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The huge cost of super tax concessions

We almost never discuss superannuation in terms of its fundamental rationale: encouraging individuals to achieve their optimal consumption pattern over their lifetime. Superannuation exists to provide for consumption during the years when individuals no longer have a regular income. The case for mandatory superannuation is that, left to their own devices, individuals may not save enough to meet their consumption needs in retirement.

Over 30 years ago, we established a superannuation scheme with ever-increasing mandatory contributions, and with both contributions and earnings being taxed at preferred rates. It is interesting to contemplate why such tax subsidies were deemed necessary when individuals had no option but to contribute. Those involved in the establishment of the scheme have indicated that these subsidies were a carryover from what existed at the time and their continuation was regarded as necessary to gain support for the legislation.

How has superannuation fared?

Now, 30+ years on, how has this worked out? It is pointless to answer this question in the context of the average individual, as the impact of superannuation varies for each of us. Let's start with the wealthy (say the top third), for whom superannuation has provided a tax haven to invest as much of their savings as possible. These discretionary contributions, on top of the already substantial mandatory contributions, have resulted in the wealthy accumulating superannuation balances well beyond what is required to meet their consumption needs in retirement. Consequently, these individuals are not depleting their superannuation balances in retirement, leading to ever-increasing large estates being passed on to the next generation.

From a policy perspective, how has mandatory superannuation with significant tax incentives fared? It has failed miserably. Modelling shows that for our wealthy group, mandatory superannuation was never necessary to provide for their retirement, much less to provide them with huge tax incentives to do something they would have done anyway.

Are these needless tax subsidies significant enough to be concerned about? Yes, they currently cost taxpayers about $50 billion each year. Recognising that left unabated, these tax subsidies will grow to 2.5% of GDP by the early 2060s. At the same time, the aged pension is forecasted to represent 2% of GDP, down from 3% when mandatory superannuation was introduced. This suggests the current net annual cost of the tax subsidies is around $40 billion, growing to over $110 billion by 2060.

The tax subsidies provided in superannuation have always been bad policy, representing a waste of taxpayers' money. However, they also play another important role as a reverse Robin Hood. The poorest group (say the bottom third by wealth) is potentially disadvantaged from a tax perspective by being required to contribute to superannuation. This is recognised by providing those with annual earnings of less than $37,000 with a $500 government contribution to their superannuation to negate any tax burden caused by compulsory contributions. Incidentally, our modelling shows that this $500 is inadequate to offset the tax burden in many cases, leading us to conclude that our poor group effectively receives none of the tax subsidies.

Hence, we conclude that there are two significant issues with our superannuation scheme from a policy perspective. First, it is a waste of taxpayers’ money as it encourages excessive contributions to retirement savings. Second, almost all of the tax subsidies flow to the wealthy, further distorting our income distribution.

What's the solution?

The question then becomes, what can the government do about this situation? The answer seems obvious: reduce or eliminate the tax subsidies and/or redirect them to those in greater need. However, there is a problem with the government attempting to do this—it will hurt them at the ballot box. To see this, we need look no further than the 2019 elections, which Bill Shorten lost largely due to proposed tax changes that were viewed as negatively impacting superannuation.

Of course, the negative impact of any proposed tax changes on the popularity of a government depends not only on the legislation itself but also on the existence of a group that will actively lobby against it. We have created such a group with superannuation, where an ever-expanding industry’s revenue stream (and personal earnings) is linked to further expansion of superannuation. This is evident in the current debate on the Div 296 tax, which represents a small step by the government to reduce the tax subsidies flowing to those with excessive superannuation balances. The group targeted by the Div 296 tax represents a major source of income to the industry, whose incentives to kill the legislation are further fuelled by the possibility it will be the precursor for further changes that will negatively impact the industry.

Is the Div 296 tax a good starting point for targeting these tax subsidies? Probably not, as it is far too convoluted, although it does target those who benefit most from the needless subsidies and who least need the wealth for its intended purpose (funding consumption). The fact that it has features such as a ceiling that is not indexed and that it captures unrealized capital gains provides the industry with targets to attack the legislation and divert attention away from the key issue: the great waste of taxpayers' money attributable to the tax subsidies.

Where does this leave us? With a superannuation scheme that fails us in many ways, one of which is the needless waste of taxpayer funds. This point is not lost on the government, which sporadically proposes legislation aimed at achieving small improvements. When it does so, the legislation is subjected to much criticism from the industry, generating sufficient unrest among voters that the government backs off. We are just stuck with bad policy.

 

Emeritus Professor Ron Bird (ANU) is a finance and economics academic and former fund manager.

 

92 Comments
Angus
June 17, 2025

Tax Concessions is the wrong way to look at things.

Let's review what an investment in Super entails:
- You can't touch the money for 40+ years.
- You have to put up with endless Rules and Rule changes.
- You fret about your Investments and spend massive amounts of time on them or pay someone else to do it.
- You have to take Risks and inevitably make some bad investments that lose money as do those you pay to manage your Super.
- You have to incur additional annual costs as you now have an additional tax return, trustee fees etc. and have to pay to have your Super fund audited.
- You pay a 15% Contributions Tax.
- You pay 15% Income Tax, and 10% CGT on realisations, each year.
- When you retire you are forced into paying CGT each year on the upto 14% of the balance that you have to take out of your Super fund each year.
- You pay a tax on death of upto 32% on the remaining balance in your Super fund (depending on who the beneficiaries are).

Far better to put the money in your tax free Principal Place of Residence, pay NO tax and take the Pension and Pensioner benefits in old age. Downsize as you need cash for big capital items like travel, a new car etc..

Why is it that people are always dreaming up ways to attack the aspirational, the self sufficient solid citizen and those who contribute for 40+ years to the Government's annual Tax take??? And then don't draw a Pension or enjoy any of the Pensioners' benefits. Aren't they the behaviours you want to encourage????

It's well past time to look at Super holistically.

Dudley
June 17, 2025

"- When you retire you are forced into paying CGT each year on the upto 14% of the balance that you have to take out of your Super fund each year.":
I'm unaware of any tax on withdrawals from disbursement accounts when age 60+; certainly have not paid any.

"Far better to put the money in your tax free Principal Place of Residence":
When age 67.

"pay NO tax":
After finished home improvement else goods and services used taxed ~50%.

"take the Pension and Pensioner benefits in old age":
Can be sufficient income is home property tax and maintenance is small.

"Downsize as you need cash for big capital items like travel, a new car etc":
Beyond blowing dough on non-essentials, at 67+, drawdown Full Age Pension Asset Test threshold of $470,000 + Age Pension might suffice:
= PMT((1 + 5%) / (1 + 2.5%) - 1, (87 - 67), -470000, 0) + (26 * 1732.2)
= $75,012.97

Jason
June 11, 2025

I think Keating said that the reason why super is a good idea is because Australians saved so little. Super was a way to get people to build a nest egg for the future rather than rely on the old age pension, free health care, free public transport, free car rego etc to make ends meet in voluntary or forced retirement. Sadly the banks are eying super balances and are happy to give 30 year loans to 60 year olds on that basis which means much of it is still finding its way into an over inflated housing market. Rather than throwing the baby out with the bath water as this article implies all subsidies to the wealth holders need to be reviewed and trimmed. It's a long list; no land tax on PPOR, no estate taxes, negative gearing on established properties, low deeming rates, government subsidised reverse mortgage schemes, franking credits to people on low retirement incomes, overly generous 5 year gifting test, artificially low deeming rates, overly long absence rules on property, trust fund arrangements, regulated premiums on private health insurance, tax free arrangements on super gains and income for elderly, but not workers, grandfathering arrangements on properties purchased pre CGT 1984 , tax free capital gain on PPOR, tax concessions if family members live in investment properties, non means tested respite aged care fees, non means tested access to free health care and meds through hospital system, various pension card concessions, the list goes on all adding up to hundreds of billions in lost revenue and increased taxes on wage earners and generally younger people.

Dudley
June 11, 2025

"franking credits to people on low retirement incomes":
They should pay 30% tax on income less than the 'tax free threshold' by not being credited with company tax credits whereas people with larger incomes are credited?
https://imgur.com/a/Ezee9OV

"tax concessions if family members live in investment properties": ?

Tax 'concessions' remove / reduce the incentive to move capital to 'tax havens', the capital retained being 'Economic Fertiliser' which generates employment and keep people resident.

Both capital and people are free to emigrate, which puts boundaries around the tax rates that can be levied without changing taxpayer behaviour.

JOHN (lifetime PAYE)
June 11, 2025

"Former Treasury policy maker
June 07, 2025
Peter, the flaw in your argument is that you don't appreciate the policy objective of the tax concessions. If the concession is to encourage behaviour that results in another expense being reduced but the concession becomes larger than the saving, then the policy needs to be adjusted."

Planning for retirement spans a lifetime so please minimise the hardships and confusion created by retrospectivity. The citizens of Australia deserve from Treasury policy writers a clearer road map that can be relied upon for the lifespan of individual citizens.

With regard concessions and policy adjustments the word IF has been proffered and that needs unpacking.

The IF suggests Treasury treats policies as singularities with zero thought as to the combinatorial outcomes that might be unleashed upon the citizens.

The IF suggests Treasury disowns any accountability for bad policy options that are passed to the politicians for their further consideration (AKA petty jealousies and favouritism).

"The Treasury's mission is to improve the wellbeing of the Australian people by providing sound and timely advice to the Government, based on objective and thorough analysis of options, and by assisting Treasury ministers in the administration of their responsibilities and the implementation of government decisions. The Treasury is expected to anticipate and analyse policy issues with a whole-of-economy perspective, understand government and stakeholder circumstances, and respond rapidly to changing events and directions. Treasury makes informed decisions on the development and implementation of policies to improve the wellbeing of the Australian people, including by achieving strong, sustainable economic growth, through the provision of advice to government and the efficient administration of federal financial relations." (downloaded from Treasury website)

Years ago there was a Wizard cartoon strip that sums up the shambolic tension between policy writers and politics.

DESPOTIC KING:
Having already taxed them on their land, deaths, number of windows, number of fireplaces, livestock, etc., I propose a new tax ...henceforth there will be a tax on their taxes.
COURT SYCOPHANT:
But Sire, what will stop the peasants from revolting?
DESPOTIC KING:
Lack of funds !!!



James
June 10, 2025

I find it genuinely surprising that some think Chalmers' super tax is ok!

- It's main weaknesses and unfairness is taxing unrealised capital gains (esp problematic for farms, business and lumpy infrastructure inside super) & the lack of indexation (other super thresholds are indexed), but hey trust us it may be changed in the future!
- There is a principle at stake here. People have invested legally according to the rules. Desperate for revenue, without targeting the Labor faithful, Chalmers has decided to change the rules. Further it will be difficult and costly to implement and guaranteed to not to garner the expected revenue (investor behaviour change).
- Chalmers and Albanese's justification that it will only affect very few people is unprincipled, morally reprehensible and disingenuous (the lack of indexation will catch more & more people). Imagine justifying any other law or putting a tax on a group of people because they were only some minority group (other than just having larger super balances, say left handed people). It would be equally unprincipled and deserving of outrage.
- farms, property and business have legally been inside super, often for good reason. A lack of understanding and exemption is again unprincipled.
- Chalmers will tax paper profits of accumulation funds but not DB schemes whose members can defer the tax whilst working. The argument that those funds lack an actual account to draw funds from to pay the tax is fatuous and ignores the fact that accumulation funds with farms etc must find money to pay a paper profit but may have no cash as the unrealised capital gain IS UNREALISED. Perhaps DB members still working could stump up the tax from their after tax salary rather than getting to defer it (a huge boon, even if charged nominal interest)
- it's a targeted, disciminatory tax on a particular asset class and exempts those that chose to invest instead in $10M plus PPOR's who can sell them CGT free. Perhaps he could levy an unrealised CGT on all property gains over say $3M!
- Super is compulsory and locked away for 40+ years so the suggestion that tax concessions that apply to contributions and earnings are unjustified and skew heavily to those with the highest income fails to recognise that taxes accumulate year year – it’s like compounding, but in a downward direction. When considered like this superannuation is not in fact as particularly tax-favoured as made out.
- There are some obvious solutions (apart from ditching the proposal, preferred). Many have been suggested on this forum.Levy a higher rate above $3M; if industry super funds are unable to precisely estimate the tax bill for their members with large accounts, they should be able to use the simple rule of the difference between the balances of two years. If this is all too hard, apply some simple deeming rules.


Hard working Australian
June 10, 2025

Am not sure whether professors analysis has considered the impact of age pension on the governments coffers. like most hard working Australians i see super as a means to fund my own retirement. the analysis also doesnt cover most investors in super who are investing beyond the mandatory 11.5% may have taken loans to fund their super investments at their personal risk

whats better for the government - creativity of hard working risk taking individuals to fund their own retirement or rely on age pensions and stretch the governments budgets ? i guess the opportunity to earn a good retirement is an equal opportunity available to All.

James Trethowan
June 10, 2025

I don't know why you are even debating this instead of debating why hundreds of global multinationals are allowed to get away with paying ZERO tax in Australia. If they paid even some.let alone 30% like aussie smes have to, there would be no contributions tax on super at all and probably no income tax at all

John Hill
June 10, 2025

The superannuation system was always intended for retirement and as such there was always a need to impose caps to have regard to provision for a reasonable retirement. Otherwise it is a tax avoidance scheme. Having said that , there is also a need for fairness . For example, surely there is a better way to calculate gains instead of using unrealised gains. The new DIV 296 regime creates a lot of cost and uncertainty for this reason. And it does nothing for productivity. We also have the problem of sovereign risk because Governments are always changing the rules. How is any young person today expected to save for retirement when the retirement rug can be pulled from under their feet ? It is no wonder they are unhappy.

Bruce
June 10, 2025

Superannuation has another purpose and relevant outcome: It balances out the ( also problematic) tax incentive to put spare money into residential real estate, and in so doing, it has created one of the great invest-able pools of money in the world. it has changed Australia from a net importer, to a net exporter of capital, and is a key reason for the financial independence which Australia now has: no longer dependent on the good will of American, British, Japanese or Chinese investors. Pause to think for a few moments what Australia , and Australian politics, would look like right now if every investment decision relied on the goodwill of USA (or any other) foreign investors and foreign taxation policy. Super tax concessions are the price we pay because we also have negative gearing, and the price we pay to avoid capital flight from our high taxing, high service economy.

Dudley
June 11, 2025

"avoid capital flight from our high taxing, high service economy":

0% tax rate on Australian Super Disbursement Accounts to stop capital slinking off to these jurisdictions with 0% personal tax rate:
United Arab Emirates
Saudi Arabia
Qatar
Oman
Kuwait
Cayman Islands
Brunei
Bermuda
Bahrain
Bahamas
https://tradingeconomics.com/country-list/personal-income-tax-rate

Ruth from Brisbane
June 09, 2025

I'm tired of the reinvention of the purpose of superannuation. As I recall, the purpose was to make Australians wealthy, not simply to fund their own age pension and hand the rest to the government in tax. The system was envied by the rest of the world. Now we have a compulsory system of 12% contribution (whether you like it or not). Once in old England tax was charged on the number of windows a house had. At least there was something real to count. Now we may soon have a compulsory system where the government will charge tax on something that does not exist (apart from the obvious destruction of the country's productive capacity). That's a disturbing precedent. I encourage young people not to contribute if they can avoid it as I don't believe the changing governments will allow them to ever benefit, and this particular government may be the one to put the last nail in the coffin.

Disgruntled
June 12, 2025

The purpose of Superannuation was not to make people wealthy.

Keating's idea for Superannuation was to enable people to fund or part fund their retirement and to create a pool of national savings.

The changes down the track made it a wealth creation and tax minimisation tool.

Removing the RBL (reasonable Benefit Limit) and allowing Million dollar deposits to Superannuation.

Lauchlan
June 09, 2025

This is irresponsible and incomplete analysis. You cannot meaningfully consider the merits of the costs of superannuation subsidies without also at the same time considering the corresponding reduction in costs to the government in providing the Age Pension.

The average income in Australia is around $100K. If we (somewhat casually) model someone who is 25 now, earns a base income of $100K and is always earning the average wage (never above or below) and contributes the minimum 12% to superannuation (no less and no more) of $10,200 p.a. after the 15% tax to super for 40 years until age 65, and we assume they invest in some sort of high growth option at an average 10% p.a. growth ... but inflation and fees are 3% p.a. over the period for a net growth rate of 7%.

Then the MoneySmart compound interest calculator https://moneysmart.gov.au/budgeting/compound-interest-calculator tells us that the person reaches around $2M in super capital on their 65th birthday. If they are taking the minimum mandated drawdown rate of 5%, then they are now withdrawing $100K p.a. from super tax free, and it's therefore unlikely they will ever need to access the Age Pension because with the minimum withdrawal levels and some smart planning they can likely maintain their capital and income.

So, the government likely never has to pay out the Age Pension to that person. In fact, they may need to pay out relatively little Age Pension to anyone ... perhaps the lowest 25% but certainly (according to the simplistic model) less than 50% ... but that depends on a range of factors, like how many are unemployed, how much people top up super beyond the mandatory contributions, etc.

So if you're going to go on about the costs of superannuation concessions, you need to line it up against the savings on the Age Pension side.

It's completely valid to look at the superannuation concession costs, but to do it responsibly you need to look at it holistically, in context relative to the other parts of the system (like the Age Pension) and in relation to the overall policy goals. To talk about this meaningfully, the government should do some analysis of the overall costs (superannuation concession costs - age pension savings) under different policy scenarios.

Dudley
June 09, 2025

"The average income in Australia is around $100K. If we (somewhat casually) model someone who is 25 now, earns a base income of $100K and is always earning the average wage (never above or below) and contributes the minimum 12% to superannuation (no less and no more) of $10,200 p.a. after the 15% tax to super for 40 years until age 65, and we assume they invest in some sort of high growth option at an average 10% p.a. growth ... but inflation and fees are 3% p.a. over the period for a net growth rate of 7%."

= FV((1 + (1 - 15%) * 10%) / (1 + 3%) - 1, (65 - 25), (1 - 15%) * 12% * -100000, 0)
= $1,339,277

"MoneySmart compound interest calculator:
https://moneysmart.gov.au/budgeting/compound-interest-calculator
around $2M in super capital"

Need to deduct (10% / 15%) tax from earnings rate:
Instead of (10% - 3%) = 7%,
use (1 + (1 - 15%) * 10%) / (1 + 3%) - 1 = 5.34%
MoneySmart result $1,339,341

Withdrawal 5% * 1339277 = $66,963.86 / y

------

"government likely never has to pay out the Age Pension to that person":

Unless they blow the dough to below $470,000 or move the capital to an Age Pension non-Assessible Asset such as home improvement.

Also consider taxes generated by the borrowers of the retirement capital.

Wijay Bandara
June 10, 2025

Excellent Information well presented.

Dudley
June 10, 2025

"the MoneySmart compound interest calculator
https://moneysmart.gov.au/budgeting/compound-interest-calculator
tells us that the person reaches around $2M in super capital on their 65th birthday.":

Need to account for effect of Accumulation Account earnings tax (15%) and inflation (3%) on real gross earnings rate:
= (1 + (1 - 15%) * 10%) / (1 + 3%) - 1
= 5.340%
calculator result:
= $1,339,341

Equivalently:
= FV((1 + (1 - 15%) * 10%) / (1 + 3%) - 1, (65 - 25), (1 - 15%) * 12% * -100000, 0)
= $1,339,277

Melanie
June 09, 2025

Some of you are living in fantasy land. What about people like me who are full-time carers? We get paid a pittance from the government and there are no super payments for us. We as carers save the government billions of dollars because they have a crap aged care system and can not be bothered dealing with the bs. You will find that most long-term carers will end up on the pension, when most of us would rather not. I have no home, very little savings and about $40k in my super. I'm nearing 60. Who cares about my predicament? No one. It would be so nice to have a million dollars.

Steve
June 09, 2025

You are not alone, Melanie. There’s more than 1 million carers in Australia, and the number is growing. Carers are more likely to be women too. They are undoubtedly economically disadvantaged for their work.

It makes sense to increase taxes on wealthy people, such as those who have super balances well in excess of what any individual or couple will need for a dignified or comfortable retirement.

To support these carers, and ensure they are not financially disadvantaged, we need to increase taxes on wealth, while decreasing taxes on work.

CC
June 10, 2025

good luck with that Steve... decrease taxes on work, yeah riiiiiiight.......

Michael
June 09, 2025

Ron,

The concept of tax concessions or subsidies is one I am always sceptical of, particularly when calculated by Treasury (and some economists)

My question is - what is the base from which the concession or subsidy is calculated? Is it 19 cents in the dollar? Is it 32.5 cents in the dollar or 45 cents in the dollar? And if I was a hard-line communist I might even suggest 100 cents in the dollar! As there is no "real" base, the calculation of concessions and subsidies can then be whatever you want it to be, and citing concessions and subsidies as a basis for change to taxes detracts from the real policy issues.

The real position is that every tax is a tax, and different levels of taxes Including "duties" and "tariffs" are being applied on income, expenditure, employment, goods & services, and assets (capital gain tax, land tax etc.). The costs and benefits of each vary and are debated from time to time.

In this case the argument is being made that taxes on superannuation income should be increased. What is proposed is the existing tax on superannuation income (in an accumulation account) plus a further tax on income (in both accumulation and pension accounts), linked to the change in asset value of the superannuation account i.e. a mix of tax on income and assets.

The policy debate primarily centres on two policy issues.

Firstly, whether it is good and sensible policy to tax large superannuation accounts which generate larger incomes at a higher level? This seems largely agreed.

And, secondly whether the proposed tax mechanism is good policy? And the general view, as is succinctly set out in the article, is that it is at best questionable policy. Why?

(a) It is not indexed. The one argument that supports non-indexation is that the current proposed threshold of $3m should be lower (in real terms). As such, it is absolutely clear is that it is fully intended by the Government to have a much lower threshold (in real terms) and to continue to increase taxes on superannuation income and assets in future years. To have undefined but increasing taxes on superannuation is poor policy, given the long term commitments required when making contributions.
2. The tax is calculated using unrealised capital gains. This is a new form or method for calculation of tax. The question then is whether it is good policy to introduce a new form or calculation of taxation? Firstly there are simpler alternatives i.e. a tax on income above a threshold. So why is a new form of tax and a more complex calculation method being introduced? Without a cogent explanation, which has not been provided, a complex approach must be considered as poor policy.

Why then, is this methodology being so stubbornly pursued? At present capital gains at time of sale are taxed at a lower rate than other forms of income. This methodology will effectively increase taxes on gains on assets with some additional tax being assessed prior to sale. For a Government needing much more tax revenue, it would also establish the basis for a similar calculation of a tax using increases in unrealised gains of assets, which could be applied to individuals, companies or trusts owning any form of asset including shares and property.



Greg
June 09, 2025

Makes sense to me, simply increase the tax on earnings. Also, limit CGT exemption on high balance Super Funds. Governments always seem to over-complicate whatever they do. I still don't have a full grasp on GST and as for Super, forget it...

GeorgeB
June 09, 2025

Our SMSF has never received a red cent from the taxpayer, on the contrary it continues to pay tax in retirement. By far the largest component of the balance comprises voluntary or after tax contributions meaning that income tax has already been paid on the contributions almost on a dollar for dollar basis. Sure the balance may be earning ongoing income but I am not sure why any of that belongs to the government, particularly since they are making a similar and ongoing saving, the saving being the interest that the government does not have to pay because their borrowings are reduced by an amount corresponding to the tax already paid. So if the balance is excessive so too is the tax already paid.

Lauchlan
June 10, 2025

You make some good points. I just differ on one aspect though, where you reflect "whether it is good and sensible policy to tax large superannuation accounts which generate larger incomes at a higher level? This seems largely agreed."

I'm not sure that it is agreed though, because no one (as far as I am aware) has clearly demarcated the boundary of what is the proper threshold to define the start of "a higher level" that needs to be taxed more. Labor seems to think it's $3M, unindexed. The Greens think $2M, indexed. Some people are saying the $5M or $100M SMSF super funds are too big.

Personally, I would put the boundary at $5M in todays dollars, indexed. And here's my reasoning.

The average income in Australia is $100K. Double that, to pick $200k p.a. I think it pretty much passes the pub test that this is certainly a generous retirement budget for an individual, particularly as it's tax free.

Now, a common financial planning tool to calculate the required retirement capital is the William Bengen 4% rule, which says that the amount of retirement capital you need to live off it at your required budget a drawdown rate of 4% is equal to (your retirement budget) / 4%, or equivalently (your retirement budget) x 25. So, in this case we take the very generous $200K p.a. retirement budget, and multiply by 25 to get $5M in retirement capital for an individual.

Now, some of us here will be jumping up and down and saying how excessive that $5M is, and no one needs that much retirement capital. That may or may not be true ... but the point of this exercise is to establish an upper bound, one where it is clear and widely agreed even in Liberal party bastion headquarters or with the most influential SMSF planning and advocacy groups that "no one needs more than that." In good faith, I think it's hard to argue for anyone needing more than $200K / year in retirement, generated from a $5M retirement capital nest egg, through a government sponsored savings and retirement system. So, that seems like a reasonable upper bound to me. If it's indexed to inflation / CPI, of course.

After people's superannuation capital in real terms exceed that very reasonable upper bound, I personally don't particularly care all that much what happens. Tax it more. Make people move it out of super into other investment vehicles. Whatever policy choices government think appropriate. Because, this is above and beyond a generous and reasonable upper bound for retirement.

This does leave open a question though of what's a reasonable upper bound for couples. It's somewhat arbitrary, but somewhat at random (because it's arbitrary, so why not choose a neat number?) I say add 50% and make the upper bound $7.5M for couples, indexed. Or someone else may argue add 20% and make it $6M. It seems arbitrary, so just make some defensible choice.

An immediate impact of this would be that any $10M or $100M SMSF super funds would be well over the upper limit. I'd say the government would be well within their rights to give them several years' notice, and tell them to move assets out in this timeframe, in order to bring their super back to under the generous threshold $5M (indexed) for singles or $7.5M (or whatever) for couples.

Former Treasury policy maker
June 10, 2025

Well Lauchlan, let's have a simple go at that.

Let's say the income earned on $3mn is at 4%. That's $120k a year. Forgetting tax-free pension components and assuming its all just taxed at 15%.

Now compare the personal income tax rate on $120k. That's 29% including Medicare levy with a marginal rate of 30% that soon jumps to 37%.

So we've got a 14% tax concession for the income earned in super and no.marginal rate to.make it progressive. Introducing a bit of progressively when you're earning more income than $120k.in super seems perfectly reasonable.

So there - $3mn as the threshold seems perfectly defensible.

Can we please just accept that the issue here isn't the threshold but purely whether taxing unrealised gains is poor policy setting a bad precedent? (Indexing is poor policy and I'm happy to believe that discrete adjustments will be made by politicians to win votes in the future.)

Lauchlan
June 10, 2025

Hi "Former Treasury policy maker,"

I don't really follow. Assuming you mean "$3mn" to mean "$3M," your first scenario is examining income earned from $3M of capital at 4%, and then assuming that that income is taxed at 15%. Which makes no sense to me.

Are you talking about investments outside of superannuation? If so, why is it being taxed at just 15%?

Or, if you are talking about capital within superannuation, why is the income (by which I assume you would mean withdrawals in the superannuation pension phase) being taxed at all? Isn't it tax-free?

Or are you talking about the new Div 296 tax on super accounts above $3M, in which case the excess tax on $3M would - by definition of the $3M threshold for the tax - be zero?

And if so why is your withdrawal rate 4%, when we are talking about someone accessing their super for retirement after the age of 65, which would mandate that withdrawals are at least 5%?

I am finding it hard to figure out what your first case is meant to represent, or why it matters.

Then - for some reason that is unspecified and unclear - you compare whatever the first thing is to personal income tax on $120K of income, which is a different thing to whatever the first thing is. So I'm not sure what that proves.

Which leaves it completely unclear to me as to how that is supposed to make a $3M threshold more or less defensible.

But even if it did bear on a $3M threshold being defensible, then so what? One could make a case for any amount being defensible, from $0 to $3M to $5M to $10M. The question I was interested in is what is a reasonable upper bound for accumulated retirement capital, pre-retirement, that 95%+ of us can agree to - and for what reason is that a good upper bound?

Dudley
June 10, 2025

"Forgetting tax-free pension components and assuming its all just taxed at 15%.":

Not forgetting, for a moment, Disbursement Accounts are taxed at 0% and the entire balance can be withdrawn as a lump sum taxed at 0% and re-invested in a home taxed at 0%.

That makes the super "tax concession" 0%.

As you were on Accumulation Accounts.

"Can we please just accept that the issue here isn't the threshold but purely whether taxing unrealised gains is poor policy setting a bad precedent?":

Yes. And readily avoided, best I see.

So who is to blame for it: Treasury Boffin or Treasurer Chalmers?

Greg H
June 09, 2025

The "tax cost" argument has always been suspect, especially that done by Treasury. It generally assumes everything against a maximum personal tax regime, which is not often the case. For example, the "negative gearing" tax cost only assumes deductions available, it does not reflect that deductions claimed against income (say, for example, repairs or interest would be reflected as income in the hands of the recipient and have a tax profile as such - totally ignored!)The "analysis" is fundamentally flawed and should be called out - same thing for super "concessions" - No detail but also no symmetry in the analysis. Essentially, the result is absolute garbage!

john
June 08, 2025

These links may have already been given. Here they are anyway
https://michaelwest.com.au/attack-on-superannuation-just-fat-cat-crocodile-tears/
https://michaelwest.com.au/busting-the-top-five-myths-about-the-new-super-tax/

Dudley
June 09, 2025

"https://michaelwest.com.au/busting-the-top-five-myths-about-the-new-super-tax/"

"Myth #1: This is an ‘unprecedented’ tax on unrealised capital gains"
"In reality, it’s far from unprecedented, with APRA-regulated members in effect having estimated earnings tax (including estimates for realised & unrealised gains) applied to the daily unit prices for their options while accumulating super. That’s been standard practice for as long as I’ve been in super (nearly 30 years)."

Don't need an estimate of realised gains - because they are realised.

As super funds have estimates for unrealised gains, they can be deducted from each member's balance so that each member is taxed only on realised gains.

If Treasury has been advising otherwise then sack 'em for incompetence or something worse.
If Charmers has included unrealised gains then sack 'im for making trouble.

Bobster
June 08, 2025

I always thought that Super was introduced because the growing cost of Govt pensions would become untenable, so something had to be done to get as many people as possible funding their own retirement, thereby relieving the burden on the taxpayers of the day.
I had also thought that introducing incentives to give people more financial independence in retirement was a great innovation and a positive thing for all Australians.
Turns out I was wrong. Apparently it's just an unfair system that gives spectacular tax benefits to a bunch of people that don't deserve it at the expense of some other group.
These articles are getting so tiresome.

Dudley
June 08, 2025

"relieving the burden on the taxpayers of the day":

Actually, for a richer retirement for some.
'So the SGC was not introduced as a welfare measure to supplement the incomes of the low paid. It was principally designed for Middle Australia, those earning $65,000 to $130,000 a year, or one to two times average weekly ordinary time earnings (AWOTE).'
https://www.firstlinks.com.au/keatings-plans-superannuation-imputation

ShawnBurns
June 08, 2025

Birds article exposes the sad truths. The responses to me appear out of greed and self interest, all those should disclose their interests, have they super over $3m, ok, conflicted. Their opinion is on we’re of self interest and disregard for the poor policy framework and inequity, one trouble with democracy a privilege turns into a right. I’m done with this whinging jibber

lyn
June 09, 2025

Shawn, many responses on this subject for ages are not that people against a new tax but the convoluted and unfair way it is being suggested how to calculate. As for disclosing interests, it is disingenuous to think all have self interest, many follow financial articles for various reasons as do I, many often have sensible suggestions. I no vested interest and for varying reasons my Super is all after-tax contributions and in all instances already had CGT applied to savings vehicles prior, but I care deeply that any law is fair to all whether rich or poor and for the generation following. It is healthy debate not whinging, and should never be stifled.

GeorgeB
June 09, 2025

“it is disingenuous to think all have self interest”
Self-interest should not disqualify a person from making a valid argument, because if the argument has substance it should be addressed rather than attacking the person making the argument. Often a telling clue that an argument has substance is that the person making it is criticized rather than the argument itself. This is done by attacking their character, motives, or background, rather than addressing the substance of their claim.

Peter Eichmann
June 08, 2025

Ron,
Great to take the debate back to first principles. On that note, I’d like to add that another feature of the current system that should also be a first principle consideration, is simplicity. The current system has become way too complex and confusing for all. As a financial adviser, I’d say that 99% of people have no real idea of how to optimise the current and ever changing rules for themselves overtime - shouldn’t and needn’t be that complicated.
And let’s not forget that complexity increases costs to the system. While professionally I am a beneficiary of the system I’d happily push a button today to switch to a simpler set of rules that can save clients time and money.
The good news is that the system can be massively simplified (I’ll save that for another day). I expect once the baby-boomer ‘pig’ has passed through the electoral system ‘python’ it can happen. Unfortunately, I’ll probably be retired by then!

Adrian
June 08, 2025

Tax system is an incoherent/complex mess and only getting worse. Imagine starting with a blank sheet, no one in their right mind would come up with this. Unfortunately seems politically impossible to reset to a simple and equitable system. We should also reflect on the huge cost of the industry formed to help people navigate and game this ridiculous system. Unfortunately the teachers, nurses etc contribute much more tangibly to society but rewarded far less.

Peter
June 07, 2025

the fundamental flaw with this article is the misconception that a discounted tax (or a tax concession) represents a cost to the taxpayer, because it assumes that the government has a presumptive and automatic entitlement to a greater portion of the tax payer's rightfully earned income. that is incorrect. Tax is really legalised theft (enforced by the the government's legal monopoly on violence) and it is only permissible to the extent that voters ALLOW it to occur via legislation/democracy. in this case, voters allow the government to tax their long term savings at a particular rate as part of their overall bargain with the government, because it reduces Australian's astronomically high overall tax burden to a more reasonable level.

so it represents a saving to the tax payer, not a cost/burden.

Former Treasury policy maker
June 07, 2025

Peter, the flaw in your argument is that you don't appreciate the policy objective of the tax concessions. If the concession is to encourage behaviour that results in another expense being reduced but the concession becomes larger than the saving, then the policy needs to be adjusted. This is what Ron is (cirrectly) arguing has happened here. Add to this the fact that wealthier people wouldn't have required a tax concession to encourage saving for their retirement and its obvious that a higher tax rate on larger super balances is totally warranted as sound policy. Treasury can and should calculate the cost by.presuming what the tax collected would be if those large balances weren't concessionally taxed.

Disgruntled
June 08, 2025

Superannuation rules were altered to allow the wealthy to make Superannuation a wealth creation and tax minimisation tool.

Never should have happened.

Roger
June 09, 2025

Surely pension costs reducing over time compared to the costs of super is the whole point and proves that the initial plan is working? Super “concessions” less than pension costs would show it was a monumental failure - but then we all know the real point of SGC is to entrench Union power without membership.

Jon Kalkman
June 07, 2025

We seen this dishonest analysis before. What is a tax concession flowing to super? It is the tax that might have been collected had the 15% tax had not applied to the super contributions or fund earnings. How does Treasury measure what that tax would have been? It cannot know, so it makes an assumption that everyone is on the highest marginal tax rate which is obvious nonsense but certainly helps the desired narrative.

Secondly, the comparison of super concessions with the cost of the age pension is spurious. Tax concessions flowing to super, by law, flow to every worker because all employers are required to make compulsory contributions. But the cost of the age pension only applies to some people over the age of 67. And to argue that super hasn’t reduced the current cost of the age pension sufficiently, ignores the fact that present day pensioners haven’t had 12% of their wages contributed to their super for their whole working life.

Thirdly, there is no compelling reason why super benefits should decrease the cost of the age pension. All super benefits are available tax-free, seven years before a person is eligible for the age pension and that provides many opportunities to reduce the super balance, which is an assessable asset, to maximise the age pension. Moreover, the family home is a non-assessable asset.

The counterfactual is never considered. What would the cost of the age pension be if there was no super? That should not be difficult to calculate because we know that before the introduction of super, almost everyone retired on the age pension. Now less than half retire on the full age pension and that change is accelerating due to super. In fact the cost of the age pension as a percentage of GDP is projected to continue to decline into the future for the same reason.

A more honest analysis would compare the cost to the taxpayer for a couple heading into retirement today, either on the age pension or with sufficient super to make them financially independent. The age pension is a gift from the taxpayer, indexed to inflation and paid for life with no effort required on the part of the recipient. It is a gold-class annuity. That pensioner couple cost the taxpayer (currently) $45,000 per year for possibly 25 or 30 years or more than $1 million, in today’s dollars.

For a couple to make themselves ineligible for the age pension, they need to accumulate super of at least $1,050,000. But this couple’s super is comprised of much more than taxpayer concessions - it required a significant contribution of their own money to their own retirement whereas, for age pensioners, taxpayers contribute all of it. This couple’s reward for this massive saving effort, is that they are denied the age pension that others receive for free.

Paying normal income tax is not a contribution to your age pension. It is a contribution to your parents’ pensions as well as schools, hospitals, roads etc. That explains why we have compulsory super - it compels people to contribute their own money towards their own retirement rather than relying solely on the taxpayer.

There is a good reason why tax concessions to super continue to increase and it has nothing to do with people using super to remain independent of the age pension. It relates to people using super as a concessional taxed estate planning scheme.

Dudley
June 07, 2025

.. and what would the net benefit be if the Age Pension Means Tests were abolished?

The Age Pension recipients could save, invest, spend, work, run businesses, employ without government self-harming restriction. Just enabling less conservative investment might pay for the Age Pension 'earning restriction', obliterating the super 'tax concessions'.

Jon Kalkman
June 07, 2025

Dudley, I was hoping you’d ask that question. If there were no means test and the age pension was universal, my wife and I would receive $45,000 on top of our tax-free super pensions. To be fair, we would expect all that income to be taxed at normal marginal tax rates. The problem is that not all withdrawals from super are income and we don’t normally tax capital except as a death benefit.

Adding the super and age pensions together and paying normal tax means we would pay less tax than what the taxpayer would be providing us in age pension supplement. In fact, a couple would need a combined income of $210,000 before their combined income tax was $45,000. In other words we would be better off. So by all means, let’s have a universal age pension

Dudley
June 08, 2025

"a couple would need a combined income of $210,000 before their combined income tax was $45,000":

Each:
= 26 * 1732.2 / 2
= $22,518

Taxable income to result in tax $22,516 [ https://paycalculator.com.au/ ]:
= $105,769

Capital to result in taxable income $105,769:
= 105769 / 10%
= $1,057,690 ^^

That for one person (as part of couple) to pay back in tax their universal pension.

How much tax do the users of the capital (companies, workers, consumers, ...) also pay?

Would Universal Age Pension be Economic Fertiliser or B.S.?

^^ Compare to Capital from median lifetime super accumulation:
= FV((1 - 15%) * 10%, (67 - 25), (1 - 15%) * 12% * -65000, 0)
= $2,321,626

Dudley
June 08, 2025

^^ Compare to Capital from median lifetime super accumulation:
= FV((1 - 15%) * 10%, (67 - 25), (1 - 15%) * 12% * -65000, 0)
= $2,321,626

^^ Compare to Capital from median lifetime saving at personal tax rate of 30%:
= FV((1 - 30%) * 10%, (67 - 25), (1 - 30%) * 12% * -65000, 0)
= $1,259,252

Dudley
June 08, 2025

THE problem with Universal Age Pension is the 0% tax rate on home nominal / imputed rent and capital gain. (Huh?)

Retirement schemes which tax earnings or payments in retirement at more than 0% requires coerced [ forced ] retention of capital in the scheme. Against the financial incentive to move capital from a taxed scheme to an untaxed home.

With continuing 0% taxation of home and 0% taxation of earnings and payments in retirement, taxes on retirees would not pay enough tax to pay for their Universal Age Pension.

The tax payments from the USERS (not the owner) of the retirement capital should be used to the additional cost of Universal Age Pension over the cost of the Means Tested Age Pension, having allowed for the Economic Fertiliser effect of retirement capital NOT invested in homes.

Would it?

David
June 06, 2025

As usual Ron you ask a reasonable question and totally miss major issues. All rules create incentives or disincentives. This DRAFT bill will kill the struggling venture capital industry which only further cement Australia as a mining/bank/expensive house wasteland. It will screw small business owners and farmers who now have a rug pulled out from them due to an abrupt legislative change.

If you’d done more research you would have seen every major accounting body, financial planning and smsf assoc formed a joint submission. It did NOT oppose the tax. It only asked for a fair way of calculating it.

The reason the Labor party only had a show for ‘consultation’ was the union funds can’t calculate fund income hence the formula relies on TSB (Total Super Balance) which is why unrealised gains are picked up.

Just imagine, two apartments side by side. They go up in value, neither is sold, one is taxed the other isn’t. In what world is this sane or fair.

So Ron instead of unloading on one of the top 5 retirement and demographic insurance policies in the world how about we critically analyse the issues with the policy, the unintended consequences of especially bad policy and recognise even the entire super profession (accountants and financial planners) do not disagree with reduction in concessions, just the moronic and bone headed way it is calculated.

Davo
June 06, 2025

Of course this method hurts SMSF and makes it easy for industry super with their deficiencies.

Everything they do (just like the franking credits idea) works for their cash-cow….the union aligned super agencies with their sympathetic interference with public organisations for the self-reinforcing benefit of the labor movement

David
June 06, 2025

We start with the union funds. They have been recorded as "paying" unions for promotion of their funds. The unions donate/support to the labor party.

Nothing to see here folks!!

Peter
June 06, 2025

Are these super tax concession more costly than negative gearing capital gains concessions driving property investment solely for extracting a taxation benefit and it’s impact on property prices.

Think
June 06, 2025

I think it is worth remembering that our retirement income system is made up of the aged pension, compulsory super and voluntary contributions. In part it is for this 3rd reason that there are tax concessions in the super environment with the objective of the super system, when created, to limit the tax bill of the aged pension.

I can't imagine in the instant gratification day and age we now live in that people voluntarily saving would be better than when the system was established so some are being saved from themselves.

It is reasonable for the Government to seek to limit how much the system is taken advantage of it and users need to remember super is a government creation and not that of the free market. It only exists because it was created by the government and not a birth right.

The challenge is, for any government, to make changes and survive politically. What changes to the system would those adversely impacted by them vote for?

Dudley
June 06, 2025

"I can't imagine in the instant gratification day and age we now live in that people voluntarily saving would be better than when the system was established so some are being saved from themselves.":

This is the commonly used justification for super, 'forced saving'.

Age pension makes 'forced saving' unnecessary.

john Simkiss
June 06, 2025

Very little concern here for 12% never having been justified versus Henry's 9-9.5%, the denial of consumption for the poor struggling from cost-of-living to feed their kids, nor the denial of building deposits to buy oa house or pay down a mortgage early.

John S.

Dauf
June 06, 2025

The way to make it really simple is to set a maximum amount you can have in super (yes tax free in pension mode; and taxed as it is in accumulation)…go over that level and you have to reduce it. Put as much as you like in each year as long as you remain below the prescribed level. Why should there be tax free concessions at levels way beyond the comfortable?

The real decision would be at what level to cap super balances? We have a transfer balance cap now so, is it that level or double that to allow for major market corrections (and avoid excess drawdowns)? This cap is already indexed so run with it as the base point (or multiple as described above)

Because property and the like are hard to value, give people time (how many years) to remove them…they will of course go into family trusts

And of course, the other real thing that needs to be done is the unlimited principal residence exemption from pension means testing…it’s so stupid. Set a cap on that as well and allow any amount over that to be assessed (but is it $1.0m $2.0 m? ….yes people in Sydney would go ballistic!). It’s so silly to have so much capital invested by some people on a pension. Sell it, reverse mortgage it (government based with debt owning taken off when sold by estate etc if need be?). Of course, Australia’s ridiculous housing obsession and bubble and lobbying will stop that

Instead we have these even more ridiculous unrealised gains being taxes being proposed …perhaps being taxed twice, annually and when sold…with union aligned industry funds somewhat sheltered. Only Labor could dream up something that stupid/immoral and sell it by saying it’s only 0.5% affected and preying ion the politics of envy). PS i have nowhere near those amounts in my super so not affected.

Real reform would be to make it that simple and transparent…no need for endless specialists and accountants


David
June 06, 2025

Just to remind everyone that the unexpected defeat of Bill Shorten in that infamous 2019 election was not because he wanted to remove franking credits from superannuation. All union run super funds could continue on as usual taking tax refunds for franking credits. It was only the SMSFs which were proposed to lose their benefits. It was the perceived unfairness of the scheme that justifiably sunk him.

Trevor
June 06, 2025

It also would have adversely affected shareholders whose taxable income was at or below the tax free threshold. I’m not sure they really understood how the dividend imputation system worked. Blackout Bowen was the genius behind it.

Trevor
June 06, 2025

Or anyone on a marginal tax below 30% for that matter

Dudley
June 06, 2025

"I’m not sure they really understood how the dividend imputation system worked. Blackout Bowen was the genius behind it.":

You can be sure. Befuddled after many attempts at explanation, Bowen could not calculate dividends from profits and tax rate and could not understand tax credits:

'“A nurse who earns $67,000 a year we charge $13,000 in tax. But a retired shareholder who has $67,000 in income we charge her zero tax and then write her a cheque for $27,000. That is not OK,” Mr Bowen said.'

Treasurer Chalmers is bedazzled by Treasury about unrealised gains.

lyn
June 09, 2025

I was astonished Bowen couldn't explain franking system in televised debate at the time and here he is now, in charge of a ministry for which again he has no formal qualifications. Says it all about most politicians and particularly those appointed Ministers with no formal qualification or even work experience of a ministry's subject.

Dudley
June 09, 2025

What many tried but failed to explain to the World's Worst Wannabe Treasurer:

A nurse who earns gross income of $67,000 a year has $12,228 tax deducted by their employer(s) and paid to ATO which creates a $12,228 tax credit for the nurse. The nurse's tax assessment is $12,228, the same as the tax credit; no refund or tax to pay. The nurse is paid net $67,000 - $12,228 = $54,772.

A company shareholder receives a dividend of $46,900 from her company which paid $20,100 company tax (30%) to ATO which created a $20,100 tax credit for the shareholder. The shareholder's gross income is $46,900 + $20,100 = $67,000, same as the nurse. The shareholder's tax assessment is $12,228, same as the nurse. The shareholder's tax credit is $20,100 - $12,228 = $7,872 more than the assessment. ATO refunds the $7,872 excess tax to the shareholder. The shareholder is paid net $46,900 + $20,100 - $12,228 = $54,772, same as the nurse.

This is basic, simple, well known taxation Law.

Where did the misrepresentation start: Treasury or Bowen?

Franco
June 06, 2025

Comments from those who think that $3million per person means they are average and have worked and saved harder than others.

CC
June 06, 2025

Perhaps a 30% tax rate is reasonable, but taxing UNREALISED capital gains is just pure ROBBERY regardless of how wealthy someone is, is fundamentally WRONG and sets a very dangerous precedent

Franco
June 06, 2025

Agree , however, i believe that is what happens with assets test for those on the aged pension.

GeorgeB
June 06, 2025

“Perhaps a 30% tax rate is reasonable, but taxing UNREALISED capital gains is just pure ROBBERY regardless of how wealthy someone is, is fundamentally WRONG and sets a very dangerous precedent”

To illustrate just how unfair taxing unrealized gains is consider the following asset that many may hold in their SMSF. Bendigo Bank shares (BEN) have traded as high as $13.68 in the past 12 months and as low as $9.50 and are currently at $12.76. Many shares fluctuate just as wildly in a short time frame particularly when there are global shocks such as Trump’s tariffs.

The proposal is to look only at the “traded value” on two particular days but those values can change dramatically in the space of a few days eg. the shares traded over $13 in mid February but were only worth only $11 two days later and little more than $10 in early April.

So the question for our esteemed Treasurer is: what is the fair value of the asset for the purpose of paying the proposed tax bearing in mind that there is no mechanism for obtaining a refund if the value drops dramatically between 30 June and the date that the tax is due to be paid, even if the shares never recover.

The comparison to what “happens with the assets test for those on the aged pension” is flawed because the age pension will be reinstated promptly if the value of the assets drop below the relevant threshold but no refund of tax is available when the value of the assets in the super fund drop after 30 June and never recover.

Sandy McKinnon
June 14, 2025

Bowen or more likely Treasury did clarify their position by providing the following scenario:

The refundable tax offset (Franking Credits) is $28,700 not $27,000 based on a grossed up dividend of $95,667 that is cash dividend of $66,967.90. This assumes a yield of 5% on a capital base of $1,339,333.
Treasury further assumed that the SMSF is wholly in pension phase and no member exceed their $1.6 million transfer balance cap (then in force in 2019).

The figures do work out but does not state that the salary paid to the nurse is tax deductible if she was working for a private hospital. Furthermore the SMSF member being a shareholder of the company issuing the dividend is an owner of the company and as an owner has paid tax on the profit before the dividend was declared.

Dudley
June 15, 2025

"The figures do work out": Nope.

Bowen comparing nurse GROSS income of $67,000 to shareholder NET of company tax income of $67,000.

The Bowen nurse has a gross income of $67,000.

The Bowen shareholder has an unfuddled grossed-up income of:
= (67000 / (1 - 30%)
= $95,714
has tax credit of:
= 30% * 95714 [ company tax imputed to shareholder ]
= $28,714.20
owes tax of:
= $22,911.18 [ 2019-20 https://paycalculator.com.au/ ]
receives tax refund of:
= 28714.20 - 22911.18
= $5,803.02
receives net income of:
= 67000 + 5803.02
= $72,803.02

With a gross income of $95,714 an employee has tax credit of:
= $22,911.18 [ 2019-20 https://paycalculator.com.au/ employer tax imputed to employee ]
owes tax of:
= $22,911.18 [ 2019-20 https://paycalculator.com.au/ ]
receives tax refund of:
= 22911.18 - 22911.18
= $0.00
receives net income of:
= 95714 - 22911.18
= $72,802.82

Employee and shareholder same GROSS income; same NET income.

Treasury did not 'speak-up'? Bowen did not listen? Dismal performance from both.

Trevor
June 05, 2025

Government could easily make super contributions voluntary. That would solve the problem of low income earners being disadvantaged by compulsory contributions.

Ray C
June 05, 2025

Like many retirees I sacrificed disposable income during my working life to self fund my retirement. I never housed any property “assets” in my fund, I never did anything other than follow the rules in place at the time. Pity the people not of retirement age who can’t simply take a lump sum like I will do to ensure no tax is paid for unrealised profits. Yet again a retrospective tax focused on a small group of supposedly rich people, what ever happened to a fundamental redesign of the scheme and, dare I say, some activity from government to ensure there are proper products for the longevity risk we all face.

CC
June 05, 2025

The author is wrong.

paul collins
June 06, 2025

you couldnt have said it more succintly

Graham W
June 05, 2025

The fact that the wealthy are making a motza in tax benefits is not in any way a reason that our superannuation system doesn't work well for us and the government. Without super until recently having compulsory insurance many folk dying early would have no estate. A topic worth its own article. As a retired accountant and advisor working with mainly non wealthy small business owners few could be said to have got a lot of tax benefits along the way from super savings. Yes the benefits from reducing Capital Gains tax made investment in a super fund a no brainer. . They didn't buy an expensive house.go on flash holidays, living on their super and saving the government a fortune in pension payments. I know that their numbers way outweigh the wealthy. So in my long.and personal experience our current super situation is the envy of most countries. The wealthy will change their focus away from super. My suggestion is that they will be buying gold in Switzerland and the funds are forever away from any attack by our political buffoons.

OldbutSane
June 05, 2025

It is all very well pointing out the problems, but what are the solutions? Seems to me that anyone with more in super than the pension limit should be given at most five years to move the excess outside of super. And yes, the $500 rebate does not adequately compensate the lowest wage earners for the tax paid, so that should be increased.

Michael
June 05, 2025

OldButSane - see my potential solution below. Someone needs to do some number crunching to make sure 10% works (I.e. reduces overall tax concessions in the super sector, taking account of the impact on eligibility for the Age Pension too - maybe (say) 12% is better?). This is a major issue that Labor has a chance to fix with either the Liberals or Greens in the Senate. Do they have the fortitude?

Davo
June 06, 2025

Just spend less!

What proportion of Australians pay no net tax? How many on top of that are government employees? How many actually contribute tax from private enterprise to keep the country running?

So we have a government that makes life expensive and then pays cost of living supplements to alleviate that which it created…and Australians paying little or no tax swallow it all and re-elect them. My god, Keating’s banana republic is on the way and our society will decline much faster than Ancient Rome. Then again, maybe China will just come and save us…I’m sure they will let everyone keep their savings.

Michael
June 05, 2025

I agree that the tax concessions are far too generous for the wealthy and the whole superannuation tax setup needs review. What worries me is that Governments are increasing debt at ridiculous levels and our children, already finding the housing market difficult, will bear the brunt of funding the debt and interest costs. And as more people move into the tax-free pension environment, it gets worse. Which politicians will bite the bullet and correct this impending disaster? Probably none, which is shameful.

My view is that like SG was phased in over many years, we need to phase in a change in super tax that equalises the accumulation and pension tax rates. Assuming the following reduces tax concessions overall whilst increasing tax on the wealthy and reducing tax on younger generations, I’d propose something like moving to a 10% tax rate on all super in 10 years, 1% per year for pension assets and 1% every 2 years for accumulation assets. Then there is no need for separate accumulation and pension accounts and you simply cap how much you can have - if you exceed the cap at 1 July you have 12 months to move it out, which trustees of non-SMSF funds would do automatically on advice from the ATO post every 1 July. If you cannot (or don’t want to) sell assets, which really only applies to SMSFs, you’ll need to set up a fully tax paying fund that shares the ownership of the asset (stamp duty to be waived if done within 12 months). Does anyone remember s121D or DA funds from over 40 years ago - my memory is vague but I think they were “ordinary money” funds for excess money above RBLs.

Note that a 10% tax on pension fund asset income is not retrospective, as it only applies on future income and should significantly reduce tax concessions currently enjoyed by the growing pension sector.

Anyway, something needs to be done NOW otherwise our generation (baby boomers) will be rightly condemned for too much self interest by our children and future generations.

Can anyone tell me why I am wrong?

DANNY
June 05, 2025

Well, yes, our kids and grandkids need help. So, assuming those of us railing against the proposed super tax have more than we.need for the rest of our lives, just redeem assets to assist our kids to get into housing, or pay the private school fees, or buy that much needed second car. We baby boomer were raised to save, not spend, but now we have benefited so much from these so called wasteful tax subsidies, we can become heroes to our kids and share what we have.
We'll also help our kids to avoid that dreaded death tax of 15% on the taxable post 83 component.
Really, what else are we going to do with the left over capital? As they say, you can't take it with you!

Michael
June 05, 2025

Danny you miss my point (I think!). The Federal Budget is in trouble and we need to either cut spending or raise taxes or both. I propose raising more tax from super. Still concessionally taxed but not as generous. Nothing to do with what you are saying. I am not saying wealthy people don’t deserve what they have, good luck to them and their kids. But the country’s ever increasing debt needs better attention.

James
June 06, 2025

"My view is that like SG was phased in over many years, we need to phase in a change in super tax that equalises the accumulation and pension tax rates."

The design of superannuation in Australia was never best practice. For those with access to The Australian, straight talking economist JUDITH SLOAN wrote an informative article on Tuesday 3 June titled "For the sake of national interest, super system needs overhaul".

Somewhat lengthy excerpt (but many pertinent points):

"The most sensible way to tax superannuation is to exempt contributions and earnings while
taxing withdrawals at the full tax rates of members. This is a common arrangement overseas. In
this way, the nest eggs of individual members are maximised and the reliance on the age pension
can be significantly reduced.

Instead, an early decision was made to tax contributions and earnings at a fixed rate (15 per cent)
with withdrawals tax-free – at least until the changes of 2016. The motivation was short-term – to
generate revenue to repair the budget in the early 1990s. It was a ruinous error. What should
have been a relatively simple system quickly became complex, including the imposition of so called
Reasonable Benefit Limits. On the face of it, the concept of the RBL seemed like a good
idea, restricting the size of an individual’s fund beyond which penalties would be imposed.

In practice, it was a shemozzle, with the Australian Taxation Office unable to make head nor tail
of the rules. The small number of very large super accounts – it’s estimated there are around 25
with balances of more than $100m – were created under the RBL rules.

Replacing the RBLs with limits on contributions, both concessional and non-concessional, was
deemed a better way of restricting the size of individual accounts. Under existing rules, it’s simply
not possible for superannuation members to amass very large balances.

While the taxes on contributions and earnings are a drain on the final retirement balances that
members can hope to achieve, the level of fees charged by the funds is also a significant
contributor. The average fees charged on super investments is excessive by international
standards. This reflects the relative lack of competition between funds. It also explains the
popularity of self-managed super funds given the control members have over the fees they
accept.

The alignment of particular trade unions to industry super funds never made sense when it
comes to the retirement needs of the members. Why would the retirement needs of a teacher be
any different from the retirement needs of a bank teller or a gardener? The way industry super
funds developed, with the co-operation of the associated employer groups, was all about
generating influence and dollars rather than fitting in with a rational model to generate
retirement incomes.

Some of the failings have become apparent in recent years. The so-called equal representation
model is inconsistent with having the best-qualified trustees. Many industry funds have underinvested
in their IT infrastructure. Outsourcing administration to third parties can be
problematic. Sub-scale funds have hung on too long. Inappropriate spending on sponsorships and
marketing has been largely ignored by the regulator, the Australian Prudential Regulation
Authority, at least until recently. At the same time, many of the industry funds are too heavily
invested in listed Australian equities. The trustees then throw their weight around by demanding
standards of governance that many of the funds themselves do not meet, while interfering in
corporate strategy as well as companies’ internal workings.

The boards of many listed Australian companies have become fearful of the industry funds and
their amateurish suggestions and woke obsessions. It is not a surprise that there has been a
relative decline in listings on the Australian stock exchange, with a great deal of the action now in
the private sphere. With the rate of the Superannuation Charge about to increase by 0.5
percentage points on July 1, to reach 12 per cent, it is surely time for the government to address
some of the weaknesses of the system rather than press on with the crazy idea of imposing a tax
penalty on large superannuation accounts, including the unworkable idea of taxing unrealised
capital gains.

The fact is that 12 per cent is too high but that figure suited the industry funds, and they got their
way. Workers are being asked to forgo too much of current consumption to fund their
retirement, which in many cases simply knocks off their full entitlement to the age pension. It’s a
dud deal for many workers, particularly when the excessive fees are considered.

It’s time for a major rethink. There’s no doubt super has benefited some handsomely but there are
many weaknesses in the system that require remediation in the national interest. At the very
least, the system needs massive simplification to eliminate the thicket of arcane complexity that
currently characterises superannuation in Australia."


Wholesale reform is needed, not more lazy tweaking. Super should not be compulsory, especially for the lower paid, and as John Abernathy has pointed in a previous article out it is grossly unfair to attack accumulation funds and in particular SMSFs and completely ignore the huge tax payer cost that is legacy defined benefit schemes. If one is changed then all should be made more affordable, for the sake of budget repair and debt reduction. Although none of this will make one iota of difference if Labor doesn't rein in some of its' spending programs (NDIS, universal childcare,.....)

Larry Torris
June 08, 2025

Hi James,

With regards to defined benefit funds. If your primary source of information is John’s articles then you will be getting a very one sided view that does not explain the complexities of the system (and the details are important here). John’s articles also miss vitals details around the tax arrangements for Commonwealth Defined Benefit schemes (I can’t comment on any other schemes such as for politicians or judges).

For both the PSS and CSS schemes the employee contributions are made non-concessionally (ie from already taxed income) and these non-concessional contributions are required (critical) to build any significant superannuation balance.

Specifically for the PSS scheme (the scheme with the most members), members need to contribute 10% of their gross income with contributions made post-tax (non-concessionally) to receive a significant retirement benefit. This 10% non-concessional employee contribution is massive employee contribution when compared to the voluntary contributions that most people make to their super – ie these public servants are sacrificing significant current income for their retirement (sensible savings practice).

Upon retirement these defined benefit superannuation schemes are taxed at the individuals marginal tax rate with only a 10% reduction on a portion on this payment. This is significantly more tax than applies to most other superannuation which is allowed at tax free pension up to $1.9m!!

Div 296 is also set to apply to defined benefit schemes which means that members of these schemes will pay tax at their marginal tax rates for their employee contributions during the accumulation phase, tax at their marginal tax rate during the pension phase (less a 10% offset) and pay the Div 296 tax on balances over $3m. It seems that these schemes will be some of the highest taxed schemes in the country!!

Steve
June 06, 2025

Michael you say below the federal budget is in trouble and use that as a reason to increase tax on super. But will this current govt just spend the extra income on yet another social programme and get us back to where we started anyway? As just as housing is primarily a supply problem (yet all politicians ever do is add to demand without ever addressing supply), the budget issue is as much a a spending problem as an income problem. The thing labor never seem to get is that someone, somewhere has to make something and value-add to produce the wealth they love to redistribute. You can't just borrow more and hire more NDIS helpers to keep unemployment from rising ad infinitum. The basic problem for many large western economies is they have just so-so growth but quite out of proportion deficit spending, at levels that once were only seen to pull economies out of recession. So how strong is the underlying (private) economy? The economy that produces the wealth to share. Not very rosy is my observation.

Peter
June 05, 2025

"Are these needless tax subsidies significant enough to be concerned about? Yes, they currently cost taxpayers about $50 billion each year."

Let me get this straight... Lower taxes are costing taxpayers? That's a logical contradiction and patently false.

Besides, saying that tax incentives are a "cost" is pure sophistry. If you have $100 in your pocket and a would-be robber decides not to rob you, have you then costed the robber $100? No. Taxes are a cost on the real economy. Lower taxes alleviate this cost on the economy.

Do you honestly believe that there would be anywhere near the amount of money in the superannuation system without these tax incentives? Commentators invariably fail to recognise that changes in tax policy alter the very incentives that caused the wealth to be there in the first place. The wealth is able to accumulate because of the reduced taxation. Increasing the tax rate destroys the accumulation of this wealth. Increasing the tax rate will mean money will go elsewhere. 15% of something is better than 30% of nothing. Stop killing the goose that lays the golden eggs.

GregB
June 05, 2025

Totally agree Peter. Let’s also not forget that the so-called “wealthy” (often confused with a high income earner) pay the most tax. For example Top 10% of income earners contribute 46% of all government revenue. Our tax system stifles incentive.

Keith
June 05, 2025

I'm glad you set that out, Peter. I really struggle with the concept of a "tax concession". We should tax you at 100% but will only charge you 40%. We've given you a tax concession. Sounds good but means nothing.

Peter
June 05, 2025

"These subsidies have always been bad policy, representing a waste of taxpayers' money."
Whether "fair" or not, a reduction in tax to one group of people does not seem to me to be a donation from someone else. The beneficiaries simply pay less.
Just to clarify for me: WHO are the taxpayers who are having THEIR money wasted? (The simple answer is, of course, ALL of us, including multi-millionaires; who just have more of their money wasted than if they were poorer.)

Mart
June 05, 2025

Ron .... "the fact that it has features such as a ceiling that is not indexed and that it captures unrealized capital gains provides the industry with targets to attack the legislation and divert attention away from the key issue: the great waste of taxpayers' money attributable to the tax subsidies" .... OK, so asking the obvious question: why didn't / doesn't the ALP remove the UCG aspect and index ? That would then leave the focus on the key issue of Super tax subsidy. I've no doubt some would still argue that the additional tax is unfair but at least the contentious features would be removed making the change more acceptable. Why shoot yourself in the foot ?!

Dudley
June 05, 2025

"Why shoot yourself in the foot ?":
Innumeracy, Unthinkacy.
Worship of the demigods in Treasury.
Wishing to be 'Very Brave'.

Dudley
June 05, 2025

Abolish:
1. Age Pension Means Tests,
2. Superannuation,
3. Abolish Inflation Tax.

Then Age Retirees can work, invest, save, spend, play as they wish.

Already have progressive Income Tax, no need to invent square wheels.

James
June 05, 2025

It's 5 June Dudley, not April 1! Government aren't listening!

Dudley
June 05, 2025

They do know it is not April 1st every day, no?

James
June 05, 2025

"They do know it is not April 1st every day, no?"

I'm beginning to wonder!

Adrian
June 08, 2025

Agree!

 

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