years old the pension rises to $327,000, at 80 it rises to $380,000, at 85 it rises to $440,000, at 90 it rises to $510,000 and at 95 it reaches $590,000. 'Think about the numbers and you see that over the 10 years to 85, the pension receipts aggregate to about $4 million, and over the 10 years to 95 it aggregates to over $5 million,' he wrote. 'Would a 90-year-old need $510,000 a year to live on? Therefore, is it likely that these funds would flow from the beneficiary to others in a type of living estate? Is that what defined benefit pensions designed to do and are they consistent with Australia's superannuation policy?' Defined benefit schemes were phased out after former Treasurer Peter Costello realised the payments would explode the budget bottom line in future years if not closed off. The PSS has been closed to new members since 2005, while the earlier Commonwealth Superannuation Scheme (CSS) was closed in 1990. The CSS is a hybrid accumulation-defined benefit scheme, with some benefits linked to final salary and others based on an accumulation of contributions with investment earnings. For military personnel, the defined benefit schemes are the Defence Force Retirement and Death Benefits Scheme, the Defence Forces Retirement Benefits Scheme and the Military Superannuation and Benefits Scheme (MSBS). Following the closure of the MSBS in 2016, all defined benefit military schemes are now closed to new members. The schemes are unfunded or partially funded, meaning the payments come directly from tax revenue, to the tune of about $20 billion a year. In 2006, the government established the Future Fund with an initial contribution of $60.5 billion that included the proceeds from the sale of Telstra. The Future Fund was originally supposed to start paying out pensions in 2020 to take the burden off the taxpayer, but successive governments have delayed drawing from the fund. In November, Labor ruled out taking a dividend from the fund until at least 2032-33, when the savings pool is expected to have reached $380 billion. The announcement came as the Treasurer directed the Future Fund to prioritise investments in renewable energy, housing and infrastructure, sparking warnings that he was politicising the independently managed sovereign wealth fund. Former Labor Climate Change Minister Greg Combet, who was appointed chair of Future Fund by Dr Chalmers in January 2024, said the decision to defer withdrawals 'provides the Future Fund with the confidence to provide more focus and resources to the areas of national priority identified in the new investment mandate that align with our risk and return hurdle'. In an op-ed for The Australian Financial Review, Mr Combet said 'as of today, the value of the Future Fund covers about 79 per cent of the estimated APS superannuation liabilities' — suggesting the liability had grown to about $290 billion. The Future Fund was valued at $237.9 billion as at December 31. The most recent federal budget estimates liabilities for civilian superannuation schemes, including the CSS and PSS as well as pensions for judges, at $166 billion in 2024-25, rising to $179 billion by 2028-29. Including military superannuation schemes, the total figure was $303 billion in 2024-25 and $341 billion by 2028-29. Treasury's PSS and CSS Long Term Cost Report, published last year, forecast that the unfunded liability for the schemes would peak at $190.5 billion in 2033-34 before declining to $62.4 billion by 2060. As of June 30, 2023, there were a total of 100,574 CSS members, including 1333 still currently employed, and 214,793 PSS members, 54,870 still employed. 'People who are in public service are entitled to a payout, but that payout should have been calculated and created with a logical and fair mechanism,' Mr Abernethy said. 'Saying to someone you get paid your pension based on your average wage when you leave, you tell us when you want to get it … that's not fair. You create these different tiers of benefits. Society's got to sit back and say, what's fair and what's affordable? Everyone's trying to get at fairness in the super system, but there's only so much money in the pot.'
News.com.au
26-05-2025
- Business
- News.com.au
Just 1 per cent of lucrative defined benefit pension schemes to be affected by new super tax
Just 1 per cent of former officials on defined benefit pension schemes will be affected by Labor's controversial superannuation changes in the first year, while others eligible for the lucrative arrangements including Anthony Albanese will be able to defer paying the new taxes until they retire. Treasurer Jim Chalmers is holding firm on his proposed superannuation tax changes, known as Division 296, which will double the rate of taxation on balances over $3 million from 15 per cent to 30 per cent. The policy, slated to come into effect from July 1 if the legislation is passed by the Labor-Greens Senate, would most controversially tax unrealised gains on assets held by super funds including shares, property and farms. Critics of the proposal have also warned that if the $3 million cap is not indexed to inflation, a growing number of Australians would be affected by the new tax through bracket creep. Only around 80,000 Australians, or 0.5 per cent of the population, currently have super balances above $3 million. Treasury estimates that could rise to 1.2 million people in 30 years without indexation. 'It's appalling' Federal MPs elected to parliament prior to October 2004 — including the Prime Minister and opposition leader Sussan Ley — are eligible for defined benefit schemes, which pay out a hefty lifetime pension calculated by a formula including the member's average salary and years of service. According to Labor's draft explanatory materials, an estimated 10,000 members with defined benefits interests will be impacted by the new tax in 2025-26, 'representing approximately 1 per cent of the total population with DB interests'. 'Division 296 tax liabilities relating to a defined benefit interest may be deferred,' it says. 'It's appalling that 99 per cent of politicians on defined benefits will not be impacted by the tax on unrealised gains,' said Wilson Asset Management founder Geoff Wilson. 'How can Australians trust politicians when they behave like this?' Mr Albanese and others currently accruing retirement benefits under defined benefit schemes will not have to start paying Division 296 tax until they start receiving pension payments or lump sum payouts when they retire at age 55 or older. Interest will be charged annually on the deferred tax liability at the 10-year bond rate, currently at around 4.5 per cent. 'If you can't get the money released from a defined benefit, what they'll do is defer the tax payment until you are eligible to receive the defined benefit,' Andrew Boal from the Actuaries Institute told The Australian Financial Review on Monday. 'This reflects the fact that money generally cannot be released from defined benefit interests until a superannuation benefit is paid, usually upon retirement.' Treasury had previously noted that calculating how to apply the new tax to defined benefit schemes would be complex as they do not have a total cash balance like typical super funds. Many are unfunded or partially funded, meaning payouts are drawn directly from consolidated revenue, so changes to the member's 'total superannuation balance' for the purposes of calculating the new tax must be done using a formula. 'Regulations will be developed t deliver commensurate treatment for members of defined benefit funds, including ensuring they have appropriate valuation methodologies for TSB purposes that provide an appropriate point-in-time value that can be tracked annually,' the explanatory memorandum states. Draft regulations released last year show defined benefit schemes will be assessed using the existing family law valuation method, used when dividing assets during divorce or separation. On Sunday, Liberal Senator Andrew Bragg claimed the Treasurer was planning 'a tax on everyone except for Mr Albanese, where he will set special arrangements for the Prime Minister'. Mr Bragg called on Dr Chalmers to disclose exactly how Division 296 would be applied to the PM's defined benefit scheme in the legislation, rather than through ministerial regulation at a later date. 'Otherwise, it's a massive conflict of interest where, effectively, he would be setting the Prime Minister's pension arrangements subsequent to the bill passing the Senate — which is an unmanageable conflict of interest,' he told Sky News. A spokesman for the Treasurer accused Senator Bragg of 'lying and misleading again in his desperation to get selected for the Liberal shadow frontbench'. 'Defined benefit interests, including those of federal parliamentarians, are covered by our changes and how they would be treated has been public since 2023 in the primary legislation and since March 2024 in the draft regulations,' he said. 'Andrew Bragg wants to designate a single person in tax legislation and that shows how desperate and dangerous his contributions have become. 'Our modest changes to make superannuation tax concessions fairer and more sustainable apply to defined benefit interests. 'Only half a per cent of people with more than $3 million in super will be impacted by our changes. 'The treatment of defined benefit interests ensures equivalent tax outcomes to accumulation interests, as the previous Coalition government similarly did when they introduced their super changes.' Judges, premiers exempt Separately, a number of officials including former state premiers, MPs, governors and judges will be exempt from the new tax. Justices of the High Court will also be ineligible. The exemptions would be restricted to 'those earnings in superannuation funds that the constitution prevents being taxed by the government will be excluded', according to a government summary document, first reported by Sky News. Acknowledging 'it was a hotly contested issue' during the federal election campaign, Labor Senator Murray Watt on Sunday confirmed a 'small group' would be exempt. The cabinet minister said Labor had 'received an endorsement from the Australian people to legislate in the manner that we put forward'. 'We need to remember that this affects a very small number of people,' Senator Watt told Sky News. 'That's a very small part of the community, and the reality is, we will be relying on that taxation revenue to help meet some of our other priorities, like lifting bulk-billing rates in GP clinics and supporting people with cost of living. That money has to come from somewhere, and we think this is a fair way to do that in terms of who will be covered.' He stressed it was not a matter of deliberately excluding former officials, but that they 'cannot be taxed on their superannuation under the Constitution'. 'We're of course not going to be introducing laws that are in breach of the Constitution and will be struck down,' Senator Watt said. 'But what we are planning to do, as I say, is to reduce the tax concession available for a very small number of people with extremely high superannuation balances. People will still get a concession on their superannuation. It just won't be quite as generous as it is at the moment.' The tax is expected to initially raise $2.3 billion a year and nearly $40 billion over a decade. The opposition has claimed that if the cap is not indexed, that figure could rise to $58 billion annually in 40 years' time. 'Lies and exaggerations' Last week, Australia Institute chief economist Greg Jericho argued claims that large numbers of young people would eventually be captured by the $3 million cap were incorrect, blasting 'lies and exaggerations' in the 'hyperbolic scare campaign'. 'Even if someone works their entire life on the full-time average wage, they will not get $3 million in super,' he wrote. Jericho used the example of an 18-year-old school leaver who lands a job paying the average full-time wage of $106,277 and receives a pay rise of 3.7 per cent every year of their working life, and keep their job until they retire at age 67. 'Surely even with these absurd assumptions, that person will retire with more than $3 million in super? Nope. They will end up, according to the government SmartMoney super calculator, with a super balance of $2.1 million.' Mr Wilson, who has vocally opposed the changes, said that calculation ignored factors including compound interest and the increased employer superannuation guarantee, which will rise from 11.5 per cent to 12 per cent from July. 'The average super fund grows at 8.5 per cent per annum, it doesn't grow at 3 per cent,' he said. The investment firm's analysis, based on 3 per cent wage increases and 12 per cent contributions, projects that a university graduate entering the workforce at 21 would reach a balance of $3.6 million by age 65. AMP deputy chief economist Diana Mousina has similarly calculated that most Gen Z Aussies will have $3 million in their super accounts by the time they retire in around 40 years. Modelling by the Financial Services Council (FSC) suggests that for those entering the workforce today, an estimated 500,000 super balances will eventually breach the $3 million cap if it is not indexed to inflation. Mr Wilson said 'everyone's getting caught up' debating how many people would be affected but the more important point was 'the government isn't going to raise the money they're talking about raising'. 'For every action there's an equal and opposite reaction,' he said. In a discussion paper last month, Wilson Asset Management calculated a 'deadweight loss' of $94.5 billion from taxing unrealised gains as investors change their behaviour to avoid the tax. 'We've estimated $155 billion is going to come out of super and go into the housing market,' Mr Wilson said. 'Effectively they're destroying the social contract with people putting money in super. I was talking to a 30-year-old, he's been putting the max he can into super, he's reduced to putting in the minimum amount. He feels caged in … what are they going to do to me?' 'Essentially a wealth tax' On Monday, opposition finance spokeswoman Jane Hume was asked why the Coalition did not campaign harder on Labor's proposed super tax changes during the election. The Liberal Senator insisted the Coalition had always opposed the policy. 'Well, in fact, two years ago … we said that we'd, not only would we oppose that policy when it was put forward with the legislation, but that we would repeal it when we were in government,' she told Sky News. She said Labor 'had the opportunity to pass this legislation before parliament rose' but chose not to 'because they were held to ransom over indexation'. 'This is not a simple, modest proposal where only 80,000 retirees are affected — more and more will be affected every year,' she said. 'Moreover, this is a tax on unrealised capital gains, something that has never been tried before and has never worked before. We don't think that this is a good precedent to set. It's a brand new tax, it's essentially a wealth tax, it's a retirement tax, and we think that this is a terrible mistake.' She added that 'Labor are now learning just the extent of the opposition towards it'.
RNZ News
19-05-2025
- Business
- RNZ News
Luxon and Willis hold post-Cabinet media conference ahead of Budget
The government's proposing tax changes it says will bring in more foreign investment, and make it easier for start-ups to attract and retain staff. Pending the outcome of consultation, $65 million over the next four years will be set aside to change tax rules to encourage foreign investment. Finance Minister Nicola Willis says New Zealand's current rules limit the amount of tax-deductible debt foreign investors can put into New Zealand, and while the rules are designed to prevent income being shifted offshore there's a risk they may be deterring investment. $10 million will also be set aside to defer the tax liability of some employee share schemes. Prime Minister Christopher Luxon speaking at post-cab Photo: RNZ / Angus Dreaver Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
Times
06-05-2025
- Automotive
- Times
Rush to beat tax changes blamed for fall in monthly car sales
New car sales slumped by more than 10 per cent in April, reversing the significant gains made in the number plate change month of March. The trade blamed that on buyers getting in ahead of tax changes, which came in at the start of April, with all levels of vehicle excise duty rising and the introduction of the expensive car supplement hitting all cars with a price tag above £40,000. The latest figures also show a big drive into plug-in hybrids, internal combustion engine vehicles which can run for a few dozen miles on a rechargeable electric battery. In April, total sales of new cars fell to 120,331 from 134,274 last April, the sixth monthly fall in seven months. New registrations, already at historically low
