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Australians who make large voluntary retirement contributions face the loss of generous tax breaks as part of a Labor shakeup.
Treasurer Jim Chalmers has signaled that he wants to eliminate laws that allow workers to invest up to $27,500 in their supermarket each fiscal year at a low rate of 15 percent, if they earn up to $250,000.
The current regime means high earners with $180,000 are taxed far less than their 45 percent income tax rate.
It’s also a big savings for those in the low- and middle-income tax brackets, who pay a 32.5 percent tax between $45,000 and $120,000; and 37 percent between $120,000 and $180,000.
Australians who make sizable retirement contributions face the loss of generous tax breaks with Labor now accused of telling people how to spend their retirement savings (image is a file image)
With gross public debt set to top $1 trillion next year, Dr Chalmers suggested at a financial forum in Sydney on Monday that he wants the tax concessions back.
“Right now, we are on track to spend more on tax concessions than old-age pension by around 2050,” he said, in an apparent reference to a recent report by a left-leaning think tank, the Australia Institute.
“I’m not convinced it’s a sustainable way to get to our destination: good retirement income for more Australians, now and in the future.”
It comes as Dr Chalmers also pointed to new laws that would prevent future governments from allowing Australians to access their retirement savings early, as happened during the pandemic when Treasurer Josh Frydenberg allowed Australians two withdrawals of up to $20,000 of your super funds.
Shadow assistant treasurer Stuart Robert accused Labor of trying to tell Australians what to do with their super.
“Now all of a sudden, in the midst of a cost of living crisis, where they want to talk about something other than the burden on Australian families, Labor has now found an interest and a purpose for the super,” he said.
“We agree that there must be a purpose and it must be about the individual and how the individual uses his money, not how the treasurer wants to use his money for his purposes.”
A government consultation paper released Monday said retirement should focus on “generating income” for retirees rather than “minimizing taxes on wealth accumulation or allowing retirees to leave tax-effective bequests.”
The paper also argued that the retirement system should be “sustainable” and “profitable for taxpayers in achieving retirement outcomes.”
“Beyond a certain level of revenue, additional government support through tax concessions is neither necessary nor appropriate,” he said.
Treasurer Jim Chalmers (pictured with his wife Laura) has signaled that he wants to repeal laws introduced by a previous coalition government in 2006 that now allow workers to deposit up to $27,500 each fiscal year at a favorable rate of 15 percent for those earning up to $250,000
The coalition government of former Prime Minister Scott Morrison allowed workers to withdraw up to $20,000 from their super, through two installments of $10,000 in 2020, during the first months of the Covid pandemic.
Dr Chalmers called the early release a “debacle” that “forced” Australians to “choose between better income in retirement or paying their bills” after $36 billion was withdrawn.
‘Never again,’ he said. “Our government will take a different approach.”
“Some of the most disastrous policy proposals we’ve seen in recent years, like allowing billions of balances to be withdrawn during the pandemic, have come about, in part, because our predecessors were navigating the super big picture without a compass.” .
The Liberal Party in the last election campaigned to allow Australians to access $50,000 from their super to buy their first home.
It would have allowed first-time homebuyers to invest up to $50,000 or 40 percent of their retirement if they had saved for a deposit of at least 5 percent.
Opposition leader Peter Dutton defended the policy against which Prime Minister Anthony Albanese campaigned ahead of the May election.
“We brought great politics to the election,” he told 6PR radio in Perth on Monday.
Anthony Albanese (centre with girlfriend Jodie Haydon, left, and Aussie of the Year Taryn Brumfitt) and Labor also want to change the law to prevent future governments from allowing early access to super
‘It allows people to access their retirement to help buy their first home.
“When they sell the asset, they have to put the money back with the increase at retirement, so you can get a compounded benefit at retirement.
That is a perfectly sensible policy. It doesn’t make sense that someone else could use your money to buy a house under Labor’s proposal, but that you can’t use the money from your super, which you’ve put into that fund to help you get started in the property market.’
Outside of the pandemic, super early release is only allowed in very limited circumstances, including if someone is permanently incapacitated.
This is known as a ‘super disability benefit’.
A super fund must be satisfied that someone has a permanent physical or mental medical impairment that is likely to prevent this person from returning to work in a job for which they were qualified.
Mandatory retirement debuted in 1992 when Paul Keating was Labor Prime Minister.
While union membership has plummeted over the last three decades, unions have been active investors with super industry.
The super-compulsory rate increases to 11 percent, up from 10.5 percent, beginning July 1, 2023 and increases by half a percentage point each year until reaching 12 percent in July 2025.