The government has bowed to pressure on its superannuation tax policy, one of the few revenue-raising measures it had promised, two years on from when it was first announced.
Treasurer Jim Chalmers confirmed he had worked with the prime minister to overhaul the proposal to increase taxes on the largest superannuation balances, which was signed off by cabinet this morning.
The government has made two key concessions that were criticisms of the bill: first, the threshold at which higher tax rates will kick in will now be indexed to inflation, and the proposal will no longer apply to unrealised capital gains.
Alongside the $3 million threshold at which the tax rate on earnings would be doubled to 30 per cent, a new threshold of $10m would also be created at which a 40 per cent tax rate will be applied.
But those thresholds will now be indexed, meaning it would no longer capture more people over time due to bracket creep.
The government expects the $3m threshold to apply to roughly 90,000 balances and the $10m threshold to apply to about 8,000 balances.
If passed by parliament, the measure would begin from July next year.
The treasurer said the government was prepared to rework the bill to see it through parliament.
“We have always had in our back pocket indexation, or an indexation like this, in order to get it through parliament,” Mr Chalmers said.
A tax offset for low-income earners would also be increased from $310 to $810, and would be offered to workers earning up to $45,000, which Mr Chalmers said would give those people about an extra $15,000 at retirement on average.
Mr Chalmers said the new plan would raise slightly less than the government’s original proposal in the short-term.
But longer-term the measure is now expected to raise significantly less because the proposed thresholds would be indexed.
The government has always argued that those thresholds could have been adjusted over time to account for inflation.
Greens leader briefed
The treasurer confirmed he also met with Greens leader Larissa Waters shortly after the rework was agreed to by cabinet, with the minor party shaping as the most likely option for the bill to be passed.
PM says ‘nothing unusual’ about Treasury meeting on super tax
The proposed tax increase on some of the nation’s wealthiest income earners was announced more than two years ago, and was meant to be in effect from July.
But it was met with criticism, including from within Labor, and the bill was never introduced to parliament.
Late last week it emerged that the prime minister’s office, alongside the treasurer’s, had sought advice from the Treasury Department on how to address some of the “concerns” with the bill.
The treasurer played down questions about the government’s appetite for reform, given the difficulty it has had with one of the few revenue-raising measures committed to by the government.
“This is difficult tax reform … I don’t accept the characterisation this is simple, or easy or uncontested,” Mr Chalmers said.
“This is a difficult change which will mean we raise billions of dollars.”