The anger over super is easy to ignite. Australians regard their retirement funds as the result of their own hard work. They accept that the money is locked away but they expect stability with the rules. Politicians who keep changing those rules hit a powerful nerve because they make people feel powerless over their own assets.
Labor is turning the politics into an extreme sport with two risky arguments. First,Treasurer Jim Chalmers talked this week about the tax breaks as if they were government spending. “Right now,we’re on track to spendmore on super tax concessions than the age pension by around 2050,” he said. This claim works perfectly in an economic echo chamber because the tax breaks represent foregone revenue;in theory,you move a lever and cash flows in.
Opposition Leader Peter Dutton is warning voters that Labor is coming after their money.Credit:Joe Armao
But the argument is inflammatory outside that echo chamber. The message to voters is this:“Just be grateful we don’t tax you more.” Picture the reaction if cabinet ministers walked into the local supermarket and made a similar claim about the tax break on the family home,worth $34.5 billion at last count. Shoppers would start looking for rotten tomatoes.
The second risky argument is about the social benefits of super. Chalmers and others are talking about “maximising the potential” of super to invest in national priorities. The benefit of the $3.3 trillion super pool is not in doubt:this is the legacy of Paul Keating’s reform. Yet ministers are starting to sound as if they would like to direct where that money goes – again,as if it is government cash. It is a toxic message that makes any budget change more difficult.
The outcome will turn on an essential question:who’s rich? The government is looking at options such as capping the value of super accounts at $5 million or perhaps $3 million. Above those levels,the reasoning goes,the individual is wealthy enough and does not deserve help from the public purse.
Loading
Brendan Coates,the economic policy program director at the Grattan Institute,puts a persuasive case for higher taxes on large balances. He says a $5 million cap is too high because anyone with an account that size would enjoy tax concessions worth $80,000 a year – at least three times the age pension. Instead of a cap,he suggests a 30 per cent earnings tax on balances above $2 million. Amounts below that level would incur the usual 15 per cent earnings tax. This proposal would raise $1.7 billion a year and would leave most super nest eggs alone.
A second measure,says Coates,would raise $1.6 billion a year by cutting the cap on pre-tax super contributions. A third step would raise $1.1 billion a year by changing the Division 293 tax rules that apply a higher contributions tax to people on higher incomes. Crucially,Chalmers said in a radio interview on 2GB on Wednesday that these options were not on the table. This looks wise because it leaves a cap,or something like it,as the key budget change.
Could Labor win this row? Not with its rhetoric so far. There is a strong case for greater fairness in the system,but every change comes with political risk. Voters do not have to feel a cut to fear one – a lesson Labor learned in 2019 when people who did not receive franking credits on their dividends worried that Labor was taxing too much.
Albanese and Chalmers cannot afford to be greedy because the anger over super can reach incredible ferocity – as Malcolm Turnbull witnessed as prime minister in 2016. With a judicious change,however,they can increase revenue and probably wear the penalty for a broken promise. And they might wrong-foot their opponents.
Loading
Peter Dutton is warning voters that Labor is coming after their money,so the super debate looks like a gift to the opposition leader. He might be wedged,however,if he ends up being a champion of the rich. Albanese entered parliament in 1996,so he spent his first 11 years as a federal politician watching John Howard wedge Labor on tax,refugees and war. He knows how it’s done. He can drive Dutton further to the right.
This is why Albanese and Chalmers will have to watch their rhetoric and focus on a careful and targeted change. If they go too far,the only reward will be rotten tomatoes.
The Opinion newsletter is a weekly wrap of views that will challenge,champion and inform your own.Sign up here.