On Thursday, I was interviewed by Mark Levy at Radio 2GB regarding Labor’s changes to the taxation of earnings on large superannuation balances.
If passed by the Senate, the tax rate on superannuation accounts with balances between $3 million and $10 million will double to 30% from 1 July 2026.
The tax rate on superannuation balances above $10 million will be increased to 40%.
These superannuation balance thresholds would be indexed to inflation, and the tax rates would also apply to defined benefit pensions.
Low-income workers will also benefit from an increase in the low-income superannuation tax offset, allowing them to accrue larger superannuation savings over time.
I wholeheartedly expressed support for these changes on equity and budget sustainability grounds.
However, much to my surprise, the interview was perceived poorly by viewers on YouTube, who attacked me for wanting to raise taxes on retirement, for wanting to “double tax” superannuation savings, for attacking aspiration and success, and for penalising those who have saved hard for a comfortable retirement.
At this juncture, I feel the need to clarify some misconceptions about Labor’s superannuation tax changes.
Several YouTube commentators contended that imposing a “double tax” on superannuation is unfair, as they had already paid tax during their contributions.
This view is wrong. Labor’s policy would not tax money already contributed to Super, which has already been taxed at a concessional rate. Rather, it would apply an extra 15% tax on the investment earnings of large balances over $3 million and an extra 30% tax on balances in excess of $10 million.
This means that if someone with more than $3 million in super savings earned 5% a year on their investments, they would be taxed 30% on the portion of a superannuation balance above $3 million, rather than the standard 15%.
Earnings on the portion below $3 million would continue to be taxed at the standard 15% rate.
So, if a superannuant with $4 million in savings earned 5% on their investments, they would pay 15% on the first three quarters of their earnings (i.e., $150,000) and 30% on the last quarter of their earnings (i.e., $50,000).
These changes are fair because working Australians pay more than 15% in income tax when they earn $150,000 or more.
For example, if a worker earns $200,000 from their PAYE job, they will pay $56,138 in income tax, excluding the Medicare Levy, equating to an average tax rate of 28%.
A wealthy superannuant with $4 million in savings earning $200,000 (5%) from their investments would only pay $30,000 in tax under current arrangements, i.e., 47% less tax than the worker.
If Labor’s 30% tax rate came into effect, the wealthy superannuant would still pay only $37,500 in tax (i.e., $150,000 times 15% plus $50,000 times 30%), still 33% less tax than the PAYE worker earning the same amount.
The question everyone should ask themselves is the following: Why should rich superannuants pay far less in tax on their investment earnings than workers do on their earnings?
Superannuation was never meant to be a tax shelter for the rich.
If changes like Labor’s superannuation earnings tax are not made, then Australia’s tax system will become even more reliant on taxing actual work via personal income taxes. This is unsustainable and inequitable.
Australia should not tax productive effort so punitively because we don’t collect enough tax elsewhere (e.g., on super, resources, etc).
Wasteful government spending, which is highly inefficient, should also be cut back. However, this is a separate issue from fair and efficient taxation.
Ultimately, Australia needs a better-balanced tax system that spreads the burden away from workers. Labor’s superannuation changes are a small step in the right direction.
