Just four years after being trounced at the polls after promising to curb superannuation tax concessions, Labor has again raised the spectre of significant superannuation changes.
Subscribe now for unlimited access.
or signup to continue reading
In a major speech to industry executives earlier this week, Treasurer Jim Chalmers argued the need for reforms to safeguard super's core purpose of providing retirement income while simultaneously harnessing it to boost investment in national priorities.
The government has been at pains to emphasise that it has yet to make any decisions on changes to super. But the treasurer's remarks have sparked a firestorm of speculation and accusations from the opposition that it is breaking an election promise of no major changes to super.
So what changes is the government proposing?
In his speech to superannuation industry leaders, Dr Chalmers made one concrete proposal - to have enshrined in law that the objective of superannuation is to "preserve savings and deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way".
The treasurer said setting out super's core purpose so clearly would help prevent governments from attempting to raid retirement savings to fund "ideological pursuits" such as the move during the pandemic to allow people to withdraw up to $20,000 from their super and the Super Home Buyer Scheme the opposition took to the last election.
But isn't the government also trying to get super funds to make social investments?
Yes. Dr Chalmers has reiterated, both in his recent Monthly essay and in Monday's speech to the superannuation industry, the government wants to facilitate super fund investment in areas deemed to be of national significance, such as affordable housing, climate projects and the care economy. These are "opportunities to achieve a double dividend," the treasurer said. "Good results for super funds and members and good results for our nation."
And Opposition Deputy Leader Sussan Ley has flagged the Coalition may take an expanded version of its Super Home Buyer Scheme to include super access for victims of domestic violence to the next election.
But that is not all
The government is being coy, but it seems clear it has generous superannuation tax concessions in its sights, just as it did in 2019.
But this time Labor is in government and is framing the discussion in terms of the financial sustainability of these arrangements - a potentially potent line of argument when the budget is in significant deficit and the interest bill on government debt is expected to top $26 billion by 2025-26.
Dr Chalmers said by 2050, tax concessions for super will cost more than the age pension, "[and] I'm not convinced that's a sustainable way to get to our destination - good retirement incomes for more Australians".
While the treasurer insists no decisions have been taken, "we can't ignore the cost of these tax concessions. At a time when we've got a lot of debt, when we need to fund decent aged care and decent health care and decent national security, we need to acknowledge where some of these pressures lie".
Is Labor breaking an election promise?
Technically no. Before the last election, Labor announced it would seek to legislate the objective of superannuation and flagged it would establish a framework for facilitating partnership between super funds and "projects of national importance" such as affordable housing, regional infrastructure and value-added manufacturing.
According to Assistant Treasurer Stephen Jones, the government is honouring its commitment that "all of the bedrock underpinnings of superannuation would remain in place", and Treasurer Jim Chalmers said the changes so far proposed should not be "especially controversial or an especially big shift".
But this is where it gets tricky.
READ MORE:
The government is trying to downplay the significance of possible changes such as account caps and access to tax concessions while simultaneously making the case that such reforms are needed for the long-term sustainability of the super system.
Not only that, the government argues that because no decisions have been made on such reforms, there is no breach of a pre-election promise.
The opposition is, unsurprisingly, pushing hard the message that the changes being mooted by Dr Chalmers and Mr Jones break the faith with voters.
"The entire super system is undermined when parties break election promises, particularly when it comes to the tax arrangements on superannuation," opposition treasury spokesman Angus Taylor said in the speech to the Association of Superannuation Funds on Thursday.
"It isn't a piggy bank for pet projects. And it isn't a revenue loophole to be closed," he said.
Is a cap on super transfer balances on the cards?
The cap on the transfer of funds into super will be increased to $1.9 million on July 1 because of inflation. The government has said it is yet to make a decision on any further change to this arrangement, including the possibility of an indexation freeze, and Dr Chalmers has said, "it's not something that we've been considering".
What about changes to the tax treatment of large super balances above $3m?
Mr Jones said the government was considering what level of savings is consistent with the goal of tax-assisted savings for retirement income.
"We have got accounts in excess of $100 million in them, some well in excess of $10 million and $20 million getting amazing tax concessions," Mr Jones said. "Superannuation is about retirement income, it's not about tax minimisation and it's not about estate planning."
In interviews following his speech to the super industry on Monday, Dr Chalmers made pointed reference to the fact that around 1 per cent of super fund members have balances in excess of $3 million and receive tax concessions on these savings.
Such arrangements are clearly in the government's crosshairs. While Mr Jones said people were free to contribute as much as they like toward their retirement, "I challenge anyone to say that superannuation balances in excess of $100 million are about retirement income".
The assistant treasurer said the government intends to "ensure we have a sustainable system [so] of course we're going to look at these things".
So will there be changes to super arrangements and tax concessions in the May budget?
First things first. The government has begun consultations on its plan to set the objectives of superannuation in legislation, and they will close at the end of March. Assistant Treasurer Stephen Jones said he would "very much like to see" such legislation passed by mid-year.
As for the timing of any further changes, it would be very tempting for the government to tinker with super tax concessions in the budget. They are estimated to be worth around $52.6 billion this financial year, and changing eligibility and access could free up billions of dollars to be redirected towards priorities in aged care, health, defence and education.
And the government might consider it preferable to make the changes soon, when the next federal election is still a couple of years away, giving time for any anger and political heat to dissipate.
Will it face opposition?
The Coalition has smelled an opportunity to inflict some political damage on the government over super.
Opposition Leader Peter Dutton seized on Dr Chalmers' comments, claiming the proposal to enshrine the objective of superannuation in law as "all code for more tax".
If nothing else, it could prove helpful for the Liberal Party as it tries to hold on to its once-safe seat Victorian seat of Aston at a by-election being held following the resignation of former Morrison Government minister Alan Tudge.