Episode Transcript
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Speaker 1 (00:01):
The Coalition is vowing to fight Labour's plan to double
the tax rate on superannuation balances of more than three
million dollars. What we need to do is to make
sure that our superannuation system is fair. He's wanting to
pretend he's sort of, you know, some modern day Robin Hood.
You know, he's taking from the fat cats with multimillion
dollar portfolios to fund the good deeds of government.
Speaker 2 (00:26):
Politicians and wealthy Australians are getting pretty worked up about
the government's proposed new tax on high superbalances. What actually
is at stakecare and has our globally at my pension
system turned into a tax haven for the rich. Hello,
I'm Chris Burke and welcome to the Bluemberg Australia podcast
(00:47):
this week. Do you have more than three million dollars
in your super? If so, well done, but there's a
good chance you're not very happy about Labour's plan to
make you pay an extra tax on it. If you
don't have three million dollar than Mike commiserations, but rest
assured you are certainly not alone. In fact, you're keeping
company with ninety nine percent of the country, including myself,
(01:08):
sadly still the proposal seems to be ruffling a lot
of feathers and will be a priority for the government
once Parliament resumes in Canberra next month. To help look
past the controversy and unpack all this in his typically
measured style, I've asked Rich Henderson, Bloomberg's Cross Houset reporter
in Melbourne, to take us through the tax, how it
(01:28):
works and what it says about our booming superindustry. Rich,
welcome to the podcast. Hey, hey, Rich, you know I'm
going to ask this. Do you have more than three
million dollars in your super?
Speaker 1 (01:40):
Sadly I do not, so I'm afraid no.
Speaker 2 (01:43):
Thank you for your honesty. But look, how about I
put it this way. If you did have three million
dollars in your super, what exactly are you in for
from this tax that the government is planning to push through.
Speaker 1 (01:54):
So the government has unveiled well it's about two years
old now actually, but it's really a fi fifteen percent
tax on earnings for superbalances above three million dollars, and
so this would capture basically the income and also the
increase in asset values for balances above three million.
Speaker 2 (02:18):
That's an extra fifteen percent tax on the fifteen percent
tax that everyone has already taxed on their super innings.
Speaker 1 (02:25):
Right precisely, Yes, as you said.
Speaker 2 (02:27):
Look, this was announced more than two years ago. There
was a space of outrage from the opposition and a
few corners that so soon kind of died down after
it was seen from polls that the public broadly didn't
really care. Why is everyone getting so worked up about it? Now?
What's changed?
Speaker 1 (02:45):
What changes the election and Labour's resounding victory and the
number of seats they have in Parliament which will allow
them to effectively pass past this legislation as it is.
And I think there might have been an expectation or
anticipation that this kind of plan, which some might see
as aggressive, would have been watered down in sort of
(03:06):
horse trading to get votes over the line. Now Labor
doesn't need to do that, okay.
Speaker 2 (03:13):
So look, it's no secret that our supersystem is pretty complicated. Indeed,
when this tax change was first proposed in twenty three,
the government released an explanatory memorandum which was three hundred
and four pages long. So Rich, my challenge to you
(03:35):
is to condense all that into one minute for us,
how many people is this extra tax going to affect it,
and can you give us like an example of how
much more tax they're actually going to have to pay.
Speaker 1 (03:48):
So the government has said there are around eighty thousand
people with balances above three million dollars that will be hit.
And this is quite a complex tax in the way
it's been calculated, and I don't think people quite understand
it very well. So I'm just going to give a
couple examples. So let's say there's two people. Okay, one
(04:09):
person has a balance in their super of four million
and the other of twenty million. Both of these people
make five hundred thousand dollars in their super in a
calendar year or in a financial year. So the person
with four million is going to pay around twenty five
thousand tax on that five hundred thousand. The person with
(04:30):
twenty million is going to pay sixty four thousand dollars
on that five hundred thousand. Okay, So the more you
have above that three million threshold, the more you'll be
paying of this tax.
Speaker 2 (04:41):
Right, So it's proportional, and it's based on the amount
you have above three million, but tax based on your
total superbalance. That's right, Okay, By the sound sort, I
think a lot of accountants are going to be fairly
fairly happy when this passes, and they'll be fairly busy.
(05:03):
But what about the government. Do we know how much
extra revenue this is actually going to bring in for
mister Jim Chalmers.
Speaker 1 (05:11):
Yes, the projection is two billion, two billion dollars Australian.
But again, you know, there's a lot of there's a
lot of contested ideas here. You know, one of them
is the role of indexing. So basically those who are
very opposed to this want the three million threshold to
(05:34):
be indexed. So as inflation, you know, reduces the value
of money, that three million, all things equals, should be
going up. But the government's going to lock it in.
So that means every year, as money is worthless, it
buys you less because of inflation, prices slowly creep up.
The three million thresholder actually capture lots and lots more
(05:55):
people as their superbalances increase. And people are very upset
about that indexing points.
Speaker 2 (06:00):
But I mean, I guess the amounts that we're talking
about in the big scheme of things are fairly modest
mostly anyway, And as you say, it's affecting a tiny
part of the population. Look or am I missing something here.
There's been stories about you know, share prices collapsing and
even hits to economic growth. But are they likely to
(06:23):
be impacts beyond wealthier people paying a bit more tax. Yeah.
Speaker 1 (06:28):
So there's been a lot of points made, a lot
of scare mongering. You know, some people are saying, you know,
the stock market will collapse. Some people are saying, you know,
wealthy Australians won't invest in venture capital and so there'll
be no innovation in Australia and that will be a
net negative for the country and the economy. I think
the levels we're talking about in terms of the dollar figures,
(06:50):
I don't think they're going to be super high, and
I don't think they're going to have those structural impacts.
I could be wrong, but you know, a lot of
the commentary has the appearance of a scare campaign. There
is one point that's getting a lot of attention that
needs to be mentioned though, and that is taxing unrealized gains.
So this is probably the most controversial element here because
(07:14):
in that example of a super balance going up five
hundred thousand, usually with a capital gains tax, you actually
have to sell a thing and then you pay the
tax on the money you made by owning it. Well,
when you tax unrealized gains, nothing needs to be sold.
And so that means if the stock market has a
(07:34):
bumper year and it goes up twenty or thirty percent,
Let's say, you know, US stocks do that, you know,
every decade or so, well in a single year, well,
then you can be whacked with a pretty big bill
if you have a huge balance. But the next year
the stock market might go down twenty or thirty percent.
And so there's a lot of concern that, you know,
(07:56):
individuals will be vulnerable to swings in asset prices, and
valuing those asset prices will will take on a higher importance.
So that's one element that is that is quite controversial,
and I think there's great arguments of those who are
criticizing it. But also from Jim Chalmer's point, you know,
(08:19):
he's kind of out there saying, you know, yeah, but
it's really the only way to do it.
Speaker 2 (08:23):
Yeah, as you say, that has been that has been
causing a fair amount of loud, loud opposition from certain people,
especially in the last few weeks. What about We've also
heard about people who for instance, put property into their
super funds, or farmers who who own their who own
their farmers via super funds.
Speaker 1 (08:44):
This is a really interesting one. I had never heard
of this before, you know, a few weeks ago, but
there are farmers out there. I was speaking to a
financial advisor who advises some farmers, and they have been
some of them have been incentivized by the tax structure
of super to put a portion of their farmland into
their superannuation. And so the value of that land may
(09:06):
have gone up by you know, two or three times
over a twenty plus year period, and so they're going
to be in a situation where they'll have to get
a just you know, real honest valuation of their land,
and it could be quite high, definitely above that three
million threshold, combined with other assets. Maybe they've got some
stocks and bonds, et cetera. And so will they be
(09:28):
in a situation where they're forced to sell part of
their farmlands, you know, will that add new pressure on
rural communities That could be quite an acute strain for
certain for certain rural communities. Potentially, that's definitely what you know,
some of the farming associations are out there saying.
Speaker 2 (09:47):
Yeah, that's interesting, and I think I think above all
this has just really shone a light on the kind
of investments and activities that people are doing around there,
around their superannuation, which may not have kind of been
been so publicly reported before. So when we come back,
(10:08):
are our super funds really becoming a tax haven for
the wealthiest Australians. Welcome back to the Bloomberg Australia Podcast.
You're here with me Chris Burke, and I'm talking to
Cross Asset reporter Rich Anderson about all the noise and
controversy surrounding Labour's proposed new tax on superbalances above three
(10:32):
million dollars so rich. It looks like Labor may have
to rely on the Greens support to get this bill
through the Senate. The Greens newly appointed Treasury spokesman Nick
McKim recently said, and I quote, over time, Australia's superannuation
system has become less about providing a dignified retirement for
working people and more of a vehicle for wealth accumulation
(10:55):
end of quote. Does he have a point?
Speaker 1 (10:58):
I think he does have a point, And I think
you need to keep in mind that the supersystem was
legislated all around, providing a dignified, you know life for
people when they stopped working. The tax incentives have been
generous and it has allowed you know, wealthy Australians to
put a lot of money into supercharge asset growth financial
(11:18):
markets over the last twenty years have done fantastically, fantastically well.
So you know, it has become a key element of
building fortunes for the most wealthy Australians, that's for sure.
But you know, the counter argument there would be that,
you know, they've been following the rules. The rules have
been in place for a long time. You know, they
(11:38):
if they weren't going to use super they would have
used something else. So you know, you know they're kind
of up and arms saying, well not everyone. A lots
of people upper arms and saying, you know, it's a
bit unfair now to completely change things because we've been
doing the right thing all this time.
Speaker 2 (11:52):
Yeah, And I guess it's symptomatic in a way of
just how big, how the whole super industry has become
more than thirty years now, and so these things are
you know, naturally going to be coming to light as
all that money keeps pouring in. Look, but as our
system unique in some way, or are other countries able
(12:14):
to use their pensions as a wealth accumulation vehicle thanks
to thanks to quite generous tax benefits.
Speaker 1 (12:20):
Yeah, our systems unique in I mean for a number
of reasons. One is the generous employer contributions. That's really
a major hallmark. But in terms of you know, systems
in other countries, I'm thinking of the US in particular,
there are you know, similar legal structures where folks are
able to supercharge their their retirement assets to build fortunes,
(12:45):
and many have done so. But I think that you know,
the critics who are saying this is straying too far
from the original framework of superannuation, I think they do
have a point.
Speaker 2 (13:00):
And You've been speaking to a few financial advisors in
recent days on on the new super tax. I guess
the big question is will this tax actually lead anyone
to change the types of investments they have in their
super funds or or is everyone just making a lot
of noise?
Speaker 1 (13:17):
Well, everyone seems to be worried. You know, the financial
advisors I've been talking to, they're fielding huge volume of
calls from folks who are above and below the threshold.
Who want to understand this? What does it mean? You know,
there may be some liquidity stresses here. You know, if
you if you do actually have to pay, you know,
(13:38):
pay tax on unrealized gains, well, that means you might
have to actually start selling things in your super that
you might not otherwise sell. You can also finance the
tax bill from you know, from your bank account or
you know, or selling assets outside of super as well,
but there may be a desire for more liquidity to
(13:58):
actually pay the tax when it comes due.
Speaker 2 (14:01):
Okay, well, I guess it's definitely something we will be
keeping an eye on in the coming weeks and months.
Rich thanks for joining the podcast, and thank you for
listening to the Bloomberg Australia Podcast. I'm Chris Burke. This
episode was recorded on the traditional lands of the Wurunduri people.
It was produced by Paul Allen and edited by Ainsley
Chandler and Rebecca Jones. Don't forget to follow and review
(14:24):
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