The federal government is taking a second crack at reforming superannuation in a move that would give more than a million low earners a retirement boost while hitting the nation’s wealthiest with a higher tax rate.Treasurer Jim Chalmers this morning introduced the Better Targeted Superannuation Concessions bill to parliament.If passed, the new laws would change how superannuation is taxed for two groups of Australians at opposite ends of the wealth spectrum: about 90,000 people with the highest super balances, and roughly 1.3 million of the nation’s lowest-paid workers.
The government is attempting to pass major changes to the superannuation system for the second time. (Louie Douvis/AFR)
For the latter, the government is hoping to expand the threshold for the low-income superannuation tax offset (LISTO).
In its current form, the LISTO offsets the tax paid on superannuation for anyone earning less than $37,000 a year, effectively ensuring super is still tax-effective for Australians on low incomes.
Under the proposed new law, the threshold for the offset will be raised to the top of the second income tax bracket – which currently sits at $45,000 – covering an additional 1.3 million workers.
According to the Association of Superannuation Funds of Australia (ASFA), that change will deliver someone on $44,000 a year close to an extra $50,000 in their super balance by the time they retire.
Treasurer Jim Chalmers introduced the new laws to parliament this morning. (Alex Ellinghausen)
“Our reforms to the low-income superannuation tax offset will help deliver a more secure retirement for more than a million Australians, mainly young people and women,” Chalmers said.
“These changes will help make the super system fairer from top to bottom.”
Alongside the higher LISTO offset, the bill also increases the tax rate on superannuation earnings for accounts with more than $3 million.
This will impact the top 0.3 per cent of super account holders – a total of about 90,000 people.
Instead of the current flat concessional tax rate of 15 per cent, the bill proposes raising the tax rate on earnings for super accounts with a balance of between $3 million and $10 million to 30 per cent, and to 40 per cent for accounts worth more than $10 million.
The increased tax rates won’t apply to an account’s entire earnings – only to the proportion of the balance over each of the new thresholds.
The government says about 14 times as many people will benefit from the higher LISTO threshold than those who will pay a higher tax rate on their superannuation earnings. (Glenn Hunt/Fairfax Media)
Combined, the changes will generate about $1.6 billion in extra tax revenue for the federal budget per year.
The introduction of today’s bill comes after an aborted attempt to pass similar legislation during the last parliament and following May’s federal election, when the government faced significant criticism, particularly on the proposal to tax unrealised gains and a refusal to index the thresholds for the higher tax rates.
Both of those elements of the laws have since been scrapped – the current bill only includes a higher tax for realised earnings, and the $3 million and $10 million thresholds will be indexed.
Despite the changes, the passage of the current bill is uncertain. The Coalition opposes the changes, meaning the government will require support from the Greens to get the laws through the Senate.
According to the Australian Financial Review, the minor party could demand more stringent measures targeting wealthy accounts in exchange for its backing.
However, ASFA has encouraged the Greens and opposition to back the legislation.
“Together, these changes make super tax settings fairer and more sustainable,” chief executive Mary Delahunty said.Â
“I encourage the parliament to pass the legislation without delay.Â
“Aussie workers on low incomes cannot wait another day for the fairness that this package delivers to them.”
If passed, the higher tax rates on wealthy accounts will come into effect on July 1, while the LISTO boost will follow a year later.
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