TAX AND SUPERANNUATION – ROSS GREENWOOD

In 2025, Labor set about is about to change tax rates on superannuation savings. Labor’s proposal plans to double the earnings tax on superannuation balances above $3 million – from 15 per cent to 30 per cent. The plan, first announced in late 2023, affects only an estimated 80,000 people, and still leaves in place highly favourable tax treatment for retirement savings. For all that, there is criticism that the proposed tax will not be indexed which suggests that in time many more superannuants will be affected. The policy is not yet legislated and there is growing debate as to how the final policy will be affected by votes in the Senate. To discuss the pros and cons of the policy proposal, Ross Greenwood – Business editor at Australian News Channel (Sky News) Australia – and Cassandra Goldie – CEO of the Australian Council of Social Service – addressed The Sydney Institute on Wednesday 16 July 2025. Ross Greenwood’s paper which follows has been taken from an edited transcript of his talk.

TAX AND SUPERANNUATION

ROSS GREENWOOD

I should start by saying that Cass and I have known each other for 15 years or more, and we’ve had all sorts of conversations over that time. I am a firm supporter of the work that Cass does. She raises up and represents the people who, in many ways, don’t have a voice for themselves. That’s a really important role to play.

I should give you some context as to why we’re actually here. Gerard, very astutely, spotted the two of us having this debate on my television program. He said, that was great, can you come and do it for the Institute? Because he’s ever an opportunist, and that was great. Both Cass and I were keen to get the debate out there. There’s lots of debate on this subject.

Many of the issues that Cass raised, I fundamentally agree with. Superannuation was never designed to be a transfer of wealth between generations. Yet it is becoming that. And so, the issue of how much is enough in superannuation is ever the vexed question. Because we are not quite assured as to when we shall die, so therefore we don’t quite know how much money we need.

The point is, I know that I want more than my death date. I know that for a fact. So, how much is that? Well, is that for the government to tell me? Is that for me to work out? Because I also realise that if I do run out of money, I end up on the age pension, which is not a brilliant existence.

You also have to be very careful when it comes to tax policy and changing tax because tax changes behaviour. Social taxes are some of the most interesting taxes that we have. The tax on cigarettes is a very salient point to think about. When taxes on tobacco products were first introduced, it was to reduce the number of people who smoked, which was a good thing. There would be health outcomes. So, you raise the tax to change people’s behaviour, and it worked for some time. Except now, with the taxes raised too greatly, you change behaviour in other ways. What has happened is you now have people going to illegal sellers or vendors of tobacco products. The tobacco industry has been driven underground.

Now I’m not saying that’s about to happen in the superannuation industry but, again, tax changes behaviour. You might all remember 20 years ago or more, insurance bonds were the flavour of the day. Because of their tax treatment, people poured their money in. Then, overnight, the government changed tax policy on the spot and people poured their money out of insurance bonds and into superannuation.

With superannuation now, we have probably the third largest pool of sovereign wealth or pension funds in the world. It’s a reason why our government was able to lobby the US government on new tariffs by pointing out that so much Australian investment was coming into the US. While that did not really work, it’s still an argument to remember that Australia has capital.

A second important point to recognise is that capital is mobile. Capital can move if incentives to invest in Australia diminish in any way, shape or form. The capital picks itself up and goes somewhere else. I was recently talking to Paul Schroder, the boss of AustralianSuper. I raised the issue that right now, their balance fund has around 21 per cent of its assets in Australian shares, while almost 35 per cent is invested overseas.

Now that is genuine diversification for necessary reasons. They’re so big they have to find opportunities in other places, because Australia is not a big enough economy and a big enough nation to find the opportunities here. But there’s also a second matter. The reason BlueScope Steel, Orica, BHP, Woodside are picking up their capital and going to the United States is because they get a bigger bang for their buck in America than they do in Australia. In other words, capital is mobile and it moves. And that means capital and jobs not being invested in Australia.

Now to the point about taxing unrealised capital gains. You might think, as Cass said, it’s a very small proportion of all taxpayers. Half a percent of the people, says Jim Chalmers on a regular basis when he talks about this. It’s not very many people at all, it’s not going to hurt you, it’s only the very wealthy. But it’s not that.

It’s about the fairness of our tax system. If you talk to any of the tax commissioners over a long period of time, it’s about acknowledging the fact that the tax system needs to be fair. It’s not just that it’s reasonable, but fair as well. Because if the tax system is not seen to be fair, what do people do? They seek to avoid tax. And so, fairness is a fundamental issue here.

I agree with Cass that there are other ways that the taxes could be reformed in superannuation to basically create a) more revenue for the government and b) to make certain that people do not accumulate too much money in those funds. Notwithstanding all that, the problem is what are the signals any new tax sends?

For example, you have more than $3 million in your super fund, many of which are self-managed super funds. This leads to the question whether this is an attack on self-managed super funds and giving preferential treatment to industry funds. Industry funds, which are dominated by industry groups and associations and unions, are major contributors to the Labor Party.

Taxing unrealised capital gains in a private superannuation fund that has large amounts of money in it could provide a disincentive to invest or to change behaviour. It also sends a wrong signal about whether you should invest or not. If, all of a sudden, you have invested in Canva and your $100,000 suddenly turns into five or six million dollars you are suddenly fronted with a tax bill in the order of something like $450,000-$500,000 or 15 per cent of the gain. As a result of that, you suddenly find yourself going, “Well, hang on, I don’t have that money.”

Secondly, when there’s no market to sell those shares, what do you do? You can’t sell them. You’ve got nowhere to go, so you’re stuck. You’ve got to come up with the cash. You’ve got to come up with the tax. And if, all of a sudden, those shares went from that value back to where they started, you’ve paid your tax, but you don’t get the tax back. You don’t get the credit. So, it’s unfair.

As a result, it will change people’s behaviour about whether they invest, about how much they put into cash versus actually backing investments in Australian businesses. I don’t dispute the fact that the taxes on super have to change, nor do I dispute the fact that the very wealthy have got to be given some disincentive from accumulating too much money in their super funds. But do remember, such investors have broken no laws. They’ve done nothing wrong. They’ve done nothing ethically wrong. They have followed the rules of the government, that the government set. Governments, of course, can change rules and we can then decide whether we vote for that government or not.

The second part about the new superannuation taxes is there is no indexation. I’ll give you an example of a 40-year-old has gone fine in their job, whatever it might be, and has half million dollars in their super fund today. By the time they’re 60, they’ll have $3 million in their super fund by doing nothing. This has happened by simply being in a typical fund that grows. They’ll basically accumulate that money because of the compounding of interest. That’s the way superannuation works.

If you don’t have indexation, you’re going to catch many more people, and by the time many people are 70, they’re clearly going to be in this position of having more than $3 million. Again, it goes back to fairness, whether this system is fair, that the treasurer is proposing, or whether it’s not fair. And the problem is, in my mind, it’s a precedent for other types of moves on taxation, which, again, may take away fairness.

So, I’m not about not having changes. But I always remember Winston Churchill saying that no nation ever taxed its way to prosperity. This country’s got to be competitive, and its tax system has got to be competitive. My view is, given the fact that the Australian economy is not growing at the moment, Australia needs to find growth and that the way it finds growth is by having a progressive tax system and not a regressive one.