Budget 2023: Superannuation warning for two million as treasurer Jim Chalmers doubles tax rate

Millions of young Australians could be caught in a pension tax trap constructed by Treasurer Jim Chalmers when they finally prepare to retire.

Treasury modeling reveals that 2.05 million Aussies currently age 25 or younger will be most affected by the new $3 million tax cap on pension funds.

Even if they only earn the median wage now, the models show that by the time they’re 60 they’ll probably have set aside more than $3 million.

They will then be hit by the government’s planned new super tax, which doubles the favorable tax rate from 15 percent to 30 percent on super funds over $3 million.

The treasurer was warned of the ticking time bomb he left behind for the youth, but the government went ahead with the plan anyway, newly released documents show.

The treasurer also rejected a suggestion that the $3 million limit be future-proofed and indexed to inflation, instead committing it to remain at the same level.

Treasury advisory documents released under a Freedom of Information application The Australian reveals that those on average wages will now make $200,000 a year within 20 years.

By the time they’re in their 60s, their retirement funds will reach $3 million and will face double the current tax rate as a result.

“A 20-year-old who earns an average wage throughout his career (about $90,000 in 2023) is expected to have a superbalance of more than $3 million in his early 60s,” the documents reveal.

“That same person is expected to have wages that exceed the top marginal tax bracket ($200,000) in their early 40s.”

It also confirms that more of today’s younger generation will be affected by the super tax – which is expected to come into effect in 2025 – compared to very few current older Aussies.

The government said the super-tax would have little impact on the wider population when the plan was announced in March and targeted only the super-rich.

Dr. Chalmers insisted: ‘This is a modest change affecting only half a per cent of Australians.’

It is predicted to affect about 80,000 people by 2025 and raise $2 billion, targeting the top 10 percent of the country’s highest paid over the next 30 years

Other age groups — including those in their 30s or 50s — are unlikely to be affected by the tax change, Treasury modeling reveals.

But by refusing to index the $3 million limit, the tax change ignores the impact it will have on future generations.

The Treasury document added, “The $3 million threshold is very generous. It can provide much more than what is needed to fund a comfortable retirement.

‘The aim is to realize structural savings on the budget in the long term.’

The move has been criticized by the coalition’s shadow treasurer Angus Taylor, who said Labor had deliberately misled the public.

“The idea that this policy change will only affect the super rich is complete nonsense,” he told The Australian.

“This is a tax on the future of young Australians to pay for Labour’s pet projects today.

The Treasury’s own analysis shows that for the first time Labour’s doubling of the tax on super means that young Australians will pay higher taxes on their super than the generation before them.

“The government has misled Australia and it is time for the treasurer to come clean and confirm exactly how many people will lose under these changes.”

The treasurer’s office defended the super tax, saying it would have less impact than a 2017 Coalition super tax adjustment, which affected 160,000.

A spokesman added: “All their hypocrisy and hyperventilation is to distract from the fact that the liberals want to increase their trillions of dollars in debt to fund bigger tax breaks for people who already have tens of millions in super.”