The number of people who will be impacted by government plans to introduce a 30 per cent tax rate on the earnings of superannuation balances above $3 million could be more than six times larger than predicted if the move is not indexed, according to the Financial Services Council (FSC).
After analysing ATO data, the FSC found 526,000 current superannuation members will be negatively impacted by the change put forward by the government last week, which would double the 15 per cent tax rate applied to earnings generated by that part of a super balance that was above the $3 million threshold.
“If the government does not index the proposed $3 million superannuation balance cap, 500,000 Australian taxpayers will breach the cap in their life and face a 30 per cent earnings tax, including 204,000 Australians under the age of 30,” FSC chief executive Blake Briggs said.
The modelling, which considered the growth in superannuation for a number of age-based cohorts until age 65 based on the rate of inflation, investment returns, tax on earnings, fees and nominal salary growth, found an additional 135,541 fund members between 30 and 34 would be impacted by the new tax by the age of 65.
“Five hundred thousand impacted Australians is over six times the current government estimates, which only takes into account balances that are currently over $3 million,” the FSC said.
“Leaving the cap stuck at $3 million will mean that in today’s dollars a 30-year-old will have a real cap of around $1 million, calling into question the intergenerational fairness of an unindexed cap.
“Caps in the superannuation system are indexed to ensure generational fairness, so that each generation gets the same outcomes and benefits from the superannuation system.”
The council noted it was possible for a 25-year-old earning $100,000 as an IT professional with a current superannuation balance of $35,000 to reach the $3 million threshold by the time they retire at age 65 and the same to occur for a 45-year-old school principal earning $150,000 and with a current super balance of $650,000.
Alongside the lack of indexation, it stated it would also be working with Treasury on further issues, including the proposed tax’s interaction with the transfer balance cap, how investment earnings will be calculated and whether they will be applied to unrealised gains, the impact on super fund members in accumulation phase who can’t adjust their super balances and how contributions from structured settlements on personal injuries will be treated.
