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Labor’s superannuation tax changes are a low-risk plan for repairing the budget — and an important political turning point
After nearly four years in a small target crouch, nursing the bruises and fearing the ghosts of 2019, Labor poked its nose above the tax reform parapet this week.
The superannuation tax increase announced this week is modest, even timid, compared to the bold reforms Bill Shorten took to the 2019 election. Nonetheless, it marks an important turning point for Labor. It’s finally been willing to take a political risk to repair a budget in bad shape.
When he took over as leader after the 2019 defeat, Anthony Albanese shared the view of many within Labor that tax reform was too difficult to attempt from opposition. He jettisoned everything except a plan to slug multinationals (for whom there’s little love). It was a low-risk and highly successful plan for keeping the focus off Labor and on Scott Morrison’s faults.
This cautious approach worked well in opposition. It was never going to last in government with a worsening structural deficit and spending pressures piling up.
The first attempt to shake off the pre-election cloak of caution on tax ended with a prudent retreat. In the lead-up to his first budget, Treasurer Jim Chalmers opened a “conversation” about the stage 3 tax cuts, before the prime minister deemed any change to be too risky, given his clear and repeated commitments to leave them untouched.
On superannuation, it was again Chalmers who last week opened a “conversation”. Albanese had not been quite as definitive on super as the stage 3 tax cuts before the election, but he still said he had “no intention” to tinker with the rules. There was still some risk involved in any change.
Eight days after floating a possible change, Chalmers felt it was better to act than let the speculation drag on until the budget. Cabinet agreed and the cloak of caution on tax was officially loosened. It’s a significant moment for Labor.
In and of itself, this superannuation change should carry little political risk for Labor, for three main reasons.
First, only the very top end will notice it: 0.5 per cent of superannuation accounts, holding more than $3 million, will pay a higher tax rate on earnings above the threshold (30 per cent instead of 15 per cent). About 80,000 people are in that category today, but the $3 million threshold isn’t indexed, so the number affected will grow over time.
Second, the change has been announced in Labor’s first year of office, and is therefore unlikely to be on the minds of many by the time of the next election.
Third, and most importantly in terms of de-risking the politics, the change won’t kick in until mid-2025, after the next election. That gives voters a chance to boot Labor out if they are so aggrieved by this measure. This delayed start was also aimed at goading the Coalition into making an election commitment to restore the super tax breaks for multi-millionaires. The Coalition took the bait.
After some initial equivocation and confusion from his colleagues, Opposition Leader Peter Dutton yesterday declared, “we will repeal it”. He’ll now have to find offsetting savings elsewhere or go to the election promising bigger deficits to fund tax benefits for the wealthy.
The real risk for the government is not this modest change itself, but the danger it’s seen as just the start. After his 2019 defeat, Bill Shorten reflected on the “anxiety” his franking credits changes caused, even among those who were unaffected. They were “susceptible to the argument that there were further changes”, he said. Labor must avoid rekindling that anxiety.
The super announcement was made on the same day the government released a Tax Expenditure Statement, which clocks up the growing cost of all sorts of concessions, including the Capital Gains Tax exemption for the family home.
The idea was to ground the super change in some factual basis. Dutton immediately called the tally of other tax concessions a “hit list” being pursued by Labor.
Chalmers is trying to elevate the tax conversation in Australia. He wants to end the “rule in, rule out” game and strive for a more “sophisticated” discourse around the pros and cons of various tax measures. It’s an admirable ideal and the treasurer deserves credit for his willingness to speak more openly and go beyond the usual “talking points”.
Leaving some scope for a future shift on tax might be sound in a policy sense, but it’s not without its immediate political dangers, as Chalmers soon discovered.
When pressed on Sunrise to rule out taxing the family home, Chalmers tried to avoid boxing himself in. “It’s not my intention,” he assured.
When asked the same question on Radio National 20 minutes later, the prime minister dropped any wiggle room. “We have no …” Albanese began, but pulled up before uttering the word “intention” and started over. “We are not going to impact the family home, full stop, exclamation mark.”
it was. An unequivocal rule out. It was a reminder of the hard reality that while the treasurer may seek to keep fiscal options open and elevate the debate, the prime minister ultimately determines how much political risk can be borne.
Chalmers later acknowledged he should have been more definitive on the question of taxing the family home. He joined the prime minister in ruling out any change.
