The Super Tax That Wasn't: A Look at Failed Policy Design
The recent collapse of the Albanese government’s proposed superannuation tax reform for balances over $3 million highlights a persistent problem in Australian policy making: the inability to design sustainable, long-term financial solutions that can withstand public scrutiny.
Standing at my local cafe in Brunswick this morning, listening to fellow patrons discuss the news, it struck me how the debate around this policy proposal missed the mark entirely. The fundamental issue wasn’t about targeting wealthy superannuants - most reasonable people agree that super shouldn’t be a tax haven for the extremely wealthy. Rather, the policy’s fatal flaw lay in its implementation.
The core problem? Taxing unrealised gains without proper consideration for losses. Picture this: your super fund shows paper gains one year, you pay tax on them, then the market crashes. Those gains you paid tax on? Gone. Yet the tax bill remains. It’s like paying GST on groceries you never got to eat.
Local farmers and small business owners who hold their premises in super funds would have been particularly vulnerable. They’re often asset-rich but cash-poor, and forcing them to find liquidity to pay tax on paper gains could have created serious financial stress.
The government should have considered simpler alternatives. For instance, they could have implemented a straightforward increase in the tax rate for super earnings above certain thresholds, similar to our progressive income tax system. Or they could have introduced indexed caps with excess amounts being transferred out of the super system - much like the existing transfer balance cap mechanism.
Looking at my own super statements recently, I’ve watched the balance grow steadily over the years. While I’m nowhere near the $3 million mark, basic calculations show that many of today’s young workers could easily hit this threshold in their lifetime, especially without indexation. A policy designed to target the wealthy today would have gradually crept down to capture middle-income earners tomorrow.
The retirement savings system needs reform - that’s clear. But we need thoughtful, well-designed policies that can stand the test of time. Perhaps it’s time to look at broader structural reforms rather than these piecemeal attempts at revenue raising.
For now, though, it’s back to the drawing board. Let’s hope the next iteration of super reform shows more careful consideration of long-term implications and practical implementation challenges. Our retirement system deserves nothing less.