What exactly is George Christensen’s problem with Turnbull’s super changes?

The government could find it difficult to pass its proposed changes to Australia’s superannuation system, particularly as the Prime Minister is facing a revolt from his backbench over proposals to tax earnings put into superannuation by Australia’s richest. But what do the changes actually mean?

Who will get taxed more, when and by how much?

The proposed legislation, released Wednesday, would introduce a 15% tax on super earnings in retirement for account balances in excess of $1.6 million. People are already taxed 15% on the income earned by their superannuation account, but this taxation is dropped once a person is moving into retirement phase over the age of 60. What the change means is that retirees transferring money into their superannuation account, where it is not taxed, will only be allowed to transfer a maximum of $1.6 million before that 15% tax kicks back in. The government is estimating this would save the government $750 million per year in 2019-20. The Grattan Institute estimates it would only affect around 60,000 people, but the Australian Superannuation Fund Association claims it would impact more than 100,000 people.

The government is also proposing to abolish the transition to retirement tax-free exemptions to allow someone to begin drawing from super as they begin to move into retirement while ceasing to pay tax on earnings. Those who withdraw from their super while also working will pay 15% tax on the earnings from their super the same as everyone else. Grattan Institute says this will affect 115,000 people, but ASFA claims around 550,000 people will be affected. The institute says that ASFA is confusing the number of transition to retirement accounts with individual people.

Will the changes affect how much a person can top up their super balance?

Today, people can add $180,000 per year or $540,000 over three years after tax to their super account on top of what is contributed pre-tax (e.g. through regular pay or through salary sacrificing via your employer) without paying any additional tax on the super put into the account. The proposed change would cap how much people can put in this way at $500,000 over their lifetimes (counting back since 2007).

Who loses out?

One of the two complaints about this policy is that it discriminates against people who are unemployed for a few years, not earning superannuation, and then once they get a new job, decide to “top up” the money missed during the time of unemployment.

The other is that the change is “retrospective”, in that the $500,000 cap includes any money put into the account since 2007. Labor supports the cap, but not dating it back to 2007.

Why is the government even bothering with this?

The government estimates this would improve the budget $250 million per year by 2019-2020. Grattan Institute says it will not have a huge impact on the retirement savings of most people, as after-tax contributions do not generally add much to people’s superannuation savings. Those who do have a lot of after-tax contributions to make generally have large super balances already, and they are moving their money into super in order to minimise their tax.

According to the institute, $500,000 is a higher amount in super than 19 out of 20 taxpayers today have.

Other changes include:

• A reduction in the limit a person can contribute to superannuation before being taxed (via salary sacrifice or regular pay) on it, down from $30,000 (or $35,000 for the over 50s) to $25,000 per year;
• Allowing unused limits in the cap to carry forward (so if, for example, you only contributed $20,000 in one year, you could contribute $30,000 in the next);
• Allowing all workers (not just payroll employees) to make personal pre-tax super contributions;
• Increasing the tax on contributions for people earning more than $250,000 from 15% to 30% (down from the current threshold of $300,000); and
• Removing the anti-detriment provision that refunds taxes paid on super if a member dies and the super is paid to their dependent.

The Grattan Institute has estimated the changes will affect just over half a million people, mostly high income earners who will never go onto the pension. 75% of those affected are in the top fifth of income earners.

Who’s pushing back against these changes?

Turnbull has the problem of not only having to deal with Labor for these changes, but also balancing this with his backbench. LNP backbencher George Christensen has flagged his opposition to both the $500,000 lifetime cap and the $1.6 million transitional cap because he said it would hit small business owners and farmers who retire, sell their assets, and transfer that money into their superannuation. Eric Abetz and Cory Bernardi have also raised similar concerns — even though it has been pointed out to Abetz that it was unlikely to affect any voters in Tasmania.

In addition to opposing the 2007 backdating for the lifetime cap, Labor would also not allow the carry-forward, would not expand the pre-tax super contributions to everyone, and would lower the threshold further on the 30% tax to $200,000, but otherwise largely agrees with the government’s policy.

In summary

In total, as it stands, the government’s proposed changes improve the budget bottom line by $770 million by 2019-2020, while Labor’s proposals amount to a total $2 billion in savings, according to Grattan Institute.

This month the government released the exposure draft for the first tranche of legislation to support the government’s policy for superannuation changes, but excluded the parts facing the biggest opposition from within the Coalition, with Treasurer Scott Morrison saying there would be further consultation on those proposals.

The three pieces of legislation enshrine the objective of superannuation as a supplement or substitute for the age pension, along with changes to make it easier for people to make personal contributions to super and claim them as a tax deduction, as well as tax offsets for contributing to super to benefit a spouse. A tax offset will also be available up to $500 for people earning $37,000 or less who make personal contributions to their superannuation fund. The legislation also proposes to remove a work test requirement for people aged over 65 but under 75 who want to contribute to their superannuation fund.