Changes to be super charged across time

TREASURER Jim Chalmers is off to a good start in his crusade to reinvent capitalism. Reopening class warfare is the last thing we needed, but he’s managed to do it in fiddling with the superannuation tax scheme.

And he will argue that it’s of little consequence because it only affects those with more than $3m in their super accounts, which isn’t Joe on the street.

But it is of major consequence to, not just those with plenty of money, but the rest of us, too.

Middle-to-high income earners suffer from bracket creep when their pay goes up in line with, or above, inflation, but the tax thresholds remain the same.

It is an easy and convenient way for governments to squeeze more money out of people without having to do anything.

And similar creeping – let’s call it super creep – will occur under this new superannuation tax regime.

There are currently 80,000 people with $3m or more in superannuation. That number will grow next year, and in perpetuity, as people receive pay rises and contribute more to their super funds. That $3m figure is not proposed to be indexed. So as income and inflation rises, your chances of losing the tax concession increases exponentially.

People who take advantage of the downsizer incentive scheme – which allows people close to retirement age to pump $300,000 into their super accounts if they sell their homes and downsize – will move themselves towards the threshold even faster.

Jacking up tax is unjust to start with. The whole point of superannuation tax breaks is to encourage people to put as much money away for their retirement as possible. Telling people they are putting away too much for their retirement, and that the government should take their money instead, makes a mockery of the system’s purpose.

But it is even more unjust if the system is not indexed. Do you really think the government would voluntarily increase the threshold from $3m when it can use the system to cream more and more tax off the top every year?

Assuming an average inflation rate of 2.5 per cent, $3m in today’s money will be worth less than $1m when I turn 70 in 2069.

The average 70-year-old man’s super balance today is about $464,000 – which, in 2069, would be the equivalent of more than $1.4m.

So it’s not hard to see how middle class income earners – not on exorbitant salaries but paid enough to live comfortable lives and send their kids to good schools – will find themselves copping the higher tax rate.

The purpose of superannuation has never been to deliver a “dignified” retirement as Mr Chalmers now tells us – whatever dignified actually is.

Super funds are designed to maximise investment profits so you have as much money as possible available to you in retirement.

If you are to be forced to save your money by the government, the least they can do is let you keep every incentive to save as much as possible.