‘Victory for common sense’ or a ‘gift to the super-rich’? Div 296 fighting not over yet

The early consensus following Labor’s victory at the federal election in May was that the government would be able to get the controversial $3 million super tax bill over the line as long as the Greens came on board in the Senate.

Yet following the Treasurer’s surprise decision to rework the proposed legislation, it is the Greens that aren’t happy, with senator Nick McKim saying Labor “doesn’t have the guts to tax big corporations and billionaires fairly”.

“We will take a look at the detail here, but we’re concerned that the government has further weakened what should be a tax to ensure the super wealthy top 0.5 per cent pay their fair share of tax,” McKim said in a statement on Monday, adding that not taxing unrealised gains is a “gift to the super-rich that will cost the budget billions”.

“This is a capitulation to the wealthiest people in the country, and a slap in the face to everyone else who pays their tax straight out of their pay packet.”

According to the Greens’ economic justice spokesperson, the new version simply enables the richest Australians to “keep hoarding investment properties”.

“This backflip shows Labor’s priorities loud and clear. They’d rather protect the wealthy few than stand up for the many,” McKim added.

“The Greens will keep pushing for a fair tax system that makes the wealthy pay their way, instead of one that still rewards those hoarding obscene wealth through super accounts.”

On the other side of the political spectrum shadow treasurer Ted O’Brien said the Treasurer had been “publicly humiliated”, while Pat Conaghan called it a “victory for common sense”.

“Taxing paper profits was always unfair and unworkable,” Conaghan said.

“It would have taxed everyday Australians on money that hadn’t even hit their bank account yet – risking forced sales to pay the tax bill for family farms and small businesses with illiquid assets. Today’s backdown means they can breathe a little easier.”

Also labelling the move a backflip, the shadow assistant treasurer argued it is proof Labor is ill equipped to manage the tax system.

“[Jim Chalmers’] first instinct is to tax Australians more and he’ll only listen after years of Australians pushing back,” Conaghan added.

Meanwhile, independent MP Zali Steggall noted that the initial design likely would have been legislated in the last parliament if it weren’t for the crossbenchers pushing back on the government’s plans.

“I welcome Treasurer Jim Chalmers’ announcement that he has taken on board the feedback I and other crossbenchers conveyed on superannuation tax reform – particularly regarding indexation and the proposal to tax unrealised gains,” Steggall said.

“Last year, I and other crossbenchers outlined our concerns in a joint letter to the treasurer, demanding he revise the proposed laws to make them simpler and fairer.

“Today’s announcement by the government shows crossbench advocacy matters. I thank the government for acting on our concerns.

“And as I’ve said previously, the government should not be pursuing individuals for more tax while giving huge gas companies a free ride. The government should now look at other tax opportunities such as strengthening the petroleum resource rent tax to ensure polluting companies pay their fair share for Australia’s resources.”

Former prime minister Paul Keating, who had criticised the design of the original tax, issued a statement praising the decision to change course – and take aim at Howard-Costello era super changes.

“The treasurer’s success in working through and resolving this impasse will now mean that superannuation accumulations will be successfully taxed, but taxed only on a basis of realisation, but more than that, taxed at a new limit and at a higher rate, restoring much-needed equity following the Howard-Costello rampage of 2007,” Keating said.

He added: “Importantly, these decisions solidify superannuation tax arrangements in a manner the community can now rely upon for the long-term security of their retirement savings and with it, their peace of mind.”

Associations back ‘pragmatic and measured approach’

While politicians aired their grievances, industry associations looked to take a more diplomatic approach to the move.

Financial Services Council (FSC) chief executive Blake Briggs voiced support for a collaborative process to “ensure the tax is designed in a way that can enjoy broad industry support”.

"The commitment to index the new tax thresholds and only apply the tax to realised gains that occur in the future is welcome,” Briggs said.

Similarly, Institute of Public Accountants senior tax advisor Tony Greco said the about face would allow for a more sustainable approach.

“This is a positive step forward. The decision to remove unrealised gains from the calculation of taxable earnings addresses one of the most contentious aspects in the original proposal,” Greco said.

“Taxing unrealised gains was fundamentally inconsistent with long-standing tax principles and created significant cashflow and compliance risks for taxpayers – particularly small business owners and self-managed superannuation funds.”

He also backed the introduction of indexation for both the $3 million and new $10 million thresholds.

“Indexation is critical for maintaining fairness across generations. Without it, the tax would have increasingly captured ordinary Australians as inflation eroded real values,” Greco said.

SMSF Association CEO Peter Burgess added that the announcement would send “waves of relief” through the SMSF community.

“From the outset, the Association has worked tirelessly to highlight the expansive and damaging consequences of taxing paper profits,” he said.

“Working in partnership with other organisations, we have clearly demonstrated the deleterious effect this would have on a diverse range of industries such as farming and small business and investment activities such as venture capital, so it’s extremely pleasing that the government has listened to these concerns.”

Institute of Financial Professionals Australia head of technical services Natasha Panagis said the IFPA had strongly advocated for indexation and removing the taxation of unrealised gains since day one.

“These amendments align the policy with sound tax principles, you pay tax on income you’ve actually earned. This will give Australians greater certainty and confidence in managing their super investments,” Panagis said.