This week Anthony Albanese trod where many thought he would never dare: he raised taxes on excessive savings held in superannuation. While he did it in a way that can wedge his political opponents in the run-up to the next election, he also handed them a big stick with which to beat him in the meantime.
The howls of betrayal of trust, broken promises and class warfare were every bit as loud and hysterical from sections of the media and the Coalition as we’ve come to expect. They were hyperbolic and unreasonable but nevertheless carry a real risk of eroding the prime minister’s credibility.
Still, changing course when the situation demands it is something no serious leader of the country can avoid. John Howard faced it with considerable dexterity after the 1996 election. Tony Abbott in 2013 was not so nimble. The fact remains: a failure to embark on budget repair has serious economic consequences for inflation and interest rates, and something had to be done.
Albanese has been almost paranoid about breaking election promises, but he came to the realisation in recent weeks that a crunch was coming, especially as Treasury was finalising the revamped tax expenditures and insights statement. This annual opening of the books is a key element of former treasurer Peter Costello’s charter of budget honesty. It is a breakdown of major elements in the trillion dollars of debt burdening the budget.
Treasurer Jim Chalmers was determined to spell out the extent of the hole he inherited and the challenges he was facing into the future. He said the expenditures and insights statement contains new information on concessions, credits, deductions and other features of Australia’s tax system. The bottom line for foregone revenue just from the top 10 tax deductions is almost $150 billion a year.
Topping the list is $48 billion exempting the family home from capital gains tax. Concessions and deductions for superannuation: about $50 billion. But it was the breakdown within the superannuation arrangements that Albanese says was news to him and explains why his “no intention” to touch super before the election changed.
Albanese thinks most Australians, like him, would be “quite surprised” that there are 17 Australians who have more than $100 million in their accounts and one with $400 million-plus. Super is about people’s retirement incomes and is not intended as a tax shelter for the very wealthy, which is what it has become. This is a point shadow treasurer Angus Taylor made in 2016 when he was defending changes to super made by the Turnbull government. He said then “it’s totally inappropriate that someone who has contributed millions and millions of dollars continues to get those 15 per cent concessions”. Taylor now says it is a blatant broken promise. His leader, Peter Dutton, says the opposition will have no part of it.
On RN Breakfast the prime minister denied point blank that raising the tax on super accounts of $3 million and above from 15 per cent to 30 per cent was a broken promise. He said, “It very clearly takes effect after the next election.” This is true, even though it will be legislated with the other budget bills this term and the $2 billion of projected savings baked into the forward estimates. And therein lies the wedge for the Dutton opposition.
The government will have no problem getting this tax hike through parliament. The Greens and most of the crossbench in the senate have signalled their support. This makes Dutton’s promise to repeal it very expensive fiscally and politically. He will have to find other savings for the annual $3.2 billion in the projected medium-term revenue.
The political wedge is even more exquisite. Albanese and Chalmers have ruled out any further changes in this area this term. They have no intention of giving any ammunition to Dutton and his cheer squad in the Murdoch media by hitting the other “99.5 per cent” of people unaffected by this reform. That would leave the Liberals defending this super-sized tax lurk for some of the richest people in the country.
This is a “modest reform” – the Grattan Institute believes it is too modest and could have dropped the threshold to $2 million. There are suggestions within government that the expenditure review committee was prepared to go further, with an eye to defending more of the revenue. But in cabinet on Tuesday morning there was pushback. Considerable attention was paid to the politics of this announcement, in an effort to contain the fallout and define the government as fiscally responsible and conservative.
When Albanese and Chalmers came to the prime minister’s courtyard news conference they had a carefully crafted plan designed to stop the hares running on the issue and to assure the electorate they had nothing to fear. The change was about “the sustainability of the system, it was not retrospective and only applied to future earnings beyond July 2025”.
One source says, “Anthony is determined to lay the foundations for a longer-term government.” This is a point the prime minister made in several interviews, where he said he is dealing not only with the short term but also what is in the long-term best interests of the nation.
Albanese believes that for any reforms to be sustainable they need to be bedded in beyond one term. In discussions with colleagues he cites the Whitlam government, whose tenure was cut short by the Dismissal. Gough Whitlam introduced the original national health insurance scheme, Medibank. It was abolished by the incoming Fraser Coalition. On the other hand, the longer-surviving Hawke–Keating governments’ version, renamed Medicare, is still with us today. Its viability is a hot-button issue for both sides of politics.
The government’s rapid cauterising of the superannuation tax concessions issue indicates Albanese was fully behind the treasurer’s decision to raise the issue a week earlier. But in making the announcement in the shadow of the tax expenditure statement the government opened itself to attacks on its “hidden agenda”. The Murdoch tabloids unleashed one of their more creative journalists, James Morrow, to run the horrible prospect that the family home would be the next to be taxed. His story ran in News Corp mastheads across the nation.
It prompted questions to the treasurer and prime minister in Wednesday’s round of media interviews. Chalmers declined to play the rule-in rule-out game. Albanese was more alert to the danger of being this open-ended. He was emphatic in telling his inquisitor, Patricia Karvelas, “we are not going to impact the family home full stop”. Why not? she persisted. “Because we’re not going to … Because it’s a bad idea.”
At his later national accounts news conference, Chalmers admitted he should have been as emphatic as Albanese. He said he was focusing on what he’s doing and wants the country to do the same. He said the tax statement is not a policy statement, “it’s a statement of facts”. He went on to proffer this explanation about his approach, taken straight from the playbook of a previous Labor treasurer, Paul Keating: “I do want to make this point – this country should be capable of a more sophisticated conversation about our budget pressures.”
The opposition has other priorities, however, especially facing what is shaping as a tight byelection in the Melbourne seat of Aston. What we are getting is not a sophisticated conversation but a caricature of one.
Angus Taylor wrongly claimed Albanese had given “a rock solid” undertaking not to touch superannuation before the election. “No intention” in any politician’s lexicon is not rock solid. Try “never ever” for size, but even then John Howard’s guarantees on a GST lasted only to the next election.
Tony Abbott’s 2013 election eve promises – “no cuts to education, no cuts to health or the ABC and SBS and no changes to pensions” – are closer to the mark and he paid dearly for breaking every one in his government’s first budget.
Running scares against Labor is always easier when you are in government and they are the opposition. Taylor keeps repeating the old Liberal shibboleth that “when the Labor Party runs out of money, it comes after yours”. He says we are going to see a lot more of it, and adds: “They’re not talking about managing their spending and managing their budget.”
Surely that is exactly what the Labor government of Australia is talking about and the spending it is managing is, among other things, the $50 billion a year the Liberals shovelled out to some of the wealthiest Australians by way of over-generous tax concessions on superannuation.
Ross Gittins, writing in The Sydney Morning Herald, detonated the favourite myth of the “self-funded retiree”. So much of their super balance, he says, comes not from what they saved but from the expensive accumulated tax breaks they were given.
Chalmers spells it out in reference to the 17 self-managed funds with $100 million balances. The tax break is worth upwards of $1.5 million a year to each of them and it takes “100 average wage-earners paying an average amount of tax” to pay for it.
This is inverse Robin Hood. The class war is not being waged against the rich but against the poor. Only the entitled could be impressed by it.
This article was first published in the print edition of The Saturday Paper on March 4, 2023 as "Who called it tax reform and not a super spreader event?".
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