Neale Prior: Has Labour Learned from the Past as it Considers a Change to Rein in the Super-rich?

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To steal Basil’s advice to himself in the Fawlty Towers episode with German guests, the current Federal Labor leadership should be meticulous in not bringing up the war.

Labour was hammered last decade for its failed policy battle against people who maintained and built superannuation balances above what any ordinary mortal would require for a pleasant retirement.

Bill Shorten was defeated in the 2019 Federal election, in part because tens of thousands of swing voters were among the self-managed super fund holders targeted in his final series of attacks on super savings.

However, suppose Federal Treasurer Jim Chalmers is serious about addressing flaws in Australia’s taxation system. In that case, he will need to find a method to address some distortions caused by the tax-free and tax-reduced status of large super nest eggs.

According to the Australian Taxation Office, there were 27 SMSFs with balances greater than $100 million in 2019. The largest fund was believed to have a $544 million credit.

And it is believed that almost 11,000 SMSFs with balances over $5 million are taking advantage of the many tax breaks available to super funds, including a 15% tax on income from credits in accumulation mode and perhaps negative tax for those in retirement mode.

Based on the lessons of the previous decade, Mr Chalmers and Labor would be well to tread carefully before challenging this tax break enjoyed by tens of thousands of Australians in the middle. Remember, this is the middle Australia that voted for teal independents and centre-left Labor instead of the Liberals.

However, we received word this week that Labor is keeping a close eye on the retirement nest eggs of the super-rich, who utilise it as likely the second last major tax-free estate planning device (don’t mention the $10 million principal residence in Peppermint Grove).

After a major newspaper reported on October 18 that the Federal Government might save $1.5 billion per year by capping super balances at $5 million, Financial Services Minister Stephen Jones delivered a measured political response.

“It might be . . . cleverly managing your superannuation affairs,” Mr Jones is claimed to have added. “But it would be hard to argue that this is for retirement income.”

The sceptical politician pointed to Mr Chalmers and said he wanted to look at the “super-objective.” 

Labour must walk carefully to avoid repeating its past decade’s mistakes. It’s a conversation that, happily, has already begun in high-end super circles and will hopefully spread to the rest of Australia by next year.

Mercer, Super Consumers Australia, and the Australian Institute of Superannuation Trustees agree that a $5 million maximum on super holdings should be considered.

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