The federal government’s small tweaking of the tax haven known as superannuation is flawed, but there are hints the Treasurer is aware of the mistake and it will be fixed before becoming law.

On the other hand, Peter Dutton’s response to the tweaking is deeply, terminally flawed. It speaks to a darkness at the heart of the modern federal Liberal Party, a darkness that seeks to double down rather than save itself.

The mistake in Jim Chalmers’ initial proposal is to tax unrealised capital gains. It’s a sideshow to the main event of very slightly reducing the tax benefits an individual enjoys by having more than $3 million in their superannuation fund.

Taxing unrealised capital gains is wrong in principle and simply silly – unless it’s a Baldrick-style cunning plan to include something in the proposal that can be traded away in the argy-bargy that is the Senate.

Or, with more cunning, it’s getting some Willie John McBride-style retaliation in first with the tax minimisation industry. Without this red herring, the super industry would be crying about the burden of paperwork involved in doing the accounting it already does. (Infidels who are not members of the One True Code can Google the McBride rugby reference.)  

Unnecessary corporate welfare

Alas, I fear it is neither Baldrick nor McBride cunning, but the same sort of dumb, divorced-from-reality Treasury thinking that gave us $30 billion or so of unnecessary corporate welfare during COVID by not including a clawback provision when throwing money at rich businesses that did not need it.

As robodebt has painfully shown, Canberra bureaucrats really are distanced from the real world.

In any event, note that Dr Chalmers has been careful to say taxing unrealised capital gains was Treasury’s idea, not the Treasurer’s, and that he is open to “consultation”. I’ll be surprised if it makes the House of Representatives and will take bets it won’t pass the Senate.

But I digress.

The Coalition’s decision to die in a ditch at the behest of the top 0.5 per cent is more concerning. As long as a political party is prepared to sacrifice principle and fight reasonable policy for attempted (and failed) cheap political points within its own narrow base, it is not fit for office.

It is a good thing to have an opposition that is reasonable, that keeps the government honest because government, in time, tends to be corrupting.

Mr Dutton’s claim that it’s not about the amount of money but the principle that “the government’s super tax is an attack on aspirational Australians who have worked hard all their life” would be simply sad if it wasn’t laughable.  

A quick example of how marginal the government’s main proposal for minor superannuation tweaking really is:

The increase in the tax rate on earnings of funds above $3 million is an increase on funds above $6 million for a couple who have their financial affairs in order. Let’s be kind and assume such funds are earning 5 per cent including franking credits.

The extra 15 per cent of 5 per cent on a hundred thousand or two above the $6 million really wouldn’t be noticed.

Consider an ‘aspirational’ couple

So let’s consider an “aspirational” couple have made the most of the super tax haven and built up a $7 million nest egg by making do with a new E class Merc every couple of years instead of an S class. Flying business instead of first class and sailing only a 15-metre yacht.

The top $1 million might earn $50,000 in dividends, franking credits and interest. The extra 15 per cent tax on that $50K would mean $7500.

But when that little tweak is meant to kick in, a couple aged over 65 is required to withdraw (without any tax on the withdrawn money) at least 5 per cent of their super – $350,000. That’s the equivalent of a pre-tax salary of more than $600,000.

It’s unlikely they’ll much notice a little $7500. No overseas trip need be foregone.

And remember their super fund is self-replenishing at the rate of $350,000 a year. The proposed extra $7500 tax is just 2.1 per cent of what the fund is making, a minuscule 0.1 per cent of the fund’s value.

And you’d have to be particularly naïve, or perhaps a fund manager seeking publicity, to think the people who have more than $6 million in super don’t also have considerable assets outside the tax haven.

That was certainly the case with the first example The Australian could find of someone unhappy with the TTT (tiny tax tweak), right down to the yacht.

‘Seriously stuffed’

It seems Labor taxing the wealthy a tiny bit more is to Murdoch media what declaring war with China is to the Nine newspapers.

As the ABC’s Media Watch reported, The Australian has gone over the top and then a bit further in attacking the TTT, assisted in part by Clime Asset Management chairman, John Abernethy.

“I don’t think $3 million is a lot of money,” he said. Lucky Mr Abernethy.

“If you’ve got someone who has put all of their money into super, doesn’t own their own home and is renting, this person will be seriously stuffed by this sort of change.”  

It is possible such a person exists. There might even be two of them, but it’s not likely.

But let’s pretend there is someone who has $4 million in super, has no other assets, is renting and the super fund is earning 5 per cent.

Again, the extra tax on the $1 million above the threshold would be $7500 – 0.2 per cent of the fund. If $3 million isn’t a lot of money, I can’t comprehend how someone could be “seriously stuffed” by paying an extra $7500 in tax inside the fund.

Or, more accurately, receiving $7500 less in extremely generous tax concessions.

And again, those aged between 65 to 74 from next year will be required to withdraw a minimum of 5 per cent, so our hypothetical $4 million fund will be paying at least $200,000 a year tax-free regardless of the tax within the fund.

That’s the take-home equivalent of a pre-tax salary of more than $300,000 today. You can pay a lot of rent and still live very nicely on that sort of money.

Then there’s book-keeping

Mr Abernethy had a further whinge that the book-keeping would be all too hard. I recently received the Pascoe family super fund’s accounts for the past financial year – all the work is being done anyway. It would only require a couple of further fairly simple calculations.

The common experience is that people with several million dollars invested in any form have no trouble finding and paying accountants who in turn have no trouble working out the numbers. Some such people end up paying more for their tax advice than they do in tax.

But, you know, they are just hard-working aspirational Australians.

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