Anthony Albanese was about to join workers at the Labour Day march in Brisbane last May when he stood in front of journalists to set out his promises for the coming election. So when the subject of superannuation came up, he had to choose his words with care.
Would Labor commit to the current super arrangements for self-funded retirees and others, one journalist asked. “And do you rule out any increase to super taxes and changes to caps?”
Prime Minister Anthony Albanese and Treasurer Jim Chalmers: they’ll have to tread carefully with other people’s nest eggs.Credit:Alex Ellinghausen
Albanese had a simple assurance. “We’ve said we have no intention to make any super changes,” he said. “One of the things that we’re doing in this campaign is we’re making all of our policies clear.” These were comforting words for voters who remembered the sweeping tax changes Labor had promised at the election three years earlier. He used the soft version of a commitment – “we have no intention” – but he played down the prospect of any super changes.
The prime minister is now exposed to a long campaign about a broken promise. The government has put super tax concessions on the agenda for change in the May budget. The intent has changed.
Australians know when politicians are changing their tune and softening them up for a tax hike. They’ve seen it before with superannuation. And the results can be explosive because politicians so often talk about superannuation as if it is government money when voters know it is not.
Asked about super at the National Press Club on Wednesday, Albanese did what he could to calm the reaction while keeping the budget options alive. “We said we would not have any major changes in superannuation and that is certainly our intention,” he said.
There is no question the super tax laws can be changed. Labor can count on support from the Greens and has a good chance of persuading Senate crossbenchers such as David Pocock, Jacqui Lambie and Tammy Tyrrell. The question is how much political capital Albanese is prepared to lose for every dollar of tax revenue he wants to gain.
Labor has been here before. A decade ago this month, Labor in government searched for ways to tighten the tax rules on super to improve the fairness and equity of tax breaks worth about $32 billion a year. Cabinet had to cut with care to avoid a political backlash. Now the tax breaks are worth at least $47 billion and some of the same ministers have to make the same cautious calculation. (The government will issue a new tax expenditure statement very soon to sharpen the debate with an even bigger cost forecast.)
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 spend more 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.
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.
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 13 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.
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