The Albanese government has committed itself to double the tax on superannuation balances of $3 million plus from July 2025 and the Association of Superannuation Funds of Australia (ASFA) wants to use the measure to help low-income earners.

Under the government’s plan investment returns on $3 million-plus balances will result in a tax increase from 15 per cent to 30 per cent in a move Treasurer Jim Chalmers said will raise $2 billion.

The move would apply to all balances of $3 million-plus because only balances up to $1.9 million can be in pension mode when they become free of all tax.

ASFA wants to direct $750 million of the new money Treasury will raise into boosting the Low Income Super Tax Offset (LISTO) for the benefit of 1.2 million super fund members.

Currently anyone earning up to $37,000 with at least 10 per cent coming from work or business receives a LISTO of up to $500 a year into their super fund.

ASFA wants to boost that figure to $45,000 and deliver eligible recipients up to $700 a year in what it sees as an important equity measure.

“By increasing support for low-income earners and ensuring fair tax contributions from those with substantial superannuation balances, we can foster a more balanced and equitable retirement system,” ASFA CEO Mary Delahunty said.

It might seem like a modest measure, but ASFA says it can deliver significant benefits to low-income fund members.

This measure would bring an additional 1.2 million Australians, 60 per cent of whom would be women, into the LISTO net.

They would include significant numbers of young workers and those non-English-speaking backgrounds.

In real terms, the measure would deliver a 35-year-old earning $44,000 and retiring at 67  a rise in their superannuation retirement balance from $293,000 to $336,000.

“It’s an opportunity to make society fairer and provide low-income workers with a more dignified and secure retirement,” Delahunty said.

Taking some benefit away from those with high income and wealth to increase equity would be a sensible reform.

“ASFA believes that super taxation can and should be made fairer, by making sure that tax concessions go to those who need them most,” Delahunty said.

There has been controversy over the imposition of extra tax on $3 million-plus balances, however the government says it will apply to very few people.

Chalmers described it as very modest compared to the revenue forgone from superannuation tax concessions, which amounted to about $50 billion a year in 2022-23.

The cost of those  concessions is projected to exceed the cost of the age pension by 2050.

“This modest adjustment is consistent with the government’s proposed objective of superannuation, to deliver income for a dignified retirement in an equitable and sustainable way,” Chalmers said.

The problem

Much of the controversy over the high balance tax jump has been driven by the planned way it will be implemented through calculating unrealised gains as part of a fund’s income.

Theoretically that means some assets could have to be sold to make tax payments.

However ASFA says 85 per cent of those likely to be hit are over 60 and many would have tax-free super pension income to pay any extra tax impost.

Very few would have all their super assets tied up in big items like farms and businesses that would present liquidity problems.

“Around 5 per cent of those with over $3 million in superannuation have farm income either direct or through trust or partnership distribution, but in many cases it is not substantial,” ASFA’s research found.

ASFA’s proposed move would effectively index the LISTO, which has not increased since its introduction in 2017.

Ash Fowler, policy manager with the Combined Pensioners and Superannuants Association, said LISTO should be indexed but was less enthusiastic about using extra tax revenues to boost LISTO rates and coverage.

LISTO had a clear purpose, which is to ensure that low-income earners are not paying more tax on their superannuation than on their wages.

“There are probably more robust ways to even the playing field in superannuation that to move LISTO away from its existing purpose,” Fowler said.

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