Despite the Federal Government claiming changes to superannuation will make the system ‘more sustainable and fairer’, closer examination of the draft legislation reveals the measures are actually inequitable and unsustainable in the long term.
At a simple level, plans to double the tax rate and introduce a tax on unrealised capital gains for superannuation balances above $3 million are unfair on the basis that it’s a complete shifting of the goal posts, undermining years of hard work and planning by superannuants.
But on a deeper level, the proposal is also deeply inequitable, and introduces a level of complexity to the system that is unnecessary.
There’s no explanation around how the $3 million threshold has been selected, instead the figure appears arbitrary.
It’s also being touted as an out-of-reach figure for ordinary Australians, with the Government continually claiming that only around 80,000 people will be impacted.
Putting aside how insulting that argument is to ordinary Australians – essentially telling people they will never become financially comfortable even after years of working and saving – it’s also wrong.
The Government has failed to consider inflation, wage rises, the increased cost-of-living, or even regional disparities.
$3 million today will be worth much less in coming decades, which means the number of people who breach the threshold will continue to increase, perhaps incrementally at first but likely much quicker in years to come.
Regional disparity is an important factor too, particularly as property values can differ widely across the country and is out of the control of superannuants.
Why should someone be punished if property – or any other asset in their superannuation fund – increases in value faster than the next person?
It’s important to highlight that the planned changes are retroactive – meaning they’ll impact on people’s past behaviour, which was to build their superannuation balance based on rules and regulations put in place at the time.
How fundamentally unfair to punish people who have previously been encouraged and incentivised to build their nest-eggs so as not to rely on the Government’s Aged Pension scheme.
While welcome exemptions have been included in the draft legislation, the Government has failed to provide enough time for further consultation – less than three weeks – and it is likely that other scenarios will emerge in time whereby people will be unintentionally caught out by the changes.
I have no doubt the proposal will see people shift the way they approach superannuation, pulling money out of accounts to remain under the $3 million threshold, and encouraging more people to instead rely on the Aged Pension.
The impact of this shift in behaviour will have long-term implications for the Federal Budget, and if the Government has already set a precedent by introducing a tax on unrealised capital gains in the superannuation system – it’s only right to ask, what will be targeted next?