BY GLENDA KORPORAAL
Wilson Asset Management chair, Geoff Wilson, has hit out at the federal government for not withdrawing its proposed tax increase on superannuation funds holding more than $3m.
“It is extremely disappointing that the legislation is still in parliament,” he told The Australian on Tuesday.
“It shows a complete disrespect for young Australians and the capital markets.”
Amid speculation the government may shelve the bill, Finance Minister Katy Gallagher said on Tuesday that the government had not given up hope that the legislation could be passed by the Senate as early as this week.
However, she admitted it would be a “big ask”.
The legislation seeks to impose a 30 per cent tax on super funds worth more than$3m, with the higher tax rate levied on any gain in the value of the fund over $3m over the year, regardless of whether the fund had made any profit from its assets or received any dividends from its investments.
Mr Wilson warned that the proposed tax on the unrealised gains on super funds above $3m could be the “thin edge of the wedge” and the approach of taxing rising values even if no actual profit is made could be extended to other assets.
He said the government’s refusal to index the $3m cap discriminated against younger Australians wanting to build up their super balances over time.
“It is effectively knee-capping (their superannuation) by removing indexation,” he said.
Mr Wilson, a veteran of the Australian funds management industry who conducted a successful campaign against proposals by former opposition leader Bill Shorten in the 2019 election to scrap some franking credits on dividends, said the proposed legislation was “significantly flawed”.
The government is also refusing to index the $3m cap, raising concerns it will capture an increasing number of people over time.
Senator Gallagher’s comments followed a media report on Tuesday that the government was planning to shelve the legislation, which is facing opposition from the Greens and key cross-bench senators.
But Senator Gallagher said the government was still committed to the legislation.
Mr Wilson said the legislation, which is due to come into force on July 1 next year if passed, could see farmers having to sell their properties to meet the tax.
There are also concerns that small business people who have property in their super funds could be forced to sell the properties to pay the new higher tax.
Mr Wilson said the proposal to tax unrealised gains would “harm savers and damage the economy”.
“Taxing profits you haven’t earned, or may never earn, is not only grossly unfair, but it will also have significant consequences for the Australian economy by removing risk capital,” he said.
He said the Labor government should “do the right thing” by indexing the $3m cap and eliminating the tax on unrealised gains.
“Instead, it is persisting with this fundamentally flawed piece of legislation which lacks logic and support at the cost of the taxpayer,” he said.
The government says the legislation, which was announced in February last year and introduced into parliament a year ago under the name of Better Targeted Superannuation Concessions, will only affect a small number of people.
It has sought to play down the significance of the move, describing it as a “modest change” which would affect less than 0.5 per cent of all Australians or around 80,000 people.
But many people see it affecting a much larger number, with those affected growing over time.
The government estimates that the measure could bring in as much as $2.3bn in its first full year.
The move has caused particular concern among small businesses and family farm owners whose properties were legitimately moved into super funds some years ago.
But while the legislation, which has been introduced into the Senate, may not be voted on this week, the last sitting week of federal parliament for the year, it could still be introduced if parliament were to return in the new year.
The chief executive of the Self Managed Superannuation Fund Association, Peter Burgess, told The Australian that it was still possible for the government to try to pass the legislation in the February session of parliament if it resumed in the new year.
He called on the government to defer the start date of the legislation if it were passed in the February session of parliament.
He said comments made by Senator Gallagher on Tuesday showed that the government was “not walking away” from the legislation, despite expectations that it did not have enough support to get it passed in the Senate.
“If they have sitting days of parliament in February there is still the potential for the bill to be passed,” he said.
He said if this happened, people would only have four months to get their affairs in order before the tax regime started on July 1, including having to sell family farms and properties.
“The government has been very conscious of giving people enough time to review their affairs and make changes ahead of the legislation coming into force,” he said.
He said the government needed to assure people that they would defer the start date if the legislation were passed.
Mr Burgess said the legislation was facing heavy opposition in the Senate.
“The government has come to the realisation that they don’t have the numbers in the Senate,” he said. “They have other priorities this week.”
He said cross-bench members had “serious concerns” about the legislation. But he said if it were going to be debated in February it should be with a deferred starting date. “It is a deeply flawed measure,” he said.
“It has many unintended consequences, particularly with the tax of unrealised gains and the precedent it sets for future tax reform.”
Mr Burgess said the government could introduce it into parliament if it were re-elected next year. But he said it could face tougher opposition in any new parliament.
“If the polls are right, we are headed for a minority government after the election.The teals may have more power and influence in the lower house.
“We know they don’t support this tax in its current form.”
But he said he believed the government was still committed to the legislation for budgetary reasons.
The association has been strongly opposing the legislation for its plans to tax unrealised gains – gains based on the increase in the value of the fund and not on any profits made or dividends paid.
They warn that the legislation could particularly harm small business and farmers who have properties in their super fund and could be forced to sell them if the legislation is passed.
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