By John Kehoe
Eight independent MPs have teamed up to oppose the federal government’s plan to tax unrealised gains on superannuation balances above $3 million, as Treasurer Jim Chalmers struggles to win political support for the biggest revenue-raising measure in his budget.
Six teal MPs, plus two other so-called community independent MPs, jointly announced on Wednesday they oppose the design of Labor’s proposed additional 15 per cent tax on the earnings of larger superannuation balances.
The MPs’ intervention comes as key crossbench senators whose support will be required to pass the law, including David Pocock and Jacqui Lambie, also object to the attempted taxation of paper profits inside super funds.
The lower house MPs and senators have told Dr Chalmers and Assistant Treasurer Stephen Jones they are concerned about the detrimental impact on taxing unrealised gains of farmers who own property in their self-managed super fund, small business operators, start-ups and defined benefit pensions for public servants and judges.
Unrealised gains are valuation increases of assets such as shares and property before the assets are sold and converted to cash.
The government’s legislation is stalled and the widespread objections suggest that Dr Chalmers will struggle to legislate the measure in its current form and raise the forecast $2.3 billion a year from 2027-28.
Treasury is briefing some independent senators this week on the proposal.
‘Urgent action’ called for
In a joint statement, eight independent MPs called for “urgent action” on the superannuation changes.
“Independent MPs are calling for urgent amendments to the Better Targeted Super Bill, particularly regarding the proposed taxation of unrealised gains, while warning that the prolonged delay is causing even more uncertainty for Australians,” they said.
“The crossbench has consistently opposed the egregious proposal to tax unrealised capital gains, highlighting the negative impact this would have on small businesses, start-ups, farmers and self-managed super fund members.”
The statement was signed by so-called teal MPs elected for the first time at the 2022 election – Allegra Spender, Kylea Tink, Kate Chaney, Zoe Daniel, Monique Ryan and Sophie Scamps – and fellow independents Helen Haines and Zali Steggall.
Ms Spender said she would introduce an amendment to allow the deferral of payment for taxpayers who might otherwise be forced to sell their illiquid assets.
“We need to have appropriate tax on super, but taxing unrealised gains is just bad policy,” she said.
“I’m really concerned about the impact on the start-up and innovation sector, in particular, which is an area we need to see grow, rather than diminish.”
Ms Spender said the tax was designed to accommodate the technical difficulty in imposing the additional 15 per cent tax on large industry and retail super funds at the fund level, but it would overwhelmingly hurt self-managed super funds.
“Self-managed super funds could easily calculate their actual earnings and associated tax” instead of unrealised gains, she said.
Ms Tink, the member for North Sydney, said the lack of indexation to the $3 million threshold meant that over time it “will impact many more ordinary Australians”.
Ms Chaney, who represents the wealthy Perth electorate of Curtin, said the “purpose of this legislation can be achieved without taking on the ridiculous impracticality of taxing unrealised gains, which goes against a long-standing principle of tax law”.
Ms Daniel, who represents the affluent Melbourne bayside seat of Goldstein, said taxing unrealised gains could “turn retirement into a nightmare for as many as 50,000 Australians who are self-managing their super”.
Ms Haines, member for the regional Victorian electorate of Indi, said she was concerned about the impact on people holding their family farms in self-managed super funds.
“If this tax on superannuation above $3 million goes ahead as currently drafted, these farming families may not receive the lease payments or rental yields to meet the annual tax bill on their land assets without selling the land itself.”
Ms Ryan, member for the former blue-ribbon Liberal seat of Kooyong, said the tax “could put a massive brake on new companies’ ability to invest in new technologies”.
Dr Scamps, member for the Sydney northern beaches electorate of Mackellar, said: “The plan to tax unrealised, or paper, gains from assets that have not been sold is unprecedented and could result in undue financial burden on thousands of small businesses, including farmers that use this structure.”
Ms Steggall, who represents Sydney’s wealthy lower north shore electorate of Warringah, said: “Taxing people on something that hasn’t actually been realised – and may be gone the following year – is problematic.”
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