By Geoff Wilson
No government would be reckless enough to introduce legislation that disrespects young people, treats farmers unfairly, and hurts small business owners and Australian investors just months out from an election – especially when they are lagging in the polls.
During a tumultuous final day of parliament, the Coalition, together with Senators Jacqui Lambie and David Pocock refused to support legislation that sought to tax unrealised gains on super balances over $3 million.
This is a blessing in disguise for the government, as it could prevent large and diverse sections of the public from being affected if the legislation ever became reality, especially at a time when many Australians are facing significant economic challenges.
Although it has been put on the back-burner for now, a government facing a budget deficit that appears out of control and is in desperate need of income may kick the can down the road and reintroduce the legislation if parliament resumes in February next year.
The proposed legislation could generate significant revenue in the first full year of introduction. It also has the potential to become the thin edge of the wedge that could lead to the expansion of this unfair approach, which imposes an annual tax on the rising value of assets inside superannuation funds, even if there is no actual profit made.
The “super tax” legislation is flawed, unfair and un-Australian. Refusing to index the $3 million cap to take inflation into account discriminates against young Australians working to build up their superannuation balances over time while struggling with the current cost of living pressures, a housing affordability crisis and declining living standards.
The Financial Services Council estimates that more than 500,000 super balances would eventually breach the $3 million cap, including 204,000 Australians under the age of 30.
A dampener on portfolio growth
Under this proposed legislation, investors are likely to be discouraged from investing in high-risk/high-growth assets that could generate significant unrealised capital gains, and this will reduce overall portfolio growth and long-term returns.
Self-managed super funds with illiquid assets will be hard hit as they may well face cash flow issues and be forced to sell assets to cover tax liabilities. There are also concerns that small business owners and farmers who have property in their super funds could be forced to sell their assets to pay the new higher tax.
Taxing unrealised gains would harm savers and investors in high-growth companies such as Canva and damage the economy by removing much-needed risk capital.
It will also erode wealth for everyday Australians and discourage risk-taking and entrepreneurship.
We remain supportive of additional taxes for large superannuation balances and encourage the government to do the right thing by indexing increases to the $3 million cap to keep pace with inflation and removing tax on unrealised gains.
The Australian government rushed through 32 bills in the Senate on the last sitting day of parliament. Several show signs of overreach and additional red tape that will continue to stifle productivity and remove incentives for innovation that drive the Australian economy and job creation.
This comes at a time when the Australian economy is struggling under the burden of higher interest rates, which have significantly slowed growth and put pressure on household budgets, and it is in urgent need of policies that encourage economic growth rather than stifle it.
The 2019 federal election was decided on franking credits. Will the 2025 election be decided on taxing unrealised gains that risk alienating a significant portion of the electorate? We will find out the answer in the first half of 2025 when the public has a chance to decide.
Geoff Wilson is the chairman of Wilson Asset Management.
